Gene Quinn: Patent Twit of the Week
Posted by Kevin Carson on Nov 2, 2009 in Commentary • 11 commentsGene Quinn, a patent lawyer and IP-hawk, has recently challenged the anti-IP movement — in the tone of a belligerent drunk announcing he can lick anyone in the bar– to back up its contentions with facts and arguments. Such facts and arguments are lacking, he taunts (in an Eric Cartman voice?), for the obvious reason that none exist.
When people like Stephan Kinsella call his bluff, Quinn generally manages to weasel out of it. Most recently, Quinn was scheduled to debate David Koepsell, but at the last minute cancelled because he (ahem) got sick. Quinn, in lieu of the original debate format, later participated in a pathetic exchange of soundbites on the Laura Flanders show.
The weightiest of Quinn’s “unanswerable” points is the supposed insufficiency of marginal cost-based pricing for recouping high R&D costs.
Quinn’s argument assumes an obsolete industrial model, and ignores the extent to which the capital-intensiveness and overhead cost of innovation itself are themselves affected by IP. Patents can tip the balance between alternative business models, promoting an artificially high-capitalized, high-overhead, bureaucratic model of R&D.
Patents are one way of dealing with R&D cost. But another way is modular design, which economizes on development cost by reusing the same R&D effort for a particular module or platform over a wide family of products.
Open source, P2P design models may also be considerably cheaper because they are more agile (see Eric Raymond, “The Cathedral and the Bazaar”); for example, homebrew CNC machine tools generally achieve Factor 10 or Factor 20 cost reductions over their proprietary equivalents.
Patents also tip the balance toward less agile forms of production in another way: the legal process of securing a patent is an enormous outlay that can only be amortized by large-batch production.
And the process of gaming the patent system diverts R&D dollars into some very wasteful avenues. For example, most drug R&D cost goes, not to developing the version actually marketed, but to securing patent lockdown on all the major possible variants (so a competitor won’t market a rival drug).
Artificial property rights are a source of additional capitalization costs and overhead.
Also, studies have shown that the total productivity benefits from the cumulative effects of incrementally tweaking designs, and all the other Hayekian stuff that goes with a tinkerer observing a technology in operation and fiddling with it, outweigh those from major generational leaps. So an IP regime that incentivizes major generational leaps, while erecting transaction costs against derivative development, seems of questionable benefit.
Defenses of both patents and copyright based on the inadequacy of marginal cost pricing to recoup up-front outlays are wrong-headed in another way.
The only effect of abolishing IP is to do away with monopoly rents from design or content ownership as such. It doesn’t affect the rents that result from the transaction costs of setting up production, or from being first to market and knowing one’s market better than the competition.
These things, which all fall under the head of what Chris Anderson calls “freemium,” are sources of value that would exist even without rents from IP as such. So it’s still possible to make money from being first mover, and from the authentication advantages that come with being identified as the product’s developer; you just can’t make as much money from it.
High among “freemium” services, for the majority who value time and convenience along with bare price, is authenticity: buying a copy that’s certified to be complete, defect-free, and in the format you need.
And in general, the person who originally develops a product is likely to have a better knowledge of his market, and be in a better position to profit from an ongoing relationship with his market as he develops products geared to their particular needs — especially if he also serves the market through customization and customer support.
Shakespeare worked without copyright, which meant he made money by actually performing the plays with his theater company. That meant, in turn, that he got lots and lots of little piles of money from keeping on writing plays and performing them, instead of collecting a big pile from a one-hit wonder.
BTW: Most of Shakespeare’s work was done on the folk culture model, with heavy reliance on mashups from other storytellers, and hence would be illegal under modern copyright law.
In the realm of physical production, the first company to develop a new product will have first-mover rents for the time it takes to duplicate the process. After that, it will have rents from customer goodwill. That goodwill will include the common sense assumption that the company will be best at offering upgrades to a product it originally developed, and will probably be the most reliable source of customer support.
To sum up: the producers who find themselves being driven out of business by competition based on marginal cost are generally the corporate dinosaurs who CAN’T survive without monopoly rents on IP, because they really are too stupid to think of any other way to make money.
Can you source that data on homebrew CNC cost reduction? I’ve been chomping at the bit to set a shop up myself.
Hey, John. Check out the footnotes in my last research paper, particularly the subsection on desktop manufacturing and the appendix on Factor e Farm. I think a CNC multi-machine can be built for about $1500, a cutting table for under $1000, and a RepRap for $500, by the estimates of hardware hackers who build such things (I can barely drive a nail straight myself).
http://c4ss.org/content/1148
Excellent points, Kevin, and the revolution in production is part of the basis of my latest work in progress on ethics, IP, and nanotechnology. You might check out The Scientist this past month too, which has an interesting article on a home-brew biotech startup that capitalized its infrastructure to the tune of about 40k, rather than the many millions others spend. They estimate they can bring new pharms to the market for $10 mil. each, rather than the usual $100 Big Pharma alleges each new drugs costs.
