Patent Monopoly Hurts Innovation, Consumers

Whenever a company like Apple or Motorola develops a new smart phone, it risks losing billions in lawsuits because it may be infringing on another company's intellectual property. To mitigate this risk, mobile-technology companies are buying up billions in patents.

Patents pull a high price-tag. Last June, Google paid $12.5 billion for Motorola's U.S. smart phone business and its 17,000 patents. In July, a group of companies including Apple and Microsoft paid $4.5 billion for 6,000 patents from Nortel Networks, out-bidding Google.

Government is failing to help. Last September, President Barack Obama signed a patent reform bill that was "mostly pointless" because it didn't do much to solve the problem of over-broad patents.

Some say that the patent system is broken, but I’m skeptical of this claim. Mobile technology is an industry that remains in its infancy, and the same rules on intellectual property may be difficult to apply. I suspect, instead, that we are seeing a patent market bubble. Mobile technology companies currently face a high level of uncertainty in the legal climate, and they are responding by increasing their demand for intellectual property protection.

This begs the broad question: Are intellectual laws good for society?

Critics of intellectual property laws argue that people will invent less if they are distracted with litigation. From the perspective of consumers, a lower rate of innovation is certainly undesirable. However, Google's top patent lawyer says that ending patents won't cause innovation to stop and that historically innovation has happened in the absence of patents.

Supporters argue that intellectual property protections ensure that people get rewarded for their ideas and have an incentive to innovate. Although this sounds good in theory, it often doesn't play out in practice. Sometimes patent laws make competitors see the rewards. For example, Apple owns the patent for the “slide to unlock” feature that all Google Android phones use, so Apple is poised to get billions of dollars in royalties from Android, even though Google is unlikely to see a dime from it.

I haven't decided whether patent laws are good or bad for society, but I do think that the practice of hoarding patents is bad because it restricts competition. We are moving toward a world in which a small number of companies own most of the patents. If the mobile phone market became a monopoly or duopoly, it is likely that prices would rise and innovation would slow. That would be bad for consumers.

Photo Credit: nobihaya

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Christine Harbin

Christine Harbin considers widespread economic freedom to be one of the most important goals for sound public policy. She holds undergraduate degrees in economics, mathematics, and French from the University of Wisconsin–Madison, and an MBA from the University of Wisconsin–Eau Claire.

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