The theory of patents and why strong patents benefit consumers

By Gene Quinn
November 24, 2015

Myth Truth BowlingThere is absolutely nothing wrong with innovation crawling forward, but incremental innovation that ever so slightly pushes the envelope isn’t exactly the type of innovation that society wants most. Take for example various iPhone releases. Sometimes the changes in the iPhone are substantial and exciting, and sometimes they seem rather ho-hum, getting lukewarm reviews. Slightly enhanced features are nice, but is that enough for you to rush out and spend hundreds of dollars to upgrade? Probably not.

There are some that will tell you that consumers are harmed by strong patents and that patents inhibit innovation. Nothing could be further from the truth, but that doesn’t stop the lies and misinformation being peddled by elaborate PR campaigns aimed at dismantling the patent system in America.

The truth is consumers benefit most when patents are strongest and act to block actors. When competitors are blocked that means they cannot simply copy and flood the market with knock-offs or products that at their core are essentially identical. Moreover, when strong patents exist competitors are blocked  and incremental innovation is not always, or even typically possible. If all you do is put a slightly new slant on something that is patented the underlying patent will still capture your actions as infringing.

Strong patents do not deter innovators, but rather strong patents inspire innovators to innovate in more grandiose ways. Of course, strong patents do deter copycats, but what exactly does a copycat offer society? The fact that the product or service is a new offering for you does not mean that it is new, and if you are infringing the innovation already exists so the copycat isn’t contributing anything to society’s knowledge base.

When one market player obtains a strong patent position relating to a particularly desirable product or service others in the market must respond or they will lose market share. It is difficult to gain market share, but all too easy to lose it. When patent rights are strong that forces technology companies to constantly work to push the envelope. When patents are weak, as they are now, what you see is innovation creep.


Indeed, in times of recession you would historically anticipate the foundation being laid for the next paradigm shifting technology that would lead to an entirely new industry. That hasn’t happened for a variety of reasons. Capital markets that are still largely frozen certainly contribute, but so too does the weakening of the patent grant. Weak patents will themselves freeze up venture capital markets and tilt the risk-reward calculation for innovators who assume tremendous risk to pursue their innovations.

Critics of the patent system will tell you that when patent rights are strong competitors simply cannot do business. It is more accurate to say that technology users find it more difficult to do business because they do not themselves innovate. If new innovation and the markets that come from innovation are we want, along with the high paying jobs and associated technical benefits for society, we absolutely need strong patents.

Competitors that are blocked by strong patents have a choice. Either they ignore the patent rights and infringe, which is sometimes the choice made particularly when a small company or individual owns the patent and it is believed they can be bullied. Alternatively, competitors must figure out how to design around the patents in place and find new, creative ways to do what they want to do. When patents are designed around that is when paradigm shifting innovation can and does happen. Unfortunately, thanks to the Supreme Court and Congress we have a patent system that today incentivizes copycats and bullying of innovators.

Efficient infringement is when it makes more sense to infringe than it does to either acquire the patent in question, license the patent in question, or design around the patent in question. Efficient infringement is extremely problematic when large corporations with seemingly limitless resources make a business decision to infringe.

Large corporations coldly calculate the likelihood that they will even be sued by the patent owner, knowing that in at least some, if not many, cases the patent owner will not be able to afford to sue for patent infringement. They notice that even if they lose the overwhelming likelihood is that they will pay only a modest royalty as penalty, indeed a royalty that rather closely approximates what they would have paid initially had they decided to engage in arms-length negotiations with the patent owner. Finally, the entity that will employ an efficient infringement approach can’t help but notice that even if they lose the patent litigation, which may run 5 or 10 years, the patent owner won’t be entitled to a permanent injunction. The lack of a permanent injunction means that if the infringer wants to keep on infringing the patent owner would have to start all over again from ground zero and sue again, waiting another number of years and many millions of dollars to prevail. Starting over is simply not an option when you are dealing with a wasting, time limited asset like a patent.

When those in the market are blocked and they choose not to openly and willfully infringe great things happen. That is when innovation leaps forward. It is this dynamic that the patent system set up intentionally— to reward innovation and discourage copycats. Sadly, this fundamental lesson seems lost on policy makers and the Judiciary. Even worse, infringement is viewed as a viable business model given how weak patent rights have become, how expensive it is to enforce patent rights, and how little can be achieved in many cases even if the patent owner is victorious. Without the ability to gain a Court Order prohibiting further infringement the patent system we have today is nothing more than a compulsory licensing system that inadequately compensates innovators for infringement, which many times is willful or at least reckless.

The patent grant today is an empty shell of the property right it once was and is supposed to be.

 

The Author

Gene Quinn

Gene Quinn is a Patent Attorney and Editor and founder of IPWatchdog.com. Gene is also a principal lecturer in the PLI Patent Bar Review Course and an attorney with Widerman Malek. Gene’s specialty is in the area of strategic patent consulting, patent application drafting and patent prosecution. He consults with attorneys facing peculiar procedural issues at the Patent Office, advises investors and executives on patent law changes and pending litigation matters, and works with start-up businesses throughout the United States and around the world, primarily dealing with software and computer related innovations. is admitted to practice law in New Hampshire, is a Registered Patent Attorney and is also admitted to practice before the United States Court of Appeals for the Federal Circuit. CLICK HERE to send Gene a message.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 9 Comments comments.

  1. nat scientist November 24, 2015 5:39 pm

    You nailed it, Mr. Quinn. Step-by-step into the future; the Mighty Quinn of course.

