Bad Science Blog Highlights The Harm Done By Pharma Patents

from the it's-a-start dept

CG was the first of a bunch of folks who sent in a link to Dr. Ben Goldacre from the always excellent Bad Science blog taking on the issue of the harm done by pharma patents:

Ignoring patent and licensing issues has allowed Dr Yusuf Hamied, director of Cipla, to innovate: even though each drug is officially owned by a different company, he could put a common combination of three treatments (Stavudine, Lamivudine and Nevirapine) into one simple, single combination pill. This increases treatment compliance -- it's easier to take your medication correctly -- and that keeps you alive longer, while reducing the emergence of resistant strains.

Hamied calls his pill Triomune (he also offers "Antiflu", a copy of Tamiflu for the developing world, and many more). In 2001 he was selling to MSF clinics for $350 per person per year, more than 30 times cheaper than the official versions of these drugs. Triomune is now only $87 a year. This is amazing. Hamied is a hero.

Richard Sykes, head of GlaxoSmithKline (and now retired rector of Imperial College London) disagreed. He called Hamied a "pirate" and described the quality of Indian generic drugs as "iffy". Hamied says GSK is a "global serial killer" for charging high prices for their medication. So who is right?

From there, Goldacre runs through the traditional arguments both in favor of and against pharma patents, and concludes:

If the global $550bn pharmaceutical industry are trying to make an economic case for patents in the developing world, then they must argue that the benefit to drug development from the financial incentives in these tiny corners of the world market is so significant -- so vital, the final link in the incentive chain -- that it is more important than millions of unnecessary deaths. I am not a health economist, but I doubt that is a fair swap, and this is not what patent laws were invented for.

Indeed. I'm glad to see Goldacre take on this issue, though I hope that he'll spend some time exploring the work done by many before him that goes much more deeply into the problems with pharma patents. For example, in explaining why pharma patents can be "good," Goldacre trots out the line "It takes about $800m and 10 years to bring a drug to market," but that's been widely debunked. If Goldacre (or anyone else) is interested in the subject, they should check out Merrill Goozner's detailed and thorough analysis of this claim in his book, appropriately entitled The $800 Million Pill, which thoroughly debunks the notion that it costs a pharma company $800 million to bring a pill to market.

On top of that, he should look at the some of the work done by Nobel Prize winning economist Joseph Stiglitz in detailing how patents harm innovation in the drug process. Or, hell, he can look to the US government itself. The GAO put out a report a few years ago, noting that patents appeared to be hindering, not helping, the development of new drugs. Another great source of detailed information is the chapter in David Levine and Michele Boldrin's book, Against Intellectual Monopoly, that directly deals with the case of pharma patents (pdf). It goes through the history of different patent laws in different countries and totally debunks the idea that patents create true incentives for pharma. There's plenty of evidence of harm, but very, very little true evidence that patents create actual incentives for innovation.

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Big Pharma Abusing Patent Laws To Seize And Destroy Legal Indian Generic Drugs

from the helping-the-needy dept

The deeper you look at how pharmaceutical companies use and abuse the patent system, the worse it looks. It's much more horrifying than what's happening in the tech industry in many ways (especially since lives are often at stake). The latest such example highlights the desperate lengths that Big Pharma will go to, in attempts to stamp out perfectly legal competition. India has a legal and thriving generic drug market that was built up initially via a ban on pharma patents in India (which, as an aside, shows again that a ban on patents can actually help create a thriving industry). More recently, India was forced, almost entirely against its own wishes, to implement patents on drugs. Even so, many of its generics are not covered by patents, and there are a number of developing countries that also do not recognize patents on certain drugs. Thus, it should be perfectly legal for Indian generics to ship those drugs from India to developing nations. And... it is. Except that pharma companies have convinced EU trade officials to seize and/or destroy such shipments that pass through EU borders in transit to these developing nations.

Thus, if a legal Indian generic drug maker has a shipment of those drugs to Peru, where the same drugs are also perfectly legal and not blocked by patent law -- those drugs might still get seized because en route to Peru, they may pass through some European countries, where Big Pharma has used its lobbying clout to get customs officials to search for and confiscate any such medicine, claiming they are violating patents in the EU. Because of this, the Indian firms need to spend a lot more money and ship via other means.

