More on Bessen and Meurer
As we pointed out last week, nearly all of the economic evidence shows that patents tend to do more harm than good. Researchers James Bessen and Michael J. Meurer (perfect timing again) have gone into a little more detail as to how much damage is done, but I wanted to focus on why the downsides to patents are so often worse than the upsides.
Mike addressed the disclosure theme:
Another popular claim is that patent benefit us via "disclosure." Because patents require the inventor to "disclose" the invention, the idea is that these patents will spur additional innovation as others learn from the patents and build on them. The idea is that there's obvious benefit in keeping the idea secret, so in exchange for disclosing the idea, the government gives the inventor a monopoly. However, this is easily shown to be false. First, very few patents these days are written to the point where they actually disclose enough to be useful. They tend to be broadly written in a way that can cover as much as possible. However, there's an even better simple logical rationale for why disclosure is a myth when it comes to patents. If the inventor truly believes there's tremendous value in keeping the idea secret, he or she will still keep it secret. There's no real benefit to disclosing it to get the patent. You get just as much benefit from keeping it secret. The only benefit is if you think that others will be able to figure out the same concept in less time than it takes for the patent to expire. In other words, if you realize that others will be able to come up with the same thing in that amount of time. So getting a patent prevents others from doing that. But if you truly believe that it would take longer than the length of the patent to figure out its secrets, then you'll keep it quiet anyway.
Mike doesn't mention the Chester Carlson story. Mike also doesn't mention the "plagiarize with pride" article in the Harvard Business Review.
Bessen and Meurer are quoted in a InformationWeek post about Apple being sued over the iPhone:
Bessen and Meurer claim that "in industries other than chemicals and pharmaceuticals, defense against American patent lawsuits amounts to 13% of R&D spending by defendant firms (19% in 1999). In contrast, our studies of patent value indicate that worldwide patent value amounts to only 6% of R&D spending by these same firms. The result -- patents impose a tax of at least 7% on R&D investments outside of the chemical and pharmaceutical industries."
IAM magazine contains some criticism of Bessen and Meurer:
End Software Patents gets to this amount by relying on work done by James Bessen and Michael J Meurer. This involves accepting that Bessen and Meurer are correct in assuming that 25% of all US patent litigation is software-related; and then accepting a subsequent claim by the two that the average cost to a company involved in patent litigation was $28.7 million in 1992; an amount which equates to $43 million in 2008. By multiplying the number of alleged software suits by 43 million, End Software Patents gets to $30.4 billion.
What End Software Patents fails to point out is that Bessen and Meurer make no distinction between the types of patent they are talking about. Instead, their figures relate to all patents – from software, through mechanical to pharmaceutical. Crucially, the organisation also fails to state clearly that the amounts quoted by Bessen and Meurer actually relate primarily to falls in market capitalisation when suits are announced, not to the direct costs of fighting suits or to the lasting effect such litigation has on a company’s share price or its financial performance. And at no stage do Bessen and Meurer examine any potential benefits in engaging in patent litigation, such as the maintenance of market share, the protection of product lines or the generation of licensing revenue.
So, when End Software Patents states in its revised press release that “Software patent litigation costs US companies $30.4 billion annually”, what it actually means is this: “We have taken the findings of a study that looks at the overall cost of a patent suit being inaugurated in any field of technology to extrapolate that software patent litigation costs US companies $30.4 billion every year. We have done this by accepting that if you look at the behaviour of share prices when a suit has been announced you will see a dip amounting to an average of one half of one percent of overall value. What we have not done is differentiate between various types of patent to see, for example, whether there is a difference in what happens to the share price of a pharma company that is engaged in litigation over a blockbuster drug and the share price of a large technology company that is sued by a patent troll. Furthermore, we have not reported that the median cost found by Bessen & Meurer was actually $2.7 million and we have not sought to explain why the median is so very different to the mean or to consider that the difference may actually be accounted for by the way markets react to litigation in the pharmaceutical industry, where the actual or potential loss of a patent relating to a blockbuster drug can see major falls in a company’s share price. And on top of all of that, we have decided to assume that there can be no positives in getting involved in litigation and have decided that the costs it creates are nothing more than a waste.” All of which is less snappy, obviously, but maybe a bit closer to the truth.
The bottom line is that even if you accept the findings of Bessen and Meurer without question, it is very difficult to see how you can, in good faith, get to a statement that: “Software patent litigation costs US companies $30.4 billion annually.” Bessen and Meurer do not say this and they do not provide figures that can allow anyone else to say this. What they do show is that patent litigation in the US can be very expensive, not only directly but also indirectly – which will hardly come as a surprise to anyone.
[IPBiz note: there has been further discussion of the March 2 post.]
**Separately, one can contemplate the following words, applied to the recent fraud of Kim over "magjc":
Some scientists have complained recently that top journals are rewarding novel results over rigorous research. Perhaps journals should hold higher standards for replication of data before it is accepted for publication. And we should be more mindful of the difference between optimistically embracing a new finding and rushing to accept it before the result has been tested and repeated -- in effect, fully subjected to the scientific method, slow as it may be.