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On Patent Law Again · 2005-06-25

I read this post by Axel H. Horn. I cannot comment on the issue itself, since I do not know what it is about precisely. Obviously it deals with the style of debate introduced by whoever. Anyway, Axel has got a comment section. This comment section is worth having a look.

Mr. Lammertink gives a short and easy to understand set of reasons to be concerned about software patentability. Well, Axel in turn takes the attorneys point of view and again does the same mistakes attorneys seem to be particularly vulnerable to.

O.K. let's start from scratch again. Axel states that patent law is in the first place to protect ideas. Why is this law there? The process of being innovative generates costs. If an invention is published once it might be copied by competitors who did not take the same costs. This would kill the inventor's incentive to actually bear these costs of innovation. Take Axel's example "vehicles tyres". What would we need to be innovative in the field of tyres, if we'd start from scratch? We would need to build the facility to build tyres, we would need to buy large amounts of input factors like rubber and energy and we would need to hire people to keep the facility up and we'd need an inventor. These costs would surely ad up to at least 20 million euro and 5 years of time to build the facilities and start experimenting. Now, what economic effect could we expect in the field of 'vehicle tyres'? 10% effiency gain? That would be a lot in industrial contexts, wouldn't it? So, if you'd take these costs it might be necessary to have patent protection to give time to the inventor to cash in and cover the costs he took, thus keep the incentive to be innovative up.

Now have a short look at the software development sector. What do you need to be innovative in this field? Well, basically a computer, a programmer and minor amounts of electric energy. Innovation cycles are very short in the software development field. Costs? Salaries, computer, energy for two years? 200 000 euro? Don't be too modest. Let's say 500.000 euro. The gains in efficiency can easiely be higher than 30%. The economic potential of computer implemented inventions is sky high compared to classic fields of industrial invention. The costs on the other hand are very very low. The claims that software patents are needed to attract venture capital are misleading. There is no need to attract large amounts of venture capital. See the big failures in the dotcom sector, they burned millions. See the big success stories. Two geeks and a garage.

This is why patent law will probably fail miserably if applied to the software sector. The costs to file a patent, to research patents in advance and to enforce patents will very likely be higher than those to actually invent. Well, there'd be one good thing about it. Patent attorneys could make a living from it.

The rest is undergraduate economics. Patents grant a monopoly. To gain rents a monopoly will provide less goods then a competetive market would provide. Furthermore it will slow down the pace of innovation. It might even stop desirable efforts. The society will most likely be worse off. Again in the industrial field patents are useful to keep up an incentive to innovate since innovation costs tend be very high. In the field of software development it will very likely do a lot of harm.

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