To deal with this, India is looking to file a complaint with the WTO, and at least according to the experts in the WSJ article above, India has a strong likelihood of winning. Big Pharma and the border patrol folks are defending their actions, claiming it's to stop counterfeit drugs, but that's not what's happening here at all. These drugs are not counterfeits. They're legal generics, not intended for the EU at all, and they're being confiscated for no good reason other than the fact that Big Pharma doesn't want to compete.

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Patents Not Enough Of A Monopoly, According To Biotech Firms

from the say-what? dept

Apparently, a bunch of big biotech firms feel that the patent monopolies they already have over certain drugs aren't enough, and they are demanding Congress enact laws that also stamp out any competition from similar drugs (known, back here in the real world, as competitors). You would think that after centuries of understanding how bad monopolies are for the market that the gov't wouldn't kowtow and simply hand over such things -- but it is. Of course, the biotech firms already have patents, so it's questionable why they also need an additional gov't granted monopoly period to block out "biosimilar" drugs, other than the fact that they don't like competition.

They claim, of course, that they need this exclusivity to recoup their costs in developing the drug. However, the deeper you look at the details, the less true that really is in practice. Much of the really core biotech work is done under gov't grants anyway, and often at research institutes. These private firms pick up the trail later in the game in a lot of cases -- but still get full patent rights. The actual cost of developing these things has been massively overstated, often lumping in marketing costs to R&D. It is true that clinical trials are crazy expensive and a huge burden on biotech and pharma companies, but that's a separate issue. There are numerous proposals about ways to take the clinical trial burden expense away from pharma. Lumping those mandatory gov't induced expenses into basic R&D is misleading. Furthermore, even in the face of competition, time and time and time again, we've seen that the original provider still commands a large and noticeable premium, from which it can easily recoup its costs. This is nothing more than blatant monopoly rents with a Congress too clueless about basic economics to resist.

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Surprise, Surprise: Pharma Abusing IP Laws To Prevent Competition

from the live-by-ip... dept

The deeper and deeper you look into the pharmaceutical market and the way those firms use patents, the worse and worse it looks. There's little evidence that pharmaceutical companies really need the kind of exclusivity that patents provide, but it's become so established an idea, that some actually believe that pharma would disappear without patents. However, the truth is quite different. The chemistry industry -- the precursor to the pharma industry -- actually fought against patents in the early days, knowing that robust competition was what drove innovation and profits. Patents only allowed the leaders to stomp out competition and limit the overall market, increasing their own profits, but slowing innovation and product development.

Thus it should come as no surprise at all that a new report has found that pharmaceutical companies are regularly abusing patents for anti-competitive purposes (thanks Rob Hyndman for the link):

Pharmaceutical companies are manipulating the intellectual property rights system and are "actively trying to delay the entry of generic medicines onto their markets," a top EU official said of an EU inquiry into the pharmaceutical sector released Wednesday. As a result, there has been a decline in the number of innovative medicines getting to the market, it says.

In other words, contrary to the popular myth, patents are actually being used to hold back innovation in the healthcare market.

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Yet Another Study Shows How Patents Create Suboptimal Innovation

from the add-it-to-the-pile dept

Over the years we've covered numerous different economics studies that have shown how damaging patents are. Most of them have looked at the historical evidence, comparing different societies (one with patent protection and one without, or with weak, protections) at the same time, or comparing what happens right before and right after changes are made to patent law in terms of innovation. The vast majority of the evidence shows that patents create suboptimal results -- often slowing down the pace of innovation. They're usually used not to encourage new innovations but to allow companies to stop competition, and thus slow down the pace of innovation. I've been meaning to put together a comprehensive list of the research, and I hope to get to that soon.

However, now there's a new study to add to the list -- and this one is based not on the historical evidence, but trying to model different methods of rewards for innovatively solving a complex problem. And, once again, the study found that a free market solution greatly outperforms a patent monopoly solution where the "first" provider gets a monopoly. The research was led by economist Peter Bossaerts and a team of others -- and it made a point that won't surprise anyone who's studied the economics of monopolies. Patents tend to function just like any other monopoly system: it shrinks the overall market, decreases net social benefit, provides monstrously excess rewards to a single provider and harms everyone else. In fact, the research found that the patent system created a massive disincentive for many people to participate in the very process, even if their contributions could have been quite helpful in speeding along the innovation.

