It’s obvious that patents are good for the people who get them. The key question is whether patents have a net effect of encouraging innovation. And there’s no reason to believe this is the case. To start with, a big chunk of patent revenues simply flows to patent lawyers. The rest goes disproportionately to huge incumbents like Microsoft (18,000 patents) and IBM (more than 50,000). These companies have as many patents as they do not because they are hundreds of times more innovative than smaller companies like Google (754 patents) and Facebook (11 patents), but because it takes time to build the massive legal bureaucracy required to file thousands of applications every year.
This point is most obvious in a case where a failed company’s patents are put up for auction. It can be sad when a company goes out of business, and a company’s investors understandably want their money back. But the reason the auctioned patents are valuable is usually because the winning bidder will turn around and demand licensing fees from the failed company’s more-successful competitors, effectively punishing success.
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