Re: Do patents really foster innovation?

From: Hal Finney (hal@finney.org)
Date: Mon Mar 10 2003 - 16:50:22 MST

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    Patents are analogous to homesteading. Under that regime, a settler
    could acquire ownership of some land by occupying and improving it.
    Patents apply similar rules to intellectual space.

    One of the problems with homesteading in the United States was an instance
    of what is called rent-seeking. Settlers would occupy land prematurely,
    before it was economically ripe to do so. They would live on the land
    at a loss for a number of years in the expectation that as civilization
    developed in the area, the land would eventually become valuable.
    But all those years of losses were wasted economic effort that could
    have been put to better use. In fact the waste can be so great as to
    dissipate all the future value of the land.

    Patents might see some of the same problem - people rush to get patents
    even when they don't make that much economic sense. The limited term
    of patents will help to avoid waste, but some still does occur.

    I think another of the big problems with patents is that most are not well
    managed. The transaction costs to negotiate a license are extremely high.
    How many here who have faced a problem due to a patent have seriously
    considered trying to negotiate a license? Each such failure is a lost
    opportunity for the patent holder.

    I foresee a day when every patent will have a link you can click on to
    license it. As the internet works to drive down transaction costs in
    all other areas, it will facilitate patent licensing as well. This might
    even be a huge economic opportunity for the first company to facilitate
    this process. Maybe they can even get a business patent on the idea...

    Once patents are no longer a brick wall, but rather a limited tax,
    they will be much less of a problem and opposition to them will decrease.

    Hal



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