It's just one study, and the experiment is a bit simplistic -- but hopefully others will build on this research to create more complex models as well. In the meantime, though, it's yet another bit of evidence to throw onto the large and growing pile of studies showing how damaging patents can be. And, given how so many of them seem to approach the question from a different angle and still all come to the same or similar results... at some point you have to wonder why no one creating policy ever looks at this mountain of evidence.

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Once Again: Making Search Results Better Isn't An Antitrust Violation

from the at-least-it-better-not-be dept

And, here we go with more ridiculous antitrust lawsuits -- this time against Google. You may recall last fall, the NY Times ran a silly article focusing on one small company supposedly as evidence of Google's monopoly power. But that was hard to support when you looked at the details. Basically, this company was a pure search arbitrage player. It was buying ads on Google, sending people to a page full of links... and a bunch of Google ads. These pages are often considered spam by users for good reason: they don't provide value. They're a pass-through on the way to where you actually want to go. Because of that, people began to indicate to Google that such links were poor uses of their time, and Google's algorithm properly corrected for that, lowering the prominence of those ads. That's all about making the product better for end users.

However, the company in that NY Times profile, TradeComet, still isn't satisfied, and has now sued Google for antitrust violations claiming that it purposely tried to destroy its SourceTool site (and, of course, it should come as no surprise that there's a Microsoft connection for all you conspiracy buffs). There are numerous problems with this argument. First, it was TradeComet that made the decision to rely almost entirely on Google to send it traffic. That was a strategic decision (and a bad one). Second, Google has every right to make its search results better, and getting spam-like pages out of sight is one clear way to do so. Third, it's almost laughable that Google would "target" SourceTool as a site to be "harmed." It's not like SourceTool was a threat to Google in any way. Fourth, even more ridiculous: since this was a search arbitrage play using Google's ads on the results page as well, Google was making money from sending traffic to SourceTool. All in all, it seems unlikely that TradeComet will get anywhere with this, other than making people think that it picked a really bad business model, almost entirely reliant on one channel partner, and then performed poorly for that channel partner. So Google isn't violating antitrust laws -- it's just doing business.

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Lessig: Ditch The FCC, Replace It With Innovation Agency

from the stuff-to-think-about... dept

Larry Lessig has a piece in Newsweek suggesting that the new administration abolish the FCC and replace it with something he calls the Innovation Environment Protection Agency (iEPA) -- whose purpose is less about control, and more about getting government out of the way when not necessary. The purpose of such an agency would be: "minimal intervention to maximize innovation," with a core focus on keeping the government away from handing out favors and, more importantly, carefully reviewing any government monopolies to see if they cause net benefit or net harm. He starts off by talking about monopolies on things like spectrum, but says the agency can and should expand to cover monopolies such as copyright and patents.

There's a lot to like in the proposal, in theory. One of my big problems with pretty much any government program is how little effort there is to actually look at the basic question of: is this doing what it's supposed to do? And, if not, how do we change that? The GAO does a little bit in this area, but seems mostly powerless to actually effect change. Can you imagine if there were anyone in the government who was actually looking at some of the studies showing how much harm certain government-backed monopolies do to the economy -- and had the power to do something about it? However, it seems quite likely that, in practice, the iEPA would simply get co-opted by industry types, just as the FCC has, and the end result would be pretty ineffectual, if not downright backwards looking. A government agency designed to get the government out of the way? Not sure it's really possible...

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If The Google-Yahoo Deal Is Bad For Advertisers Or Publishers, Isn't That Just An Opportunity?

from the what's-the-problem? dept

I recognize that in times of financial crisis, it may seem more difficult than ever to imagine unique and innovative opportunities cropping up -- but it's often in such times that the most innovative businesses are formed. How quickly we forget, for instance, that Google's own business model was formed during the barren years following the last dot com bubble burst. Yet, for some reason, people seem to think that today's offerings are the be-all and end-all of innovation. That's why we get these articles worrying about how a Google-Yahoo ad deal will be bad for advertisers and publishers. Yet, there's little evidence to actually support that. The article linked above cites the easily disproved anecdote from the NY Times last month about one guy who had a spammy site that Google punished. That was the guy's own fault, not Google's.

