Episode 551: The Case Against Patents : Planet Money Today on the show, we talk to two guys who say we should get rid of patents. If someone has an idea, anyone else is free to steal it.
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Episode 551: The Case Against Patents

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Episode 551: The Case Against Patents

Episode 551: The Case Against Patents

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DAVID KESTENBAUM, HOST:

Thanks for listening to PLANET MONEY. If you're looking for more podcasts, check out Ask Me Another, a show that blends word games, brainteasers and trivia of all sorts with comedy and music. Find Ask Me Another on iTunes under podcasts. In 2007, I flew out to California to do a story about a guy you may have heard of by now named Elon Musk. Elon had made a lot of money with some Internet startups - the kind of money where you can just sit on the couch the rest of your life if you want to.

Instead, he was taking on two big projects, and I honestly had no idea if either of them was going to succeed. The first project was to, quote, "help humans leave the Earth." That's how he put it. He started a rocket company called SpaceX with $100 million of his own money. Elon had a physics degree. He was helping design the rockets himself. It was entirely possible they would all blow up. They did not.

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UNIDENTIFIED MAN: Three, two, one, zero. And launch of the SpaceX Falcon 9 rocket as NASA turns to the private sector to resupply the International Space Station.

KESTENBAUM: The second project weirdly turned out to be the harder of the two. Elon wanted to get Americans driving electric cars. At the time, he took me for a drive in what then was an early prototype of the Tesla Roadster.

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ELON MUSK: Go for a little ride.

KESTENBAUM: Oh, the car's on.

MUSK: Yeah.

KESTENBAUM: (Laughter). It's not so good for radio. There's no vroom-vroom.

MUSK: Well, it's great if we want to talk. It's quiet as a mouse.

KESTENBAUM: Under the hood are batteries - about 7,000 of the little cells used in some laptops, all connected together. The car goes from 0 to 60 in under four seconds.

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KESTENBAUM: That was seven years ago. The company developed all this cool technology, got hundreds of patents. But today, it is still pretty rare to see an electric car on the road, which brings us to the press conference the other week and the reason I've been telling you this story.

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SIMON SPROULE: OK, good morning, everybody. This is Simon Sproule from Tesla Motors. As you'll have just seen, we posted a blog concerning out patents. And we're now going to have a chance to hear from our CEO, Elon Musk.

KESTENBAUM: Tesla was taking the remarkable step of basically giving up its patents. Patents - those powerful things that give you a 20-year monopoly on an idea, those things every inventor wants for that new toothbrush design or that new 3-D printer - in this case, patents on electric car technology. The product of countless hours of engineering work and lawyers, Tesla had been granted hundreds of patents. Now it was saying these are all in the public domain. Any competitor is free to steal these ideas and run with them. Elon, the CEO who never seems to like talking like a CEO, got on the call.

MUSK: I don't really like patents, to be honest. I mean, it's not my favorite thing. You see a lot of these battles going on with - with giant companies filing massive patent lawsuits against one another. And you wonder, well, like, who's really benefiting there? You know, I think this is the right way to go.

KESTENBAUM: Elon stumbled around a bit, said, you know, if shareholders don't like this, they can fire me, but I really think this is best for everyone. Hello, and welcome to PLANET MONEY. I'm David Kestenbaum.

JACOB GOLDSTEIN, HOST:

And I'm Jacob Goldstein. Today on the show, we take this idea to its logical conclusion. We talked to a couple of guys who say we should get rid of patents altogether. If someone has an idea, anyone else should be free to steal it.

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KESTENBAUM: We've done shows before about software patents and how people think it should be harder to get patents for software. But when we talked about doing this show, I didn't know if there was actually anyone saying, yes, we should just kill patents altogether.

GOLDSTEIN: And then, David, you found a paper called "The Case Against Patents." It's by two economists, Michele Boldrin and David Levine at Washington University in St. Louis.

KESTENBAUM: Both of them happen to be in Europe last week, but we called them up.

GOLDSTEIN: Like, do you really want to get rid of patents?

MICHELE BOLDRIN: No, we're kidding. We've been kidding for 16 years just because we have nothing better to do.

KESTENBAUM: I mean, every developed country in the world has a patent system. It's not like there's big disagreement about this - some countries have them, some countries don't.

BOLDRIN: Every developed country in the world has their own taxes, for that matter. Every developed country in the world 200 years ago had tariffs on trade up the wazoo. So what?

