Do Patents encourage innovation?
The proponents of patents claim that patents are a necessity for innovation as they give confidence to the innovator that they will be rewarded for their investment. However, this is predicated on the assumption that first mover advantages, building loyalty and continually innovating cannot generate a sustained competitive advantage. In fact, the race for companies to continually innovate and improve their ideas is a benefit for the consumer where competition drives down prices and increases product quality (Barney, 2019). Patents can thus lead to stagnation with big-companies holding a monopoly on their ideas with pricing power for super-normal profits (Litan, 2007). Indeed by patenting technology and providing monopoly to those that can afford it, it prevents ideas being developed further and in fact many entrepreneurs will be hesitant to innovate as they may believe they are impeding on a corporate giant’s patents who will run them to the ground and beyond, if they even come close to infringing their idea. Patents shuts out innovators who cannot find a way in to cross-licensing bubbles. For instance, in WiTricity, the technology can have a great impact on society in removing waste from excess power adaptors and wires. However, if WiTricity patent the design then it will prevent other innovators from developing the technology and reducing the use of wires in a variety of industries. Instead, the innovation should be open to all, and instead of gaining competitive advantage from coming up with an idea originally, the competitive advantage should go to those who can continually innovate to maintain first mover advantages, gain customer trust and loyalty and produce high quality or low price products and services for the consumer.
Question 3:
“It’s too expensive for most start-ups to seek patent protection.” Do you agree? Why or why not? Discuss the implications of this statement and your position on it with illustrative examples from any of the cases used in class.
Answer to Question 3:
I agree with the statement that it is too expensive for start-ups to seek patent protection. The application is time-consuming, expensive and requires specific skills and experience which adds additional expense due to the usual requirement of an attorney. This means that the original intention for patent to protect inventions and encourage innovation is restricted to those who can afford patents rather than those who create and invent ideas.
It is not by chance that many large firms seek to acquire small innovative start-ups only to take control of their ideas and patent their technology. They then obtain an exclusive right to control the technology (Bagley and Dauchy, 2012), preventing other potential start-ups from pursing inventions and using the knowledge in the field which could benefit the public even if they were working on almost the same ideas themselves before the patent.
Furthermore, in my view, the large expense of the patent protection is for two primary reasons. The first is to protect the rights of monopolies of ownership of ideas and technologies and let them exclusively profit from their innovations at the expense of others. This is propped up by the capitalist ideology which attempts to promote freedom of ownership of the individual at all costs without realising how this may paradoxically infringe on the freedom of ownership of others. The second is that patent protection has inevitably become a time-consuming and bureaucratic process with exploding legal implications (Bagley and Dauchy, 2012). This is only set to get worse with the rise of software and digital technology with more and more blurred lines of what is patentable and what is not. I say this was inevitable due to the paradox of patent protection itself which seeks to protect innovation of the individual whilst preventing others who may have legitimately arrived at the same idea.
Patent rights are rights to monopoly of an invention which exclude competition even if the competition is harmed (Bagley and Dauchy, 2012). For example, in the case of WiTricity, it may be considered as an option for WiTricity to pivot to a business plan where they become IP licensers. In such a situation they will need to spend heavily on patent defence and applications. This will mean that they will either need more funding or to be acquired by a larger firm which could likely take advantage of their innovation for profit or result in a loss of equity just to have control over their idea.
The right to control the use of ideas after sale is in my view somewhat immoral. If one were to purchase a potato it should be their right to use and dispose of it as they wish, whether they wanted to make chips or a jacket potato. This should also be the case for computer software or medical drugs as argued by economists Boldrin and Levine at UCLA. In the case of WiTricity it should be allowed for others to pursue an invention, particularly other start-ups who may have similar ideas and technologies. Particularly, in this case, as it is needed for the environment in regards to mitigating waste and carbon emissions from electric cars for instance. The public will undoubtedly suffer with increased costs if all players must now pay additional royalties to the monopoly power who has the financial capability of reaching a patent first. Patents add dead weight losses to the economy. The monopoly will charge more for the patented products to recover the high costs of applying for their patents and defending them. Consequently, the public will suffer with increased costs and the environment will suffer with less development and uptake of much needed technological solutions.
The proponents of patents claim that patents are a necessity for innovation as they give confidence to the innovator that they will be rewarded for their investment. However, this is predicated on the assumption that first mover advantages, building loyalty and continually innovating can not generate a sustained competitive advantage. Innovation is cumulative. In fact, the race for companies to continually innovate and improve their ideas is a benefit for the consumer where competition drives down prices and increases product quality. Patents can thus lead to stagnation with big-companies holding a monopoly on their ideas with pricing power for super-normal profits (Litan, 2007). Indeed by patenting technology and providing monopoly to those that can afford it, it prevents ideas being developed further and in fact many entrepreneurs will be hesitant to innovate as they may believe they are impeding on a corporate giant’s patents who will run them to the ground and beyond, if they even come close to infringing their idea. Patents shuts out innovators who cannot find a way in to cross-licensing bubbles.
Instead, start-ups should seek to protect their competitive position through other means: building their brand, loyalty and first mover advantages and ideas should be free for everyone to work on and develop for the benefit of everyone. Governments should reward inventors with prizes for their contributions instead of handing over monopoly rights. It should not be for those with capital to obtain monopoly rights for their own advantage. This does not encourage innovation in an entrepreneurial economy but instead leads to big-firm capitalism which is not the most efficient way of organising the economy (Litan, 2007).
Example — Napster for instance allowed open downloading of music and did not immediately result in a reduction in music artists producing music. In fact, artists increased their number of concerts and live performances offering more services for customers indicating more innovation rather than sitting back on their earnings. Corporations have lobbied for the strengthening of IP protection as it clearly benefits them the most.
