A 2012 lawsuit between Apple and Motorola, where both companies accused each other of violating patents for smartphone components, drew attention to the general problems of the American patent system. Experts raise questions on whether the degree of patent protection that is currently provided in all markets, with no distinction by types of inventions or industries, is really needed.
When Patenting Is Good
The U.S. patent law grants a company that was the first to patent a particular kind of product with a long-lasting (typically for 20 years) monopoly for manufacturing and selling this product. Without this protection of intellectual rights, some industries could hardly have existed and developed at all. An example of such an industry is pharmaceutics. The patent system is essential for its survival for the following reasons:
- The creation and testing of a new drug is extremely costly, while manufacturing costs are low. If copying was possible right away, the inventing company would always be at a loss because competitors would be able to manufacture and sell the same drug without putting a single dollar into its development.
- Each new drug has to be tested for at least 10 years before it can be sold. A competitive advantage at the start that is gained through patent protection is necessary to compensate for such a long term of recoupment and associated risks.
- Being first does not create a durable competitive advantage in this industry. Customers do not typically associate a drug with the company that first started selling it.
When Patenting Is Bad
For the same reasons that patenting is good for the pharmaceutics industry, it can be destructive for other kinds of markets – those where the costs of inventions are low as compared to manufacturing costs, and those where being first creates a powerful marketing advantage by itself. The adverse effects are the following:
- Excessive resources spent by companies in order to speed the invention process up and file a particular patent first. In markets with low invention costs, improvements happen naturally as part of normal market competition. The benefit of “patent races” for customers is negligible (getting a new product several days earlier), while the extra pressure put on company budgets is considerable.
- The problem of patent trolls – companies that file patents not in order to manufacture a particular product (these companies do not manufacture anything at all) but only to sue others who will manufacture a similar product for patent infringement.
These problems can be solved by the abolishment of patents in industries that do not really need them, like most hi-tech markets.