I have replied to this in detail in Are Patents “Monopolies”?

A patent gives the holder the right to exclude others from making, using or selling their invention. 35 USC 154. It does not give the holder the right to make, use or sell their invention. A monopoly is an exclusive right to a market, such as an electric utility company. An electric utility company has the exclusive right to sell electricity in a certain territory. Since a patent does not even given the holder the right to sell their invention, let alone an exclusive right to a market, it is clearly not a monopoly.

When a person describes a patent as a monopoly to be consistent they should also state that they have a monopoly over their car or over their house. In fact, they have more rights in their car and house than a patent gives the inventor over their invention, since you have a right to use and sell your car or house. A patent does not give these rights to an inventor over his invention. All invention are built upon existing elements (conservation of matter) and if the elements that the invention uses are patented, then the inventor will not have the right to sell their invention without a license.

Some economists argue that a patent is designed to give the holder monopoly power. Those economists who are consistent also state that all property rights give some monopoly power. The property rights are monopolies thesis shows how confused economic thought is on this subject. The only logically consistent definition of a monopoly is an exclusive right to a market.

People who suggest a patent is a monopoly are not being intellectually honest and perpetuating a myth to advance a political agenda.

For more information on patents and innovation see http://www.hallingblog.com.

A very frequent mistake is to use the term “IP” when describing various arrangements and business transactions that are governed by other laws and have nothing to do with IP at all. Not that I am a law expert but at least I had a couple of law courses at the university.

Cheers,
Peter

Thanks for taking your time to respond. I appreciate it.

I guess the scenario that I was trying to describe is one that happened to me. Around 2000 Kodak came to me and said my company was infringing a utility patent on single use cameras. We checked dates and found that the machines we created (which we believed were infringing on several claims in the Kodak patent once notified) were put into use long before Kodak filed for their patent.

In the end, I was led to believe that because we had been using what was claimed (but not necessarily intentionally keeping it “secret”) BEFORE the patent issued we could continue “infringing” and that this line of thought was coming from the law.

Perhaps I misinterpreted what was going on. Maybe we were “allowed” to just keep doing what we were doing because I could have invalidated the patent by showing that I used what was claimed prior to filing?

My last point was that IF my interpretation was correct then the “downside”, for someone who held their method/invention secret and which was then invented and patented by someone else independent of knowledge of the one being kept secret, was minimal. The downside that I see in that scenario (again, IF correct) is that there will be another competitor (one with a patent that now controls royalty flows and who gets a license). That is a “downside”, but even though there is another competitor you can continue “infringing” IF you can prove you were utilizing that idea/method before the filing date. That would make the downside minimal and may be a good “risk” to take when considering keeping a method/invention “secret”.

“First, a Patent does not give one the right to make something or utilize a certain process. It gives the right to tell others they can’t. I can hold a patent and not have the right to manufacture the product I hold the patent on.”

Correct. Because other patents may cover this.

“However, it is my understanding that if I can show that I was using a certain method, engineering, etc. that is claimed in a patent before the application was filed (or is it before the issue date?) then I can continue using the method that someone else has now patented – they cannot say I do not have the right to utilize it under their patent.”

This is too confused. It’s a technical qustion that muddies the water. It has no bearing on the policy issue.

But the long-short: it does not matter what is *claimed* in another patent for prior art purposes; but only what is described (it can be a magazine article say). The patent has a presumption of validity so you can still be sued. You have to prove it should not have been granted. One way to do it is to show that the idea was already described in a printed publication more than a year before the patent application was filed.

If it’s in another patent, that patent may, or may not itself cover your product–depends on whether it’s still in force (it could be old) and what the claim say, and whether *it* is valid.

Quite often you may be infringing both patents. They can overlap.

“In the case above then, if someone else invented and patented a method/invention that you had already come up with and were keeping secret, all you would have to do is show that you had been utilizing the method earlier, and they have no action against you. You can continue utilizing the method/idea previously as well.”

I am not sure what scenario you are describing, but no, in general, there is no prior user defense (there are a couple of narrow ones obtained by special interest lobbying).

“The only “downside” is now you have to share the market with one other competitor and that competitor controls the price of royalty and how many will be allowed to become licensees.”

I this is confused and inaccurate.

“Yes, but not all patents are on compositions. Some are on methods of making something. I corrrected Shay above who misstated the law, and corretly explained: “The real risk is that if you keep an invention trade secret, then someone else might independently invent–not reverse engineer–it, and then patent it.”

