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. 
2 responses
A pretty good radio piece on this exact topic was aired on NPR by Ira Glass this weekend. It analyzed patents held by Intellectual Ventures and other "patent troll"/ patent holding companies. It culminated in the discussion of companies like google and apple buying up patents simply for defense of suits from one-another. And did some good investigative journalism to demonstrate the shell companies the larger corps are setting up to engage in this fight.

Worth listening to if you are at the gym or out for jog. Article was called "when patents attack."

Patents clearly are no longer innovative in much of the software and tech world, in that, you and I agree. The bureaucratic/legal minefield that forces small to midsize companies to license worthless/groundless patents or bankrupt themselves in court clearly is not conducive to innovative research or the monetization of NEW ideas.

Chris, thanks for the comment. That was quite an interesting article. It's a shame that companies such as IV can get away as leeches on society. It would be nice if congress focused on a useful problem like this since this type of government regulation has the potential to disrupt economic growth far more than a little more extra redistribution does.