One of the reasons why we fall for the erroneous idea that patents are good for society is because we greatly overestimate the importance of the specific individual or company making a discovery while being unaware of how the market process—via its various mechanisms like prices, the profit motive, and economic competition—plays a key role in innovation.
Competing firms, since they’re already in business competing with each other, contain information that must be relatively similar. If one competitor has information that leads to much more productivity and profitability, it would drive some competitors out of business, and it would also motivate competitors to copy the superior information thus leading to a state where, once again, all competitors contain more or less the same information and inevitably come up with further improvements and innovations. Which mind manages to stumble upon a new innovation has more to do with chance and circumstances than anything else.
Patents sometimes turn competitors—which are ultimately cooperators since they are constantly learning from each other as they compete—into bitter rivals. They give credit to one where many, or better said, the entire social order via the market process and worldwide division of labor, are involved. They slow down the market process by preventing further innovation by competitors whose ideas are based on patented ideas because they now have to pay large sums to patent holders. Patents remove competitive pressure from patent-holders thus making them lazier while their time and money go into the unproductive and damaging business of suing patent infringers, thus retarding technological progress. Since the patent system is overseen by a coercive, competition-immune, monopolistic government organization, it is bound to grow more inefficient and chaotic and also prone to manipulation by the better-connected.
At a fundamental level, there is matter and the information needed to reorganize matter in life-sustaining ways. Patents, just like regulations, simply create and spread paralysis in the market process that creates civilization. The information technology industry, although less regulated than the health care sector, provides a good example of how patents begin to paralyze an industry. Prior to 1981, computer programs and algorithms could not be patented and this helped spark the explosive growth of the computer-software industry. As Microsoft founder Bill Gates mentioned:
…if people had understood how patents would be granted when most of today’s ideas were invented, and had taken out patents, the industry would be at a complete standstill today. I feel certain that some large company will patent some obvious thing… If we assume this company has no need of any of our patents then they have a 17-year right to take as much of our profits as they want. The solution to this is patent exchanges with large companies and patenting as much as we can.
So Gates clearly saw how patents would lead to paralysis. Unfortunately, his solution at the time was not to argue for the abolition of patents altogether (which I don’t blame him for), but to attempt to protect his company by patenting as many things as possible with which to threaten and protect itself from others in this new ecosystem of warring and litigating patent-holders. Given the incentives, this is the strategy that works, thus we have bigger and bigger patent-holders fighting it out in order to progress relative to other companies. At the same time, they make it harder and harder for the little guy or new competitor to innovate, inadvertently paralyzing the market process.
Without patents, the social order is constantly improving and moving the best information which can be copied freely and quickly, but existing patents inadvertently disincentivize this ideal outcome and cause research and wealth to be diverted for the discovery of non-patented inferior information. For example, a whopping 78 percent of new drugs approved by the FDA are not “new” in the sense that they make some significant improvement compared to an existing drug; they are what are referred to as “me-too” drugs. These “me-too” drugs are usually inferior to drugs already on the market to treat the same condition, they simply allow competing drug manufacturers to enter the market to treat a condition where other companies might be making huge profits due to their patent-protected monopolistic position.
Innovating is a lot easier than people think. As cost-cutting ideas emerge and inevitably spread via competition, leading relative prices to continuously fall, new profitable ideas easily arise and once again spread via competition in an endless cycle of knowledge generation and innovation. For example, computers were once very expensive, but once the price of making them came down enough, people easily realized that every home could have them, which gave birth to our computerized world and the internet and all the great things that flow from it.
The world is vastly more innovative today than it was 200 years ago, not because we got any smarter as a species, but because the market process has made it easier to innovate. The market process and continuously-evolving worldwide division of labor can be seen as a sort of ever-growing ladder taking humanity up an infinitely high tree whose fruits are innovations. For the most part, all we have to do is easily pick them off the branches when the ladder gets us there. Very expensive endeavors that only seem profitable if granted patents can be seen as attempts to grab a fruit (innovation) that is currently too high up in the tree. We are better off just waiting for the normal technological progress to get us there by cheapening all related research and so on, instead of damaging the workings of the system (ladder) in an attempt to make gains that really leave us worse off due to the damage made to the system by patents.
The damaging pro-patent ideology also contributes to tensions between patent-enforcing nations and developing nations who are being coerced or erroneously persuaded to implement patents while also being softly accused of “stealing” ideas without proper compensation. This is rooted in the same fallacy of attributing innovation to those making the innovation as opposed to the market process. So-called “developed” areas like North America, Europe, and Japan became developed because the market process managed to work well enough in those areas to incentivize and coordinate minds in a way that so much information was created. This was done in spite of patents, not because of them.
Think about how truly unfair the following is: the Chinese had the misfortune of having much of their 20th century destroyed by war and a Communist economy which led to the deaths of tens of millions while the market process used millions of brains in the US to discover new ideas. Now that the Chinese increase their freedom and begin to have their social order somewhat coordinated by the market process, they have to pay royalties to the West.
Developing nations, like India and China, should not feel like they are “stealing” ideas from the more developed nations, and likewise, the United States should not be souring economic relations based on patent infringement which is surely a significant part of the economic saber-rattling that the economically-clueless, tribalistic Trump administration is doing.
The undesigned and evolved market process has an astonishing ability to organize the social order in increasingly-advanced and prosperous ways. This occurs in spite of cancerous government bureaucracies, wars, patents, and other misguided interventions that the “reason” of experts mistakenly believe are necessary creators or managers of social order, when, in fact, they are its major retardants.
Economists Michele Boldrin and David Levine, authors of the seminal and highly-recommended book Against Intellectual Monopoly (2008), conclude in their paper “The Case Against Patents”:
The case against patents can be summarized briefly: there is no empirical evidence that they serve to increase innovation and productivity… in spite of the enormous increase in the number of patents and in the strength of their legal protection, the US economy has seen neither a dramatic acceleration in the rate of technological progress nor a major increase in the levels of research and development expenditure… Our preferred policy solution is to abolish patents entirely…
For further reading see the section titled “Patents and Copyrights” in Murray Rothbard’s classic Man, Economy, and State with Power and Market.
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