The Free Market Case For Patent Reform

A modest attempt at patent reform (mainly targeting egregious patent trolling practices) is making its way through Congress these days at the usual glacial pace. However, even if it does eventually make it through, there is still a tremendous amount left to do on patent reform. Derek Khanna, who famously wrote the wonderful House Republican Study Committee report urging major copyright reform -- which so upset Hollywood that favors were called in to get the entire report retracted and cost Khanna his job, has now tried to write a similar report on patent reform. This one is for Lincoln Labs -- a think tank trying to present more free market/libertarian ideas into the technology policy arena.

As Khanna notes in this new paper, it's unfortunate to see many conservative groups have come out against patent reform, often based on a misuse of the word "property."

Recently, several conservative organizations— many of whom receive funding from industries with vested interests—have tried to preempt any form of patent reform by arguing how patent reform would violate their “property rights.”

Nothing could be further from the truth: janitors do not have “property” in how to clean a building; Apple does not have “property” in rounded rectangles and “slide to unlock”; Amazon does not have “property” in one-click checkout; Priceline does not have “property” in the concept of reverse auctions; Microsoft does not have “property” in squiggly lines when you mistype a word; Smuckers doesn’t have “property” in peanut butter and jelly sandwiches, anymore than a known patent troll has a “property” in the entire practice of podcasting; certainly no one ought to have “property” in the concept of the hyperlink; and we should probably all agree that no one ought to have “property” in the idea of exercising a cat by using a laser pointer.

Instead, as we've noted for years, patents are a form of a monopoly right, and for those who claim to support the free market, you'd think they'd be very concerned about a slew of government granted monopolies (being granted at an ever increasing rate these days -- to the tune of hundreds of thousands a year).

Khanna also points out, rightly, that this massive rise in patent monopolies is a form of crony capitalism, used to keep out competition and to hold back free markets. He compares it to other highly regulated markets where it's quite obvious the regulations have little to do with the stated purpose, but now are designed mainly to protect those who already are in power.

As Khanna points out in the report, "more patents" does not equal "more innovation." If there are too many patents, it will only serve to clog the field and limit a vast amount of innovation. Thus he suggests there'a "curve" of patent optimality, and it's important to consider that in designing a patent system. While the chart is a bit of a broad generalization (especially since different areas of innovation appear to react differently to different levels of patenting), the point is rather important, because too many people simply assuming that more patents automatically means more innovation.

So how do we reform all of this to make the system work better? He has a bunch of suggestions (some of which are already being considered):

1. Increase patent quality requirements: There's a lot of detail in the report about how this can be done, and it's incredibly important. The incentive structure of the current patent system today encourages allowing crappy patents, which is why a huge number of patent applications are eventually approved. One important sub-suggestion in this arena is in fixing the "prior art" setup. Right now, patent examiners are not allowed to do crazy things like search the internet for prior art. Instead, they focus on older patents and journal articles. But in lots of areas, such as programming, that misses tons of prior art.
2. Make patent applications accessible and require them to actually teach: Patent system supporters will often tell you that the true purpose of the patent system is to "disclose" the invention so that others can use it (either by license during the patent term or by anyone after). But, for many (especially in the software field) that's a joke. The patents almost never reveal anything useful at all in those fields. Khanna suggests a higher standard such that the patents actually do need to be useful to others in the field. That would be tremendously helpful.
3. Reduce or eliminate business method and design patents: A large number of the worst patents are "business method" patents that are often just patenting common sense. There is no reason for this. Design patents are so similar to trademark law that most of the reasons for design patents can and should be covered by trademark law instead.
4. Create an independent invention defense: This is my own personal favorite and the most important fix in my own list of recommendations. The idea that someone who came up with an idea entirely on their own isn't allowed to make use of their own invention seems like a much bigger "property rights" violation than invalidating bad patents. This would solve many of the worst problems of the patent system today, since so many shakedown efforts have absolutely nothing to do with copying, but just multiple people coming up with similar concepts.
5. Loser pays: Also known as fee-shifting, this is a key component to patent reform that is currently on the table today to scare off frivolous patent suits that are just designed to shake people down.
6. Speed up the patent approval and rejection process: Unfortunately, the report doesn't have much in the way of details as to how this would be done -- but I would argue that if most of the other recommendations were put in place, this wouldn't be much of a problem, because there would be a lot fewer bogus patent applications to deal with.
7. Couple the US patent system with other systems to encourage innovation: The key idea here: look for things like the famous "x prizes" to incentive big bang innovations, rather than patents. This is an idea that's been out there for a while, and has support from a number of Nobel Prize winning economists. The UK just recently endorsed this idea as well. It's also pretty non-partisan, seeing as the biggest supporter of such an idea in Congress is Senator Bernie Sanders.

It's a really good report and well worth reading. It is lacking a couple of my own favorite suggestions, though. I still think we need to go beyond just an "independent inventor's defense" to the point that independent invention is seen as a sign of obviousness. Patents are only supposed to be granted if the invention is considered "non-obvious" to a person who is "skilled in the art." If we're seeing multiple people "skilled in the art" coming along and inventing the same damn thing, that certainly seems to suggest obviousness to me. Thus, if there is widespread independent invention within a short time frame, without any evidence of knowledge or copying, it should stand to reason that any such patents are invalid. This would clear out a ton of the problem patents.

It's unfortunate that some free market supporters have hijacked the story of patents to pretend that they're about the free market, when they're really about the opposite. Papers like Derek's hopefully move things back in the other direction.

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