Intellectual Ventures: A Reductio of the Patent System

by on May 7, 2008 · 18 comments

Malcolm Gladwell has an engaging write-up of Intellectual Ventures, a kind of reductio ad absurdum of the patent system:

In August of 2003, I.V. held its first invention session, and it was a revelation. “Afterward, Nathan kept saying, ‘There are so many inventions,’ ” Wood recalled. “He thought if we came up with a half-dozen good ideas it would be great, and we came up with somewhere between fifty and a hundred. I said to him, ‘But you had eight people in that room who are seasoned inventors. Weren’t you expecting a multiplier effect?’ And he said, ‘Yeah, but it was more than multiplicity.’ Not even Nathan had any idea of what it was going to be like.”

The original expectation was that I.V. would file a hundred patents a year. Currently, it’s filing five hundred a year. It has a backlog of three thousand ideas. Wood said that he once attended a two-day invention session presided over by Jung, and after the first day the group went out to dinner. “So Edward took his people out, plus me,” Wood said. “And the eight of us sat down at a table and the attorney said, ‘Do you mind if I record the evening?’ And we all said no, of course not. We sat there. It was a long dinner. I thought we were lightly chewing the rag. But the next day the attorney comes up with eight single-spaced pages flagging thirty-six different inventions from dinner. Dinner.”

As Mike points out, the blindingly obvious conclusion from this is that patents are way, way too easy to get. If a room full of smart people—even absolutely brilliant people—can come up with 36 “inventions” in one evening, the logical conclusion is that “inventions” are not rare or hard to produce, and that therefore there’s no good public policy reason to offer monopolies to people who invent them. After all, the classic theory of patent law says just the opposite: that inventions are so difficult and expensive to produce that we wouldn’t get them at all without patent protection. That’s clearly not true of the “inventions” IV is developing, which means that if IV does get patents on them, the patent system is seriously flawed.

Bill Gates has a quote that really captures the absurdity of it:

“Nathan sent over a hundred scientific papers beforehand,” Gates said of the last such meeting. “The amount of reading was huge. But it was fantastic. There’s this idea they have where you can track moving things by counting wing beats. So you could build a mosquito fence and clear an entire area. They had some ideas about super-thermoses, so you wouldn’t need refrigerators for certain things. They also came up with this idea to stop hurricanes. Basically, the waves in the ocean have energy, and you use that to lower the temperature differential. I’m not saying it necessarily is going to work. But it’s just an example of something where you go, Wow.”

The “I’m not saying it necessarily is going to work” is the key part. Any college dorm room has bull sessions where ideas are dreamed up that make their participants go “wow.” The problem is that most of those ideas either aren’t original or they wouldn’t actually work out if they were put into practice. And even if they did work out, they would still require a lot of work to iron out the kinks. Yet the patent system rewards the guy who had the idea first—even if he never doesn’t anything useful with it—at the expense of the guy who actually did the hard work of turning the idea into a useful product.

Myhrvold is strikingly candid about this:

There were drawbacks to this approach, of course. The outsider, not knowing what the insider knew, would make a lot of mistakes and chase down a lot of rabbit holes. Myhrvold admits that many of the ideas that come out of the invention sessions come to naught. After a session, the Ph.D.s on the I.V. staff examine each proposal closely and decide which ones are worth pursuing. They talk to outside experts; they reread the literature. Myhrvold isn’t even willing to guess what his company’s most promising inventions are. “That’s a fool’s game,” he says. If ideas are cheap, there is no point in making predictions, or worrying about failures, or obsessing, like Newton and Leibniz, or Bell and Gray, over who was first. After I.V. came up with its cancer-filter idea, it discovered that there was a company, based in Rochester, that was already developing a cancer filter. Filters were a multiple. But so what? If I.V.’s design wasn’t the best, Myhrvold had two thousand nine hundred and ninety-nine other ideas to pursue.

Of course, from Myhrvold’s perspective, this makes perfect sense. He’s responding to the perverse incentives created by the patent system. The patent system rewards “inventions,” not working products, so he’s producing a whole ton of “inventions” without bothering to produce any useful products. But from society’s perspective, this is sheer deadweight loss. Other people are having the same ideas, but because they’re not as cynical as Myhrvold, they’re trying to actual produce a working product with it. And by the time they’ve done that, Myhrvold will have beaten them to the patent office. Somebody else does 99 percent of the work and Myhrvold gets most of the profit.

Frustratingly, Gladwell doesn’t seem to connect the dots. I guess he wasn’t looking to write a policy article, so even when a policy conclusion falls in his lap it doesn’t occur to him to pick it up and look at it.

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