This document was prepared during April and May 2000, in preparation for the Foresight Institute Spring 2000 Senior Associate Gathering "Confronting Singularity".

It is increasingly noticed that the current patent system generates problems and sometimes even absurd side-effects that were not anticipated nor intended when the system was set up.  Apparently, these aberrations are not yet widely acknowledged in the public nor well understood, in part because such arcane legal issues seem far removed from everyday life, and because the interactions between technological progress, economic prosperity, and the legal frameworks governing both are complex and broad.  Affected the most are primarily fast-paced technology arenas such as software and biotechnology, fields that are involved with information processing in the most general sense, which can give rise to fluid and rapid progress, because earlier concepts can be reused effectively as building blocks of later and even more powerful, aggregate concepts.

What follows is an outline of some of the problems and the spectrum of positions taken by various parties.  Then, an attempt is made to extrapolate into the future a bit in four scenarios, to see what the world might look like under different patent regimes, ranging from no patents at all to much more severe restrictions than today.  If these scenarios are accurate in their implications, they could help us define which future we might find desireable and acceptable to live in, which will hopefully encourage us enough to take appropriate steps towards implementing and shaping the corresponding legal landscape.
 

What are some of the problems ?

The most visible manifestation of the patent problem is in form of high profile litigation, which often involves patents of questionable novelty and originality.  Despite the triviality of some the proclaimed "inventions", the dollar amounts involved are sometimes very substantial, with $100 million not unheard of.  The stakes in such law suites are very high, and by their precedent-setting nature, they can threaten to change business practices in entire industries (example: the Amazon 1-click patent). Companies involved in such battles pay for the costs of penalties and legal fees, but ultimately these costs are of course passed on to the consumers, almost none of which are aware of this additional "patent tax" they are paying. The only party that always makes a fat profit in this system are the patent attorneys, no matter which way the law suits are decided.

From a general point of view, the core problem seems to be the fact that in today's technology dominated world, there is so much innovation happening simultaneously all around us, that almost certainly very similar ideas, and even exactly the same ones, can become apparent to several individuals at about the same time, even though these might have been genuinely independent research efforts.  It seems extremely unfair if only one party gets to have monopoly power over such ideas that lie in the air, solely because they filed with the patent office a day earlier than the other co-inventors.  If the concept of "property" is supposed to mean anything at all, then it should be especially the case that people are able to earn the fruits of their labor by utilizing their most closely held property, namely their own body and especially their brain. If an engineer comes up with a neat solution to a vexing problem, the engineer should be allowed to use and commercialize this solution, which could be labelled with the loaded term "invention", regardless of whether other brains elsewhere on the planet came up with the same solution, and regardless of whether at the same time, earlier or later. After all, the solution is the result of genuine effort and work, for which nobody should be legally barred from harvesting the commercial profits. However, in today's world, there is no guarantee that a commercially successful product will not suddenly be challenged in court by some obscure patent holder that nobody has ever heard of before, or equally terrifying, by some large, hulking corporation that has been collecting patents by the thousands, such as IBM.

There are so many patents out there nowadays that nobody who is concerned with solving practical problems can keep track of whether a given solution might potentially infringe with one or several of the millions of patents. Compounding the problem is the awkward legal language that is used in patents, which effectively encrypts the patented "invention" and renders it incomprehensible to the ordinary practitioner in a given field, making it unlikely that a simple patent search will pick up all the patents that might be of danger. These obscuration tactics, employed by patent attorneys probably intentionally, of course defeat one of the key purposes of maintaining a patent system at all. The patent system was intended to encourage innovators to disclose their ideas to the public, so that the public can learn from the improvements, in order to promote progress in general. If the disclosures in patents can not be readily understood, and are generally too trivial to bother with such that most knowledge workers will rather just think about problems and solve them on their own, then it is questionable whether the restrictions imposed by a patent system should have to be endured as well.

