Make Patent Trolls Pay All Costs If They Lose | Hacker News Reader

Make Patent Trolls Pay All Costs If They Lose

petitions.whitehouse.gov

220 pointsmdesq87 comments

I like the principle, but most patent trolls are small shell companies. If they lose, you can ask for costs, but you'll find nobody to collect from. (And the next shell, with the same lawyers, will be suing someone else with a different garbage patent.)

Also there will be an uphill battle to avoid any Congressional response turning into a symmetric "loser pays" scenario. In that situation, the troll can trivially run up huge legal fees, knowing that you will collect nothing if they lose, but you stand to lose a lot. That change would leave trolls better off and potential victims worse off than they are now.

Forgive me, I'm not an economist or anything, but doesn't this raise a question of shell company regulation? It shouldn't be possible to use a legal structure like that.

It most certainly does raise the question.

Here's an article and HN discussion for Intellectual Ventures being linked to over 2000 shell companies: http://news.ycombinator.com/item?id=4946445

That there exists a legal structure for some group of people to avoid responsibility is quite baffling to me.

Things like Limited Liability means that someone could potentially do something harmful, and yet not be "personally" responsible for the consequence - and yet, reap the rewards should they succeed, means that the cost is externalized to society at large. This should be fixed (how, i have no idea tho...).

The responsible party is fully liable, if you can prove they are using the entity as a sham you can pierce the veil.

You can always require plaintiffs to post bond in advance. This is what is done with shareholder derivatives suits in most states. Bond requirements are undesirable in cases where meritorious plaintiffs may have no money at all, but that should not be a concern for patent cases (the idea of an "individual genius inventor" is more or less romantic mythology these days).

And surely if the individual genius had a meritorious patent, someone would be willing to fund the lawsuit.

Congratulations, you've invented patent trolls.

With the assumption that patents are worth having, that would no longer be a bad thing. The biggest problem with these trolls is that there is hardly any risk or cost in suing, and they can disengage at any point if that starts to change. This places the defendants are at a significant disadvantage.

With that inequality out of the way, patents could be what they are promised to be: a way to ensure you can monetize to recover a significant investment that you wouldn't have made without the promise of that patent.

(I don't subscribe to the idea that patents are a good thing though; especially the kind of patents that seem to make up 99% of the patent pool).

With a twist: in this variant, patent trolls risk their money if they lose, hence only enforce patents they truly believe in.

Nobody would fund a "method and apparatus for linking users of free app to the paid app" lawsuit if they had anything significant to lose over it.

I like this solution.

I'm not qualified to give legal advice, so I'll just link Wikipedia and let people make of that what they will:

https://en.wikipedia.org/wiki/Piercing_the_corporate_veil

Almost certainly won't work in this case. All corporate formalities are followed. They aren't shams, only shells.

Don't take this the wrong way, but don't you think they thought of this when they set them up?

Patent trolls may be dicks, but they aren't stupid.

Stupid question but, if that's true, then wouldnt that destroy the credit of the people who setup shell companies to begin with?

That is unless they are all setup illegally I guess?

It is called "piercing the veil" - go after the assets of the individuals running a shell company to limit their liability. It is possible but not easy to do if they structure and operate the "company" properly. You would spend a lot of money trying to get them to pay...

Furthermore, if you do it in a series of shells in different jurisdictions (think countries and continents, not just states), it becomes effectively impossible to pierce - it can cost millions or even tens of millions to pierce a series of 50 companies, even though setting them up and maintaining them can be done for as little as $100K.

But doesn't the shell company have to OWN the IP/patent in order to sue? If they lose and can't pay, then transfer the patent to the defendant. Guess it still doesn't completely stop the trolls... Definitely need some bonding.

If they lose the case, then the IP/patent is likely worthless.

Not necessarily. They can have a "we're allowed to sue on your behalf" agreement with the owner. Also, the patent owner could sell it to them for $5K, wait a couple of years, claim that the value has ballooned to $2T, and let them sue.

