A Level Business Studies - To patent or not to patent?

To patent or not to patent?

A passage from an 1851 issue of The Economist said that the patent system “excited fraud, stimulates men to run after schemes that may enable them to levy a tax on the public, begets disputes and quarrels betwixt inventors, provokes endless lawsuits [and] bestows rewards on the wrong persons”. This was written over 150 years ago, yet it is certainly still capable of doing all of those things today.

The supposed evidence that the current patent system encourages investment into research that leads to innovation is actually weak. A large amount of recent in research years, including a 2004 study by America’s National Academy of Sciences, suggests that with a few exceptions such as medicine, society as a whole might actually benefit without patents. This is because there are issues and ethical objections regarding patents and the high prices for medication that they enable creators to change. The people who need these drugs most – namely those in developing countries who live on less than £1 a day – these people find themselves unable to access the vital healthcare they need because it is simply out of reach and will continue to stay out of reach with patents.

Perhaps the biggest reason people are sceptical over those who deny the value of a patent is that an “easily copied” product will damage the original inventor’s. However, this is false. Professors Michele Boldrin and David K. Levine write in their book, ‘Against Intellectual Monopoly’ that “in most industries, the first mover advantage and the competitive rents it induces are substantial without patents”. Even products that are “easily copied”, it doesn’t mean that the copycats are guaranteed to have success in the market. Customers value originality, they are likely to pay a premium for a product from the original inventor than settle for a shoddy knock-off and this is why Apple has become the success it has become and is a household name. Consumers have the impression that Apple has greater knowledge of the market and can innovate faster with better solutions – in most cases, this is true. Even in a worst case scenario, where a copycat can do a better job – it’s not a bad thing. It’s called competition and it is the very thing that drives a market economy.

The act of actually enforcing a patent in court is also problematic. It’s take roughly 3-5 years and $3-$5 million to get a judgement. And if there is an appeal – it’s likely to take far too long for small businesses. A patent litigation – where a small company takes on a massive one can be unfair in terms of expenses and resources allocated to the case. Big companies want to make statements: “let it be a lesson to small companies that have the temerity to sue us for infringement…” It costs $20-$30k to file a final “utility” patent. Some companies pay millions of dollars for patents like these but there is no guarantee or certainty that this investment will pay off.

It’s believed that patents are what put the stamp of approval on innovation. But this point assumes that innovation is a sudden spark of inspiration – and it’s only in this case that patents would make sense. In reality, innovation is an ongoing process. It requires the building and rebuilding, the trying and testing and adjusting to make the product the best it can be. Patents become harmful to this process; they come at a cost and the process of getting one is not easy to say the least. The added money and effort of a patent slows down the innovation process – perhaps putting the company at a disadvantage against competitors. Breakthroughs in design usually come from a collective group, not a single mind. The fashion industry is an example of this point. Trademarking is virtually the only type of intellectual property, so a culture has developed where designers build on each other’s ideas. What would your wardrobe look like without discount takes on popular items of clothing?

Furthermore, there is the issue of patent trolls in the USA. This is a term used to describe the use of patent infringement claims to win court judgements for profit, or to knockback competition. The term basically describes activities that use patents and the court system to earn money. While the practice isn’t illegal, a patent troll has no intent of developing a product or service with a patent. The end result is infringement threats and licensing demands that cost companies large amounts of money to settle without being of benefit to the public. In June 2013, President Obama said patent trolls “don't actually produce anything themselves, they're just trying to essentially leverage and hijack somebody else's idea and see if they can extort some money out of them." This can end up not only increasing the cost of innovation but also dissuading innovators from taking the risk of being sued for an invention.

Allowing companies to “copy” their competitors is a good thing. Even if a claim is made, patents are very specific meaning it is easy to legally design a similar product. That’s why there are so many new products produced by large companies at much cheaper prices. Patents promote competition and both companies have to race to innovate faster than the other to gain first mover advantage. We, the consumer, undoubtedly benefit from this because it provides us more choice and can help drive the price of these products down to a more accessible level.