In this post I’m going to explain why patents can be a good idea, why they often go wrong today, and a way to fix that problem. And I’ll do that all in the context of a situation you should understand well: finding a shorter route to drive from home to work. (This post is ~1600 words, and so longer than usual.)
Imagine that you usually take a particular route from home to work, and some firm offers to find you a better route. You tell them your current route, and they tell you that they have found a different route that will save you thirty seconds a day, which over a year adds up to eight hours. You can inspect their route to verify their claim, but only if you agree that you can’t use that route (or anything close) unless you pay them a mutually agreeable fee. (Assume they can enforce that, by seeing your car’s driving path records. And assume you can verify their claim somehow.) You agree, inspect and verify, and then agree to pay them one hundred dollars, which is well below your value of saving eight hours of driving, and above their cost of finding the route.
This example contains an info property right: once you agree not to use their route unless you pay for it, then they own a right to your use of that route. Since the route is info, what they own is info. The prospect of owning that info right gives the firm an incentive to work to find that route. And because they must find a mutually agreeable price, their incentive to work is neither too much nor too little. An agreeable price must lie between their cost of finding the route and your added value from using it.
Now imagine that you are one of hundreds of drivers who go from the same initial home area to the same final work destination. Now this route-finding firm wants to sell a better route to all of you. But there is a problem. Once this firm sells the route to a few of of you, the others may learn of that route from these few buyers, either by being told or by following their cars. In this case the total price the firm could get from all the drivers might be much less than the sum of driver values for using the better route. Thus the firm’s incentive to work to find a better route could be too low. That is, this group of drivers could be better off it they joined together to paid the firm more to find a better route. But joining is too hard, so it doesn’t happen.
This problem is often cited as the reason governments allow patents. As an analogy, imagine there was a public website where route-finding firms could post pairs of old and new routes, so drivers easily find the new route matching their old route. The new legal rule might be that once some firm had posted such a route pair, no driver may legally use the new route matching his or her old route without paying the firm a mutually agreeable fee. This new patent-like system would restore the good incentives of the case of just one driver and one firm; an agreeable price would again lie between a firm’s cost of finding the route and a driver’s value of using it.
At least, this new system would have good incentives if it was very easy for drivers to look up better routes on the public website, and if drivers had no better way to find faster routes, and if the legal system could accurately tell what routes drivers would have taken without the public website. To see how this could all go very wrong, consider some variations.
If drivers had GPS devices to tell them about better routes, drivers might still be required to pay hundreds of dollars to route finding firms to be allowed to use routes they could have learned about for pennies from their GPS. Or, imagine these rules applied to drivers even before they moved to this city or found a job, and the system assumed that without the website such drivers would have taken a very bad route that takes twice as long. Or that drivers would have walked instead. In such cases the route-finding firms might charge drivers for the value of being able to take any reasonable route to work, rather than just the added value of their better routes.
These variations would pay route-finding firms way too much. By being the first to register a route, a firm could charge drivers the value of using that route at all; the only check would be competition between firms with related routes. And if lots of route-finding firms got together to pool their routes, like firms do today with patent pools, the route-pool could charge drivers the value of being able to drive to work at all. So there’d be a huge wasteful rush to register routes, after which the route-pool would basically enslave all driving workers, yet add little in the way of social value.
The key problem here is that the social value of creating property rights in info comes from the value of using that created info, over and above the info such users would have had without that creation. If you instead assign them property rights in being able to use any remotely similar info, you can reward them far too much, crediting them with far more than the value they actually provide.
A very similar problem happens today with software patents. If there is a library somewhere with patented algorithms for sale, the social value of a software developer using that library to achieve some purpose is the difference between the cost to search that library for an algorithm that achieves their purpose, and the cost of just making up an algorithm that achieves their purpose. Usually that difference is negative – it is usually easier to make something up than to look for prior solutions. And even when the difference is positive, that value difference is usually much less than the value of being able to achieve the purpose somehow.
In most patent violation court cases, people are accused of accidentally violating a patent. In the US, patent holders can actually get triple damages if they can show that someone violated a patent on purpose. But even with that added incentive, such suits are rare. So the usual case is where someone tried to solve a problem by themselves, and the solution they hit upon just happens to be one someone else found before and patented.
We have little grounds for thinking patents have much social value in such cases. After all, the developer considered looking up and buying a patented solution, and decided that it would be cheaper and easier to just make up their own solution. Yes they might have made a mistake, but they are unlikely to be systematically biased. Yes, perhaps the patent fee made all the difference; if they thought they could use a patented solution without paying its fee, maybe they’d have searched for it in a library. But given the huge ranges over which relevant parameters vary, such cases must be rare.
Most likely, the developer made a socially-good choice to not search. In which case, the prior discovery of the patented idea actually had no social value for this application. And even if it did have a social value, that value would often be far smaller than the value of using the rediscovered idea to solve their problem, which is the high amount patent holders usually try to charge. That high amount seems much worse than zero as an approximation to the social value the patent holder could have provided in this case.
I think this gives us a great reason to excuse such developers from patent violations. That is, independently re-discovering a technique should excuse developers from using that technique without permission of the patent holder. Such re-discoverers shouldn’t be able to sell the use of that technique to others, but they should be able to use it themselves. And freeing developers to use any solutions they can figure out for themselves would greatly free the software industry to more open vigorous competition, competition that patent pools now discourage.
Now you might claim that even though patent holders rarely sue to get the triple damages available for intentional violations, most violations really are on purpose – such things are just much harder to prove. But at best that would justify a presumption that claimed rediscoveries are no such things unless supported by concrete data.
I’m told that today, developers are sometimes isolated from outside news in an attempt to avoid any accusations of intentional patent violation. But that seems pretty painful to me. Today’s surveillance society offers an easier solution. Imagine that a developer recorded all the articles they read, the talks they hear, conversations with outside developers, and intermediate versions of software they develop. All of this might be made available for inspections during a patent violation lawsuit. If a patent holder can’t find any holes in their re-discovery story after looking at all that, the story is probably true.
This general approach probably works well for most non-software patents as well, but I feel less confident of that. I did software for many years, and think I at least have a good feeling for how that works.