As we will be heading closer towards the singularity, interesting questions will arise regarding the use of machine intelligence, otherwise called AI (Artifical Intelligence) software. It is becoming increasingly the case that complex design efforts in engineering make use of sophisticated CAD (Computer Aided Design) systems, that will put in place a lot of the nitty-gritty details in complex designs. At some point, it is anticipated that such systems will be able to come up with a lot of little tricks that improve the implementation work. At what point will such "machine inventions" infringe with existing patents ? Who would be legally responsible for the infringement ? The software company that supplied the program, or the engineering company that ran it and thus caused these "inventions" to be instantiated ? It is already the case today that some sophisticated Genetic Programming systems, e.g. by John Koza, have come up with higher quality designs for analog electronic circuitry than humans generally would produce, and these systems also have re-invented and outdone some actually patented designs. This is only the beginning of a promising future of automated engineering tools, which could become embroiled in legal controversy if the current deficiencies of the patent system are not removed.

Quite a number of other objections can be raised against the patent system. More material and references can be found at: http://www.n-a-n-o.com/ipr/extro2/extro2mk.html. It is worth pointing out here that the historical root for the concept "Intellectual Property Right" is monopoly privilege and censorship from the British Crown, which had nothing at all to do with the goal of promoting the progress of society, which has at least been the proclaimed pretext under which the U.S. system was established. However, severe restrictions of people's liberty by governments need to have a good justification to make worthwhile maintaining. The patent system, when probed a bit, has had a mixed track record at best. The government has not furnished the proof they owe us of how the patent system conveys an overall benefit to society, as has been recently pointed out again elsewhere.

As a matter of fact, the patent system has a built-in conflict at the core of its current design. Its stated goal is to promote progress, which it tries to accomplish by inducing innovators to be creative and to then share their ideas. This is in principle a valuable and noble objective. However, the incentive that the patent system provides is granting monopoly power to innovators who have disclosed their ideas. It is of course clear that establishing monopoly powers does not promote progress. Quite to the contrary. Monopoly is the tool to keep things from changing, once the benefactor of the monopoly has established itself. By building up such a contradictory and schizophrenic incentive structure, the patent system has set itself up to cause a lot of trouble, which has taken a while to unfold, but which is now blossoming quite visibly. The take-home message is this: If the goal of public policy making is to promote progress, it is not a good idea to do so with incentives that in fact promote stagnation.
 
 

The spectrum of positions

1. pro: patent attorneys and venture capitalists.
   This represents the relatively small but very powerful elite that stands to profit hugely by the current system. They maintain that nobody would be interested in doing the work and investing in new ideas, if they could then not be protected from competitors who would just steal the ideas, without having had the development costs.
2. indifferent pragmatist.
   Most entrepreneurs probably fall into this category. They worry about a lot of things while getting a company up and running. Patent protection is just one of the many tools available to build their advantage in the market place. A trade-off decision needs to be made for each resource utilized by the company, including investment in patents. These people would likely adapt to a different patent regime, by applying a different mix of strategies to get into the market.
3. indifferent clueless.
   This represents by far the largest segment of the population, basically consumers, who buy products, but usually have no understanding of what role patents played in getting the products out to market. There is a general feeling out there that somehow, these smart inventors "deserve" to get a special reward for their special skills, and that the patent system serves this purpose. They tend to not be aware of the distortions that exist today, and that most patents by far are owned by large corporations and not by individual inventors. In some sense, while this group carries the full load and burden of patents in form of hidden legal costs that are factored into the price of products they buy, they never notice this fact, because this "patent tax" is hidden and usually spread out so thin that it is only apparent when one is actively looking for it.
4. contra: idealists who fear slowdown of technological progress.
   These are a still vanishingly small group of people who are troubled with the way the current patent system is constructed, and can even question its validity entirely. The arguments are necessarily still of a theoretical nature, as one would have to perform the experiment of establishing a technology-intense society that functions just as well or better without a patent system. However, some of the objections are so obvious and point out valid structural defects in the current system, that it is only possible to ignore them if one has a vested interest by being a member of the first group.

Four Scenarios

Scenario 1 : Best, ideal world without any patents at all

Every problem would be solved only once and then the solution could be rapidly adopted throughout the world.  A lot of duplicative work could be saved if ideas could be shared more freely, without the current restrictions.  There clearly is a large oversupply of problems in the world that need good and better solutions, such that it is just ludicrously wasteful to not have those solutions that have been worked out be utilized to the largest extent possible. This will enable progress to proceed faster, and all of humanity is slated to benefit from the more effective wealth creation.