Correct me if I am wrong here Stephan…

First, a Patent does not give one the right to make something or utilize a certain process. It gives the right to tell others they can’t. I can hold a patent and not have the right to manufacture the product I hold the patent on.

However, it is my understanding that if I can show that I was using a certain method, engineering, etc. that is claimed in a patent before the application was filed (or is it before the issue date?) then I can continue using the method that someone else has now patented – they cannot say I do not have the right to utilize it under their patent. I will be the only other entity that can utilize the idea/method without paying royalty unless another party can prove that they also were utilizing the now-patented method/idea.

In the case above then, if someone else invented and patented a method/invention that you had already come up with and were keeping secret, all you would have to do is show that you had been utilizing the method earlier, and they have no action against you. You can continue utilizing the method/idea previously as well.

The only “downside” is now you have to share the market with one other competitor and that competitor controls the price of royalty and how many will be allowed to become licensees.

I agree that there is a real risk there, but the risk (if my understanding is correct) does not contain the ability to prevent you from continuing your use of the method/invention – it only prevents you from controlling the method/invention from a licensor/licensee perspective because you will not be the patent holder.

“Kinsella,
In the case of pharmaceuticals marketing a product means that the public can learn of the “composition of matter” (in a few minutes) and that is what counts. So your second point is also mute.”

Yes, but not all patents are on compositions. Some are on methods of making something. I corrrected Shay above who misstated the law, and corretly explained: “The real risk is that if you keep an invention trade secret, then someone else might independently invent–not reverse engineer–it, and then patent it.”

You seem to think this is not a real risk, based on yet another misunderstanding of the law. You are wrong.

“As I said before internalization of everything, not just IP, is based on conventions. Codification is just a reflection of the view of the society on this internalization process. [more babble]
So who forces who?”

The state uses aggression on private property owners when it takes their property and gives it to IP plaintiffs. Any more questions?

As I said before internalization of everything, not just IP, is based on conventions. Codification is just a reflection of the view of the society on this internalization process. The fact that it is a mess truly reflects the current view. However, going to one extreme will not generate any better consensus. In a truly Misesian spirit, I hold that social engineers should know their limitations and strive for consensus in this case instead of obfuscating the matter. Due to the fact that internalization is being based on conventions, consensus should be crucial for acceptance and for subsequent co-operation.

I think the point is that you can apply your non-IP approach under the existing system if you wish. (You can even publish your idea to be even safer.) So systems can compete already even under the existing regime. Let the participants decide.
However, pro-IP can not exist under your regime. Besides, all the unintended consequences come to surface if non-IP were to be introduced.
So who forces who?

Kinsella: “The real risk is that if you keep an invention trade secret, then someone else might independently invent–not reverse engineer–it, and then patent it. As there is no general “prior user right” or “independent inventor” defense (as there would be for copyright), the first inventor can actually be enjoined by courts from using his own secret process that he may have been using for decades.”

The moment you market your idea it is “Prior Arted” and prevented from being patented. Even if you don’t market it proper documentation can defend effectively your priority in courts during the provisional stage.

Andras, I’m not sure you know the law very well. First, it is true that if I publicly sell a product embodying my invention, this can create a statutory bar. However, there are two things to note here. First, there is a one-year grace period. (See J.A. LaPorte, Inc. v. Norfolk Dredging Co., 787 F.2d 1577 (Fed. Cir. 1986); In Re Epstein, 32 F.3d 1559 (Fed. Cir. 1994).)

Second, a secret use of an innovative process that makes products such that the public cannot learn of the process by examining the product does not trigger the statutory bar. See W.L. Gore & Assoc. v. Garlock, Inc., 721 F.2d 1540 (Fed. Cir, 1983).

I think it would be prudent for laymen with an opinion on IP policy not to based their arguments on technical details of a system unless they are very sure of them. This is one thing that is very frustrating when dealing with IP advocates: they are almost all utterly ignorant of how the IP system works. So when you start pointing out innumerable problems with the patent system, for example, they will agree with you, “Oh, I’m not in favor of that.” Finally they will retreat to something like “Oh, well, I am not in favor of the existing patent system–but rather a better IP system compatible with libertarianism that recognizes natural rights to one’s intellectual crations.” So then you say, “Okayyy, then what is the nature of this ideal IP regime you favor?” They reply: “Oh, I don’t know, I’m not a specialist!”

