Imagining a ‘World Without Patents’…

It is actually not that easy to imagine a world without patents.  At least, not if you really try.  If you are the kind of person who is generally opposed to patents, or who thinks that the patent system is fundamentally ‘broken’, you might suppose that you can easily imagine a world without patents.  And you might imagine it as some kind of utopia: no software patents, no ‘business method’ patents, no gene patents, no patent trolls, no ‘FRAND abuse’, no Apple v Samsung v Oracle v Google v Motorola v Microsoft v HTC v …

But this is not really imagining a world without patents.  This is just a world without some of the messier consequences of patents.  If you really want to imagine a world without patents – or, indeed, any other form of intellectual property rights – you have to try to imagine all of the other consequences of this hypothetical scenario.

First you need to ask yourself, what kind of scenario are you actually trying to imagine?  Do you want to visualise what the world might have been like if there never were patents?  Or do you want to imagine what would happen if all patents were to be abolished overnight?  The second scenario is more practical, in the sense that it is at least theoretically possible (although astronomically unlikely).  However, the first is more interesting, in the sense that it encourages one to imagine completely different models for innovation and technological advancement which may have developed in the absence of patents.
Either way, however, the hypothetical exercise is potentially instructive, because it requires consideration of the possible adverse consequences of there being no patent system.  As matters stand, there is far too much focus on the adverse aspects of the system we actually have, which leads to an unfair bias in much so-called analysis and commentary.

A Google search confirms that there are thousands of articles, comments and blog posts published online about our ‘broken’ patent system. This proves only that it is a popular view among a certain sector of society (i.e. those who publish articles, comments and blog posts online). It does not establish the truth of the proposition that the patent system is broken. The fact is that it is not broken. It is not perfect – and it never will be – but it is not ‘broken’.

This will be the first in a short series of posts looking at the current state of the patent system, the purpose it serves, the role it plays in innovation, business and politics, what works works well, what works less well, and what might be done in practice to curb some of the worst abuses of the system.

IF THERE HAD NEVER BEEN PATENTS…

What if patents had never been?

For as long as there has been commerce, there have been monopolies.  Some have been natural monopolies (i.e. where the cost of having multiple participants in a market exceeds the potential benefits of competition), some have been ‘sanctioned’ monopolies (e.g. where the state grants or permits a monopoly in order to achieve policy objectives which the free market is not expected to deliver), and some have been what we would now widely regard as ‘illegal’ monopolies (e.g. achieved through the abuse of market power, or by collusion between nominal competitors).

Patents are sanctioned monopolies, typically intended to achieve policy objectives such as rewarding innovative activity, or ‘promoting progress in the useful arts’.  Formal systems for granting patents for inventions arose from informal – and generally corrupt – mechanisms whereby heads of state granted monopoly privileges as they saw fit.  The Statute of Venice of 1474 formally recognised that there there should be some objective basis – and overall benefit to the state – for the grant of a monopoly, and that this should be limited in scope and in time.  The British Statute of Monopolies of 1623 withdrew the monarch’s power to grant monopolies, making them all illegal except for those which satisfied the criteria of what we would now recognise as ‘inventions’, for which privileges of limited scope and duration could be granted.

And so the modern patent system was born.

Of course, it did not have to be this way.  The market could have been given free rein to operate without the restraint imposed by patents.  There might have been no mechanism developed to prevent any new innovation made by one participant in a market from being freely copied by others.  No doubt many people would still have innovated – for some it is just ‘in the blood’ – but it is hard to imagine that they would have profited greatly, with competitors invariably able to replicate any successful new idea with impunity.

It is impossible to imagine how the world of the 21^st century might be different if there had never been patents, but it seems undeniable that it would be different.  Would there be venture capitalists?  If so, how would they make investment decisions?  How would any investor justify risking their money on a business based on an idea that could be quickly and easily copied the moment it proved successful?

One thing that seems highly unlikely is that we would have privately-held pharmaceutical companies in the absence of patents.  Of course, the consumer (or the taxpayer) ends up paying for drug development through the cost of patented drugs.  But the patent system enables the drug companies to assume the risk of discovery and development up-front, in a competitive environment, secure in the knowledge that a successful outcome will provide a sufficient return on investment during the patent term.

What would the drug-development model look like without patents?  It could be state-sponsored, at taxpayer expense.  Or the industry could be highly-regulated to avoid duplication of discovery and development, creating sanctioned monopolistic companies rather than monopolies on individual drugs once developed.  Neither of these alternatives seems especially attractive.

If we could start over, with the benefit of hindsight, it is entirely possible that we would choose once again to create a patent system so that responsibility for innovation could be vested in private enterprise within a broadly competitive market.  Despite what you might read, patent monopolies remain an exception to free competition, rather than the rule.

IF PATENTS WERE ABOLISHED…

The abolition of the patent system would be disastrous in the short to medium term.  Overnight, it would deprive entire industries – such as pharmaceuticals – of their business models, and it would destroy the value-proposition of numerous small businesses and start-ups.  In a post-industrial ‘knowledge economy’, the only thing that many companies have is their intellectual property, which only creates bankable value in the company to the extent that it can be protected from replication by competitors.

In the longer term, no doubt new models would emerge.  But not before tremendous upheavals bringing pain and hardship to many businesses – and their employees – which benefit from the existing system.  And with large incumbent companies being technically and financially able to replicate and absorb any innovative technologies as they emerge, the end effect could well be fewer players in every industry, i.e. less competition and, ultimately, less innovation.

On the positive side, there would be no more patent trolls, no more high-profile global battles between huge corporations consuming the resources of our national courts, and no more disputes over fair and reasonable licensing terms for standards-essential patents, among other shortcomings of the existing system.  But in the bigger scheme of things, these are more minor and temporary irritations than major flaws.  And, in any event, the solution to such problems is not the complete abolition of the patent system.

CONCLUSION

It is not enough to criticise the patent system, or to argue for its total or partial abolition.  While this is easy to do – especially when there are real abuses of the system occurring – it is less easy to unwind centuries of development of a system which continues to support a variety of forms of innovative commercial development.

In some cases, patent monopolies provide a private sector alternative to other forms of state sanctioned monopoly, or government regulation.  In other cases, they simply provide a mechanism to lock-in the value inherent in innovation, so that it becomes a bankable commodity.

Any genuine plan to reduce or eliminate the role of patents in modern societies will need to address these issues.  Assuming that they are unnecessary in practice simply because it can be argued that they are unnecessary in principle does not establish a sufficient case for radical reform.

Next time– the critics of the patent system

The next article in this series will look at the basis for current criticism of the patent system, and propose that there are few broad categories of critics, all of which need to be considered in view of their particular vested interests.

Tags: History, Law reform, Patents and society, Venice