To succeed in such a world, economic enterprises would have to adopt the goal of constantly innovating, to have an advantage by obtaining some headstart in new technology fields.  They would have to get the best people who are the most creative in their field, to have direct access to the sometimes rare skills needed in a new field.  Companies would try to create an image of being a leader and innovator, instead of being a me-too adopter and copy-cat.  A current example of a company with a leader image is SONY.

This kind of world would make it difficult for companies to survive that would not be able to truly add some value and novelty, thereby removing a lot of inefficient redundancies of second rate providers that should better be doing something more uniquely useful. This would create incentives to tackle a lot of new and as of yet unsolved problems, leading to a lot of truly novel technology progress, as every nook and cranny of the technology landscape will be explored closely for new opportunities. There are enough important, difficult, challenging, and lucrative problems that are already known, and even more that we can not yet imagine, that we all will not run out of useful work anytime soon.

Solutions to some problems are so desireable that some companies will be happy to "sponsor" free-lance developers who work on such problems, either under contract, or maybe even by publically held contests or "auctions". While the resulting ideas generated by solving the problems essentially become public domain and help the world in general, the solution could have been sufficiently important to the direct "sponsor" to make this approach fully worthwhile. Entire industry consortia could act as "sponsors" to get certain infrastructural issues worked out and implemented, such as new and open networking standards. A number of independent collaborators could work on such problems in an open source style of effort. The "sponsors" might be hardware companies that will derive their prime revenue from equipment sales, not from the software that is needed nevertheless to make all this run smoothly.

This kind of development effort that is free from patent restriction will provide a much clearer picture of where real problems and difficulties lie in the world, and how much money viable solutions would be worth, even if the solutions will be broadly used, including by competitors (who might actually become part of temporary alliances specifically for solving particular problems). The world could be much better off if precious resources were really spent where solutions count and advance the state of affairs substantially, to the degree of making it worthwhile for "sponsors" of this kind. Another important tool for companies to build a lead over competitors would be in the use of trade secret, which already is very important in industry today, and does not have the obnoxious properties so characteristic of patents.

Scenario 2 : Worst possible world, with suffocating patent monopolies

In this stuck in the mud world, very strong patent protection would be instituted, which is broad and lasts extremely long. So let us take a century, for sake of argument (the duration has been gradually creeping up anyway). Entire subsectors of technology will be dominated by a single company, which in effect has obtained a government granted monopoly and stranglehold on the rate of innovation in the subsector. Such monopoly holders can systematically block start-up companies from developing improved products. The worst scenario would have companies forbidding licensing of technology to competitors outright. In a lesser scenario, the assessed licensing fees would merely be sufficiently outrageously high to make competition unattractive.

To have a chance at succeeding, most companies would have to work their way around existing patent blockades. They would have to burn a lot of energy and money to constantly re-invent various wheels. This waste of resources and brain capital would slow down technological progress in general.

However, the worst problem would not even be the slowdown of incremental improvements made by competitors. Real breakthroughs that open up entirely new territory become a lot harder too. In today's world, and in the future even more so, new products and breakthroughs require very interdisciplinary work, infringing patents in several different domains at once. The overhead of bureaucracy could grow to unacceptable levels. If each one of 12 different patent holders would want 10% royalties off your product, it will become economically infeasible to do business on this basis.

Strong and legally granted monopoly power will place everybody at the mercy of what some large companies might want to do. For example, an IBM could systematically hinder progress towards nanotechnology, if they first want to milk their silicon technology to the max. Or, in a different play, they could just do nanotechnology all by themselves, not allowing anybody else to participate. At this point, they would essentially own the world.

Sadly (or ironically), the general introduction of friction and the slowdown of progress brought about by a very extensive and tough patent system designed to "protect" the interests of innovators would have exactly the opposite effect of its stated goal, which was to promote progress.

The following two scenarios are someplace in between the two extremes above, and maybe represent realistically acceptable and implementable compromises.

