There are 250,000 patents impacting smartphones

I'll keep this one short and sweet, because I've been writing about the topic of patents and smartphones a fair amount lately. But I thought this piece from Techdirt did an excellent job of illustrating my recent points, and I'd be remiss if I didn't share it here.

A new analysis shows just how insane the patent thicket is today. Done by "defensive" patent aggregator RPX..., the estimate is that a stunning 250,000 active patents today impact smartphones. 250,000. As the article notes that's one in six active patents today -- and for an industry that is certainly less than 1% of US GDP. As a comparison, the pharma industry, often put forth (inaccurately, in my opinion) as an area where patents make sense, has accounted for a little over 6% of US patents over the past 15 years. Also, there's this: 

... in the pharmaceutical industry, there are approximately 46.8 patents per every 1,000 jobs, whereas in the computer and peripherals equipment sector, there are 277.5 patents per 1,000 jobs. Even the semiconductor industry, known for its highly complex products, has a patent/job ratio of 111.6 patents per 1,000 jobs -- approximately 40% the rate of patents to jobs as the computer and peripherals market. 

It definitely appears that there's something of a "bubble" going on around smartphone patents -- which is what happens when you have a hot emerging area, combined with ridiculously broad patents. It also makes for an astounding minefield for anyone new who wants to enter the space, especially if you don't have a massive war chest to license or fight in court.

Wow. I'm not sure what else to add here, except to say that Apple has very definitely contributed to this growing bubble. Obviously, though, they're not alone.

[Techdirt]

3-D printing and patents

I've been writing a lot about 3-D printing lately (because I think it's awesome), and I also recently wrote a post about our nation's patent system (because I think it's broken). Last week, I came across an article from The Economist that brought those two topics together—in a way that might not make me particularly happy.

What could well be the next great technological disruption is fermenting away, out of sight, in small workshops, college labs, garages and basements. Tinkerers with machines that turn binary digits into molecules are pioneering a whole new way of making things—one that could well rewrite the rules of manufacturing in much the same way as the PC trashed the traditional world of computing. 

The machines, called 3D printers, have existed in industry for years. But at a cost of $100,000 to $1m, few individuals could ever afford one. Fortunately, like everything digital, their price has fallen. So much so, industrial 3D printers can now be had for $15,000, and home versions for little more than $1,000 (or half that in kit form). “In many ways, today’s 3D printing community resembles the personal computing community of the early 1990s,” says Michael Weinberg, a staff lawyer at Public Knowledge, an advocacy group in Washington, DC. 

As an expert on intellectual property, Mr Weinberg has produced a white paper that documents the likely course of 3D-printing's development—and how the technology could be affected by patent and copyright law. He is far from sanguine about its prospects. His main fear is that the fledgling technology could have its wings clipped by traditional manufacturers, who will doubtless view it as a threat to their livelihoods, and do all in their powers to nobble it. Because of a 3D printer's ability to make perfect replicas, they will probably try to brand it a piracy machine. 

Manufacturers of famous brands have had to contend with ripoffs since time immemorial. Whole neighborhoods exist in Hongkong, Bangkok and even Tokyo that turn out imitation designer handbags, shoes and watches. China has flooded the world with cheap replacement parts based on designs pirated from the original equipment manufacturers. 

But while the pirates' labour rates and material costs may be far lower, the tools they use to make fakes are essentially the same as those used by the original manufacturers. Equipment costs alone have therefore limited the spread of the counterfeiting industry. But give every sweatshop around the world a cheap 3D printer coupled to a laser scanner, and pirated goods could well proliferate... 

As with any disruptive technology—from the printing press to the photocopier and the personal computer—3D printing is going to upset existing manufacturers, who are bound to see it as a threat to their traditional way of doing business. And as 3D printing proliferates, the incumbents will almost certainly demand protection from upstarts with low cost of entry to their markets. 

Manufacturers are likely to behave much like the record industry did when its own business model—based on selling pricey CD albums that few music fans wanted instead of cheap single tracks they craved—came under attack from file-swapping technology and MP3 software. The manufacturers' most likely recourse will be to embrace copyright, rather than patent, law, because many of their patents will have expired. Patents apply for only 20 years while copyright continues for 70 years after the creator's death.