(Oh, patent owner also owns troll, but you can't know that without spending a few hundred K$)

And if they lose, the patent apparently is worthless, so not much help there.

I assumed that something similar to the RightHaven copyright case might stick... since the troll company doesn't/wouldn't own the IP then they wouldn't have standing to sue...

http://arstechnica.com/tech-policy/2012/03/judge-orders-fail...

http://www.wired.com/threatlevel/2010/09/righthaven-sham/

Patent trolls own a patent, at the very least. The court could seize the patent and auction it off (or place it in the public domain) if the troll's string-pullers choose not to pay the loser's penalty.

Putting the patent in the public domain or invalidating it would be a good penalty for frivolous patent suits.

Or the maintenance cost could be significantly increased.

I would love something like this: any failed patent suit doubles the maintenance cost for all patents owned by the entity which owns that patent. The effect would be transferable (i.e. if they sold the patent to some other company, that company's costs would double) and it would stack (i.e. failing with the same patent twice, or owning 2 such patents would quadruple your maintenance costs.) The effect would last for some fixed period of time, so if the patent were truly valuable, a company could opt to keep it anyway.

Obviously, that would make any patent involved in a failed lawsuit highly undesirable, so no one would want to buy it. It would also mean that shell companies wouldn't be able to send the patent back to a company dedicated to simply amassing patents.

This would discourage legitimate patent suits, while not particularly hurting one-patent shell companies.

Might as well just take them off them, it's a lot less messy and it doesn't require anyone to choose not to be a douche even if it's the less attractive option.

I like this one. He understands!

If they lost, that patent has probably been invalidated. At the very least, its applicability has been downplayed.

A patent troll loses either when its patent is invalidated in the course of litigation or when its patent is upheld but the court determines that the alleged infringement did not occur.

About 40% of patents are invalidated in the course of infringement suits. When a patent is upheld, about half the time the court finds that the alleged infringement did not occur. [1] So there would be a valid patent to seize in about 30% of cases in which a patent troll loses its suit.

It's a start. I don't think losers' penalties would fundamentally change the financial calculus for patent trolls, however, because 97% of patent suits are settled before they go to trial. [2] Doubtless a similarly large share of threatened suits are resolved before a suit is even filed. What needs to change is the calculus for the troll's target of paying up versus challenging the patent in court.

Here's a crazy idea. Perhaps patent-holders should be required to register licensing income, as well as infringement complaints, with the patent office. A patent's validity would automatically be assessed by a court if the licensed value or the number of complaints passed some threshold. Since so many patents are invalidated, this would encourage patent-holders to seek royalties or threaten litigation in fewer circumstances.

Alternatively, a similar system could be used as the basis for enabling class actions to challenge a patent's validity. Merely publicizing a patent troll's actions would help its targets organize to share litigation expenses. Wouldn't it be a wonderful thing if we began to see television ads asks, "Have you been threatened with a lawsuit and strong-armed into paying licensing fees on a patent covering ..."

1. Michael Heller, Gridlock Economy, 2010.

2. http://www.freakonomics.com/2011/07/11/how-patent-trolling-t...

Considering that patents can just be reassigned, it's almost irrelevant. Patent trolling is a no lose business.

What are the tax implications of reassignment? If I reassign a patent to a shell corporation, is it taxed? How would such a patent be valued?

If the transferred assets are taxed, that would introduce at least a modest loss for using a shell. Also, I would think that the valuation for tax purposes should be something like the value to be claimed in court, at least if the transfer occurs soon before a round of trolling. I can imagine a troll reassigning a patent to a shell, low-balling the value for tax purposes, and then inflating it when wielding the patent in court. In such cases the IRS and/or the court might be interested in the discrepancy.

A quick google suggests that the patent sale price can be set arbitrarily, and the proceeds of the sale are simply taxed as either normal income or capital gains, depending on how the IRS feels that day. This corresponds with my thought that it's basically cost-free to reassign patents. The applicable laws I found were 26 U.S.C. §1235 and §1231.

