A patently absurd system

15th March 2012

But although the likely outcome will be a long drawn out fight, benefiting lawyers and ending in a compromise, the clash of these two online giants has put the spotlight firmly on patent law. Is it protective of inventions or destructive of innovation?

Big pharma loves patents

And it's not just internet and mobile technology firms that clash in the intellectual property arena. Big pharma is just as involved. The Indian Express reports that pharmaceutical giant Bayer has been stripped of its patent on Nexavar, a kidney cancer drug, in India. Natco Pharma will now make a version – and sell it at one-thirtieth of the previous price.

The process of patenting genes can also be problematic, stifling innovation and adding to costs. It is also a contention that patent protection is not necessary to spur innovation in genetic testing.

The Facebook/Yahoo standoff has generated comment of the "I hope they both spend so much on this that they both disappear" variety. But more seriously for investors, blogger Mark Cuban takes the line that a major victory for Yahoo and substantial damage to Facebook, or even a shutdown of the social site, would so much point up the absurdity of present patent laws and litigation that "this case could be the water shed moment that causes enough people to recognize just how horrific our patent law is."

The lobbyists have patent power

He writes: "Change is needed. However, its not going to come from our government. The lobbyists have taken over. One of the symptoms of the illness patents have caused the technology industry is the explosion of lobbyists pushing the agenda of big patent portfolio holders. They are not going to let our lawmakers give an inch.

"Rather than originating in Congress, it's going to take a consumer uprising to cause change. What better way to create a consumer uprising than to financially cripple and possibly put out of business the largest social network on the planet?"

There are two arguments. One is about firms protecting costly research. Drug companies spend a fortune on R&D. So they deserve a 20 year payback period with protection against copies. Many governments think otherwise – especially if the drug is sold at very high prices.

Patenting printing machines

The opposite view looks at the effect of patents on society. Suppose Guttenberg had been able to patent the printing machine. The technology might have been stuck for centuries with litigation banning any change; and the expense of paying Guttenberg and his descendants would have slowed the spread of printing with knock-on effects.

Unlike pharmaceuticals, technology is a strange mix of patents protecting just about every facet in a world where there are also open source operating systems which  anyone with ability can use and adapt.

But small company developers can easily be caught and asked to pay licence fees for codes they thought were freely available as the BBC reported last year.

Techdirt suggests that venture capitalists find patents harmful with the profits they may make from applying patent protection outweighed by the constraints put on new software.

Strangling innovation

A blog on the Technology Liberation Front website also suggests that patents strangle innovation. Writer Tim Lee says: " It is far from obvious that "protection against copying" is always desirable. Outside the patent context, such copying is often known as "competition," and public policy generally aims to enhance it. I'm glad that Microsoft copied Apple's operating system, Netscape's browser, and Google's search engine. It's been good for me as a consumer. It's not obvious to me what purpose is served by making it harder for companies to copy the broad features of each other's products."

This essay takes an academic view of the debate. Written in 2006, author Jonathan Wren writes that a major problem in issuing software patents is that they can be vague or broadly-drawn. "Ironically, despite the higher probability of being overturned, vague patents can be even more valuable than specific ones if they are ultimately issued as the permit the inventor to lay claim to a broad swatch of intellectual territory, including specific ideas they would never have conceived independently. These patents can become serious stumbling blocks to progress."

Patent fans fight back

The argument is not one-sided.  There is plenty of material such as this on IPWatchdog.com.

And according to this blog from Michael Mace, "Eliminating software patents would not stop these wars; they're also based on hardware patents, antitrust law, and any other field of law that the companies can apply.  It's like one of those cartoon fights in a kitchen where a character opens up a drawer and throws everything inside it."

Do investors reap anything from patents? Opponents of patent trolls argue that what the lawyers and other are doing to software development is harmful.

Still, software patents don't last more than 20 years in most jurisdictions  – unlike author copyright which continues for 70 years after the writer&#3
9;s death. So a best seller could still be feeding an author's great-great-great-grandchildren. But better not suggest that to a patent troll or intellectual property lawyer. 


More from Mindful Money:

Could a legal face-off with Yahoo shut Facebook?

Mad Men 2.0 – Media, Marketing and Money

Facebook: The company other giant technology firms really fear?

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