Well, maybe not this exact way. It was certainly never intended to have the consequences Bill Gates foresaw in his leaked 1991 memo:

"If people had understood how patents would be granted when most of today's ideas were invented, and had taken out patents, the industry would be at a complete standstill today. [...] The solution to this is patent exchanges with large companies and patenting as much as we can."

http://arstechnica.com/news.ars/post/20070313-analysis-micro...

Pheraps, but the question is should it be set up this way? Two justifications of the patent system are

- inventors have more incentives, hence new ideas will emerge faster

- when these new ideas/inventions emerge, the patent ensures that it is openly documented and hence, can be used by everyone after the patent expires.

And the price that one pays for this is that noone can use the idea without a deal with the patent owner. Is the price worth the benefit? This depends on things like a) how easy it is to discover the idea

Two extreme cases would be say , a cure for AIDS vs. one-click patent

b) the existence and the power of non-patent incentives for the discovery of the idea

Would the idea be discovered without patents? Ideas/inventions are discovered all the time simply because one is working on some problem and one needs new tools to solve it. The university system is also a strong alternative system of incentives. But, there will be holes in what these systems incentivize.

c) how many things depend on the thing being patented?

This is a kind of an amplifying factor. Say, there a huge number of systems which depend on an idea. If the idea could be discovered without the patent system, the economy loses a lot of value and on the other side if patents were what made the discovery possible, then the patent system has caused great gain. Software, where ideas are built upon each other at great speed is full of these amplifying factors. A patent on say, garbage collection or oop, if granted, would affect a huge number of systems.(though, probably this would have expired before the 90's, but consider more recent ideas like say, stm.) the the rapid growth of the computer industry in the current phase increases this amplifying factor.

d) The negative effect of patents on the culture of open sharing of ideas. Precisely, because people are doing this without making money, there is little scope for licensing from the patent holder. And this culture has a lot of value, intrinsic, educational and economic.

Abolishing patents would probably be bad,(unless we can make alternative systems of incentives work. prizes?) But the important point here, is that there are a lot of free parameters - the length of patent, limitations on licensing fees, the nature of things which could be patented(i have used ideas/inventions interchangeably, but this is a controversial issue)

Deciding optimal values for these parameters is a complex task and it isn't clear how one should be doing this. For instance, the length of the patent, if decided in a market would probably vary with the field in which the idea applies. For some fields, the optimal parameter might well be 0.

Our current patent system clearly needs much improvement, but almost certainly encourages progress far beyond none at all.

I don't see prizes as being too effective. The nice thing about the market is it decides what problems are worth solving. Prizes put that decision in the hands of whoever organizes them.

There would clearly be prizes for fighting cancer, aids, lack of potable water, etc. I'm not sure there ever would have been a prize for a pot with a tight fitting lid and holes in it, but the Pasta Pot, simple as it is, is a miracle. Same with wheels on luggage, the SpinBrush, etc.

But our current patent system has a solid prize that encourages innovation from products as small as those all the way up to nanotech.

"They had different backgrounds and temperaments and perspectives, and if you gave them something to think about that they did not ordinarily think about—like hurricanes, or jet engines, or metastatic cancer—you were guaranteed a fresh set of eyes."

"At one point, Myhrvold asked the surgeons what, in a perfect world, would make their lives easier, and they said that they wanted an X-ray that went only skin deep. They wanted to know, before they made their first incision, what was just below the surface. When the Intellectual Ventures crew heard that, their response was amazement. “That’s your dream? A subcutaneous X-ray? We can do that.”"

http://www.newyorker.com/reporting/2008/05/12/080512fa_fact_...

"Smiling faces sometime pretend to be your friend..."

Without knowing what sort of patents he's purchased and is enforcing, it's impossible to make a moral judgment.

Even if you look at it from your own self-interested perspective: wouldn't you rather they were making a useful internet service, something that might provide benefit to you? These are smart guys from Microsoft, why don't they make a company that produces a product?

This isn't a typical case of intellectual property providing a return. They're worse than the RIAA. It's an investment vehicle that provides revenue for the owners, with the added barbs that it 1.) Drains productive companies 2.) In the case of court cases, is subsidized by taxpayers.

Do you think that with $4 billion under management they only stop and enforce the legitimate and fair patents?

There's only one moral judgement to make. What they are doing is legal and unethical (hence morally wrong), and it should be made illegal, or rather, impossible under patent law. Arbitrageurs make a lot of money. They don't go to heaven.

It's a very useful middleman. They don't just get these patents from nowhere. They pay inventors and investors in bankrupt companies for them.

It's no different than real estate investors buying up strip malls in areas they think will be big in a few years and then raising the rent. It isn't extortion, and it doesn't slow progress down. It incentivizes it. It creates a larger market for intellectual property.

I won't say that our patent system is perfect, it clearly needs a lot of work, especially in the software era. But overall, it's pretty good, as evidenced by the resulting economy. It's easy to pass these people off as valueless middlemen, but they're not.