I would be interested to know how it actually works, because IANAL.

One of the things that occurs to me is that if the patent in question really is frivolous, defending it isn't going to cost $1.5 million. That'll buy you two decent small firm lawyers working overtime for a year. At the same time, forcing losing plaintiffs to pay all costs means that small firms can basically never sue large companies for ripping them off.

I think a less destabilizing way to address these sorts of nuisance suits is to require the plaintiff to post a substantial bond (as is done in shareholder derivatives suit), perhaps subject to losing a "deductible" if the patent is invalidated in the suit. Requiring the plaintiff to risk say $50,000 would go a long way towards both deterring truly frivolous suits like the X-Plane one, and to compensating defendants for defending against such litigation without chilling meritorious litigation.

$50k? They've probably already paid far more than that on lawyers by the time they get to court.

It depends on the "troll." If you're Intellectual Ventures suing Microsoft over arguably legit patents, then you have put a lot of money into the case. But that's not "trolling" in the same way as in the X-Plane example, and it's arguably not something that needs any particular deterrence. There are valid economic arguments to be made in favor of NPE's in that context.

Th X-Plane case, however, is what I think most people on HN tend to be worried about. An entity coming at you with an obviously invalid patent, and going for volume: hoping to get a few hundred people to pay a few thousand in fees each hoping nobody will litigate. It doesn't cost anywhere near $50k to throw a quick, cut-and-paste lawsuit together.

> If you're Intellectual Ventures suing Microsoft over arguably legit patents,

I'm sure you meant that hypothetically, but in case you are not aware:

Bill Gates personally, and probably Microsoft as well, are investors in IV - and best friends with IV founder Nathan Myrvhold - who quit Microsoft to start IV.

That would roughly be the cost of the deductible on an insurance policy you can buy that covers defense against intellectual property infringement (assuming infringement was not intentional). You can buy this sort of insurance. It's not cheap, but it can cover both defense costs as well as a certain amount of damages.

I'm expecting this to be common course for software companies in the near future.

More information on patent defense insurance: [1] http://www.psfinc.com/press/defense-against-patent-infringem...

[2] http://www.mazeyinsurance.com/patent

[3] http://www.patentinsurance.com/products/insurance-policies/d...

Wouldn't it be nice if defending against frivolous patents didn't cost $1.5M. Unfortunately, it does cost that much.

There are 3 problems that make this so:

1. The courts are unpredictable. You can be right and still lose. The cost of losing is typically huge, else the trolls wouldn't have bothered you. So you have to prepare with quality counsel and pay them to do it right.

2. Settlements are entirely predictable.

3. Based on what #1 costs and #2, the troll simply negotiates to settle for less than just appearing in court for #1.

Last time I was at a company that was sued by a troll, counsel said it would cost us $1M to prepare for the first day in court. The troll had a bogus patent that basically said any application that applies business rules to a database infringed--I kid you not. I think we settled for circa $600K.

It sucked and wasted everyone's time like crazy, not to mention the wasted $600K.

Something needs to be done to either eliminate software patents or get rid of this ridiculous asymmetry of costs where trolls are rewarded for playing as many cheap lottery tickets as they can.

PS: I am not pro-patents.

Per Wikipedia [1], the definition of patent troll itself is unclear, creating an important first roadblock to implementing something like this. Just for example, if a company files a patent, and manufactures/sells one device using it, is it still a patent troll or not? What happens if the troll intends to, but at the time, is unable to manufacture or sell the product carrying the invention?

>> Patents cost $195 to file. $1,500,000 to defend against in court. As a result, Patent Trolls collect inane, invalid patents ...

Isn't the purported troll also risking their time and money in the lawsuit, going well beyond $195? If so, the $195 to $1.5 million comparison above is clearly weak.