But, really, the most important point ignored in most of these discussions is that if Google really does make ad prices higher and share less with its AdSense publisher partners, that would create a huge opportunity for others, whether large incumbents or small startups, to step into that breach. If I had to bet, I'd say that there are already companies working on solutions that are more interesting and more valuable than Google's advertising plays. There are companies who are recognizing that "advertising" is not necessarily the best model, and they're working on better solutions that won't even seem like advertising at all -- but will start to take advertising dollars away from traditional ad companies. Just as Microsoft couldn't see the threat of Google for many years, Google won't even notice these companies on its radar, and while everyone's fretting a Google "monopoly" in search ads, the next revolution will be bubbling up somewhere else entirely.

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Is The Justice Dep't Really Thinking About Going After All Of Google's Business On Antitrust?

from the political-extortion dept

We've been somewhat confused by the talk of an antitrust action against Google for its ad deal with Yahoo (which doesn't seem likely to raise prices despite what critics say). However, it's become increasingly clear that the gov't is very likely going to move ahead with this. As we already noted, the Justice Dep't has already hired a well-known outside attorney to lead the charge. It seems unlikely that they would do that if they weren't planning to make a big splash. Plus, news is spreading that the Justice Department is already sharing info on its case with California's Attorney General and potentially other state Attorneys General as well.

Now comes the news that the Justice Department isn't just thinking about stopping the ad deal between Yahoo and Google, but in going after Google in general as a monopolist. This is positively ridiculous, and is clearly politically motivated and funded by companies who simply don't like Google. Yet, nowhere has there been any evidence that Google's size has been used to abuse pricing power or to make things more expensive for consumers. Rather, almost everything it's done has been to make things easier or cheaper for consumers.

Unfortunately, it appears that in this politically motivated world, where Google didn't "play the game," a bunch of politicians and Justice Department officials want to charge Google with the crime of "being too successful." Honestly, that's about all they seem likely to have on the company, because it's hard to see how it's abused its monopoly power in a way that actually harms consumers or prevents competition from entering the market.

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Will A Google/Yahoo Ad Deal Really Impact Ad Prices?

from the not-so-clear dept

The Association of National Advertisers (ANA) has sent a letter to the Justice Department opposing Yahoo's plan to hand much of its search advertising over to Google. We've already explained some reasons why this combination shouldn't set off antitrust alarms, but the reasons given by the ANA don't make much sense. It claims that the deal would basically mean that one company would control 90% of the market, which would lead to increased prices for advertisers. However, that doesn't necessarily seem true to follow -- because Google doesn't set prices for ads. Google's ad system is, famously, an auction system where the prices are set by the market. So it's difficult to see why the inclusion of Yahoo's ad inventory would significantly raise the prices -- unless the argument is that the market is artificially depressed right now, and this would just raise it to the proper levels. However, apparently, that might not matter much, as reports are coming out that the Justice Department has already hired a big time antitrust lawyer to use against Google. This is increasingly looking like a political attack on a company that is "big" rather than looking to see if its success actually harms or helps consumers.

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Comparing The Telecom Industry To OPEC Isn't So Crazy

from the too-much-regulation dept

Tim Wu has an op-ed in the New York Times comparing the American telecommunications market to the OPEC oil cartel. My esteemed co-blogger Adam Thierer calls the comparison -- and Wu's piece -- "absurd." I'm going to have to respectfully disagree with Adam on this one. Wu's basic point is the same one that Techdirt has been making for years: there's not enough competition in the broadband marketplace. Adam suggests that OPEC is nothing like the telecommunications industry because "OPEC is a GOVERNMENT-RUN cartel," implying, I guess, that the telecommunications industry is not a government-run cartel. That's strange because Adam loves to talk about how excessive FCC regulation is holding back the telecommunications sector. Likewise, Adam has written eloquently about the harms of the FCC's over-regulation of the spectrum. Government regulations still impose significant barriers to entry in the telecommunications market. That sounds like a "government-run cartel" to me.