Oh, boy. I firmly believe that 3-D printing has the potential to transform the way that many industries—particularly those involved in manufacturing—operate in this country, and that it could even help our country to break its long-standing dependence on imported crude oil (if I don't have to ship a product to you, because you can print it yourself at home, then I can pretty much put UPS and FedEx out of business overnight, significantly cutting into the amount of fuel used in this country).

But it won't happen if we don't allow for the elimination of businesses made irrelevant by new technologies. Creative destruction has always been at the core of economic progress in this country (note: "economic progress" does not necessarily mean the same thing as "economic growth", as measured by the circulation of dollars—not all "wealth" is denominated in paper currency), and to the extent that patents impede this economic progress, they must be abolished.

I think we're reaching a very dangerous point in this country when it comes to patents and the way they are used—instead of being used as a tool to protect inventors and small business owners from being ripped off, they're now being used as a cudgel by the largest companies to protect their dominant industry position and create barriers to entry for smaller competitors.

If you doubt this assertion, please refer to this piece in yesterday's New York Times, which notes that Apple and Google this year spent more money on patent lawsuits and patent purchases than they did on research and development for new products. That's a new dynamic (it's the first year that this has been the case), and it's definitely not a positive one for our country.

When we put the interests of big business ahead of the interests of society at large, we put ourselves on a dangerous path toward economic stagnation and irrelevance. Unfortunately, the majority of public policy that has come about in the last decade has done just that—from auto industry bailouts to TARP to overly broad patent law to a whole laundry list of other programs and court rulings, the past decade has been a great one for big business, typically at the expense of the ordinary American.

We need this dynamic to reverse itself, because the nation's economic future is worth more than the income statements of its largest companies. Yes, they are different things.

[Economist]

P.S.- Another interesting dynamic to watch in the 3-D printing space is discussed in this article, which I didn't have the opportunity to address in this post. I don't think that guns are the best use of 3-D printers, but they're clearly drawing a lot of attention for various reasons. Interesting developing issue.

On patents and innovation

I'm often tempted to write a post about patent law and its ambiguous-at-best impact on innovation, but for some reason I never actually do it. In part, I think that's because I assume I've already covered it on the blog, but in searching through my history it seems like I haven't (maybe here, and here, kinda sorta, but those are sort of different points).

At any rate, in the wake of the overly broad and frankly pretty ridiculous court ruling that went in Apple's favor against Samsung in the companies' ongoing patent war, I thought this was a useful time to broach that topic once and for all. To set the table for this argument, I'll first share with you a nice little chart from Alex Tabarrok over at the Marginal Revolution blog.

In layman's terms, Tabarrok's chart argues that while some level of patent protection is necessary in order to protect intellectual property and encourage experimentation and innovation in the business realm, there comes a tipping point at which overly strong (or overly specific) patent protections become counter-productive.

At that point (which we have now passed), large companies begin to use their vast legal resources to patent everything under the sun (read this piece for an example of how it goes down), even those things which are not yet commercially viable and which they have no intention of bringing to market. They do this simply to protect their dominant market position, preventing smaller competitors from threatening their near-monopolies.

Apple, for one, has become particularly aggressive in its manipulation of patent law, literally attempting to patent every aspect of every product that it manufactures, in an obvious attempt to prevent competitors from entering into any market in which Apple operates. That's ironic, given Apple and Steve Jobs' well-known, unapologetic history of being an imitator and/or thief of other companies' intellectual property—but Apple doesn't care much about irony or intellectual consistency, just piles of money.

Regardless of the details of the cases discussed in that last link, Apple and Microsoft are indisputably stronger companies today because of the competition between the two of them (oh, and Xerox, don't forget about Xerox). Now, Apple is trying to stifle just that kind of competition in the present day, and so far courts are falling for it.

That may not last for long, though, if U.S. Circuit Judge Richard Posner (whom I've written about here and here) has anything to say about it. In this ruling and others, Posner has consistently referred to a "dysfunctional patent system" in this country, one that has run amok and now operates contrary to the public interest (that last remark is a direct rebuke of the primary justification of patent law in the first place). Will Posner be able to do anything about it? In the short run, it's doubtful, but I certainly hold out hope.

