Innovation and Patents

Collecting requirements, designing new products, and innovation. These tasks closely relate to concepts, such as interlectual property rights. From the economic perspective, interlectual property rights, such as patents or copyrights, shall make sure that an inventor can market his invention for a certain time span at monopolistic prices, as he is made the only vendor on this market.

This measure, shall make sure that the inventor can earn back his costs of innovation, and that he thus has an incentive to innovate.

Patent Infringements

Today I read in the New York Times that → Nokia Sues Apple for Patent Infringement. In the article you can read that the case deals with several patents and relates to the following areas:

„The patents cover wireless data, speech coding, security and encryption and are infringed by all Apple iPhone models shipped since the iPhone was introduced in 2007, Nokia said.“ –

With a simple search in the internet, you will find several articles about recent patent cases in the software industry. I do intent to judge on any of these cases,  however, the following questions are interesting to me:
  • Are patents favorable, or not for the innovation level of a firm, or industry?
  • Which strategy to use in terms of interlectual property?

Benefits of Interlectual Property Rights?

The opinions about the influence of patents on the innovation level of an industry vary. Some think that patents are positive. Others think that patents hinder innovation. In their study SEQUENTIAL INNOVATION, PATENTS, AND IMITATION James Bessen and Eric Maskin describe an economic model, which is used to estimate the influence of patents on the innovation activity.

They come to the following results:

„How could such industries as software, semiconductors, and computers have been so innovative despite historically weak patent protection? We argue that if innovation is both sequential and complementary—as it certainly has been in those industries—competition can increase firms’ future profits thus offsetting short-term dissipation of rents. A simple model also shows that in such a dynamic industry, patent protection may reduce overall innovation and social welfare. The natural experiment that occurred when patent protection was extended to software in the 1980’s provides a test of this model. Standard arguments would predict that R&D intensity and productivity should have increased among patenting firms. Consistent with our model, however, these increases did not occur. …. Bessen, Maskin on the SSRNetwork → Sequential Innovation, Patents, and Imitation

For the following reasons I tend to think that patents hinder innovation:

  • The discussion about social media, and social internet technologies shows that principles, such as common innovation, crowdsourcing, open software, etc lead to a positive result.
  • In the early years of the software industry, sharing was quite common. This was also the time of the highest innovation rates.

Patent Trolls

When innovating you might come about a particular species: The patent troll. Patent trolls do not innovate, but buy patents with the following models in mind:

  • „Purchases a patent, often from a bankrupt firm, and then sues another company by claiming that one of its products infringes on the purchased patent;
  • Enforces patents against purported infringers without itself intending to manufacture the patented product or supply the patented service;
  • Enforces patents but has no manufacturing or research base; or
  • Focuses its efforts solely on enforcing patent rights.“ – see

If you carefully look into recent patent cases; several of them were forwarded by such tolls. Their activities rather seem to have a negative influence on innovation. The same article provides more information about counter measures, such as follows:

  • „Design arounds can be a defense against patent trolls. The amount of license fee that a patent troll can demand is limited by the alternative of the cost of designing around the troll’s patent(s).
  • Patent watch. Companies routinely monitor new patents and patent applications, most of which are published, to determine if any are relevant to their business activities.
  • Clearance search. A standard practice is to perform a clearance search for patents or pending patent applications that cover important features of a potential product, before its initial development or commercial introduction….
  • Opposition proceeding. In Europe, third parties may conduct a proceeding to oppose overly broad patents. There is a more limited process in the United States, known as a reexamination….
  • Litigation. Whereas some companies acquiesce to a troll’s demands, others go on the offensive by challenging the patents themselves, for example by finding prior art that invalidates their patentability. They may also broadly challenge whether the technology in question is infringing, or attempt to show patent misuse. If successful, such a defense not only wins the case at hand but destroys the patent troll’s underlying ability to sue. Knowing this, the patent troll may back down or lessen its demands.
  • Early settlement. An early settlement is often far less expensive than litigation costs and later settlement values.
  • Patent infringement insurance. Insurance is available to help protect companies from inadvertently infringing a third party’s patents.
  • Defensive patent aggregation, the practice of purchasing patents or patent rights from patent holders so they don’t end up in the hands of an individual or enterprise that can assert them. …. – see

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