It's true, of course, that the American telecom market is less constrained than the telecom markets in some other countries. And it's certainly less constrained than it was 30 years ago. But it's also far from being a free market. Potential entrants to the wired broadband market face hostile local governments who often enjoy cozy relationships with the incumbents and a variety of taxes and regulatory mandates. As for wireless, Wu puts it as well as I could: "The federal government dictates exactly what licensees of the airwaves may do with their part of the spectrum. These Soviet-style rules create waste that is worthy of Brezhnev." I read Wu as making a point that couldn't be more libertarian: that bad regulatory decisions have limited competition in the telecom marketplace. He explicitly calls for "relaxing the overregulation of the airwaves and allow use of the wasted spaces." Amen to that.

Now, Adam and Wu aren't going to agree on what should be done about these problems. Wu is a fan of municipal broadband, while Adam is not. Wu supports network neutrality regulations that Adam opposes. And Wu wants more spectrum to be made available for use as a commons, while Adam would prefer to see the creation of robust property rights in spectrum. My sympathies are with Adam on all three issues. But in criticizing those specific proposals, I think it's important not to lose sight of the big picture. The big ideological debate of 20th century telecom policy was over whether market competition or government planning is a better way to promote progress. I think it's a sign of how completely the pro-market side has won that argument that Wu explicitly clothes his modest regulatory proposals in pro-competitive, deregulatory language. Wu explicitly acknowledges the potential for unintended consequences and the importance of robust market competition. Wu is no libertarian, but it's silly to paint him as some kind of throwback from the 1930s.

Timothy Lee is an expert at the Insight Community. To get insight and analysis from Timothy Lee and other experts on challenges your company faces, click here.

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Europe Looks To Get Rid Of Monopoly On Royalty Collection Societies

from the one-step-in-the-right-direction dept

There are all sorts of problems with copyright "collection" groups who are in charge of collecting royalties and distributing them out to content creators. However, at least in the US we have competition among a few different such collection agencies, with ASCAP and BMI being the big two, and SESAC being the new up and comer. However, over in Europe, they've set up monopolies with only a single collection agency in each country -- meaning that if the collection society has ridiculous artist-damaging ideas, you're stuck with them.

However, it looks like that may be about to change. A few people have sent in the news that Europe is looking to get rid of monopolies on copyright collection groups, meaning that there can be some competition among different groups to see who can serve an artist better. Of course, it's still not clear that these groups are needed at all -- as they mainly prop up an unnecessary and increasingly obsolete business model (compulsory licensing), but at least having some competition is better than none.

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The March Of Mobile Phone Progress Isn't Always Smooth Or Direct

from the be-patient dept

Tim Wu is discouraged. Writing in Slate last week, the telecom expert lamented the terms he's facing as an aspiring iPhone 2 owner: a two-year AT&T contract thanks to the handset's newfound inability to be unlocked and a move toward a more conventional subsidized handset model. Wu sees this as emblematic of a shift in the mobile industry:

The fact that someone like me is switching to AT&T is a sign of the times in the telephone world. The wireless industry was once and is still sometimes called a "poster child for competition." That kind of talk needs to end.

He's right -- but then, that kind of talk shouldn't have been started in the first place. The mobile market was defined by long contracts, locked handsets and a lack of prepaid options long before Apple arrived on the scene. Now it appears that it'll remain that way long after Apple.

Admittedly, this is a disappointment. Many looked at Apple's choice of a second-rate carrier -- one they could bully around -- as a sign that everything was about to change. Finally a handset manufacturer had arisen that was powerful enough to break the industry's self-serving revenue model and empower consumers! With the recent declaration of the iPhone 2's retreat toward conventional industry shadiness, those counting on Apple's benevolent technological dictatorship have found themselves disappointed (as they have before, and no doubt will again). They were fooling themselves anyway: did anyone really think Apple was going to tolerate phone unlocking forever?