>> The patent office has approved countless ridiculous patents that are clearly non-sensical or based on obviously long-known ideas, making it easy for trolls to collect ridiculous patents and use them as their flimsy excuse to file outrageously expensive lawsuits.

When an patent invention is filed, a prior art search is generally performed to see if the claimed invention already exists or not. If no prior is discovered in spite of it existing at the time, how and why is this considered to be a fault of the purported troll (and not of the patent office for example)? No one can possibly know what all exists already, which is part of the reason why patent office ends up approving the patent to begin with.

From the best I understand, it is now becoming easier to invalidate a patent, showing prior art at during litigation.

The real thing at issue with patents is non-obviousness, due to which a patent may wrongfully stand in spite of missing prior art. Obviousness is so hard to define because what is obvious to someone is not obvious to another. Add to it figuring out whether it was obvious back when the patent was filed.

[1] http://en.wikipedia.org/wiki/Patent_troll

I propose that obviousness should be tested with an expert in the field. If that expert could explain how the invention worked by only looking at the result, but not at the patent itself, then the patent is considered obvious!

That's hard to do after the fact. It may be that it is now obvious to everybody because of the patented technology. Something needs to be done, but there are no easy answers.

this is where the ideology between us differ - the classic example i use when i argue with friends on this topic is 'the wheel'.

Some of my friends argue (and i assume this is your point of view), that the wheel would've been granted a patent should it be invented today. I argue that even tho the idea is novel, there is no "secret" that you can hide with the wheel invention, and hence, there is no incentive for society to give you a monopoly, because you can't both use the invention, but hide its implementation from society. The price for said monopoly is the devulsion of the secret, and if there are none to give, you do not deserve the payment.

If the patent was for some complicated industrial process to produce better paint, an expert looking at the paint can't work out what went on in the process. But if you look at the sort of "design patents" that have come out, the amazon one-click is the classic example here, there is absolutely nothing that they can hide about the workings of the patent, and thus don't deserve a monopoly.

A patent is granted for an "invention", whether it is visible or not. I do not see why a visible invention is not an invention.

See my separate comment for more on this:

http://news.ycombinator.com/item?id=5071287

Patents aren't intended to protect an existence proof. They're intended to protect the underlying methods. If, after seeing a swipe-to-unlock gesture on an iPhone for instance, someone of ordinary skill can implement it without referring to the teachings of the patent, then the patent is bullshit.

(Of course, that's not the way it works, but it's the way it should work. Remember that patents exist to give inventors an alternative to keeping trade secrets. Something that would make a laughable trade secret should also constitute a frivolous patent claim.)

Along the same lines, what I think is important is to see if one of ordinary skill [1] in the domain of the invention could come up with the solution proposed in the invention when facing the problem at hand. Often, the problem is new, and any solution, obvious or not, gets accepted as a patent.

[1] An expert would be better, the current law only asks for ordinary skill

This sort of logic is supposed to already have been done prior to granting the patent so I'm assuming you mean that, for each patent granted, this is to be performed before granting the patent. Are you saying that you want this done also at the trial/hearing?

I'd further ask:

  - Who are these 'experts' you mention? 

  - How are they identified as such

  - Who pays for their time?

Let's take the case of a drug patent - walk me through how they find an expert who doesn't work for either company, how long it takes the person to do discovery, how much they charge, and who pays.

Here is how I would change patent lawsuits:

1: If the defendant wants the patents reexamined, then the case should be stayed until a review is finished; only litigate the upheld patents.

2: No more avenue shopping.

3: The party who filed the suit should pay if they lose. And the law should allow for getting that money from parent companies.

4: Awarded damages should be close to zero for non-practicing entities.

I'm getting sick of the white house petitions.

You know what works? Getting people together to call congress. Or lets collectively digging into patent trolls and outing them. These petitions don't change anyone opinions on the matter.

Well it's a start, every revolution has to begin somewhere!

And if you are that sick of them, don't sign them. Simples.

