Canadian Law Professors Insist Banning The Sale Of Word Is Good For Society & Innovation

Say That Again

from the really,-now? dept

Rob Hyndman points us to two Canadian law professors, Michael Trebilcock and Edward Iacobucci, insisting that patents are “the mother of invention” in an article that mostly spends its time trying to defend the silly injunction (already put on hold) barring Microsoft from selling Word or Office, because it supposedly violates a patent, 5,787,449, on XML editing of a word processed document. There are all sorts of problems with the column, kicking off with Hyndman’s question as to how law professors should be considered experts on innovation…

But, let’s dig further into the details.

Patents are essential to the modern system of innovation. Once produced, information can be transmitted at zero cost. In the absence of patent protection, would-be inventors become vulnerable to competition that would drive the value of their discovery to zero, leaving them with no compensation for the costs of producing that information in the first place.

This is the usual story. And it sounds good. But there’s no factual evidence to support it. That’s because it ignores reality. Yes, information can be transmitted at zero cost, but that does not mean that implementation is assured, or that the market stands still. Besides, I’m curious as to the claim “vulnerable to competition,” as if competition is a bad thing. Most people recognize that competition drives innovation — and yet, these law professors are suggesting the exact opposite. That you need less competition to drive innovation.

Furthermore, they are wrong in claiming that in the absence of patent protection “the value of their discovery” is driven to “zero, leaving them with no compensation.” They say this as if the compensation is for the idea, rather than the implementation. That is simply wrong. No one compensates you directly for an idea. If you have a good idea, you need to bring a product to market and sell it. If someone else copies that idea, you still have a large first mover advantage and you understand the market better. On top of that, you should be ahead of the curve in terms of improving on the concept for the next iteration. That’s competition. It doesn’t mean the value of the idea is zero or that there’s no compensation. Claiming such makes no sense.

Again, beyond common sense, the historical evidence suggests that these law professors are simply wrong. Countries with no or weak patent protection have seen tremendous innovation over time. And it’s because it’s competition that’s the mother of innovation, not a lack of competition. For well over two hundred years, economists have recognized that monopolies that remove competition are bad for innovation. These lawyers are insisting that the opposite is true, and present no proof.

Microsoft objects that the injunction ordered by the trial judge goes too far. (It has been put on hold until after the appeal, which is to begin Wednesday.) But injunctions are almost always ordered to prevent continuing infringement, and for good reason. To simply order money damages for future infringement would be to force i4i to license out its technology at a court-imposed price.

This is misleading. While it is true that in the past injunctions were the norm, since the US Supreme Court’s MercExchange ruling more than three years ago, courts recognize that injunctions often do not make sense. The reason they don’t make sense is because they require stopping the sale of an entire product (or lines of products) due to a single infringing feature. That makes no sense, and the courts have recognized this. I’m not sure why these law professors do not.

Just as there are good reasons not to compel citizens to sell or rent out their homes at prices set by judges, there are very good reasons in general to avoid compulsory licensing of intellectual property. Court determinations of the value of intellectual property are necessarily somewhat conjectural, yet damages awards require courts to act, in effect, as price regulators. By contrast, injunctions do not prevent a licensing deal from being done, but rather cede to the owner of the property the authority to set a price. Just as giving homeowners the right to decide whether to sell or rent out their houses does not destroy the housing market, in terrorem arguments about the death of Word under this injunction are without merit.

Again, this is quite misleading. It implies that an injunction leads to the natural market setting the price for licensing, but nothing could be further from the truth. If someone is pointing a gun at your head and negotiating over how much you have to pay to stay alive, that’s not exactly a fair and open economic transaction that both parties enter into under their own free will. Claiming that this is somehow a more accurate market is pure folly.

Meanwhile, Microsoft has vociferously argued that despite the trial judge’s careful vetting of the evidence, i4i did not establish at trial a firm basis for its damages claim for past infringement. This claim about the speculative nature of past damages sits uncomfortably with Microsoft’s opposition to injunctions. Given the complexity of measuring supply and demand for a unique product, it must be true that there is some empirical uncertainty about the precise level of past damages. But if patents are to have value, this uncertainty is unavoidable: A damages award is the only available remedy for infringement that has already taken place.

Again, I have to admit confusion over these claims, which seem to have no basis in reality. It is not “the patent” that has value. It is the product. For sale in the market. And it’s the consumer who values it. The fact is that many more people seemed to value a complete package of Microsoft Word. They were not buying it because of i4i’s silly and questionable patent. They were buying it because Microsoft Word is a useful product. The difference in sales for Microsoft Word if it had not included XML editing would likely be negligible at best. There is no evidence of damages. If i4i and these lawyers are claiming that the “damages” are i4i’s inability to sell its own product, again, that is difficult to square with reality. Competition happens all the time, and it’s as good thing. i4i’s inability to come up with a product or marketing plan that people wanted is its problem, not Microsoft’s.

Also, the lawyers, in claiming that there was “careful vetting of the evidence,” conveniently leave out that this was done in East Texas, which has a long history of vetting in favor of patent holders. Don’t ask me, ask the bull that TiVo bought.

Protecting i4i’s patent protects incentives to invent and the competitive process. In this case, the trial judge wisely offered such protection, while recognizing the court’s own institutional limitations, by ordering damages for past infringement and injunctions going forward. While the decision was not a good one for Microsoft, it was clearly in the best interests of society.

Really? So, completely banning the sale of an entire office suite offering because one tiny, rarely used, feature might infringe on some random other company’s products is “in the best interests of society”? That seems wholly without support. That would mean making every user of Microsoft’s office suite suffer, for the benefit of a small 30 person company that developed a rather obvious concept. How is that possibly in the best interests of society?

Filed Under: canada, edward iacobucci, injunctions, innovation, michael trebilcock, patents, society
Companies: i4i, microsoft