By itself, knowledge is a public good. It's not excludable (I can't block non-payers from getting it) and it's not rivalrous (your use doesn't reduce its value for someone else).
Public goods are chronically undersupplied in a normal market situation. Providing them imposes a cost on the provider, but because the good is non-excludable you're relying on the goodness of consumers to pay for it. Some will, some won't, but the net amount recovered will be less than it would be otherwise.
So what do we do about the undersupply of public goods? There are a variety of options. Taking knowledge as a particular example, one option is the patent system, which grants a temporary legal monopoly on the claims in the patent. It creates an artificial excludability that allows the provider of the knowledge to recover more of the cost of providing it. Overall that should raise the production of knowledge.
But, you say, that reduces competition. And sometimes it will. But many ideas can be substituted and so the competitors will patent different things. In fact the monopoly of the competitor gives them an incentive to find new ideas that the competitor hasn't found yet, an incentive which was weaker in the original situation.
The alternative is provision through a central supplier, typically: government. But it turns out that the costs of developing knowledge still remain, so how are they paid for? Taxes, essentially. Generally speaking the costs work out to be about the same, but become differently distributed. Instead of knowledge being created by active, incentivised parties who can then get a return from those who value the knowledge most, the incidence of cost falls on everyone.
Someone who doesn't value that knowledge gets ripped off, and someone who values it very highly gets subsidised.
That said: pure research almost always needs to be publicly subsidised because, by very sensible policy, the laws of nature can't be patented. And representatives passing public budgets can give consideration to which public goods ought to be subsidised, beyond the cold light of economics, as a principle of fairness or morality or furthering humankind.
But most knowledge is not pure research. So either we pay for it with taxes, or we pay for it with patents, or we pay for it by getting less common knowledge. Nothing comes for free. Not even ideas.
A very nice, very theoretical answer. But how are software patents actually used in practice? As drivers of innovation, or as a way to use not-too-clever-but-essential ideas as a moat to keep out competitors?
Absolutely as a moat, that's what makes them valuable. The point is that the moat becomes a public good once the patent expires. The moats would exist without patents, but there would be less total knowledge and less competition for an indefinite period, rather than a fixed one.
That greed is a motivation for obtaining a patent doesn't make them bad, any more than my decision to care about my wages makes me bad. Greed will exist either way, the question is how best to direct it towards maximising the total good.
> moat becomes a public good once the patent expires
I have heard this argument a lot of times, but I don't see how it applies to software patents in particular. At one of the previous jobs, I was doing some research, and there were lots of useful inputs: conference/journal papers, technical reports, thesises, and so on. The only exception are software patents -- I have never learned anything from them.
In all of them? I doubt it. I can believe that some software patent somewhere have a clever idea that is not described elsewhere -- but I still have to find such patent.
Let's take for exa/mple first google hit for "software patent", which for me is https://patents.google.com/patent/US6353926B1/en "Software update notification".
In my opinion, it is completely useless.
- It has nothing particularly innovative. It describes a specific Windows update mechanism in needless details -- while it is a solid design, most engineers, given the same problem, would come up with similar design. I know I did, and I did not know anything about OSD, CDF or windows update subsystem at all.
- It does not present information clearly. The text is hard to read and needlessly complicated. There are better sources of information about this topic -- I am sure there is a MSDN article and a dozen of blog posts which describe this much better.
- It did not even motivate the inventor! I am almost sure that whatever motivation Microsoft had for promoting Open Software Description standard, it was not to get this patent.
So what good is this patent? As far as I can see, there is no public benefit at all. The only value is for Microsoft, so they can threaten others and stifle competition.
> Public goods are chronically undersupplied in a normal market situation.
We already have strong intellectual property protections, and yet you still claim we have an undersupply of those kinds of public goods?
Is there a lack of software being produced?
Is there a lack of books? Of blogs?
If the right software algorithms or the right books or blog posts aren't being written, isn't it because we've broken culture to discourage sharing? Every good idea that generates the next great algorithm or the next amazing book or blog post is sparked mostly by other people's work. Standing on the shoulders of giants and all that.
What we've done is to discourage free exchange of ideas and writings, without actually preventing it (piracy is still commonplace, just not in polite company).
Western society has fetishized the ownership of practical ideas (inventions), as well as words and pictures and sounds, despite no evidence that it actually helps promote progress.
