“Breaking up big tech with antitrust laws simply duplicates megamarkets into more big tech monopolies. Megamarkets remain fully controlled by big tech and that control is the secret to perpetuating their monopolies.”
The United States is looking to antitrust law to break up big tech. Later today, for example, the House Subcommittee on Antitrust, Commercial, and Administrative Law will be meeting for a hearing on “Online Platforms and Market Power, Part 2: Innovation and Entrepreneurship.” Unfortunately, this may have become necessary, but it will not solve the problem of big tech monopolies. That can only be solved by understanding how big tech creates megamarkets and how they use shadow patent systems to regulate and perpetuate their monopolies—a power traditionally reserved for sovereigns.
A patent is nothing but an exclusive right. All it can do is remove an infringer from the market. That incredible power enables startups to attract investment, commercialize new technologies, and challenge incumbents.
The value of a patent is dependent on demand and market size. Since national borders establish the market size, the larger the country, the larger the market, and the more valuable a patent can become.
But big tech markets are not restricted to national borders, so they get larger. Apple has 1.4 billion active devices reaching four times the 327 million population of the United States.
Apps are software programs running on devices. Most are business methods designed to sell goods and services, provide information or perform some other service.
Apps are sold in app stores. App stores are also business methods. For example, Apple restricts its operating system to only run apps made for Apple devices. This gives Apple’s App Store exclusive control of the app market for all Apple devices, including iPhone, iWatch, iPad, etc.
Apple’s Shadow Patent System
Apple has created a megamarket that Apple solely and completely controls, but it does not stop there. Apple’s market control is manifested in a shadow patent system protecting business methods. Apple restricts apps that appear to be “copying” another app by requiring apps to be “useful” and “unique”.
These requirements are the same requirements of any patent system, and specifically the same as the statutory requirements of patentability under U.S. patent law. Sections 102 and 103 determine if an invention is “unique”. Section 112 determines if an invention is “useful”.
Therefore, Apple’s shadow patent system displaces the U.S. patent system, which grants Apple sovereign power over its megamarket that is four times larger than the entire U.S. population. In effect, the U.S. has ceded its sovereignty to Apple.
But there are important and harmful differences between the two systems. A U.S. patent is examined by an unbiased patent examiner in a public process following due process of law, including access to a U.S. court, a jury and appeals. A U.S. patent lasts only 20 years and it transferred to the public when it expires. Only a U.S. court can remove an infringer from the U.S. market, and U.S. markets are regulated under due process of law.
Apple has none of those protections and applies its rules for its own exclusive benefit. Apple grants a shadow patent to all apps on their megamarket. A shadow patent does not expire; it is perpetual. Apple denies “apps for any content or behavior that we [Apple] believe is over the line”. The “line” is defined as “I’ll know it when I see it”, which is arbitrary market regulation controlled for the benefit of Apple. Non-disclosure agreements forbid app providers from disclosing any information about Apple’s shadow patent process and the decisions they make.
Google, Amazon and other big tech monopolies have their own megamarkets with similar market controls designed to benefit themselves only.
Big tech operates on the thin outer edge of technology: the browser. Their core businesses are built on business methods like app stores (Apple and Google); page ranking algorithms (Google); “like” or “friend” buttons (Facebook); shopping carts (Amazon); and more.
Because big tech and apps are built on business methods, the only way to challenge them is with a patented business method. But U.S. patent law denies patent protection for business methods.
It is not surprising that big tech, app companies, and their investors resist efforts to fix the U.S. patent system and fight to keep business methods unpatentable. After all, that sovereign power has effectively been ceded to them and they use it to preserve their monopolies. For example, Josh Kushner, Jared Kushner’s brother, runs a venture capital firm called Thrive Capital. Thrive investments include Oscar, Slack, Robinhood, Stripe, Spotify, Mapbox, Twitch, and GitHub, all of which have apps sold on the Apple App Store. Mapbox testified to Congress supporting legislation to weaken business method patents.
Kill the Hydra
Big tech monopolies are like the mythical Hydra—if you cut off a head, two more will grow. Breaking up big tech with antitrust laws simply duplicates megamarkets into more big tech monopolies. Megamarkets remain fully controlled by big tech and that control is the secret to perpetuating their monopolies.
The Herculean task is to break up the shadow patent systems that big tech uses to control and regulate their own captured megamarkets. That requires making business methods patentable under U.S. law and strengthening the U.S. patent system by making it faster, cheaper and easier for the real innovators to win patent infringement suits. This is not the case under today’s patent system.
If patentability of business methods is restored, startups with better business methods can challenge big tech monopolies and their apps. This not only restores U.S. sovereign power, but it slays shadow patent systems so that creative destruction can naturally break up megamarkets and keep big tech from monopolizing again.
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