Against Intellectual Monopoly

without infringing some patent
held by someone else. A software innovator must, therefore, be ready to
face legal action by firms or individuals holding patents on some software
components. A way of handling such threats is the credible counterthreat
of bringing the suitor to court, in turn, for the infringement of some other
patent the innovative firm holds.
    Do our readers need more evidence of the fact that large corporations
are aware that both most of these patents are a social waste and are artificial
legal devices in the sense that their number can be increased or decreased
arbitrarily by purely legal means having nothing to do with actual innovations? Here you go: Mr. Bruce Sewell, from Intel, is reported as saying, "We
have 10,000 patents - it's an awful lot of patents. Would I be happy with
1,000 patents rather than 10,000? Yes, provided the rest of the world did
the same thing."7 Mr. John Kelly (director of IBM's "intellectual property"
strategy) points out, "Even though we have 3,000 patents [awarded annually in America] if we had to, I could make that number 10,000."8 Moreover,
how did Microsoft get into the patenting game? Here's the description:

    In 2003, Bill Gates ... faced a number of problems centered around intellectual
property. First, the company found it was being sued for patent infringement more
often and had to pay hundreds of millions of dollars in damages. Second, antitrust
regulators were forcing Microsoft to open its technology to rival to allow different
systems to work together. Third, the company recognised that its monopoly on
its operating system and desktop software would be eroded over time, in part by
open source alternatives, and wanted to delay that process. Lastly, Microsoft was
spending around $5 billion a year on R&D and wanted some revenue to help offset
that outlay.9
    This anecdotal evidence is backed by hard data. Lanjouw and Lerner
examined a sample of 252 patent suits. They find that their data is consistent
with the hypothesis that preliminary injunctive relief is a predatory weapon
in patent cases.10
    This situation is akin to that of the cold war, when we used to hold
thousands of expensive nuclear weapons for "defensive purposes." Here,
firms are spending vast amounts of money to obtain and hold defensive
patents. This leads to an equilibrium that is equally socially bad (because
lots of resources are spent to build weapons that should never be used) but
desperately more insane than the "threat of mutual assured destruction" was
during the cold war. Then, at least, we were trying to protect ourselves from
a real and external Communist threat we had not created. In the current
defensive patents equilibrium, there is no external threat to our well-being -
the threat is entirely one we have created by picking the wrong legislation.
    In short, a vast expenditure in defensive patents is entirely a product of
our "intellectual property" legislation. By allowing intellectual monopoly,
and because the courts and patent office allow more and more outrageous
claims, there is an enormous incentive for rent seekers of all kinds and shapes
to waste resources in obtaining patents solely to blackmail innovative firms
and extract rents from their creative activity. This is exemplified by Panip
IP, LLC, a company formed to collect from small businesses using patent
claims." Consider the company's proposed interpretation of two patents
that it holds:'2
    • U.S. Patent No. 5,576,951: Using graphical or textural information on
a video screen for the purpose of making a sale.
    • U.S. Patent No. 6,289,319: Accepting information to conduct automatic financial transactions via a telephone line and video screen.
    Obviously, the company has contributed nothing of significance to either
of these broad activities, but their lack of innovation has not prevented it from threatening numerous small businesses with lawsuits alleging patent
infringement. Typically, the company sets the licensing fee sufficiently low
so that it is less costly to pay the fee than to go to court.

    It is often argued that, especially in the biotechnology and software
industries, patents are a good thing for small firms.13 Without patents,
it is argued, small firms would lack any bargaining power and could not
even try to challenge the larger incumbents. This argument is fallacious
for at least two reasons. First, it does not even consider the most obvious