In this section we’ll briefly discuss what patents are and how they do more harm than good.[i] A patent is a government granted monopoly on the use of an idea/knowledge. For example, when the scientists at BetterDrugs company discover a new drug, the company files a patent application with the United States Patent Office proving that it has discovered something new and useful. As a sort of reward for BetterDrugs’ efforts and costs associated with research, the government grants the company a patent for the drug, which means that the government will punish anyone who manufactures the drug or makes use of this knowledge without BetterDrugs’ consent. The standard argument in defense of patents is that if the government did not grant them, inventors/researchers would have little incentive to spend money in research because once they stumbled upon a new discovery someone else can just copy it at no cost to them. For example, let’s say BetterDrugs spends 2 billion to develop and prove the efficacy and safety of a chemical compound that reduces the rate of heart attacks by 20% with few potential side effects. In a world without patents, once it begins to market the drug(let’s call it CardioMas), every other drug manufacturer simply copies the formula, and competition between the drug makers brings the market price of the drug to something a little above the cost of manufacturing it, a price which would not bring in enough profits to BetterDrugs to recover their 2 billion dollar investment in developing CardioMas. Knowing this ahead of time, BetterDrugs would not find it in its best interest to spend the money towards the research and CardioMas would not have come about. With patents, according to the standard argument, BetterDrugs would have a government enforced monopoly on the drug and could therefore sell it for a price high enough to recover its costs and therefore it would have the right incentives to ultimately discover the drug. And if it makes lots money, even better, right? This would supposedly motivate lots of people to go into research to discover new drugs and so on.

Let’s begin by briefly discussing what the patent system has actually done to the pharmaceutical industry, the industry that seems to most need and benefit from patents. A whopping 77% of new drugs approved by the FDA are not “new” in the sense that they make some significant improvement compared to an existing drug; they are what are referred to as “me-too” drugs. These “me-too” drugs are usually no better than drugs already on the market to treat the same condition, they simply allow competing drug manufacturers to enter the market to treat a condition where other companies might be making a lot of money due to their patents or monopolistic position. For example, let’s say that thanks to its patent protection BetterDrugs sells a daily dose of CardioMas for $15 and is generating profits of two billion dollars per year. These large profits motivate CommieDrugs to develop CardioGood which seems to reduce heart attacks at a rate comparable to but still lower than CardioMas and also has more bad side effects. Since CardioGood is not as good as CardioMas in terms of quality, CommieDrugs sells CardioGood for only $10 per daily dose thus helping it gain market share with those customers who find CardioMas too expensive. Now, someone might think that this is a good thing: a competing alternative has emerged giving people more choice, but this is still much worse than the ideal, which would be to allow any drug manufacturer to make the drug thus lowering its price to something near the costs of production, like generics, and not having to waste millions of dollars in research, advertising, trials, legal fees and more to create an inferior product as has been the case above and is the case for about 77% of newly approved drugs. As Michele Boldrin and David K. Levine mention in their book “Against Intellectual Monopoly”:

“Given the institutional environment pharmaceutical companies are currently operating in, me-too drugs are the obvious profit maximizing tools, and there is nothing wrong with firms maximizing profits. They also increase the welfare of consumers, if ever so slightly, by offering more variety of choice and a bit lower prices. Again, they are an anemic and pathetic version of the market competition that would take place without patents, but competition they are. The ironic aspect of me-too drugs, obviously, is that they are very expensive because of patent protection, and this cost we have brought upon ourselves for no good reason.” (Boldrin & Levine , p. 231)

So we can see how nearly three fourths of what the pharmaceutical sector does is redundant. Billions of dollars worth of wealth are consumed from the social order by researchers, advertisers, lawyers, sales reps, FDA bureaucrats, etc. for next to nothing. Another important statistic is that the top 30 pharmaceutical companies spend twice as much in promotion and advertising than they do on R&D. If there weren’t so many “me-too” drugs to compete against each other and they could manufacture the same drugs one should expect this ratio to move more towards the R&D side.