But the outlook isn't all grim. As Wu notes, the Google-led Open Handset Alliance is trying to follow in Apple's footsteps with its own game-changing, must-have handsets -- only this time there seems to be a more expressly ideological slant to the effort. And Verizon's Open Development Initiative, while less than perfect, is perhaps even more encouraging in that it shows the industry has begun to acknowledge the market's need for more flexibility in data services.

And that's the real reason for hope: the march of progress. Anyone who tries to paint the mobile industry as the picture of efficient market competition is either in denial or deeply dishonest. But wireless services will inevitably become more important and more available, whether thanks to WiMAX, revived municipal wifi projects (now without capital costs, thanks to the magic of bankruptcy!), spectrum freed by digital broadcasting, or some other wireless technology. The mobile carriers haven't been great at competing amongst themselves, but you can bet they'll begin responding once consumers have reasonable alternatives.

Tom Lee is an expert at the Insight Community. To get insight and analysis from Tom Lee and other experts on challenges your company faces, click here.

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Cable Companies Squeezing Every Last Penny Out Of Dwindling TV Monopoly

from the that-won't-last dept

Over the weekend, the NY Times ran an article noting how cable TV prices had continued to greatly outpace inflation over the last few years. It notes that while there have been plenty of predictions of cable's demise, especially at the hands of Silicon Valley, it just hasn't happened... yet. But that "yet" may become more important soon. Right now, it's true that cable companies often have close to a virtual monopoly on providing television programming. While there has been some competition from satellite TV players and (in a few areas) TV over IP, the big question is really how will the internet play a role. The problem has always been that most TVs still aren't hooked up directly to the internet, nor is there an easy interface to watch internet-accessed content on the TV. No matter how expensive or annoying cable is, it does have that convenience factor, which is important when dealing with "sit back and watch" content.

However, where some still see the high prices of companies without serious competition, others see opportunity. There certainly have been a few attempts, but we're seeing more and more stories every day of companies coming out with technologies that try to make it easier to access internet content on your TV. Eventually, someone (or multiple someones) will come up with the systems that not only match the convenience of traditional TV, but also add other features that cable just won't be able to easily copy (chatting about a TV show with other viewers remains a big opportunity, for example). So, if you're wondering why cable companies like Comcast and Cox are so into traffic shaping, it might have more to do with fears over the upcoming video competition from the internet than any real worries about their networks getting congested.

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Court Overturns FTC Ruling Against Rambus

from the bad-news-all-around dept

We've been covering the story of Rambus' tricks to get itself a patent that covered a standard by sitting in on standards meetings and then modifying its patents to cover the standard. The rulings on the various lawsuits have gone back and forth on this, and while Rambus has had some wins and some losses in court, last year the FTC stepped in and smacked the company down, noting that it had used questionable means to get itself an effective monopoly on the memory market. Unfortunately, that FTC ruling has now been overturned by an appeals court that said the FTC failed to show evidence of a monopoly. This is unfortunate for a variety of reasons. If the FTC's ruling had been allowed to stand, it would have shown how an ill-gotten patent would be the equivalent of an illegal monopoly. That seems like the proper result, as a patent clearly is a government granted monopoly. So, if the patent is gained through questionable means, then that monopoly should be considered an illegal monopoly. Unfortunately the appeals court disagreed, and that will make us all worse off, as it will give the government fewer tools to crack down on abusers of the patent system.

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Why Do Patents Tend To Cause More Harm Than Good?

from the monopoly-economics dept

Continuing my series of posts on some of the basics behind intellectual property, I wanted to delve further into the discussion I kicked off last week about judging the harm vs. benefit of intellectual property, and being able to properly balance the two. As we pointed out last week, nearly all of the economic evidence shows that patents tend to do more harm than good. Researchers James Bessen and Michael J. Meurer (perfect timing again) have gone into a little more detail as to how much damage is done, but I wanted to focus on why the downsides to patents are so often worse than the upsides.

At one level, it goes back to basic fundamental economics. Any given monopoly is going to be bad. There are economic rents associated with a monopoly. It limits the supply available and increases the cost, acting as a deadweight loss to society. That's absolutely true with patents as well (as much of the research has shown). However, there are a few more reasons why patents tend to be a net negative. First, let's focus on why the reasons in favor of patents aren't particularly strong.