In other words, they have no idea what they are even in favor of, yet they opine on it anyway. They are so ignorant they seem not to realize that all the concessions they make to the obvious injustices we point out basically eviscerate the IP system they (apparently falsey) think they favor. As an example, if you point out the unjust results from derivative rights being part of copyright, they will say, oh, I’m not in favor of that–blissfully unaware that if you take derivative rights away, you are left with very little “copyright” left (this is the reason why Congress added derivative rights!). And if you point out how unjust it is that patent law has no prior user rights or independent inventor rights, the libertarian IP proponent wil usually say, “Well, there ought to be! I’m not in favor of that part of the IP system!” But then, if you were to modify patent law in this way, it would be very weak and frail–which is why the IP lobby would fight tooth and nail to keep this.

The moment you market your idea it is “Prior Arted” and prevented from being patented.
Even if you don’t market it proper documentation can defend effectively your priority in courts during the provisional stage.

“I find it ironic that real inventors tend to hate patents and everything associated with patenting. The idea that a patent provides “full disclosure” is totally laughable – and merely shows that the person expressing this belief never wrote a patent application himself.”

Do you have data to show that “real inventors (as opposed to “fake” inventors?) tend to hate patents and everything associated with patenting”. That is a really strong assertion and shows your emotional passion with regards to patents, but that does not make it fact. I’m from Missouri – SHOW ME. I believe someone like Dean Kamen would be considered a “real inventor” – does he have patents? Yes. Does it follow then that “all ‘real inventors’ tend to love patents and everything associated with patenting”? No. The same applies to your statement.

Also, your assumption is incorrect – I have over a dozen patents and have worked with the attorney on each one to write something that I am comfortable with. I have also participated in a patent case that went all the way to DC court of Appeals – I understand patents and patent law even though I am not an attorney. I don’t think this makes me biased, but it does make me knowledgeable about the patent system and how it works (perhaps not to the level of an attorney, but far more than the vast majority of the population). Before I was dragged into the system over 12 years ago, I expressed the same attitudes and beliefs that you do in an unconditional fashion. Once I went through the process more than once, and really understood what was being attempted (not necessarily succeeding) by employing a patent system, gray areas started to develop for me. One of those is listed above and regards the assumption that removing one “State boot” (IP System) while leaving others in place (legal, judicial, enforcement) will automatically improve allocation efficiencies. I question that assumption.

You are correct about writing the claims sections of a patent in the most vague way possible to cover as much as possible. Attempting to get more benefit for cost is not inherently bad or evil.

You are incorrect about the rest of the patent being vague. Detailed drawings and descriptions have to be included so that “anyone skilled in the art” can reproduce the idea by studying/employing the patent. That does not mean I can look at any patent and understand it or reproduce it exactly – even if I am “skilled in the art”. If you take a look at some utility patents, claims are generally 1-3 pages and description, drawings, and background are usually 10′s of pages or more. The only thing that really matters for enforcement is the Claims. For learning purposes though, the claims are pretty much irrelevant – the descriptions and drawings have value.

“The second logical fallacy in JB’s argument is the assumption that inventions are unique.”

I do not believe I make any such assumption. A patent system does not suggest that inventions are unique. It suggests that there will be a reward for trading certain “half-baked” ideas for a TEMPORARY monopoly based on “first-come-first-serve”. The idea is that a “race” makes for a good catalyst. A catalyst on the entrepreneurial process is seen as a good thing even though it is an “intervention” into the market.

The rest of your last paragraph is all assertions. I can appreciate your feelings, but just because you assert it’s true doesn’t make it so.

You can say all day that no patent system would allocate resources more efficiently, and I will say, “WHY” and “SHOW ME HOW” and refer you to my question regarding this assumption that I laid out above.

This is not quite right. To obtain a patent the applicant has to be the inventor. It’s a huge no-no to copy someone else’s idea and pretend he is the inventor. So if you reverse-engineer someone’s unpatented design, you are free to use it yourself, and either keep it secret too, or promulgate it; but you may not patent it. (See MPEP Sec. 2137.01; here (“only the inventor may apply for a patent …. If a person who is not the inventor should apply for a patent, the patent, if it were obtained, would be invalid. The person applying in such a case who falsely states that he/she is the inventor would also be subject to criminal penalties.”; 37 CFR 11.18(b) (on criminal penalties); 35 U.S.C. 102(f) (“A person shall be entitled to a patent unless – … (f) he did not himself invent the subject matter sought to be patented”).