What about the incentives to create drugs if there are no patents? Surely it is better to have expensive and redundant drugs than none or very few at all? one might conclude, yet the reality when one looks at the history of the pharmaceutical industry is that patents have not been as helpful at motivating innovation as one might imagine. During the period 1961–80, a total of 1,282 new medically useful chemical compounds were discovered around the world[ii]. Of these, a total of 119, or 9.28% of the total, came from Italy, a country that did not have patents for drugs until 1978. After patents were introduced, during the years 1980–83, out of a worldwide total of 108 newly discovered useful compounds, 8 of them, or 7.5%, came from Italy. Boldrin and Levine continue:

“While we do not have data covering the most recent decades, the impression of the informed observer is that things have become worse, not better. Professors Scherer and Weisburst, in fact, took the pain of carefully studying the evolution of the Italian pharmaceutical industry after the adoption of patents. Here is the summary verdict, in Scherer’s own words “Research by Sandy Weisburst and mentored by me showed, for example, that Italy, with a vibrant generic drug industry, did not achieve any significant increase in the discovery of innovative drugs during the first decade after the Italian Supreme Court mandated the issue of pharmaceutical product patents.” ”[iii]

Boldrin and Levine also compile a list of 23 studies that looked at the impact of patents across various industries, times, and countries and concluded that “these studies find weak or no evidence that strengthening patent regimes increases innovation”[iv]. And:

“Older American readers may remember the Kefauver Committee of 1961, which investigated monopolistic practices in the pharmaceutical industry.[v] Among the many interesting things reported, the study showed that ten times as many basic drug inventions were made in countries without product patents as were made in countries with them. It also found that countries that did grant product patents had higher prices than those that did not — again something we seem to be well aware of.”[vi]

Having discussed some empirical evidence of the damage and ineffectiveness of patents, let us now discuss the damage of patents in a more theoretical way. One of the reasons why we so naively fall for the erroneous idea that patents are good for society is because we greatly overestimate the importance of the individual or company making the discovery while being unaware of how it is the market process, via its various mechanisms like prices and competition, which plays the key role in innovation. Competing firms or individuals, due to the fact that they are in business competing with each other, contain knowledge that has to be relatively similar. If one competitor has knowledge that leads to much more productivity, it would drive some competitors out of business, and it would also motivate competitors to copy/emulate the superior knowledge thus leading to a state where once again all competitors contain more or less the same knowledge of how to go about production. Since competitors compete at trying to offer similar products or services they are also looking at society for the same kinds of innovations which they can use to increase their production/quality. It is the market process and its mechanisms like the profit motive and competition which continuously fills minds with the necessary knowledge to be at the state where they will inevitably come up with new products/improvements/innovations. Which particular mind manages to stumble upon a new product or improvement has more to do with chance and circumstances than anything else. To illustrate this point Boldrin and Levine go over the history of key innovations like the steam engine, flight, radio and others and show how innovation is a collaborative and cumulative effort, where similar ideas are copied or shared until eventually enough progress has been accumulated towards a breakthrough so that it can come together in one lucky mind. A mind, which thanks to patents, then goes on to make monopoly profits by making it criminal to continue the very knowledge-sharing-process that enabled it to make the innovation while also frustrating other scientists/researchers whose contributions to the innovation might have been more substantial. For example, regarding flight, Sir George Cayley(1773–1857) had already written down and detailed the necessary specifications for the design of a successful airplane but lacked a lightweight power source which was readily available by 1902 when the Wright Brothers made their flight. Otto Lilienthal(1848–96) also came close before killing himself while experimenting with a hang glider. Wilbur Wright said of Lilienthal that “Of all the men who attacked the flying problem in the 19th century, Otto Lilienthal was easily the most important”[vii] and that he was “one of the greatest contributors to the final success.”[viii] After obtaining their patent they then used it to sue Glenn Curtiss who improved planes by using ailerons to control roll, an innovation which is still currently used by modern planes. They asked for a 20% royalty from competitors eventually crippling the industry in the U.S. and moving plane innovation to Europe. Regarding radio, Nikola Tesla had filed several radio related patents in 1897 which were granted in 1900 and led to the rejection of Marconi’s application for radio patents by the US Patent Office which mentioned that:

“Many of the claims are not patentable over Tesla patent numbers 645,576 and 649,621, of record, the amendment to overcome said references as well as Marconi’s pretended ignorance of the nature of a “Tesla oscillator” being little short of absurd… the term “Tesla oscillator” has become a household word on both continents [Europe and North America].”[ix]

