Monday, March 16, 2009

Patents versus markets

The latest printed issue of Science has a surprising article on the promotion of intellectual discovery. The link is Science 6 March 2009: Vol. 323. no. 5919, pp. 1335 - 1339. The Science editors considered this a significant report, giving is a Perspective article. The researchers found that their "markets system" performed better than the patent system.

I used the qualifier "surprising" because this is a strange time to advocate free markets instead of regulation, a time when the G20 members this weekend were in London to discuss increased regulation of the financial markets. I think the key in this argument is in the concept of the transitioning organization and its attractiveness for psychopaths as Hare and Babiak explain in they book Snakes in suits, written in the aftermath of Enron. In essence, you cannot assume all players are honest and have a conscience — you need a mechanism to cater for dishonest players, and regulation & oversight can be an effective mechanism.

The perspective article in Science list some caveats from the economist's point of view. Let me add some caveats from an inventor's point of view.

As we are now learning in the current global crisis, optimizing for short-term gains is not a robust strategy. Instead, the optimization should be for long-term success. In their paper, Meloso et al. run the experiment for a few minutes and then close the market for the day to tally the gains and losses.

Innovation runs on a very long time scale. In my experience, valuable inventions in a research lab can take 10 or more years to become commercially relevant for their assignee. In fact, technology and society have first to evolve to a point where the decision makers can grasp the significance of an invention. Then engineering has to learn the new technology and develop products. Marketing and sales staff has to be trained, along with customer support. Only then, the new technology can be advertised and brought to market with a chance of recuperating the investment and generate profits, hopefully to invest in new inventions and not in personal jets.

Patent applications are often filed to generate a big portfolio that can be used in cross-licencing negotiations, so quantity is often more important than quality. This means that the original managers deciding on an application can incorrectly guess which aspects of an invention have long-term value and should be protected, thus instructing the patent attorneys to make the strategically incorrect claims, reducing its commercial value. The proposed market model cannot account for this.

If an invention is important for the long-term technology strategy of a company, the company must keep working on it for the required decade or so, continuously filing patent applications as it refines the invention, so it will have a strong patent portfolio.