IP creation is high-risk even with current IP protections. Reward (for labor) is highly variable. Most work ends up not being worth much. So the reluctance of most people to toil to invent something is due to not having the financial security (financial independence or a secure job) to do that. Most people who aren't famous can't live on a book advance, and there's no model for advances on not-yet-patented inventions. IP protection does not remove those barriers.
> In fact the monopoly of the competitor gives them an incentive to find new ideas that the competitor hasn't found yet, an incentive which was weaker in the original situation.
In the software patent world, when that happens, the competitor typically isn't inventing new groundbreaking ideas as a result of being forced to; they're hacking around the patent in very obvious ways, sometimes resorting to sub-par alternatives. Why? to avoid paying a ridiculous patent license fee which the patent holder is using as a moat rather than the original intention of recouping whatever sales they'd lose to their competitor.
Companies like Apple and Amazon, if they don't get to wage cold wars against their competitors for things like 1-click or whichever corner or symbol you use to get your phone to do something, would soldier on and continue selling mobile devices. Not only would it not make any difference to anyone, but it would increase interoperability since companies would be more likely to reuse familiar design patterns.
Here's a pure algorithm-design case study on the horrible effects of patents even by non-trolls: h.265 patents discouraged and slowed down mass adoption and prompted a bunch of major companies to waste a lot of time developing a marginally superior but much less efficient alternative in AV1. And for what? What poor starving coder wouldn't have developed h.265 except for the piles of gold bars they received for their effort? Wait... they did get piles of gold bars, didn't they?
> We already have strong intellectual property protections, and yet you still claim we have an undersupply of those kinds of public goods?
Normal market situation here refers to a competitive market without government intervention. Copyright, trademarks and patents are all government interventions. These greatly improve the attractiveness of creating software and publishing books.
> Every good idea that generates the next great algorithm or the next amazing book or blog post is sparked mostly by other people's work. Standing on the shoulders of giants and all that.
This is what I mean by knowledge being a public good. When it is shared, it becomes more valuable to society as a whole. But if sharing it is a burden with no prospect of profiting, less sharing will occur. Everyone wants to have a fire service, for example, but unless there is some mechanism to ensure everyone chips in, fire services will be undersupplied.
> What we've done is to discourage free exchange of ideas and writings
Patents are public. Trademarks are public. Copyrighted works are submitted to national libraries.
It's harder and more expensive to get unpatented work. I can download any patent from the USPTO free. If I want to read a paper published by the ACM or IEEE then there is a good chance I'll have to pay for it.
> In the software patent world, when that happens, the competitor typically isn't inventing new groundbreaking ideas as a result of being forced to; they're hacking around the patent in very obvious ways, sometimes resorting to sub-par alternatives.
And sometimes they will come up with better alternatives. But without having the patent being public, they wouldn't have anywhere to begin, because the details are completely secret. Patent coverage can last for 20 years, but the concepts and possibilities it can create start from the instant the application is first published. Whereas a company sitting on the idea for 20 years doesn't spark anything. For anyone. At all.
Public goods are chronically undersupplied in a normal market situation. Providing them imposes a cost on the provider, but because the good is non-excludable you're relying on the goodness of consumers to pay for it. Some will, some won't, but the net amount recovered will be less than it would be otherwise.
So what do we do about the undersupply of public goods? There are a variety of options. Taking knowledge as a particular example, one option is the patent system, which grants a temporary legal monopoly on the claims in the patent. It creates an artificial excludability that allows the provider of the knowledge to recover more of the cost of providing it. Overall that should raise the production of knowledge.
But, you say, that reduces competition. And sometimes it will. But many ideas can be substituted and so the competitors will patent different things. In fact the monopoly of the competitor gives them an incentive to find new ideas that the competitor hasn't found yet, an incentive which was weaker in the original situation.
The alternative is provision through a central supplier, typically: government. But it turns out that the costs of developing knowledge still remain, so how are they paid for? Taxes, essentially. Generally speaking the costs work out to be about the same, but become differently distributed. Instead of knowledge being created by active, incentivised parties who can then get a return from those who value the knowledge most, the incidence of cost falls on everyone.
Someone who doesn't value that knowledge gets ripped off, and someone who values it very highly gets subsidised.
That said: pure research almost always needs to be publicly subsidised because, by very sensible policy, the laws of nature can't be patented. And representatives passing public budgets can give consideration to which public goods ought to be subsidised, beyond the cold light of economics, as a principle of fairness or morality or furthering humankind.
But most knowledge is not pure research. So either we pay for it with taxes, or we pay for it with patents, or we pay for it by getting less common knowledge. Nothing comes for free. Not even ideas.