Debunking the Myth that Patents Create a Monopoly
By Gene Quinn
Many inventors operate under the mistaken belief that getting a patent is like owning both Boardwalk and Park Place in the popular board game Monopoly. Unfortunately, turning an issued patent into cash is much more complicated than simply placing hotels on Boardwalk and Park Place. Of course, those who are against patents always argue that a patent is a monopoly, or at least use those terms interchangeably. Don’t be fooled by this self-serving, misguided rhetoric. A patent is not a monopoly and anyone who says otherwise is either grossly uninformed, they are spinning a tall tale to fit their personal agenda, or they are using an inaccurate shorthand expression that really deserves a lot more nuance.
Simply put, obtaining a patent will not result in the arrival of a money truck to your doorstep. Furthermore, just because a patent has been granted does not mean that there will be a market for the patented product or service.
Before we get ahead of ourselves, allow me to define the term monopoly so we are all on the same page. “Monopoly: exclusive control of a commodity or service in a particular market, or a control that makes possible the manipulation of prices.”
Therefore, when there is no market there can never be a monopoly because you cannot be in exclusive control of a non-existent market, and you cannot manipulate prices when no one is willing to buy what you are offering. Indeed, the truth is that the vast majority of patents, upwards of 90% of patents (perhaps as high as 98% of patents) will result in rights being granted to cover a product or service that will not be commercialized at all, or if commercialized will lose money because too few people are interested. That doesn’t really sound like a monopoly, does it?
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It is critical to remember what rights a patent conveys. A patent only gives the patent owner the right to exclude others from making, using, selling and importing. A patent carries with it no expectation for market success. Granted, if the product does have a market a patent can be a significant barrier to entry into that market, which insulates the patent owner from competition, but a patent in and of itself does not guarantee business success.
At best a patent only dangles the opportunity to achieve monopoly profits. This is due to the exclusive nature of the rights obtained and the ability to be the only entity in the market. Again, a market is necessary pre-requisite, which means a product or service that people are willing to pay for is a mandatory requirement. In the absence of a product that people want, and the business acumen to capitalize on such a market opportunity, a patent will not result in riches.
Chief Judge Markey, the first Chief Judge of the United States Court of Appeals for the Federal Circuit, time and time again reprimanded scholars, attorneys and fellow judges for characterizing a patent grant as a conference of a monopoly. In Carl Schenck, A.G. v. Nortron Corp., 713 F.2d, 782, 786 n. 3 (Fed. Cir. 1983), Judge Markey stated:
Nortron begins its file wrapper estoppel argument with “Patents are an exception to the general rule against monopolies…” A patent, under the statute, is property. 35 U.S.C. S 261. Nowhere in any statute is a patent described as a monopoly. The patent right is but the right to exclude others, the very definition of “property.” That the property right represented by a patent, like other property rights, may be used in a scheme violative of antitrust laws creates no “conflict” between laws establishing any of those property rights and the antitrust laws. The antitrust laws, enacted long after the original patent laws, deal with appropriation of what should belong to others. A valid patent gives the public what it did not earlier have. Patents are valid or invalid under the statute, 35 U.S.C. It is but an obfuscation to refer to a patent as “the patent monopoly” or to describe a patent as an “exception to the general rule against monopolies.” That description, moreover, is irrelevant when considering patent questions, including the question of estoppel predicated on prosecution history.
See also American Hoist & Derrick Co. v. Sowa & Sons, Inc., 725 F.2d 1350, 1367 (Fed.Cir.) (“The patent system, which antedated the Sherman Act by a century, is not an ‘exception’ to the antitrust laws, and patent rights are not legal monopolies in the antitrust sense of that word.”), cert. denied, 469 U.S. 821, 105 S.Ct. 95, 83 L.Ed.2d 41 (1984); Panduit Corp. v. Stahlin Bros. Fibre Works, Inc., 575 F.2d 1152, 1160 n. 8 (6th Cir.1978) (“The loose application of the pejorative term ‘monopoly,’ to the property right of exclusion represented by a patent, can be misleading. Unchecked it can destroy the constitutional and statutory scheme reflected in the patent system.”).