In 1901 when Marconi made a successful radio transmission across the Atlantic, an engineer then working for Tesla, told him, “Looks as if Marconi got the jump on you” to which Tesla replied, “Marconi is a good fellow. Let him continue. He is using seventeen of my patents.”[x] Yet to Tesla’s surprise the US Patent Office reversed course and in 1904 awarded Marconi the US patent for radio. Why did this happen? By this time Marconi was very wealthy and had the support of influential people like Thomas Edison and Andrew Carnegie so “The reasons for this have never been fully explained, but the powerful financial backing for Marconi in the United States suggests one possible explanation.”[xi]

Patents inevitably turn cooperators into bitter rivals; give credit to one where many, or better said, the entire social order via the market process are involved; they slow down the market process by preventing further innovation by competitors whose ideas are based on patented ideas because they now have to pay large sums to patent holders; they remove competitive pressure from patent holders thus making them lazier and worth their time and money to go into the damaging business of suing[1] patent infringers thus retarding technological progress; and since the patent system is overseen by a monopolistic and bureaucratic government organization, it is bound to grow more inefficient and chaotic and prone to manipulation by the better connected and special interests.

The very concept of the “self” and the focus most of us give it while ignoring the workings and evolution of the market process is obviously at the core of what is wrong with patents and most of mankind’s problems.

At a fundamental level there is matter and the knowledge needed to reorganize matter in order/life sustaining ways. Patents simply create paralysis in the market process which helps spread knowledge needed to build the social order. The information technology industry, although less regulated than the health care sector provides a good example of how patents begin to paralyze an industry. Prior to 1981 computer programs could not be patented and this helped spark the explosive growth of the computer industry. As Microsoft founder Bill Gates tells us:

“if people had understood how patents would be granted when most of today’s ideas were invented, and had taken out patents, the industry would be at a complete standstill today. I feel certain that some large company will patent some obvious thing… If we assume this company has no need of any of our patents then they have a 17-year right to take as much of our profits as they want. The solution to this is patent exchanges with large companies and patenting as much as we can.”[xii]

So Gates clearly saw how patents would lead to paralysis. Unfortunately his solution at the time was not to argue for the abolishment of patents altogether(which I don’t blame him for), but to attempt to protect his company by patenting as many things as possible with which to threaten/protect itself from others in this new ecosystem of warring/litigating patent holders. Given the incentives, this is the strategy that works or is “naturally selected”, thus we have bigger and bigger patent holders fighting it out in order to progress, while at the same time making it harder and harder for the little guy or new competitor to innovate.

As much as I love Amazon.com, it has been widely and rightly criticized for its 1-Click patent which allows customers to simply click on a button to buy an item. I am certain that such a simple idea had either crossed the minds of many computer programmers (who for the most part until perhaps recently are not thinking about patenting every problem they solve) or was inevitably going to do so. As expected, when competing book seller Barnes and Noble tried to setup a similar payment option Amazon.com sued and prevented them from making buying a much easier experience for its customers. One has to ask, to what does Amazon.com owe the fact that it is the greatest online store around? To the fact that its employees and management are the hardest working and most innovative? Or to the fact that they stumbled upon certain patents like 1-Click that could be used to beat up potential competitors? It is obviously a combination of both among other things.

These days it seems like technology companies are in constant patent litigation. I recently went to an IT event where short lectures are offered to showcase the latest technologies. Being a computer programmer, I attend these sort of conferences from time to time, but what made the last one I attended stand out for me was the fact that several lectures on patents were offered which reflects the increasing role that the patent system plays in the IT world. Out of curiosity I attended one of these and as a sort of spoiler I brought up a few arguments against the entire patent system to the person giving the lecture(who was a patent lawyer with expertise in the IT sector). To my great surprise, the lecturer agreed with my remarks and also felt like the patenting system did more harm than good.

Innovating is a lot easier than people think. As prices or costs of production go down, that which was prohibitively expensive becomes possible which in turn makes other things possible and so on. The world is vastly more innovative today than it was 100 years ago not because we got any smarter because obviously our biology has not changed, but because the market process has made it easier to innovate. Some innovations revolutionize entire fields and make it easy for further innovations to come about. For example, how much easier was it for scientists to make biology-related innovations once the electron microscope took magnification from about 2,000 times to over two million? How much easier was it to invent all sorts of gadgets once electricity came about, or computers, or the Internet? The market process can be seen as a sort of ever-growing ladder taking humanity up an infinitely high tree whose fruits are innovations. For the most part all we have to do is easily pick them off the branches when the ladder gets us there. Very expensive endeavors that only seem profitable if granted patents can be seen as attempts to grab a fruit/innovation that is currently too high up in the tree and we are better off just waiting for the normal technological progress to get us there cheapening all related research/etc. instead of damaging the workings of the system/ladder in an attempt to make gains that really leave us worse off due to the damage made to the ladder/system by patents.

