Monopoly v. Competition--What's Best for the Market?

The news outlets, radio waves, and blogosphere [1] and [2] continue to buzz with responses to the FORTUNE magazine article where Microsoft claims that many popular Open Source software packages, including the Linux kernel, infringe some 235 patents they own and control. Most of this buzz has shifted from questions about the integrity (and/or viability) of Open Source to deeper questions and concerns about Microsoft, but I think there is a still deeper question to discuss. Namely, has the genius of the US Constitution somehow been perverted by the interpretation or the implementation of Article I, Section 8?

The genius of the US Constitution to which I refer is drawn from the context in which the Constitution was written. The framers of that document were well aware of the fact that singular power was singularly corrupting. The US Constitution did not merely transfer power from an inherited seat (the King's) to one which could be contested through ballots and elections, but it also placed each branch of government as a check and balance against the powers of the other. The framers chose competition, for office and while in office, as the fundamental force that would keep the corrupting influenences of power at bay and keep the fundamental interests of the people always at the fore.

In a similar fashion, competition was (and is) understood to be the key factor that protects the public interest in a free market. When a market is not free, either because of government interference (regulation, tariff, etc) or industry interference (monopoly, lock-out, etc) the public suffers higher prices, limited selection, disasterous quality, or all of the above. It has long been argued, and I agree, that free markets and democratic freedoms really do go hand in hand as they are both expressions of the benefits of competition. Which brings us back to Article I Section 8 of the US Constitution, which gave Congress the power to pass laws

to promote the progress of science and the useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.

One might read such a phrase and believe that indeed, the framers intended that the only possible way to promote the process of science and the useful arts is exclusively via the mechanism of such exclusive rights, but such a reading is not supportable by history. Science and the useful arts have advanced, sometimes with and sometimes without such exclusive rights. Moreover, such exclusive rights have in some cases succeeded, and not in others, in helping to achieve such desired advancements. Thus, whether we examine the facts (it was not the only mechanism) or the theory (the Constitution is replete with examples of checks and balances to encourage the benefits that competition affords), it is clear that Article I, Section 8 is not an absolute prescription, but an option, a tool to be used in the right context.

The US Patent and Trademark Office claims to uphold a standard for issuing patents, including the requirement that disclosure must be useful. Perhaps it is time to apply such a standard to the granting of the patent itself. If there is a lack of market competition due to the fact that nobody is interested in competing (costs too high, returns too little or too difficult to protect), then perhaps the promise of an exclusive right could create the incentive for somebody to invest and innovate. Such use of the patent system is clearly pro-competitive, even if the mechanism is, for a limited time, anti-competitive. Sometimes you do have to give a little to get a little.

But what happens when the free market is only too willing to invest, and instead of creating the incentive for one to venture into the unknown, it creates a winner-take-all race among hundreds or thousands of willing contenders? If one company can invest $1M and create an invention in 12 months, and another can invest $100M and create that same invention in 11 months, and in either case, the invention can limit innovation for a $1.5T market, has the public really gained more than it has lost?

I applaud the US Supreme Court for its recent ruling in Teleflex v. KSR which addresses the quality of patents. Certainly dealing with fewer bogus patents is better than dealing with more and more. But we need to look beyond the specific quality of the patent and to the question of the purpose of the patent. The Open Source community has demonstrated its ability to innovate free and clear of any patent protection whatsoever (consider the World Wide Web as just one such example). If there is a surplus of willing innovators and innovation capital, should we maintain a system that threatens to reallocate and concentrate that surplus to a single company who can then control the rate of innovation in later years? The history of Watt's patent on the Steam Engine provides a textbook example of why we should not! As does Selden's patent on the automobile and the Wright's patent on controlled flight, to name a few.

We should look at the patent system as a way to promote innovation, to encourage development where no alternative exists. And we should strongly limit the use and enforcement of patents when there is reasonable evidence that "it's going to be invented anyway" or "it can be invented the moment the need is perceived". Such patents are far more anti-competitive than pro-competitive, and a good reason to let them become historical, not current practice.