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So how then has it become so widely popular to call a patent a monopoly when that is simply incorrect? For those familiar with patent law the answer is hardly surprising. As with so many stories of patent law gone awry, this story starts with the Supreme Court. The Supreme Court, a generalist court that has no particular foundation with innovation, technology or patents, has frequently referred to patents as a monopoly, oblivious to the reality that patent laws date back to 1790, which predates the passing of the first antitrust laws in America by exactly one hundred years.
The Supreme Court seems equally oblivious to the fact that it is impossible for there to be a monopoly where a market does not exist. I suppose, to be fair, it is possible the Justices of the Supreme Court genuinely believe there is a market and associated monopoly for chastity belts for dogs, or a method for walking a snake, or a head mounted letter “M”. These and so many other issued patents demonstrate that getting a patent simply does not guarantee the presence of a market for the product or service, and if there is no market exactly how can the patent create market dominance? For a bunch of smart people from Ivy League schools you’d think they’d understand such a simple concept.
But there are even more reasons why it is inappropriate to think of a patent as a monopoly. Despite what you may have heard to the contrary, virtually no patent will lock up a market and hold others within the market hostage. Certainly there can be foundational technologies that are of extreme importance, but those types of inventions are extremely rare. Most inventions are improvements or incremental advances of different magnitudes. What this means is that patents are extremely fragile rights, which I understand is counter-intuitive given the narrative typically conveyed.
When you define your invention you are essentially placing your stakes in the ground and defining the exclusive right you will obtain. It is hard to define your rights in the first instance with as much specificity and detail as required, while at the same time anticipating what others will do and how they might attempt to get around those rights. Like most things in life, it is much harder to do in the first instance than it is to get around or undo later. Thus, when you have an innovation and you are making money from that innovation the basic laws of economics tell us that there will be others who will seek to enter your marketplace and compete. It is that simple.
A patent does not guarantee you the right to exclude others from a market in some absolute sense. A patent provides you the right to prevent others from making, selling, offering for sale or importing an invention that is identical to what you have defined in the claims of your issued patent. For that reason when you find an innovation that is lucrative you should not think in terms of getting a single patent, but if there is money to be made others will want into your market so you must think about continually innovating, pushing out the envelope of protection and obtaining more patents. Because if you do not continue to innovate and seek additional patents others will, and when they obtain patents on their improvements they will be able to exclude you! Obtaining a patent and sitting back while competitors enter the marketplace is a recipe for bankruptcy. Just ask Kodak. Kodak invented the digital camera and then proceeded to allow other companies to enter the market and dominate them, which among other reasons lead to Kodak filing bankruptcy.
I tell inventors all the time to model themselves after success, not after failure. One company that every inventor should learn more about is Apple. See The Apple Way: Repeated Innovation + Patent = Domination. While they have made some bad business mistakes in the past, they are a true innovator and when they come across an innovation they patent it and continue to advance innovation and push out the envelope of exclusive protection. Just look at what the have done to the letter “i.” There is an iPod, an iPhone, an iPad, an iMac, and iTunes. When you find something that works stick with it and get every inch out of it you can, but for goodness sakes be the one that pushes the envelope yourself. This is an excellent model, and one that inventors can and should learn from.
The moral of the story is this: You need to approach inventing as a business if you are going to make any money doing it. As you proceed to achieve this goal always keep in mind that if it sounds too good to be true it probably is too good to be true. The thought that a single patent can lead to a monopoly that unfairly or improperly holds an entire market hostage may sound like a good argument for those who hate patents, and it might sound very appealing for those who are inventors, but the truth is quite different. Like so many other things in life it isn’t that simple, and this innovation myth about patents creating a monopoly oversimplifies reality to the point that it is simply incorrect.
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