The first is that it should act as an incentive to create the product. Yet, as the research has shown, that's almost never true in practice. More innovation tends to happen with weaker patent laws, and when stronger patent laws are put in place, the pace of innovation decreases. The reason is that real innovation almost never happens because of patents. Very few people invent stuff "to get a patent," but because there's a need in the market and they can help solve it. That's true with, or without, patents. Furthermore, it's that need in the market that is the real incentive for innovation. If you can serve a market, there's a way to make money from that market, and that acts as plenty of incentive.

The fears that an "easily copied" product will damage the original inventor are also wildly overblown. Study after study after study has shown that there is a distinct first mover advantage, and even things that are easily "copied" doesn't mean that the copycats get success in the market. People put a premium on buying from the original creator. Furthermore, they often believe (correctly in many cases) that the original creator has a better understanding of the market, and is likely to continue to innovate faster and with better solutions. Finally, in the worst case scenario, where a copycat is able to do a better job, that's also not a bad thing, because the societal benefit is still a better product. It's called competition, and is generally considered a good thing in a market economy.

Another popular claim is that patent benefit us via "disclosure." Because patents require the inventor to "disclose" the invention, the idea is that these patents will spur additional innovation as others learn from the patents and build on them. The idea is that there's obvious benefit in keeping the idea secret, so in exchange for disclosing the idea, the government gives the inventor a monopoly. However, this is easily shown to be false. First, very few patents these days are written to the point where they actually disclose enough to be useful. They tend to be broadly written in a way that can cover as much as possible. However, there's an even better simple logical rationale for why disclosure is a myth when it comes to patents. If the inventor truly believes there's tremendous value in keeping the idea secret, he or she will still keep it secret. There's no real benefit to disclosing it to get the patent. You get just as much benefit from keeping it secret. The only benefit is if you think that others will be able to figure out the same concept in less time than it takes for the patent to expire. In other words, if you realize that others will be able to come up with the same thing in that amount of time. So getting a patent prevents others from doing that. But if you truly believe that it would take longer than the length of the patent to figure out its secrets, then you'll keep it quiet anyway.

As for why the downsides to patents are almost always present, it's based on a fundamental understanding of how innovation works. If most innovation was a single burst of inspiration, then patents could make sense. However, in a scenario where innovation is an ongoing process of building, trying, adjusting, building, trying, adjusting -- then patents are likely to be harmful. They add a cost and a hassle at many of the steps along the way. They add a series of hurdles that involve time, money and effort for each step of that process. That, alone, significantly slows down innovation. Studies have shown, in fact, that most innovation is an ongoing series of innovations rather than a single burst of inspiration. Furthermore, great breakthroughs tend to come not from a single mind, but in different people looking at the same problem, learning from each other and building on each other's work. By throwing tollbooths into that process, you slow down the innovation.

Thus, the supposed benefits of patents rarely are all that beneficial, and yet the downsides to patents are quite large and show up quite often. So, it should be no surprise that the research shows patents tend to do quite a bit to slow down innovation, rather than accelerate it.

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Links to other posts in the series:

• On The Constitutional Reasons Behind Copyright And Patents
• Patents, Copyrights And Trademarks, Oh My!
• If Intellectual Property Is Neither Intellectual, Nor Property, What Is It?
• What Kind Of Progress Are We Promoting?
• Why Do Patents Tend To Cause More Harm Than Good?
• The Case For And Against Software And Business Model Patents

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When The Competition Gets Tough, Akamai Sends Out The Patent Attorneys

from the what's-wrong-with-a-little-competition? dept

Last summer we noted that the Content Distribution Network (CDN) space was getting crowded with competitors, which was seriously cutting into the profits of Akamai, who is considered the leader in the space. So what's a company like Akamai to do? Well, they could spend money on continuing to innovate, offering a better product and providing reasons why customers would want to buy services from them... or they could just sue their competitors for patent infringement. It looks like Akamai is going with door number 2. Not surprisingly, since juries quite often side with patent holders, a jury has ruled in favor of Akamai in a patent infringement lawsuit over a patent that some are noting appears to be rather obvious in that it describes a process for hosting online content via distributed servers. While it's not clear how obvious this patent really may be, what does seem clear from multiple comments on Slashdot is that there appears to be a fair amount of prior art, including an earlier patent that appears to cover similar territory. Either way, it appears that many different companies and individuals have been trying to tackle this problem in similar ways, and that there's marketplace demand for products in the space. So why should one company be given a monopoly over the entire space?

