Wednesday, July 27, 2011

Patent Trolling: Just Another Form of Capitalism

The dawn of the information age has ushered in a new form of value in intellectual property. Patents are based upon the innovative character of new kinds of tools, business models and processes with economic value. And like all economic functions, the patent occurs in, and helps to propagate, a specific social relationship of value.

Enter the "patent troll:" an irreverent term referring to those who deal in the purchase and defense of patent rights. Patent trolls purchase troves of patents, then litigate to turn a profit on their purchase. Sometimes, the patent merchants get a cut of the proceeds from litigation executed by their customers. All this is justified as defense of intellectual property and encouragement of innovation. But this is actually a simple form of capitalism.

A New Capitalism on the Rise (Source)
The exploitative nature of "patent trolling" is evident - it is a model I have explained referring to Mises' model of inflation and the capitalist mode of production:
Both of them rely on a bottleneck model of value exchange: a relatively scarce resource or medium of exchange puts the controllers of the bottleneck in a position of heightened demand for their synchronous activity with the mode of production. - Economic Liberals Admit it: Capitalists Own Us
The business model is not new. It has been around at least since Mercantilism advocated monopolies on shipping ports. It forms the basis of many economic institutions and processes. And its self-justification is precisely the same: by incentivizing innovation, "consumer driven" capital allocation or managing risk, markets are "rationalized" by these business models. In the information age, it only makes sense that capital purchases increasingly take the form of intellectual property. Patent trolling is therefore little more than an extension of capitalist business sense, under the guise of property rights.

It came to me with much wonder, then, when NPR ran a story on This American Life attacking this business model:
"All the big tech companies have started amassing troves of software patents — not to build anything, but to defend themselves. If a company's patent horde is big enough, it can essentially say to the world, "If you try to sue me with your patents, I'll sue you with mine.
It's mutually assured destruction. But instead of arsenals of nuclear weapons, it's arsenals of patents." -
Alex Blumberg and Laura Sydell, When Patents Attack
One hardly expects Patent Trolling's critics to confront the underlying relationship - the disproportionate access to control over aspects of economic processes. In fact, many of the critics of Patent Trolling are entrepreneurs themselves - since they are competing for access to the same exclusive power.

Blumberg and Sydell go on to cite an apparent Achilles' Heel for proponents of the business model: many patents overlap, and a firm specializing in patent integrity found that thousands of patents could be invoked for the same technology. But this only indemnifies companies whose patents overlap; if anything, this is a bulwark against litigation since overlapping patents create multiple sources to defend innovation. However, the underlying problem is still present: production is itself the source of risk. But this is also a common feature of capitalism. Stephen King of HSBC / ECB Shadow Council:
"Increasingly, policymakers are accepting that market forces, left to their own devices, will lead to a race to the bottom. The dangers are becoming greater by the day. Interest rates are close to zero while prices and wages are in danger of declining. If deflation takes hold, real interest rates on cash will start to rise, creating perverse incentives in capital markets. Why bother to buy equities or corporate bonds if you are nicely rewarded for hanging on to an entirely risk-free piece of paper?" -Stephen King, As Capitalism Stares into the Abyss, Was Marx Right All Along?
And in fact, Blumberg and Sydell agree:
"That $4.5 billion won't build anything new, won't bring new products to the shelves, won't open up new factories that can hire people who need jobs. That's $4.5 billion dollars that adds to the price of every product these companies sell you. That's $4.5 billion dollars buying arms for an ongoing patent war."- Alex Blumberg and Laura Sydell, When Patents Attack
As I have pointed out, handouts to the private sector - supply-side economics - don't build anything new. You won't be getting new products, factories or jobs with the upcoming Tarp 2.0. You won't get it with reduced government expenditures or lowered corporate taxes. For all intents and purposes, the "Patent Trolling" strangulation lamented above is nothing more than the extension of capitalism into the information age. All of the overproduction and slowdown cited represents the hegemony of profit over production value, supplier versus consumer.


  1. I recently read an article called "On the Production of Knowledge" by Guglielmo Carchedi that applies the LTV to knowledge production. It's a little overly academic but still really good stuff.

    I also recently read a book called "Common as Air: Revolution, Art, and Ownership" by Lewis Hyde that goes over what intellectual property rights is really all about. I love the term he uses: the closing of the intellectual commons.

    Great post, keep 'em coming!

  2. Thanks for the link - it is an interesting concept, although I am ambivalent whenever dialectics are mentioned. Is there a non-paywall copy available? One of the biggest problems with contemporary analysis of Marx is that nobody - not even critics - seem to want to read Marx, and so few of these myths get debunked. A lot of my concerns about the LTV, for instance, were resolved by reading Marx.

    The "common as air" concept reminds me of Chumbawamba's "The Wizard of Menlo Park" about how innovators like T. Edison build upon previous work, even though they are often treated with the "great man" theory of history. I'll look into it.

  3. non-paywall version:

  4. Jake beat me to it. I'm at a university so I fly through most pay walls.

    I agree with you on the LTV. You have to read Marx if you want to understand capitalism. You can read as much Harvey as you want but for a real study of political economy you gotta go through Das Kapital.

  5. People who believe in free markets do not believe in IP.

  6. Anonymous: People who believe in free markets do not believe in IP.

    Way to impose your own moralization on others' viewpoints. That's not what the free-marketeer political bloc believes, anyways, so it's not clear just how relevant the point is. This is what I said to a similar point made elsewhere:
    "I don't mention the "free-market capitalism" chimera in the article, for the same reason I don't mention pink elephants."

  7. T.I. said rubber band man.

  8. lol, the other anon is right. Read Murray Rothbard.


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