and Wal-Mart.
Google is about openness (when it’s convenient, is their search engine algorithm free and open?)
They want to make cell phones, gphones, open. Take away the proprietary op systems and put in a google-y os which allows programmers to create killer aps.
Read the article in Slate.
Profits don’t have to be rents, they can be producer surplus. As openness prevails, patent-based rents will be squished by competition from the opens. Holding intellectual property will no longer be an asset worth protecting. At that point, the legal protections surrounding the patent system will be worthless.
Why not get there faster by dropping patents altogether now?
Its the same story as farm subsidies. We can’t just take away farm subsidies over night because many people have made investments based on expected future earnings from subsidies. If a farmer is granted a subsidy, the profits from farming go up. Let’s say the subsidy is $1000. He will probably cut his efforts in farming a little, so total gains will be less that $1000, but let’s ignore that for now. If he sells his farm with the subsidies attached, he can expect to get the present value of future profits from farming plus present value of future subsidies. The buyer pays according to this calculation. Take away the subsidies and the new owner loses a lot of money he has already put out. He gets robbed. To end subsidies the government will have to buy them out. That’s kind of what happened with tobacco buyouts (I don’t know the whole story there.)
So, to end the patent regime the state will have to buy out all existing enforceable patents. That means it would have to pay all holders of patents their expected future profits from the patents they currently hold. That’s a lot of money. It’s a lot of money consumers currently are paying for through their purchase of patented products, which government would have to provide instead. So taxes would have to go up to pay for the buyout. Which consumers would pay. And these huge companies with artificially generated market share (from the patents) would now have huge reserves of cash with which to find other ways to create market power, according to those who believe that big is bad (Berle, Means). There are fundamental problems with this view which are properly dealt with through understanding competition and property rights allocation (read Alchian, Demsetz, Coase, and Margolis).
The long run view suggests it is worth it to buy out patents, but politically impossible.
The real losers are those who have invested lots of money in Research and Development in order to secure patents for products they are developing, but have not yet been granted a patent. They will not be compensated.
Arguably those who spend a lot on R&D already have a patent or two (or 30,000) the rents from which are paying for the R&D. These firms might come out even or somewhere close to even. My guess is they would do pretty well. Startups with patent acquisition as part of their business plan would suffer greatly.
The problem needs to be understood correctly, however.
A firm that spends money on R&D to try to get a patent is investing money in seeking a political favor in the same way that some companies spend lots of money on lobbying. A patent is a government granted monopoly. Big firms have a comparative advantage in both seeking patents and lobbying. They are most likely to get a political favor in both cases.
What must be done is elimination of all protection of business, both patents and other political favors. But the comparative advantage in politics lies with those who want the protection. Is it clear yet why government intervention in markets may be a bad thing?
But that’s why I love google, for now. If they are strong enough to take down the patent regime then there’s hope. So long as they don’t adopt any other kind of political-monopolistic strategy. Natural monopolies are fine, those which require political favors are the kind that create distortions.
(Gavel bang to Newmark’s Door)