On October 5th 2011 people all over the world mourned the death of Apple Inc. co-founder Steve Jobs, the media and politicians talked about how great a human being Steve was and how people like him and such “innovators” are what transform our world for the better. As hard working or driven to change the world as Steve was, such individual traits are incomparable to the environment and circumstances surrounding him which both incentivized and allowed his mind to be one of the minds that grabbed the computing-related fruits in that ever-growing ladder of innovation that the market process has created for us. It is not the “innovators” themselves which we should be praising, it is the market process. The discovery of electricity and radio could be seen as big fruits which were surrounded by many other related fruits in that ladder of innovation, so when people like Nikola Tesla stumbled upon them their minds were more than ready to connect further dots and thus quickly come up with more innovations. Steve Jobs and Bill Gates were in a similar situation when the computer revolution and its many fruits were about to be reached by the ladder. It was somewhat ironic to watch politicians praise Steve when the politicians themselves inadvertently create the regulations and bureaucracies that are destroying the market process thus ensuring that it becomes increasingly harder to be like Steve Jobs.

The damaging pro-patent ideology is also adding to tensions between patent enforcing nations and developing nations who are being coerced or erroneously persuaded to implement patents while also being sort of accused of “stealing our ideas without proper compensation”. This is rooted in the same fallacy of attributing innovation to those making the innovation as opposed to the market process. So called “developed” areas like North America, Europe, and Japan became developed because the market process managed to work well enough in those areas as to incentivize and coordinate minds in a way that so much knowledge was created, and this was done, in spite of patents, not because of them. Old people, being more likely to be found with cancers, does not mean that having cancers leads to old age, it means that natural selection has built us in a way that we can continue to live for a while in spite of the cancers. Too much government, just like too much cancer, eventually destroys the super-structure. The market process’ ability to organize the social order in ways that lead to what we would call progress is amazing. A little freedom goes a long way. Technological progress in the 20th century has been great, in spite of cancerous government bureaucracies, patents and other misguided government regulatory frameworks which we believe to be the creators or managers of social order while they are in fact its retardants or destroyers. Think about how truly unfair the following is: the Chinese had the misfortune of having much of their 20th century destroyed by war and a truly communist economy which led to the deaths of tens of millions while the market process used millions of brains in the US to discover new ideas, and now that the Chinese increase their freedom and begin to have their social order be created by the market process, they have to pay royalties to the West just because the West was lucky enough to have enough freedom to have the market process make coming up with such discoveries as easy as picking low laying fruits from a tree. This seems pretty unfair to me. Developing nations like India and China should not feel like they are “stealing” ideas from the more developed nations. Besides, the way things are going with the US deteriorating and China growing and innovating, instead of Americans trying to use patents to force people in China to send more wealth over here, it will be the Chinese doing it to the US. In reality this example should not be seen as nations using patents to harm each other, it is really about individuals or companies who had the fortune of living in a social order that was shaped by the market process trying to use patents and government force to take wealth from those who had the misfortune of having lived in a social order that was not shaped by a market process that was as efficient.

A piece of bread can only go in your stomach or mine, we can’t both eat it. The reason why ideas can be copied or “stolen” and not property or the means to acquire property(money), is because property is the real matter that is involved in our delicate cycles of production and consumption, matter/resources that must be in the control of minds that have the necessary knowledge to coordinate production. These are the very minds that helped create such wealth to begin with because they are the only ones with the necessary time and place specific knowledge with which to sustain and expand the social order. But the knowledge itself, can be copied without damaging the social order and in fact improves it by allowing others to use the best knowledge. And also, unlike matter/resources which are unique and finite and can only be controlled or put to use in a specific plan of action, knowledge can be copied at virtually no cost and can be employed by many without affecting others. So bottom line, we are better off abolishing patents.