I had lots of great ammo for Quinn, had he only shown up. Instead, I gave a lecture to the students on innovation without IP, and they got it. They aren’t mired in old modes of thinking. Hell, as we know from the Carnegies study and others, IP only covers about 12-15% of innovation now, which forces people like Quinn to have to somehow defend the idea that ONLY that 12-15% is innovative, important, or is somehow the crux of our economy.
best,
-d
Thanks, David. One of the points I left out for space reasons is that, from the standpoint of the corporate dinosaurs, the capitalization and overhead costs imposed by patents are a feature rather than a bug. Such artificially high capital outlays are a remedy for the problem Rushkoff described in his article on the tech sector destroying the California economy (forget the exact title), with the order of magnitude implosion of capitalization requirements making so much venture capital superfluous.
Cory Doctorow’s novel Makers, which I reviewed at P2P Foundation Blog, is set in a world where the phenomenon Rushkoff described in the information and entertainment sectors has spread to physical production. The giant corporations are left with plant and equipment that’s damn near worthless, and capital they’ve got nothing to invest in. Most of them shut down their mass production facilities and use cash on hand to finance (on Grameen lines) garage manufacturing startups. But when each garage startup requires only a few thousand $$ to get running, even ten million of them aren’t enough to absorb anything more than a fraction of the investment capital formerly absorbed by mass-production industry.
In a world with strong (and enforceable) IP, market entry is possible only on the finance-capitalists’ terms, and you can prop up the 90% of commodity price that Tom Peters calls “ephemera”: rents on artificial property rights rather than labor and materials costs.
Excellent post, Kevin. BTW look at Quinn’s “argument” in this post: Koepsell had mentioned “that in the 19th and early 20th centuries, two of the most innovative countries on earth (The Netherlands and Switzerland) had no patent systems at all”. In response, Quinn says: “Thank goodness the Swiss did have a Patent Office. That is where Albert Einstein worked and during his time as a patent examiner came up with his theory of relativity.”
What does even say in response to this, which is not even a pretense at serious argument?
Glad to have provided amusement for you all. Unfortunately, what you write about me is not at all true, as you well know. I support my arguments with evidence, and unlike you all I know enough to realize that the Swiss did have a Patent Office during the 20th century. Of course, you don’t seem at all troubled by letting facts get in the way, do you?
@Gene — I can’t speak for Stephan, but I believe what he’s saying is that Einstein having so little to do that was actually within his *official* duties in the Swiss patent office that he had the opportunity to pursue his outside interests “on company time” (as it were) is by no means an argument in favor of a patent system. It could be taken as an argument in favor of overstaffed bureaucracies generally, but even *that* point is easily rebutted by calling it out as an example of Bastiat’s broken window fallacy.
I don’t mean to be cruel. But poor Quinn’s post on his site about this is so appallingly inept, it displays such a lack of intellectual acumen and facility in the rudiments of intelligent discourse, that one can only feel embarrassed for him. I’m going to be charitable and assume that his strength lies in patent law. It seems to me that Quinn is doing this all as a schtick for getting clients. It’s just heat and noise to him, a way to flash and make casual onlookers think he’s involved and knows what he’s talking about. It’s a way to make clients think he’s passionate about their cause, in some political sense. But it’s not serious argumentation.
As to — Koepsell had mentioned “that in the 19th and early 20th centuries, two of the most innovative countries on earth (The Netherlands and Switzerland) had no patent systems at all” –,
what exactly made The Netherlands and Switzerland “two of the most innovative countries on earth”? This argument has been made for years, but seems rather content-less.
See
http://ipbiz.blogspot.com/2008/05/albert-einstein-and-swiss-patent-office.html
As a followup, Switzerland had a patent office (and patents) from 1888 onward, and, yes, Einstein was
there in 1905, the year of his three significant papers, which were not written on company time. The Netherlands had a patent system until 1869, abolished it, and re-established it. Before and after, about 4/5 of the patents went to foreigners, because the Netherlands was not exactly an invention powerhouse. It is easy for small countries to free-ride on the technology of others.
re: “which were not written on company time” — Then you might wish to point out to Gene that the Swiss Patent Office doesn’t deserve any credit for Einstein’s outside work (unless the contention is that he was utterly unemployable anywhere else).