We all know the arguments for protecting the intellectual property of inventors and innovative companies. By using legal devices such as copyrights and patents, governments are able to foster research and innovation by ensuring that those responsible for a new idea or product profit handsomely. According to this line of argument, support for intellectual property rights (IPR) not only encourages innovation but underenforcement of IPR can actively stifle new ideas. After all, if anyone can mooch off a new invention, why would someone take the risk of investing time and money into developing an unproven technology? But perhaps intellectual property protection has gone too far.
Noah Smith, a professor at Stony Brook University and columnist at Bloomberg, recently wrote about the dangers of “patent trolls,” companies that exploit overly-broad patents to extort smaller firms. Smith cites a paper by Ian Appel, Joan Farre-Mensa and Elena Simintzi that clearly demonstrates a significant rise in patent infringement lawsuits over the past two decades. According to their research, many of these lawsuits are frivolous and nothing more than transparent attempts at rent-seeking, as a full 66% of lawsuits come from companies that own patents but aren’t using them to produce any actual products. These patent trolls limit innovation by locking up new technologies under broad and ill-defined patents that they then use to prey on smaller firms that lack the legal muscle to fight back. Given that these small, entrepreneurial firms play a significant roll in creating new jobs, smothering them in patent infringement lawsuits not only hurts innovation but also limits the supply of good-paying jobs. And a 2008 study by Michele Boldrin and David Levine suggests that far from fostering innovation, patents are actually associated with stagnation in industries. For example, their case study of the computer industry suggests that early expansion and innovation occurred during a period “essentially free of patents.” Once this early boom subsided, however, monopolistic consolidation occurred, and the big tech firms became increasingly reliant on intellectual property protections to stifle competition.
Boldrin and Levine actually go so far as to advocate for the elimination of IPR altogether. They contend that many of the common defenses of IPR protection are fallacious and overblown, and thus the artificial suppression of other inventors and firms is purely negative from an economic efficiency standpoint. I find their support for the complete elimination of legal devices like patents and copyrights too extreme, but their arguments do suggest that the value of IPR protection is overblown. One of their core points is that limiting access to new innovations and ideas through legal means is superfluous because structural forces largely solve this problem by themselves. Even if a new product lacks legal protection, it still requires time and effort to reverse-engineer it. And although widespread access to new innovations and ideas will certainly create a more competitive market and eat into the original inventor’s profits, first mover advantages still provide innovative firms with a leg up on the competition.
What this means is that many patent infringement lawsuits are nothing more than ridiculous attempts at rent-seeking and artificial suppression of market competition. There are certainly some firms who legitimately need legal support in order to further develop and innovate, and they have no ulterior motives beyond recouping some of the initial costs of development. But too many firms use intellectual property protections to gunk up the market and suppress legitimate competition. Particularly galling are the aforementioned corporations that buy up patents without actually producing anything. Instead, they rely on royalties to earn a quick buck without adding any real value to the economy. This kind of behavior is obviously non-optimal, and it risks suppressing American entrepreneurship and innovation. Progress and development occur when smart people and creative ideas interact and grow from one another. This is why heavily populated cities are such catalysts of economic growth and why academic papers are littered with references to other scholars’ work. By impeding other firms’ ability to leverage new ideas to innovate themselves, we risk impeding progress itself.
So how can we protect IPR without stymieing innovation? Two ideas seem promising. First, the length for which patent protection lasts should be drastically reduced. In the United States, most design patents are usually protected for 14 years, and that seems quite excessive when one considers that some of the “innovative” designs being protected include cell phones with rounded edges. Second, states should universally adopt so-called anti-troll laws. This is a major theme of both Noah Smith’s Bloomberg article as well as the research conducted by Appel et. al., and it refers to laws designed to punish companies for excessive legal actions against alleged patent infringement. Concretely, anti-troll legislation would allow courts to assess penalties on companies who they believe are attempting to enforce patent rights beyond the scope or value of the patent. In theory, this should level the playing field by preventing NPE’s from using a shotgun legal approach to go after any firm with a product even tangentially resembling their patent.
With the U.S. economy experiencing only moderate GDP growth and almost no productivity growth, it’s important for policymakers to consider ways to improve America’s economic situation. If limiting IPR protection can accelerate U.S. economic dynamism and foster a more innovative economy, then the government should be willing to act even if it risks upsetting a few trolls attempting to make a quick buck through frivolous lawsuits.