The Liberty Papers

Over at Cato, Jim Harper responds to proponents of gov’t research that point to the products of that research as justification — they never really consider that such products would still occur via private-sector investment. He takes a bit of a swipe at IP policy in the middle, and in his discussion of the history of AT&T I got an idea:

To take the Internet as proof that the government is a necessary producer of research and innovation, you have to reject the scientific method. Unfortunately, there are rarely controls in public policy. We can’t find out what would have happened if government policy had taken a different course, so we don’t know anything more about who should fund research from the fact that government-funded research has produced good things in the past.

But what would have happened if U.S. public policy had taken a different course? I’ve thought about the impossible-to-answer question of where we would have been without DARPA and other government influences on telecom. What most people don’t consider, I believe, is the restraining influence the government-granted AT&T monopoly had on telecommunications for most of the 20th century. AT&T developed a “Teletypewriter Exchange” system in 1931, for example, but had no need to develop it, there being little or no competitive pressure to do so. (Its patent on attaching devices to phone wires undoubtedly helped as well, preventing anyone using AT&T’s wires for modem service.)

Had there been competition, I suspect that someone would have come up with the idea of packet-switched networks—that’s what the Internet is—before Leonard Kleinrock did in 1962. Kleinrock was a student at MIT—he wasn’t at DARPA, which didn’t get into packet-switching until about 1966. (Then again, MIT was almost certainly awash in government money—specifically military money—so there you go. Maybe we owe all the good things we’ve got to war, but I doubt it.)

So back when AT&T was a monopoly, they developed technology that preceded the internet for delivering data over phone lines, as well as owning (and enforcing) a patent on attaching devices to phone wires, which undoubtedly allowed them to prevent anyone else from capitalizing on data-over-phone-line ideas.

Some would say that this is evidence that government should have been financing this sort of invention so that it would be in the public domain (as TCP/IP eventually was). But there’s another angle to look at here:

Why doesn’t the government buy patents that are valuable but underutilized, and release them to the public domain?

Think of it this way: if the US Patent Office had purchased AT&T’s patents back in the 1930’s and released them into the public domain, they could have been capitalized by a broad swath of companies and perhaps kickstarted development of the internet far before DARPA ever got a hand in it (of course mainstream personal commercial user acceptance probably would have relied on availability a low-cost PC’s just as we saw beginning in the late 90’s). AT&T’s monopoly over phone service gave them no profit incentive to utilize their own invention, but getting it into the public domain could have created a competitive market where none existed before.

I see a couple of potential advantages to this idea over that of government research:

1. Less of a politicized “government picking winners and losers” model for government research. Instead of independent researchers seeking government grant money for things that have not been invented (and for which commercial development is outside their reach as pure scientists), they might need to seek private funding from investors who expect to reap benefits from selling those patents to the USG.
2. Give an extra incentive for US companies to continue R&D investment in more “speculative” technologies. For technologies which may be valuable but for which the commercial viability is a more long-term play, or for technologies which might be valuable but prove not to be relevant to the business model of the company in question, they can still earn some return on that sunk R&D investment.
3. Development of an individual technology-creation boom. Many individuals with good ideas who *could* patent their idea but have no desire or capability to create a company to monetize their idea forego the patent process because there is no return on their time. All of these ideas are lost to the world, at least for a time.
4. Perhaps most importantly, this is the government paying for results rather than promises. As I suggested in this December 2006 post, I believe that incentivizing the private sector to invent might be a more efficient model in general than in purchasing research on the front end.

Now, there are undoubtedly issues with this proposal.

First and foremost, the fear would be that companies would merely use this as a vehicle to offload shitty patents onto the government — just another form of corporate welfare. And I do suspect they’d try. My answer to that is twofold. One, of all the departments of government, I think the Patent & Trademark Office is widely regarded as one of the less politicized. If procedures are put into place to present them with these patents “blindly”, i.e. so that they cannot know the identity of the inventor, I would suspect that we can at least get their fair assessment of an inventions value in an objective manner. Second, is that one man’s trash is another man’s treasure. For a company that is not capitalizing on a patent, they understandably think it’s worthless — that doesn’t mean that it’s so. There might be some legitimate diamonds in the rough here.

Second, the fear would be that this would merely be government picking winners and losers on a different stage. I.e. if businesses can’t reap value from their patents, and if government boards can’t reliably pick which research programs are of most benefit, how can they do so with patents? This is a pretty typical government problem. Again, I think putting this in the hands of the PTO might help, but efficiency and waste is always a concern.

Third, the fear is that companies simply won’t sell. Patents — even useless ones — are important legal tools. When Novell sold off a patent portfolio in late 2010, the value worked out to be roughly $510K per patent. When Google announced an intended deal to acquire Motorola Mobility last year, the value of the purchase conveniently was set at $12.5B — equal to Motorola’s 24,500 patents multiplied by $510K. When Nortel went bankrupt and auctioned off their patent portfolio last summer, the total value of their 6,000 patents averaged $750K apiece. There may be some positive value in owning some of those patents, but there’s incredible potential negative value in NOT owning enough patents to countersue your competitors if they decided to engage in an IP war. For big companies, a robust patent portfolio is the international diplomacy equivalent of a nation having nuclear capability — those without it won’t mess with you, and you make sure you play nicely with others who have it to avoid MAD. The key to this is not that there might be unused patents of inestimable value to the public that the companies aren’t even using, but rather that they may not be willing to sell *any* part of their IP portfolio. Unilateral disarmament has never been a popular strategy.

All that said, one of the questions we might be left with is simple: is it a better situation than we have now? Would the advantages gained be enough to justify a wholesale switch from our current strategy of paying for research, or perhaps even of diverting a portion of that budget to a program like this instead? I think it would — opening up the option to reward inventors (whether corporate or individual) for creating IP and then opening it up to the public domain seems like a great strategy for a continual boost to near-term growth. Pure scientific research has its place as a public good. Yet I think a case can be made that less “pure” inventions, being opened to the public domain, have a potential place at the table too, if not instead of, pure science.