Welcome back to our course on Protecting Business Innovations via Patents.
Now one question that you might ask about patents is,
patents are a strong,
strong form of monopoly,
but why do governments do that, what's the benefit?
Well first, what do we mean by Patent Monopoly?
Well, a Monopoly is anything that restricts competition.
So monopoly inherently is a restriction of competition,
and patents by their very nature are defined to restrict competition,
to prevent people from making,
selling, using, a product without permission of the patent holder.
Well that's a monopoly,
and governments are creating that.
So Intel has patents on their microprocessors.
Synthetic Diamonds can block other people
from making diamonds using the process that they have.
These create effective monopolies over some products or services that can be provided.
And you might ask,
"Why do governments do this?
Because I thought monopolies were a bad thing."
Now we're going out of our way to license them,
to give them to companies.
"Here have a monopoly."
Why is that a good thing?
Well there are benefits to patent monopolies.
There are reasons why governments would want to do this.
Obviously, there are reasons companies would want them.
I mean, it's profitable.
Any kind of monopoly got you the chance of maximizing profitability.
But why do governments want to do this?
Well first, it encourages creation of useful products.
Remember, a utility patent can only be obtained on a useful product,
and therefore, governments want to encourage useful products to be invented.
By issuing patents, we encourage more investment, more activity,
more companies making things that benefit society.
The alternative before there were patents,
utility patents issued, was companies would keep everything as a trade secret.
And by keeping it is a trade secret,
that meant that other companies couldn't know what was done,
what was out there.
The trade secret might last for longer than 20 years.
And so the trade off was, let's get publication,
let's get this into public domain,
and in return we'll give you a 20-year monopoly.
We'll give you a limited time monopoly,
but we want it published,
and we want it public domain, not trade secret.
And we only want to do this for a new innovation.
So therefore, we will encourage new innovations that get published,
that are not held as trade secrets.
And this is useful for society to
encourage a free and open society with lots of innovations,
and investments and innovations for limited periods of time.
The benefits of publication are that,
you've got a temporary monopoly,
but it's limited in time.
And also, it's much easier for companies to license to other companies.
So you could have a patent,
which gives you protection for
your invention but then they'll license that technology to many other companies.
So many of the patented technologies in
cell phones are licensed from one company to another,
so that we can have lots of cell phone manufacturers benefiting from this technology.
But we have an underlying patent on the technology,
so that the patent holder may be a small company in
Japan that has a patent on a way of charging batteries more efficiently,
that's used by both Apple and Samsung and many others.
They can get a fee for that,
and that small business is encouraged to be innovative and pioneering,
and can become very successful.
And other companies can leverage that.
So they get paid but they don't have to keep it a trade secret.
The costs are real though too.
There's a downside to these patent monopolies.
You have less competition obviously,
so prices are going to be higher,
sometimes much, much higher.
And these high prices may harm consumers.
So for example, medication that may save your life,
because it's patented, may cost you more than you can afford.
So you die because you can't afford the drug that would keep you alive.
That creates some issues for society,
and we say that may be a harm.
But you might have died anyway if nobody cared enough to invent that medicine.
So we want to encourage invention,
but we are concerned about the impact on society.
We also, because of patents,
have lots of lawyers having jobs.
Now if you're a lawyer,
you might think that's a good idea.
But if you're a society, you may say,
all these lawyers fighting each other in
court mean that the prices of products have to be higher,
because we've got all this legal overhead to cover in our costs.
So that's more cost for society,
more cost for companies,
more cost for consumers.
It also may discourage business innovation.
You might say, "Well, wait a minute,
you said patents would encourage innovation?" And they do.
But when you get so many patents,
and lots of patents,
and lots of legal fees,
you may reach a point where small businesses,
"Every time I turn around and invent something new,
I'm going to be sued.
What's the point? I just give up.
It's too costly. It's too hard."
And especially as one entrepreneur described,
and we'll talk later in a video, he said,
"I've got five engineers and scientists working for my company, and six lawyers.
Do I really need six lawyers and five people producing the product?
I've got more people protecting me from lawsuits than I do inventing things,
which are valuable and getting funded by a VC."
So there may come a point where you say,
"Too much of a good thing may not be so good."
Now patents are expensive.
They're difficult to get,
they're expensive to apply for,
they're expensive to sue over,
and they're expensive to be sued over.
Lawsuits are expensive and they can take a lot of time.
The application for a patent takes a lot of time, money,
effort for both companies and governments.
There's a lot of work on the government side in approving a patent.
And a lot of cost of litigation for the government as well as for corporations.
So patents are difficult to get and expensive to maintain,
support, or sue over.
And sometimes people ask is it worth it?
Is the benefit that comes from having a patent monopoly worth
the costs to society and to the government of patents?
Mostly, the answer is yes.
In general, the government feels like it's worth the cost.
Society feels like it's worth the cost.
There are some issues,
and there are some times when the government may come back and say, "Wait a minute.
We gave you a patent.
We like that but you're too much of a monopoly provider in chips now for PCs.
And so Intel, even though you have a patent,
we're going to require you to license
some parts of your patented technologies to other companies."
And so Intel may be required to license.
They can get a feel for it, a reasonable fee.
But they may be required to license even though they've been granted a monopoly.
Or a lifesaving drug,
you may require that companies allow others to manufacture.
They can get a reasonable fee,
to be determined by the government,
but not block people from competing
entirely with their production if they can't save all the lives that might be saved,
by having more people than one make this cure.
It's not frequently done but it's possible.
Bottom line, overall, the general conclusion is that
governments and society feels like patents are worth the cost.
The benefits of issuing these patents outweigh the costs.
But they're not free.
And it's not without some debate.
There are trade-offs, and we have to think about
benefits and costs for society. Thank you.
Theodore Henry King CLARKAssociate Professor