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Can Someone Explain The Rationale For Capping Cable Growth?

from the capping-cable dept

FCC Chairman Kevin Martin is looking to reinstate a national cap on cable ownership, which would bar any one firm from serving more than 30 percent of the U.S. subscriber base. (A similar rule was thrown out by the courts back in 2001.)

The rationale for a national cap has always been a bit opaque to me. Because cable is geographically constrained, from a consumer perspective, all that matters is the market power my provider can exercise locally. If I've got three regional cable providers to choose from, it makes no difference whether two of them each hold a 40 percent national share. If I've got only one serving my area, the fact that it only controls 3 percent of the national market is similarly irrelevant. And if I'm in the latter boat, declaring that the largest firms with the most resources are forbidden to expand their operations into my neighborhood scarcely seems calculated to increase my access to alternatives. The FCC cites regional consolidation as a motive for the cap, but if cable providers are gunning for such regional monopolies, then won't they divest first in the regions where they do face competition, and hold on to the areas where they're the lone option?

It also seems a little perverse to introduce such limits just as consumers are finally starting to experience more robust choice in premium video. According to The Wall Street Journal, satellite now holds 30 percent of the pay-TV market. And despite some rocky first steps, phone companies are ramping up to aggressively expand IPTV over the next few years. Racing in to rescue viewers from monopoly now is, if not technically "ironic," then at least close enough to meet the Alanis Morissette definition.

Julian Sanchez is an expert at the Insight Community. To get insight and analysis from Julian Sanchez and other experts on challenges your company faces, click here.

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If You Define the Market Narrowly Enough, Monopolies Are Everywhere

from the fun-with-definitions dept

It's almost become a cliche to note the decline of Microsoft as a competitive force in the software industry. True, it's still a large and profitable company, but it's been consistently unsuccessful in its attempts to dominate new markets the way it did in the 1990s. The XBox and Zune are fine products, but they're not market leaders. Neither are its software offerings. Microsoft's mobile OS is getting clobbered by Symbian and faces more stiff competition from Blackberries, iPhones, and soon Google phones. Its online offerings often run in third place behind Google and Yahoo. Internet Explorer is still the leading browser, but competition from Firefox and Safari have brought its market share down from 95 percent in 2004 to 82 percent today. This sure looks to me like a vigorously competitive market.

However, in recent filings, ten states and the District of Columbia argued that Microsoft is still a monopoly facing no serious competition from Google, Mozilla, or other firms. They're seeking to have federal monitoring of Microsoft's business practices under antitrust law extended until 2012. To make their case, they've stuck to the narrow definition of the relevant market they adopted in the 1990s, arguing that Microsoft has a monopoly for "Intel-compatible PC operating systems." I'm not sure that definition made sense in the 1990s, but it certainly doesn't make sense now. Microsoft's smartest competitors haven't attempted to launch a frontal assault on the company's operating system business. Instead, they've focused on beating Microsoft in related markets, including search engines, mobile phones, music players, and consoles. Companies like Apple and Google now enjoy commanding market shares in those markets, and their dominant position in those markets gives them considerable leverage and customer loyalty. If Microsoft forced its customers to choose between Windows or iTunes, or between Windows or Google, a lot of them would choose the latter. There's no longer any serious reason to worry that Microsoft's large Windows market share will allow it to squelch innovation in the technology industry, because Microsoft now faces a lot more competition on a lot more fronts than it did in 1998. The rise of web-based applications has made it far easier for companies to get their products into consumers hands, and the rapidly-growing mobile market gives companies some new platforms to target that aren't controlled by Microsoft. Most of this competition is outside of the "Intel-compatible PC operating system" market, but that definition of the market was always somewhat arbitrary, and it looks ludicrously narrow now.

Timothy Lee is an expert at the Insight Community. To get insight and analysis from Timothy Lee and other experts on challenges your company faces, click here.

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