  2. Night Writer November 24, 2015 6:32 pm

    I’ve worked for a giant international corporation in product management. You are characterizing how we think accurately. Basically, it is one tough world out there and if you can take something for free (and make more money on your product or lower its price), you will do it.

    Just look at VK and the millage nonsense. That does not surprise me in the least. The pressures on the product managers are enormous. And those reviews of the products are brutal. It is tough. You aren’t going to be generous or hire people if you don’t need to.

    The only caveat I’d add to all that is that there are a lot of monopolies around now like Google. They hire lots and lots of people to do “stuff”. Not sure how it makes sense, but I guess when you are a monopoly and your focus is solely on staying that way, things are different. (Probably will be a lot token research done for the sake of K street and Congress.) The big internationals have already told Congress how to make more innovation without patents–by providing tax incentives for research.

  3. Benny November 25, 2015 7:30 am

    Couple of points I disagree with:
    First, you state that ” consumers are harmed by strong patents and that patents inhibit innovation”. These are two distinct arguments. Patents do not inhibit innovation, but they certainly can harm consumers, whose interest (maximum product at minimum cost) are not always aligned with those of the manufacturers. (The market for cheap knock-offs thrives precisely because consumers benefit from them – in the short term)
    Second, you state ” technology users find it more difficult to do business because they do not themselves innovate”. No, not because they don’t innovate, but because they are blocked from bolting their innovation on top of existing,
    protected, products. Likewise, they block existing IP holders from marketing the improvement. Licensing is not always an option with competitors who would rather see the other guy go belly up than co-operate (ask me how I know).
    As for designing around – more often than not the result is a “kludge” rather than an improved product, but you won’t hear that from the marketing people.

  4. Night Writer November 25, 2015 7:44 am

    >>guy go belly up than co-operate (ask me how I know).

    That’s right. What is so bizarre about most of these discussions is they are from non-business people and academics that have no clue what the real world is like. When you are in the business of selling products, you often become reactive. You are doing what it takes to survive. You aren’t going to license or pay anyone for anything unless you have to. You are fighting with other companies and margins are tight and everyone wants more money for their part of the product. Just consider, do you buy the larger memory and add features or do you pay a license fee when you can just push them off for a year or three?

    What seems to be winning is a view of the world for the international monopolies.

  5. Gene Quinn November 25, 2015 9:41 am

    Benny-

    You say patents harm consumers as if that is somehow true. If you mean that there will be higher prices during the term of the patent to justify the cost of R&D then you are right. But to ignore the reality that once the patent expires the innovation can be freely used by anyone for any reason without compensation is ridiculous. When you feel worst and you go to the pharmacy for medicines you pay the least. Why? Because those drugs are off patent and you get a generic version. That is clearly a benefit to consumers. In fact, the long term benefit to consumers far surpasses any short term pricing inconvenience.

    As for technology users, also known as the infringer lobby, they don’t innovate because they can’t. Here is what I wrote explaining this from an article earlier this year:

    “Innovation overwhelmingly happens in start-up companies and small businesses, in research labs and universities. When a company gets too large they lose the ability to innovate because they are no longer nimble and their corporate structure simply doesn’t support innovation. There are too many layers between a potentially promising innovation and the visionary who can green-light the project. This is precisely why large tech companies buy smaller, nimble, exciting, innovative companies.”

    See: http://www.ipwatchdog.com/2015/02/22/flawed-survey-erroneously-concludes-patent-licensing-does-not-contribute-to-innovation/id=54985/

  6. aldo November 25, 2015 9:52 am

    with all due respect, our patent system is sacrificing our values as it creates an incentive to legally steal…

    as we live and evolve what changes most is our ability to understand this world & use that understanding to make life better for many…

    respecting property rights is essential to building that understanding… otherwise we suffer under the control of a few who steal legally…

  7. Ternary November 25, 2015 11:46 am

    I believe as an inventor and an EE that there are two types of engineers: the ones that use established theories and technologies and the ones that invent new theories and technologies. Every engineer has some of both types, I hope. My training and practice had as a doctrine not to over-engineer: use established theory, technologies and components at lowest possible cost. Do not invent or worse re-invent the wheel if you don’t have to. But for some engineers, like myself, the inventing activity provides most of the fun and satisfaction.

    It seems that most large businesses have created a split personality: if they develop something it is an invention, if someone else does it then it is obvious, unpatentable, innovation limiting and should be in the public domain.

    They seem to agree on one issue: squash the annoying small inventor and they clamor to have a European-like system that cares very little specifically about the independent inventor. The current strategy appears to be to let inventors obtain a patent, but give them very little chance to benefit from their work, if they don’t have deep pockets. It seems to work.

    It was the absolute genius of our founders to understand and address this duality of the human mind, and force, by way of patents, competitors to circumvent inventions and thus advance innovation. Many innovations, no whole industries, were established by independent inventors (look up Chester Carlson) against experts and no sayers in established institutions and companies.

    Independent inventors are part of the baked-in spirit of independence of this nation. Great article Gene. It is sad that this self–evident value of patents has to be explained again and again.

  8. Christopher Haggarty-Weir November 25, 2015 2:04 pm

    Gene, you bloody nailed it, again! A top article I have enjoyed reading and will be sharing wildly.

  9. SoftwareForTheWin November 29, 2015 11:37 am

    A pre-2005 patent system incentivized SMALL innovative software entities to pursue patents.

    Since then, various changes result in the 2015+ patent system where patents are no longer the clear approach for SMALL entities to protect their investment on software innovations.