Against Intellectual Monopoly

where it has a market share of over 80%. Because its technology underlies the
third-generation mobile-phone standard, Qualcomm has become a toll bridge that
all equipment-makers must cross.... The licensing practice began when Qualcomm
was young and struggling in the early 1990s, helping its cashflow. At first, the company made the mobile phones as well as developing the underlying technology, but in 1999
it sold its handset division in order to focus on the less tangible - and more lucrative -
part of the business. Today it spends almost $1 billion a year, or 19% of revenue,
on R&D.... In August [2005] Qualcomm paid $600m for Flarion, a firm with little
revenue but around 100 patents either issued or pending on a new generation of
wireless technology. If all goes as planned, this will allow Qualcomm to dominate the
next phase of high-speed mobile communications too.

    10. Lanjouw and Lerner (1996).
    11. The story of Panip IP is well documented in the press. See, for example, Pofeldt
(2003).
    12. Details of particular patent applications can be found at the U.S. Patent and Trademark Office Web site by entering the particular patent number, or by using Google
Patent Search.
    13. Two studies arguing that patents are good for small firms are Gans, Hsu, and Stern
(2000) and Mann (2004). The first is particularly interesting, as it proves what we
argue, only it reverses the value judgment; that is, it claims that competition is due
to inefficiencies in the market for ideas. The authors call the cross-licensing between
innovators and incumbents aimed at maintaining monopoly pricing for the cooperators "cooperative commercialization strategy," and conclude the following: "While
a cooperative commercialization strategy forestalls the costs of competition in the
product market and avoids duplicative investments in sunk assets, imperfections in
the "market for ideas" may lead innovators to instead pursue a competitive strategy
in the product market.... [F]irms who control intellectual property or are associated with venture capital financing are more likely to pursue a cooperative strategy"
(p. 30).
    Notice what this says: IP facilitates collusive behavior and the persistence of
monopoly. Competition and "creative destruction" come along only when IP rights
are weak or nonexistent. To which we say, "Exactly, Sherlock."
    14. Online at http://www.freepatentsonline.com/20050160457.html(accessed February
24, 2008).
    15. The Federal Circuit Court Opinion in this case can be found at http://www.ll.
georgetown.edu/federal/judicial/fed/opinions/00opinions/00-1464.html (accessed
February 24, 2008).
    16. For the views of the Justice Department on the relation between antitrust and
intellectual property see Klein (1997). Also in 1997, Xerox sued 3Com, maker of
the PalmPilot, over the "graffiti" handwriting recognition system. The Xerox patent
covered the "idea" of using a variation on the Latin alphabet to aid the computer in
recognizing the difference between different letters. Needless to say, Xerox never put
the idea to any good use, and the Xerox "invention" does not seem to have assisted
3Com in any material way in designing a useful working system.
    17. The Carnegie Survey is described in Cohen et al. (2000).
    18. Polaroid Corp. v. Eastman Kodak Co., 866 E2d 1415, 9 USPQ2d 1877 (Fed. Cir.
1989).
    19. Quoted in Bessen (2003), p. 2.
    20. Gilbert and Newbery (1982) develop a theoretical analysis of how and why strong
patent protection makes monopolists' preemption of competitive entry viable and, indeed, profitable. They conclude: "Indeed, a perfect market for R&D inputs [i.e.,
complete IP enforcement] gives the monopolist a credible threat that it would overtake any rival undertaking a competitive research program, which reduces the cost
of preemption to nil and makes the preservation of his monopoly costless and hence
doubly attractive" (p. 524).

    This paper was written in the late 1970s, before the current IP craze began, and
before the special Court of Appeals for the Federal Circuit was established, by the
lobbying of IP lawyers, to handle IP cases. Its content, including its optimistic predictions that this kind of preemptive activity may not become socially too damaging
because of the high cost of enforcing IP, sadly reads today as an unheard alert against
the social losses that increasing legal and judicial IP protection was bound to bring
on us.
    21. Mowery and Rosenberg (1998), pp.