Motorola Deal Showing Massive Loss To Innovation Caused By Patents

from the dead-weight-loss dept

In response to Google's deal to buy Motorola mostly for its patents (most people are now saying that the patents represented at least half the value of the deal), we're seeing two responses. The first is that companies with lots of patents are suddenly being re-evaluated for their patent value. Because of the demand, otherwise practicing firms are suddenly being told their patents may be worth more than they are. Such is life in a market where the value of patents is massively inflated due to dangerous thickets, where patents are necessary to play.

But at the same time, more people are finally realizing what a massive economic and innovation loss this represents, entirely contrary to the intentions and purpose of the patent system. That last link is to the NY Times, which quotes Harvard economist Josh Lerner (who warned of this problem years ago) highlighting what a ridiculous economic loss it is when patent values are so ridiculously inflated:

“You’d much rather see Apple spend some of that $4 billion on new inventions, and Google invest that $12 billion to generate new knowledge,” said Josh Lerner, an economist at the Harvard Business School. “It’s a transfer of wealth from innovators to bondholders and stockholders who have no motivation to innovate. It’s disturbing.”

It's beyond disturbing. It's harmful. It hurts these companies' ability to innovate. It hurts our economy's ability to grow. It costs consumers a massive amount in economic rents, and it acts as a massive shift in wealth from consumers and companies that actually innovate... to those who aren't innovating. It's really dangerous, and will open up more opportunities for foreign competitors to focus on real innovation, while we move money away from innovation to lawyers.

So, we can now add the NY Times to the list of mainstream publications highlighting the problem. Why is Congress still focused on a patent reform bill that does nothing to address this problem?

Filed Under: dead weight, innovation, loss, patents, rent seeking
Companies: google, motorola