The real risk is that if you keep an invention trade secret, then someone else might independently invent–not reverse engineer–it, and then patent it. As there is no general “prior user right” or “independent inventor” defense (as there would be for copyright), the first inventor can actually be enjoined by courts from using his own secret process that he may have been using for decades.

Also, the practical question isn’t whether the elimination of patents would eliminate many big and small companies, as it most surely would. The question is whether a similar (or greater) number would replace them. For absolutely any kind of law one can imagine, there will always be some businesses that it brings into existence, that would be unable to exist without it; this fact alone isn’t sufficient justification for the particular law.

B&L argue that the largest part of drug costs are associated with testing and approval process. I think they mention something like 2/3 of the total costs. There is no necessity for the manufacturer to bear the full costs of this. B&L mention financing this part from public income (as much as I oppose taxation, at least this is a genuine attempt to provide an alternative). But there are market alternatives too, such as: prize system, manufacturer pools, consumer protection organisations.

A further problem with this line of arguing is what Austrian economists call the impossibility of interpersonal utility comparisons. I can for example say that, in second world war, neurosurgery made huge advancements which would not have been possible without having the “material” (injured/dead people). This is a fact. However, I cannot use this as a justification for the war. There is no unit by which to measure and compare these two.

Cheers,
Peter

Having some association with patents my knowledge is that for the process from pending to approval to be successful full disclosure is required.

> If non-disclosure, “decreases pressure from
> competition and allows for higher prices”, how can
> non-disclosure or lack of full disclosure represent an
> efficient allocation of resources?
First let us take a look at the problem of competition from a more general view and then at the individual questions you provide.

One one hand, competition is good, because it it is an effective method for satisfying customers, who get lower prices and wider choice of products. However, if we had the theoretical situation of perfect competition (homogenous goods, symmetric information, …), noone would be able to make profit and nothing would be produced. This demonstrates that the optimum is somewhere between the extremes (monopoly vs. perfect competition). Where should it be? I don’t think this can be answered from a utilitarian perspective, so I approach it normatively as an anarchocapitalist: it is ok to make competition more difficult, as long as you don’t initiate force.

Now back to full disclosure: even full disclosure is a theoretical construct, because you can’t competely unbundle IP from rival goods. B&L mention the formula “E=mc^2″. Almost anyone knows it, it is fully disclosed. However, only few people can make use of it, others can only use products and services that others created by utilising this formula.

> If non-disclosure allows for higher prices, then doesn’t
> full disclosure in a patent system allow for lower prices?
This assumption is only valid if competition is not tempered with. If competition is regulated, you have two cost hierarchies to compare: the decreased costs as a benefit of full disclosure versus the increased costs that you need to pay to a monopolist, plus the costs associated with dealing with the patent system per se (research, patent office, court costs). Again, it can’t be determined in advance which one is higher, this is an empirical problem. I assume that in some cases, one is higher and in others, the other one.

> Not even necessarily on the same product – I can review
> patents on a product that only utilizes one
> component/aspect of my invention (from last year, or 40
> years ago, or whenever) and then try to make it a little
> smaller, bigger, faster, slower, etc. to fit MY invention.
The basic assumption you make is correct. But you need to take into account all the costs associated with the system. Even if you ignore the costs of externalities, you still can walk into a patent minefield or be stopped by a patent troll if you try to market a product. The more patents there are, the higher the chance that your product will infringe on someone’s patent and the higher the costs associated with patent research in order to avoid that.

> Agreed, but, from experience, if you try to apply for a
> patent that is that obvious, the patent office will turn it
> down on grounds of being “obvious” (literally, they will
> tell you this was “obvious”).
I can provide anecdotal evidence to the contrary, such as the infamous amazon one click patent. The patent applications are sometimes obfuscated, so that the obvious doesn’t look obvious.

>> “However, it is logical that with IP in the long run,
>> prices are higher and business models tend to be
>> more oriented towards a monopoly rent.”
> OK – this is an assertion. I don’t necessarily think it’s
> wrong, but I will ask the most important question: Why?
Well, IP gives (additional) legal protection to business models based on a monopoly rent. Intended or not, this encourages such models and the associated rent. Businesses do what makes them more profit.

> Thanks again for your post. Mises and the posters are
> always full of respect and courtesy even if they are not
> in agreement. That is to be applauded.
Thank you for your kind words, I try to remain professional, it doesn’t always work out though .

Have a nice day,
Peter