Most people seem to be assuming the latter; you seem to be assuming the former.

To clarify, the two business plans I'm thinking of are

A) Find overlooked innovations; buy the patents; sell or license the patents to firms interested in developing products based on the innovations.

B) Find overlooked overly broad patents; buy the patents; find companies who rely on systems which likely infringe these patents; threaten to sue these companies unless they pay large licensing fees.

I would say that the evidence is on the side of model B. First of all, middlemen for extortion abound - the so called "patent trolls" - it is a proven market. Have you heard of any middlemen for genuine innovation?

Secondly, we can look at the company's client list. Cisco, Verizon, Sony, Nokia, Microsoft, Intel, Google, eBay, SAP, and Nvidia are named in the linked article. Lots of software and electronics companies. The nature of software companies probably makes business plan (A) impossible (the conventional wisdom, at least, is that no one cares about a bright idea in software; they care about implementation). If they were following business plan (A), I'd expect to see industries where ideas are worth a great deal of money more represented - biotechnology maybe. I don't know if patents are worth anything, except for litigation purposes, in any industry really though.

Finally, the actual article spells things out, although we can't be sure how accurate it is.

"It works like this: Technology companies agree to pay patent-licensing fees to inoculate themselves against potential lawsuits by Intellectual Ventures."

This kind of business plan is strictly destructive to the economy. Under this business plan, the patent gives nothing of value to the company licensing it (they are already infringing the patent, having "discovered" it in the normal course of business). It is the prevalence of these sorts of deals, and the rarity of the sort typified by model (A), that have put many of us against the patent system.

By the way, a strong economy is no evidence that the patent system is pretty good. The economy could be strong even if we had an absolutely miserable, almost purely destructive patent system. The patent system may have simply too small an effect to make the difference singlehandedly between a strong economy and a weak one. Or maybe it has a large effect, and our economy would be far stronger with a non-broken patent system. It's impossible to know, when all we have is this tangled-up complex system called the economy which somehow works pretty well.

Also when you phrase it as "Technology companies agree to pay patent-licensing fees to inoculate themselves against potential lawsuits by Intellectual Ventures." it sounds like extortion. Another way to phrease it is "companies agree to pay patent-licensing fees because Intellectual Ventures owns the valid patents they are infringing on."

You can phrase almost any perfectly moral activity to sound like extortion by using the same trick. "I pay taxes to inoculate myself against potential lawsuits by the IRS." or "I pay rent to inoculate myself against being evicted by the landlord." or "I go to the grocery store to inoculate myself against starvation." Is the grocery store extorting me?

How is this outsourcing R&D if you've already done the R&D, since you're clearly using the techniques, and then Nathan comes along and takes you to court for millions?

You're buying into the spin. Intellectual Ventures is not a think-tank for nuclear geniuses and never was. Do you really believe the marketing story Intellectual Ventures puts out? Do you think that Trident makes your teeth whiter, and that Snapple is made from the best stuff on earth?

Just curious, though, do you actually have any evidence that Intellectual Ventures is charging people for stuff they were already doing? Have they taken anyone to court over these patents? I'm not buying their spin, I'm assuming their innocence until guilt is proven.

They are extortionists and vultures. Their business model is to buy cheap patents from people who just do pure research. Then they go and sue the pants off people who do real work and make a honest living by doing things that make real products.

So I don't know how you can say they need to be proven guilty when they plainly state what they are doing.

And, as far as the patent buying goes, I don't really see a moral hazard with arbitrage. Either the market for patents is really inefficient and they're reaping rewards for exploiting that, or they're actually (gasp) providing a service to the market by connecting companies to institutions, and they're being compensated for it. Either way, I'm thumbs up on the enterprise.

Doing pure research isn't making an honest living?

After all, if one can't make money off of a thing purchased from a professor, there's no reason to buy said thing from a professor. Is it wrong for professors to make money from what they invent? In many cases, the school also makes money. Is that wrong?

Or, is it just wrong for middlemen to buy and resell? In other words, professors should only license to end users.

Note that you've already excluded "publish your invention and charge other people to use it".

Myhrvold told the WSJ that he acknowledges facing resistance from companies he targets for licenses. But his patent inventory gives him leverage to extract settlements without litigation. "I say, 'I can't afford to sue you on all of these, and you can’t afford to defend on all these,'" he said.

http://blogs.wsj.com/law/2008/09/17/invention-capitalism-the...

It sounds like IV's general strategy is a carpet-bombing approach -- coming up with so many tangentially related patents that it doesn't matter how many are invalid, because proving it would cost too much in legal fees, lost sales, or investor confidence.

If you assume IV is legitimately innovating, then all these companies must have been willfully violating multiple patents (directly implementing them from the patent documents)... because otherwise these companies have all come up with the same innovations independently, and the frequency with which this occurs implies that the innovations are actually "obvious to someone skilled in the field" and hence not patentable.