Scenario 3 : Mellowed out and tamed patent system

If one would retain a fairly conventional patent system, but would improve it in certain ways, it might be possible to arrive at an acceptable compromise that removes the worst side effects of the current system.

One of the key improvements necessary would have to be the strict application of utility and especially novelty criteria, to weed out most of the bogus triviality that the patent office is being spammed with. Realistically speaking, certainly no more than about one tenth of the current patents should have been issued, if even that much. The patent office's filtering criteria would have to be improved to this kind of stringency. The current patent office sees its job as more like "granting patents when asked for them" as opposed to doing serious quality control. This probably could be achieved if the 10% most qualified patent examiners would be retained, and the rest fired.

The other key improvement would of course have to be a significant reduction of the protection time granted to patents. The current two decades are way out of line compared to progress in certain fields like software. Twenty years ago, Microsoft basically did not even really exist, let alone the WWW. In just these few years, less than the duration time of a patent, many different generations of software technology were developed, brought to market, earned their share, and become obsolete. With such rapid innovation cycle times, software business is geared towards recovering development costs and towards earning a profit in a much shorter time span than a patent grants. And so patent protection for new features introduced does not truly make sense in the software business model. Primarily the harmful effects are noticeable by all the other players who also need to develop at a rapid pace.

A reasonable time for patent protection in today's fast moving world might be 3 years. But even better would be establishing an adaptive system that would need to monitor the rate of product obsolescence and the like, to determine and constantly adjust the protection time to the shorter values commensurate with the general innovation rate, as we head into the singularity.

Scenario 4 : Slightly different take, akin to an "innovation tax"

The stated prime goal of the patent system was to encourage innovation and the dissemination of the innovations, by establishing a mechanism for the innovator to recover the upfront cost of performing the necessary research, and to earn a living.

So what if the system were changed to grant an innovator the right to collect licensing fees in a patent manner, until the development costs have been fully recovered and amortized, plus an additional allowance for a 50% profit (or whatever the number may be) ? After the amortization and profit, the patent would automatically become public domain.

When filing a patent, the innovator would need to declare and document in detail the incurred development costs, much like it has to be done in a tax return. These claims could be subject to challenges, if they sound unreasonable, similar to what the IRS can do. Probably these cost claims should even be published along with the patent. In terms of licensing, the patent holder would have to license to other interested parties. In other words, government granted exclusive monopolies would no longer be possible. However, in terms of licensing fees, a lot of freedom could be granted to the patent holder, because the sole requirement is that a fixed, predetermined amount can be collected, sum total. Whether the fees are extremely high (but thus lasting only for a short time), or very low for an extended period of time, does not really matter much. In the first case, a party or consortium that is really interested in using the invention could just choose to "buy out" this patent, effectively liberating it for the rest of eternity. In the second case, the licensing fees would not be particularly bothersome, because they are just so low, and might even stop completely at some point. However, it would be necessary to make sure that free software still could be written and distributed. In other words, at least that category would be exempt from such fees.

Such a system would remove a stodgy fixation on a given time frame of protection, and instead focus on what the real object should be, namely to allow the innovator to recover the costs incurred for being so generous to publish the invention. By requiring documentation of the costs incurred, this solves the problem of trivial patents as well. They still could be filed and granted, but in all likelyhood, it would be very difficult to argue for high development costs for trivial ideas. The challenge mechanism, which should be open to public criticism as well, would destroy the hope to get away with something like that. If trivial patents can only prove that $100 were needed to come up with the idea, they will become unattractive in short order. Or maybe even a cottage industry of valid micro-innovation that thrives on such smallish claims might spring up, which might even fill a useful niche in the economy.

This kind of a system might actually even work for the copyright system as well, which currently also suffers from some severe imbalances that could be corrected with this kind of "fair" compensation method for the benefit of innovators and society alike.

Acknowledgments

I would like to thank Tom Palmer, who has influenced me substantially through his writings on the topic of intellectual property "rights". I would also like to thank RMS (Richard Stallman), who was an early pioneer in advocating that at least software should be made exempt from patenting. The League for Programming Freedom was founded to pursue this initiative.

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