Think Patents Protect Innovation? Here’s the Reality
“It is time to radically change how we approach the promotion and protection of innovation.”
Much has been written regarding the stifling effects of patents on innovation and economic activity. Many of these conversations implicitly assume that the companies asserting their patent rights are at least making a productive contribution to the economy by creating some unique good. However, one of the perverse realities of government intervention in the economy is that it creates ways for companies to profit that would not persist in a free market. In the case of patents, the existence of these monopoly rights has given rise to the phenomenon of patent trolls.
What are Patent Trolls?
Patent trolls, also referred to as Non-Practicing Entities (NPEs), are companies that own patents but do not actively “practice” them. NPEs do not produce any economic goods themselves, instead, they sue other companies and attempt to extort settlements on the grounds of patent infringement. Not only do NPEs fail to exercise their patents, but these patents also tend to be very broad and non-novel. In other words, the ideas or technologies that NPEs have rights to do not represent real innovative contributions to the economy. Instead, their patents are purposely vague in order to give them more opportunities to sue real producers and innovators. Considering all of this, patent trolls represent a deviation from the standard dialogue on patents, as they cause all the stifling effects on innovation that can be observed with patents in general but have the added characteristic of failing to produce any beneficial good or service. In short, patent trolls are economic leeches.
A Systemic Problem
One of the fundamental lessons of economics is that companies must profit by serving the interests of the consumer. While this principle holds true in laissez-faire economies, government-granted monopoly privileges like patents have created opportunities for companies like patent trolls to profit without making any productive contribution to the satisfaction of consumer preferences. The optimist might hope that these instances of patent abuse are anomalous and thus not worthy of serious political attention. Unfortunately, the statistics belie these expectations. In just the first four months of 2020 patent trolls filed 470 lawsuits. To put those numbers in context, that is a 20% increase from last year and a 30% increase from 2018.
Preying on the Little Guy
The nature of these lawsuits only further illustrates the pernicious effect of NPEs. A substantial portion of NPEs’ lawsuits target small and medium-sized businesses. The reason for this steady stream of litigation against smaller businesses is that they are more likely to settle out of court to avoid the high risk and costs of the legal process. In other words, smaller firms are simply easier for patent trolls to bully. This is concerning given the importance of firms in generating real innovation and providing jobs.
Stifling Lifesaving Innovation
Finally, in the era of COVID-19, when real innovation in the health sector is more important than ever, NPEs have actively worked against the interests of the public. For example, the patent troll Labrador Diagnostics targeted a company that makes and distributes COVID-19 tests. This was done using patents acquired from a defunct blood-testing company, Theranos, whose CEO was facing fraud charges himself. There was also the example of Swirlate IP, a patent troll that sued five companies, including one which makes ventilators. Ironically, the lack of a truly free market (one without patents), has led to medical and technological progress being hampered by the greed of companies that prey on the true drivers of this advancement.
While politicians have taken emergency action to try to stop these NPEs, they have failed to address the root of the problem. The problem of patent trolls is one that precedes 2020 and if we are not proactive will follow us into the future. The existence of patent trolls speaks to the twisted profit opportunities that government-granted monopoly privileges, like patents, spawn. It is time to radically change how we approach the promotion and protection of innovation. Patents must either be radically restructured or eliminated.
Sebastian Anastasi is a sophomore economics major with a math minor from Grove City, Pennsylvania. Sebastian was engaged in the political process from an early age, advocating for changes to local ordinances and participating in competitive speech and debate. On campus, he heads up the tutoring offered by the economics honorary and serves as the student assistant to the provost. In addition to these roles, Sebastian is a member of Grove City College’s Debate Society and has taken state and national championship titles.
Sebastian works as an Assistant Editor for DFW Speech & Debate. He writes briefs and conducts research on key policy issues for DFWSD’s NCFCA Team Policy Sourcebook. DFWSD’s sourcebook is an academic resource utilized by over 500 high school debaters every year. Sebastian has served in similar capacities for other national sourcebooks, including serving as Project Manager for Ethos Publications sourcebooks. Research topics have including banking, monetary policy, immigration, higher education, and international terrorism.