This is a fallacy. If there are widely trusted outlets for activism that in fact have little to no effect on policy, then we should speak out against them. This notion of "voting with your feet" and walking out does nothing.

So far as I can tell, the main purpose of the We The People site is to provide a scapegoat: a place for angry activists to vent their anger without causing real damage or wasting anyone's time with legitimate protests. In return, the president's staff must occasionally make a statement of the party line on some issue.

It's a neat trick funneling dissent into a neat little internet package. It defrays real activism ("Why are you taking action? It's much more polite to make an online petition.") and so it's worth decrying if you think it's really harmful. Merely refusing to sign is a tacit acceptance, and in fact is likely to just harm the issues you care about. Much better to sign, and then speak out against them if you think they are a fool's errand, as I am starting to believe.

Well, yes I agree with, just signing a petition will achieve nothing. Just like the man down the pub complaining about XYZ will achieve nothing except give him an outlet to vent. As the old saying goes: Actions speak louder than words!

Please stop posting these inane "petitions" from whitehouse.gov or elsewhere. No one in the White House or the Capitol building cares. It might feel good, but it's a waste of your time.

I don't recall women, African Americans, or homosexuals getting their due civil rights recognized by signing petitions.

Maybe what we need is a million geek march on DC. Can you imagine!

As Martin Luther King once said, "Nothing worthwhile ever happened on the internet."

They should also be forced to put up a sum of money (say $1 million) before the lawsuit starts, in case you're dealing with a shell company, that doesn't have to pay anything if it loses.

Random idea: reform patents such that they carry with them the requirement to license them to others under reasonable (perhaps even uniform) terms.

Make the purpose of a patent to reward the inventor for a useful invention rather than to prevent others from implementing the design.

How do you determine the reward for a given invention? You can put the patents in the market for the purpose, which can happen today itself. Alternatively, you may see the damages as the said reward.

That is already implemented in several countries, it´s called "Compulsory Patent Licensing".

Here's a paper from 1988 (!!!) which basically endorses it for the U.S.

http://heinonline.org/HOL/LandingPage?collection=journals...

The Wikipedia article:

http://en.wikipedia.org/wiki/Compulsory_license#Patents

they're basically used for medicines now, but it should be implemented for everything.

Also, a little research showed it to be ineffective in Australia because you need to ask for permission from the government first.

Finally, it doesn't stop "bad patents" and might even promote them.

The fundamental idea of granting a time-limited monopoly (via a patent) to the inventor/assignee to use the invention is to encourage research and development expenses by the company. These expenses are now like an investment/return in exchange for benefits to the entire society after the patent expires. If use of a patent in a product gives the company competitive advantage, they may recover their R&D expense with it.

An interesting / novel way to curb the issues with the patent system would be to cap the maximum monetary benefit a company may get out of a patent based on the R&D expense involved in coming up with the patent. For example, if the expenses involved in coming up with invention is X (including filing fees?), the patent may be set to expire once the company makes say 10X out of it. If it takes $2 to come up with an idea, then the maximum worth of that patent under this example would be $20, which would still be a good return on the investment.

Of course, tracking this would be painful, but so is the current state of the patent system! On the very least, this may be applied to limit awarded damages during litigation.

how do you judge what the cost of development was? it is a very manipulatable number - looking at what holywood movie studios do already tells me that this method can't possibly work due to many who would game the system.

Agreed, generally. I am not familiar with how the calculation is currently done for calculating the damages, and so am not sure if the latter is any easier. Most probably, tracking the cost of development would have to be made a legal requirement just like other things that companies need to track (for taxes, immigration, etc.)

Another complication comes from the number of patents involved in a single product. How to tell how much revenue maps to each patent?

On the other hand, this does capture the intent of the patent system well -- Encourage research and development investment while avoiding frivolous cases.

The world where loser pays is not so perfect. If I as an independent inventor sue apple for infringing on my patent and they win simply because they have unlimited legal war chest, then I would get stuck with millions of dollars worth of legal fees. That threat alone is enough to stop smaller patent owners from rightfully defending their intellectual property.

