[wahern]

By that logic Free Software wouldn't exist, not to mention codecs like Vorbis.

The logic of software patents systematically underestimates the existing incentive structures. That's because of the simplifications economists usually make. (See https://en.wikipedia.org/wiki/Assume_a_can_opener)

The assumptions underlying patents become less justifiable as

1) the pace of innovation in an industry increases, compounding first-mover advantage;

2) complexity increases, because integration of an invention into a viable product becomes much more difficult--often such that copyright and other IP protections alone are more than sufficient to provide a moat;

3) as financing becomes cheaper and potential markets larger the time horizon for and amount of ROI demanded by investors diminishes;

Those are especially applicable to many modern high-technology industries, software (Silicon Valley) and industrial (SpaceX).

Other industries have proven to be able to thrive without strong patent protections or even copyright protections for myriad other reasons. The fashion industry has thrived without strong patent or copyright protections, largely based on trademark and marketing. Likewise for the beverage industry and consumer foodstuffs more generally. Major automakers had poor copyright protections, and while they had stronger patent protections, as safety regulations increased they shifted to a market segmentation model such that the big auto manufacturers often freely license patents among each other long before the patent expires.

Economists, especially conservative economists, often argue against anti-trust, reasoning that as markets become larger (finance markets, consumer markets, etc), the typical lifetime of a monopoly become shorter--often shorter than the typical lifetime of anti-trust litigation.

I would argue that as markets grow larger and more fluid they're far more capable of discovering and leveraging sufficient incentives to support innovation in the absence of government-imposed monopolies. Especially in the realm of software, the circumstances where there's a legitimate market failure requiring patents are so uncommon that there's no reason to even entertain the notion of a software patent system.

In the absence of _manifest_, _systemic_ market failures, patent advocates make the same mistake Communists make--an inability to imagine how a market can support an endeavor is not evidence that a market is incapable of supporting that endeavor; it's merely evidence of one's own lack of information and imagination. And the surest way to introduce market failure is by dangling the prospect of government-imposed monopoly rents, artificially increasing the opportunity costs of discovering and leveraging all the non-obvious incentives that naturally exist or could evolve.

[rayiner]

Free software addresses a fairly limited universe of software, and often is bankrolled by some other monopoly or quasi monopoly. Where would web standards be without the trio of Google (advertising monopoly), Microsoft (operating system monopoly), and Apple (brand-marketing driven fashion company)?

The value of the patent system is that it permits decoupling. Compare the Wintel monopoly to the decoupled ARM ecosystem. It wouldn’t be better if mobile chip R&D had been bankrolled by Google’s say search business or Apple’s cell phone business instead.

[wahern]

  > The value of the patent system is that it permits
  > decoupling. It wouldn’t be better if mobile chip R&D had
  > been bankrolled by Google’s say search business or Apple’s
  > cell phone business instead.

I think your examples prove precisely the opposite. The development and emergence of smartphones were effectively bankrolled by Google and Apple. The mobile phone sector was stagnant while every vendor was busily pursuing IP monopolies (Wintel, Sun Java, etc). And in any event, ARM's intellectual property moat largely derives from copyright-like protections on its IC masks, not from patents. MIPS was also a contender early on, but importantly ARM won because it had strong SoC designs ready-to-go.

Your argument is a variant of the argument that by creating a transferable property right, we reduce the transaction costs of negotiating access to inventions. My point is that those transaction costs are dramatically overestimated (don't confuse complex or opaque for costly), and in any event far exceeded by the unintended costs of a patent system.

Importantly, when it comes to complex technology a patent no longer embodies the requisite know-how. People and companies don't lose much by giving away their secret sauce because very often the only people capable of applying and productizing it in a timely enough fashion to capture the lion's share of profits are the inventors themselves. Moreover, the best way for a market to discover who is best at leveraging an invention--if not the inventors--is by making it more freely accessible.

Also, the shift to SaaS and cloud computing means that complex systems never leave the control of their creators, anyhow. This is happening despite the fact that the patent system is supposed to incentivize disclosure.[1] Worse, the patent system makes it easier to stop competitors without substantial disclosure of the end-to-end systems. You can patent all the small sub-inventions, permitting you to block competitors, without every having to disclose the larger, integrated whole that makes it functionally useful in the market.

Even if the patent regime ensures that we get an MPEG codec that is 10% more efficient (or arrives 10% sooner) than an equivalent codec that would arrive in the absence of patent protections, is that worth allowing MPEG rights holders to effectively extort money from smartphone makers?

Because that's what we're talking about here. In this day and age, patents don't make innovation commercially viable; at best patents making them viable a little sooner and a little better. But the _costs_ are enormous, and I would argue far outweigh any meager benefit.

[1] Similarly, film and TV producers pursue DRM despite copyright protections, and despite the fact that DRM seemingly provides little marginal extra profits. The transactional costs to Hollywood of negotiating DRM would seem huge. But either the costs are less than they seem on the outside, or they're already making such huge profits that they can afford to try to lock down the market even more. But copyright was created to reduce the transactional costs of negotiating a locked-down distribution system. If companies are pursuing DRM anyhow, we really should question our presumptions about the necessity fo government intervention. For copyright we probably need some minimal protections (weaker than we have), but we can probably forgo patents altogether, especially in the realm of software.

Again, just because it seems that a patent regime would make a market more efficient doesn't mean that it would. Our measurements of efficiency might bear no relation to what a free market needs to maximize benefits. Communists thought they could devise a more efficient market in grain production, but obviously they missed or misjudged a few necessary incentive structures that allowed for a self-sustaining market (including secondary markets, etc) that maximized output.