Intellectual property is an innovation killer

By Joshua Lachkovic on May 10th, 2012

Throughout April, I have been absorbed by Peter Thiel’s CS183: Startup class notes, transcribed by Blake Masters after each lesson. Class four was all about competition, capitalism and monopolies. “Capitalism,” Thiel argues, “is about the accumulation of capital, whereas the world of perfect competition is one in which you can’t make any money.”

April was also the month that we learnt that Facebook now owns 1,400 patents, only 46 of which were filed by the company itself. Last year, Google opened fire on Apple and Microsoft for the “hostile” patent war that was being filed against Android. And there have been thousands of other patent lawsuits and patent acquisitions in the past half-century.

From the moment that patents have been filed, there have been acquisitions or rights buy outs. It is, by Thiel’s argument, one way that company X is accumulating capital, by hampering the opportunities, and thus competition, of competitors.

Intellectual property laws are one of the main obstacles standing in the way of competition, and they can be horrifically detrimental to start-ups and innovators. The more I think about it, the more I am certain these laws ought to be dramatically changed or scrapped altogether.

Facebook’s grand patent-buying spree was to counter the infringement lawsuit filed by Yahoo!. In response, Yahoo! slapped another two patents onto the list of ten that Facebook had already allegedly violated… this could go on for a long time.

Yet Facebook and Yahoo can afford for this to go on for a long time. As can Facebook and Apple. And Google. These are already established corporations with plenty of capital and swathes of lawyers ready to fight such battles. This atmosphere is contrary to good competition.

A young programmer with no financial backing runs the risk of infringing intellectual property left, right and centre. He’ll probably do this accidentally; let alone if he’s to take the view of a young Steve Jobs or Pablo Picasso that “good artists copy, but great artists steal”.

But unlike an established corporation, the young programmer will not be able to finance himself in a legal battle, and so may not bother with his project at all. This stamps out potential innovation and development.

Second, there is an inbuilt self-regulation in capitalism from the consumer perspective. Consumers still pay a premium for high fashion, great design, innovation and creativity. Even in an age where cheap high-street fashion, illegal music downloading and other ripped off products are available en-masse, there is still a significant market that pays for the original and the best. The public, therefore, rewards innovators and designers.

From the consumer’s point of view, patents lead to higher prices across the board. As manufacturers, such as Samsung, have to pay to license or acquire other patents, that cost gets passed onto the consumer.

Many intellectual property laws are redundant in the modern age, anyway. Someone can easily create an app that violates existing patent law, upload it to the internet and see it spread like wildfire. Likewise, so many patents exist in second-nature features that are natural in modern software. It is impossible to police this level of patent abuse.

So why do these laws exist? Intellectual property laws were never founded to help benefit the creator or innovator. Patents and copyrights were assigned by those in power to help build monopolies. The reason for their sustained existence today is undoubtedly to help maintain and extend syndicates once they have been created and, of course, to help make more money.

From an investor’s point of view, a patent adds authority and security to a potential investment. A developer then, much in need of investment to take his product forward, has to conform to this already-flawed system, even if it is that exact system that has probably already hampered him in the past, and will continue to hamper him in the future. If you can’t beat ‘em, join ‘em.

Competition is not impossible in 2012. And I disagree when Thiel suggests that as Microsoft is “probably the last operating system company” and “Google is the last search engine company”, because during the 90s, to suggest that Yahoo! might be unseated as the head of the search market would have seemed preposterous. And much to the surprise of many, Apple has grown to dominate markets where it previously held no traction.

Competition is not impossible, but with the current state of intellectual property, competition is hampered. Capitalism has its own inbuilt protective system to ensure that the creators and innovators are recognised and rewarded. New generations of wide-eyed developers should be encouraged, but I fear if this culture of IP-suing and acquiring continues as now, then those fresh faces might be turned off. And that would be a terrible thing indeed.