Patents cost a lot more than $195 to file. Even the filing fees are more than that -- you're just quoting the Provisional Patent cost, which doesn't actually result in a patent issue. The actual cost of filing and successfully getting a patent to grant is in the tens of thousands of dollars, and possibly more depending on the art and office actions.

So, the cost comparison here doesn't hold. Perhaps it would be more accurate to say that successfully defending a patent against a patent troll intent on taking the case to court costs at least ten times as much, and possibly up to a hundred times as much as the cost of getting the patent granted in the first place.

But I'd eliminate the $195 wording as that's a straw man argument that can easily be refuted.

Actually it looks like he's quoting the basic filing fee (provisionals are less), without including the search and exam fees. But yeah, it's a total straw man and just costs him credibility.

That really won't solve anything - most (perhaps all) patent trolls use shells so that they have no liability.

It's been a couple of years since I first had an idea, and realized I'm definitely not the first who thought about it: IP Tax. If IP is property, it should have property tax (a discussion here: http://news.ycombinator.com/item?id=2855835 ).

While I'm not for taxes in general, among all the suggestions that I've found (loser pays, shorten patent period, refuse granting more software patents, etc.) this is the only one that:

a) puts newer and older patents on equal footing (thus, no "grandfathered trolls" get a free pass), meaning you can implement it as quickly or gradually as you want without being unfair to either existing or potential patent holders.

b) makes shell games and international games much less appealing and useful[1]: If you want to sue in some jurisdiction, you have to have a skin in the game, both financially (proportional to how much you will be able to extract with a lawsuit), and jurisdictionally - you have to have a tax paying nexus.

I'm still looking for other suggestions, and this one isn't "good", but it's the best I can find.

When you are criticizing (and I welcome criticism), please try to remember that the most relevant alternative is "existing patent regime" (and the need to switch from it to a new regime), then other suggestions such as loser pays, shorter terms, etc - and only finally "no patents at all" - because it seems most criticism I received so far assumes we're starting from a "no patents at all" world.

[1] this is the game played by IV and their friends: set up tens of companies, each owning the next, and each in a different jurisdiction (e.g. NY owns dutch owns british owns cypriot owns turkish owns Delaware owns hungarian owns french owns .... owns dutch owns turkish owns ... owns US corporation that owns patent suit rights). The cost of setting up this structure is less than $1000/company/year (in many jurisdictions, and especially if you do this en masse, down to $100-$200/year). However, piercing it is an exercise in futility and is more of the order of $10000/company - and if you try anything more than discovering ownership chain, more like $100,000 company)

nothing personal, but please tax this idea.. burn it, and bury the ashes somewhere deep, never to be seen again

My decoder ring says you don't like the idea. That's ok, you don't have to. I just wander if you have any objective (or even subjective, for that matter) criticism other than "I don't like it"?

Then we must increase the liability. When patent owners want to sue for damages worth $1000000, make them pay $1000000 in a 3rd party bank account BEFORE that.

If they win, then they get their money back plus the damages. If they lose, then the defendants can pay their legal costs from those $1000000 (and the reminder goes back to the patent owner).

I am in favor of that solution, but there needs to be some constant of proportionality:

If you have a patent worth $1M, it is reasonable that you can finance a $1M bond.

If you have a patent you believe (and sue for) $400M, it is less likely that you'll be able to finance that bond unless you are Microsoft.

So, it needs to work out to a percentage (1%-5%) of what you sue - but probably something like "and you lose at least half of that even if you pull it back the next day".

I think the issue will be in identifying who qualifies as a patent troll. Of course we know but what is a legal definition that would suffice and encompass all the companies that acts as trolls?

Companies who have sued more than a certain number of companies (5?) in the past would be a good start, I think.

I'm sure Google and Apple and the other large companies fall into this category. I'm not sure I qualify them as trolls. Neither would the number of patents held by those companies qualify them either.