In the long run, our economy's only hope for rescuing itself from its current malaise is not via money printing or trade sanctions against China (so please, guys, seriously, stop trying that dumb shit), but through innovation—real, honest, serious innovation, the kind that makes us all legitimately more productive and prosperous. Our country has been great for the last century not because it has protected its largest corporations' market positions, but because it has allowed and enabled start-ups to thrive without smacking down their creations on dubious patent grounds.

So let's hope our country's future is determined a little bit more by Richard Posner and a little bit less by Apple—no matter how much you like your new iPhones, believe me, you shouldn't be rooting for Apple, at least not anymore. I know I'm not.

[Marginal Revolution]

Catching up on old drafts (a link dump)

I recently promised you all that I had a huge backlog of post-worthy material that I hadn't yet gotten around to writing about. Well today, I took a look at my unfinished draft posts... and it turns out I've got 17 of them, just from the last six weeks. Yeah, I may have the best of intentions, but there's no way I'm going to make it through a 17-post backlog without doing a link dump. So... here goes nothing.

Why Don't Women Patent?
Alex Tabarrok; Marginal Revolution

In this blog post, Tabarrok passes along a recent NBER paper that argued that if women studied science and engineering at the same rate as men, our total number of patents would increase by 24% and GDP would increase by 2.7%. Tabarrok points out that this argument is incredibly specious on multiple levels, and he mocks the finding by suggesting that if we churned out more female construction workers, the construction industry would boom and we would be building tons more houses.

While gender inequality is a serious issue that requires deeper discussion, doe-eyed (and naive) estimates like these only cheapen the argument. I'm reminded of Rob Reid's brilliant TED talk on the "$8 billion iPod", which points out the absurdity of "Copyright Math". This NBER study seemingly suffers from many of the same statistical shortcomings, and Tabarrok and I think it's another clear example of bad math.



Yelp, You Cost Me $2000 by Suppressing Genuine Reviews, Here’s How You Fix It 
Justin Vincent; justinvincent.com

Justin Vincent passes along his personal story about how Yelp's user reviews caused him to make a terrible decision when choosing a moving company, largely because the site's algorithms had blocked a number of negative user reviews that were, in fact, genuine.

I think this is an interesting follow-up to my previous post about "astroturfing" and the difficulties of determining which web product reviews are legitimate, and which aren't. I think we're all still figuring this puzzle out (both as companies and as consumers), and until we do figure it out, our best bet is simply to rely on good old word-of-mouth marketing. Yes, I mean word-of-mouth from real actual people that we know and talk to, not faceless "people" on the internet...

For Regulars and Restaurants, Many Happy Returns
Richard Morgan; Wall Street Journal

The Wall Street Journal's Richard Morgan shares a feel-good story about a loyal New York City man (Bruce Davis) who sits down at the same bar stool at the same Greenwich Village restaurant every night of his life, racking up an average of... wait a minute, $4,000 a MONTH in charges? Are you serious?

If ever there was an article that displayed the obvious gap in our country between the haves and have-nots, this article was it. Recall that median HOUSEHOLD income in the United States is just a hair over $30,000 (in pre-tax dollars, of course), while Mr. Davis spends nearly $50,000 in after-tax money at one restaurant alone. Yes, Mr. Davis' America is not most people's America, but then again, the Wall Street Journal is not most people's newspaper. It's been making that fact abundantly clear in recent months...

Joey Votto's New Contract Is Like a Mortgage-Backed Security
Jack Dickey; Deadspin

This post from Deadspin almost certainly deserves better than to be buried here at the bottom of a link dump, but so be it. In discussing Joey Votto's monster contract extension from the Cincinnati Reds in early April, Dickey made the comparison to a mortgage-backed security. I didn't see the parallels at first, but he did a terrific job of laying them out, and I think that the whole piece is worth a read, especially if you're a cable TV subscriber (yes, this impacts you whether or not you're a sports fan).

This just may be the best piece of sports-related journalism I've read so far this year--it in fact crosses over into financial territory, and it makes a whole lot of sense (it's also sort of terrifying). Given that the recent eye-popping $2 billion purchase of the Los Angeles Dodgers by a Magic Johnson-led group used similar modeling assumptions (and we know those are never wrong, right?), it's clear that the math around cable rights fees is a very pertinent topic. Read this piece and you'll understand how you're footing the bill for Joey Votto's contract, even if you don't know who Joey Votto is.