Patents no longer measure innovation

A lot of studies have used patents as a proxy for innovation. In a lot of ways that makes sense, because the basic idea of patents is to give the inventor intellectual property for an invention.

However, patents are no longer a measure of advanced technology. When Google tried to buy Nortel's patent portfolio for pi billion dollars it wasn't interested in the new ideas. They wanted weapons to use against Apple in a legal patent war. Apple isn't going directly after Google, but is indirectly attacking them by suing Android based mobile phone manufacturers such as HTC.

Unfortunately for Google, those patents were won by a coalition of Apple, EMC, Ericsson, Microsoft, Research In Motion and Sony which spent over $4.5 billion dollars on them. In the 1990's, Microsoft was the top tech company and its competitors used anti-trust laws because they weren't able to compete against them in the market place. Today, Google is the top tech company* and its competitors are using intellectual property laws to contain its growth. 

Microsoft become much more involved with D.C. after it had to deal with anti-trust issues. If Google decides to put some of that pi-billion towards stepping up its lobbying spending then maybe it can help reform a broken system while protecting itself from businesses who are abusing the patent system because they are being beaten in the marketplace. 

Regardless of what happens, now that the role of patents have changed people should stop pointing to increasing patent issuance as evidence of innovation.  It is evidence that more roadblocks are being put up against innovation. Economists looking to do studies should think about alternative metrics. Tyler Cowen likes to use studies about how the first invention (patent - there is difference, now more than ever) is happening at older ages and it means that the low hanging technological fruit has been picked. But it doesn't mean that it is harder for young people to think up new ideas, it is more likely that it means that patent generation has become a more bureaucratic aspect of business which is undertaken by older non-inventors. 

*Apple may have over 160 billion dollars more market cap than Google, but they are still running scared. 

About

I studied Bioengineering at the University of California at San Diego. While there I served as a trustee on the investment committee of the UCSD Student Foundation, a group that manages an endowment to fund scholarships. While in college I applied my interest in finance and economics by working as a summer associate at Clarium Capital Management, working part time my senior year, and joining full time when I graduated in 2006, staying there through August 2010. I am currently working as a portfolio manager at another global macro hedge-fund in the Presidio (And blogging about more directly market related ideas at their restricted blog). I’ve been focusing on quantitative finance, currencies, commodities, the interplay between finance and politics, demography and other long term trends.

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