Well then, just open a few more shells so that each only sues four!

We can keep playing definitions all day, but it's not going to help anything.

Perhaps any company that doesn't actually have any other product or service? I agree it gets into tricky territory though.

A comment above addresses this well: shell companies, which is really the problem we should be fixing. Granted, the definition is probably still difficult to legally define despite how obvious it is when you're looking at one.

I've seen a number of people call CSIRO ( http://csiro.au ) a patent troll based on the wifi case.

a) The executive branch has exactly zero control over this

b) This has a hard-luck story attached, and those are almost never as simple as they seem

The loser in any civil suit should pay the winner the lesser of (his legal costs, the other guy's legal costs).

If the plaintiffs are working on contingency, do you calculate an imputed cost? If so, you'll basically put an end to any semblance of justice for victims of medical malpractice,[1] defective products, industrial polluters, etc.

[1] See: http://www.press.uchicago.edu/Misc/Chicago/036480.html

A lot of jurisdictions, e.g. England, have a 'loser pays' rule (as the default anyway, it's usually at the discretion of the court), and don't seem to be particularly less fair to malpractice victims etc. than the US.

One reason may be better legal aid. But also, a claimant who wants to avoid the risk of paying the defendant's fees if he loses can easily do so, by doing what anyone does when they want to avoid risk: taking out insurance (here, against losing the case).

So if you lose, the insurance company pays the costs order instead of you. If you win, you pay the insurance premium out of the costs award you get. It's called ATE (after-the-event) insurance. So you can basically use an insurance company to nullify the loser-pays rule should you choose to.

Cost orders are on a standard basis, so don't change depending on whether a lawyer is working on a conditional fee.

The U.S. does a lot of things through private litigation that other countries do through administrative regulation/enforcement. E.g. in European countries you have laws and agencies you can turn to if your employer treats you unfairly. In the U.S., even things like racial discrimination in the work force are left to private lawsuits. Basically, there's no free lunch.

That's a great way to ensure poor people don't sue you and can't get legal representation.

One person's troll may be another person's market-maker. For a contrary view to the idea of patent trolls, check out this paper: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1534282

Or, instead of having the government grant monopolies on production left and right, and then using the legal system to create a market in these monopolies, we could..... skip this whole process, and let the free market operate properly from the start.

Why would you believe that a "free" market is necessarily "proper" ? Markets are good at setting prices. I'm not sure they are good at providing incentives for expensive, high-tech research that can be undercut within six months due to the costs of reverse engineering (or espionage) being much less than costs of research.

Externalities (http://en.wikipedia.org/wiki/Externality) undermine the operation of the "free market" and much of the legal system exists to deal externalities. Tort law exists to manage risk externalities, environmental law exists to manage pollution externalities, etc.

The theoretical justification behind IP isn't just "hey the government decided to come along and create some monopolies." You can model intellectual developments as positive externalities which are subject to free-rider effects that reduce or eliminate the incentive to create.

Yes, I am aware of the theoretical justification for IP. I'm just not convinced that it's as strong a justification as is claimed. I think that the current system, in general, provides monopoly protection beyond what is necessary to compensate for these externalities, and is hence detrimental to the economy.

See, for example, chapters 4 and 8 of Boldrin and Levine's Against Intellectual Monopoly (Google to find the PDF), which presents empirical evidence that patent protections go beyond what is necessary.

"To sum up, careful statistical analyses of the nineteenth century's available data, carried out by distinguished economic historians, uniformly shows two things. Patents neither increase the rate of innovation nor are the best instrument to maximize inventors' revenue. Patents create a market in patents and the legal and technical services required to trade and enforce them."

My point is that a market in patents is not our goal, and absent evidence that such a market increases innovation (our real goal), there's no reason to have one. I don't think the evidence available supports the extent of the current patent system -- it might support a more limited one, but I'm not making a claim there.

OK, I'll set that up while you amend the constitution.

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