KESTENBAUM: (Laughter).

BOLDRIN: I mean, I can go on for a while with the list of stupid things that every country in the world has that damaged economic development.

GOLDSTEIN: In case that wasn't clear - yes, these guys think we should get rid of patents.

KESTENBAUM: And just to make the case in favor of patents for a second, the idea behind them is that they provide a way for inventors to protect their ideas. Suppose you're trying to invent a better airplane wing. You build all these wings in your laboratory, do all these tests in a big field. You spend all this time and money, and finally you have it. Then, you apply for a patent. Patents typically last 20 years. And for 20 years, anyone who wants to use your wing design has to get your permission, pay you some money.

GOLDSTEIN: Patents reward the person who came up with the idea, and they encourage people to try to come up with new inventions to improve on things.

KESTENBAUM: Michele and David say that's a nice story, and certainly patents make money for inventors, but they also slow down the very thing you're trying to encourage - innovation. David Levine says, look at one of the most famous inventions of all time - the airplane - the Wright brothers.

DAVID LEVINE: I don't know if you know much of the history of the airplane, but we Americans think that the Wright brothers invented the airplane. But what the American history books don't emphasize so much is that the Wright brothers' airplane flew - I don't know - 65 feet in a straight line and landed in a heap or something like that after it launched from a tracks, so it wasn't a very useful device for doing anything.

GOLDSTEIN: But, David Levine says, the Wright brothers went ahead and patented that not-very-useful airplane.

LEVINE: They really tried hard to make sure that nobody built airplanes by using their patents. And so nobody built airplanes in the United States.

GOLDSTEIN: The really useful airplane, he says, got built somewhere else - somewhere where people who wanted to build a better airplane didn't have to worry about the Wright brothers' patents.

LEVINE: They actually are planes that fly up in the air, and they circle around, and they land in a different place than they took off and so forth and so on. Those were built by the French.

KESTENBAUM: OK, I'll give you the airplane. What about the steam engine, I said. They had a similar story. In the vast majority of cases, they argue, patents do way more harm than good. Patents, after all, grant you a 20-year monopoly. No one else can do that thing you laid out in your patent. David Levine's words - patents are strangling innovation.

GOLDSTEIN: David and Michele say Elon Musk's crazy move of basically giving up all those Tesla patents was not crazy at all. If you want people to drive electric cars, they say, you need a whole electric car industry. You need charging stations. You need people to come along and invent better batteries. You probably need more electric car companies. And by setting those electric car patents free, Elon Musk is making it more likely that, a few decades from now, supermarket parking lots will be full of Teslas.

KESTENBAUM: Or at least be one in there.

GOLDSTEIN: Right, one now and then, right. But in any case, he's acting in his own self-interest here. He's acting in Tesla's interest.

LEVINE: They're not going to make a lot of money if the market doesn't take off. It's not going to take off if they go around trying to enforce their patents.

KESTENBAUM: Even if you buy this argument about Elon Musk, you have to wonder, what about the little guy - the inventor who doesn't have a billion dollars to start a company, the guy who is just working out of his garage?

GOLDSTEIN: And, David, you and I actually met a lone inventor working, basically, in his garage for a show we did a few years back. He was a guy named Gene Gagliardi, and he is famous in certain circles.

KESTENBAUM: College dorm rooms, in particular.

GOLDSTEIN: For example - because he invented Steak-umm.

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UNIDENTIFIED MAN: Steak-umm cooks in just 60 seconds, and it's 100 percent lean beef with no additives whatsoever.

KESTENBAUM: When we visited Gene Gagliardi, he had a wall covered in framed patents - patents that he licenses to restaurants and food companies, including patent number 5,266,064, method of making a food product from the thigh of a bird, better known as KFC's popcorn chicken.

GOLDSTEIN: Patents are Gene's livelihood, and so we asked David and Michele what would happen to the Gene Gagliardis of the world. And Michele was like, are you really going to bring up the inventor in his garage?

BOLDRIN: Yeah, yeah. No, I understand that this is so marginal and so secondary in the economic growth process that it's not even worth considering. And the quick answer to this is - I tell you what would happen. Instead of having the guy doing it alone and going around trying to sell his patents, whoever processes meat would have people like the guy employed and trying to figure out how to slice meat in different way, more efficient way, better way, whatever.

KESTENBAUM: In a world without patents, Gene Gagliardi couldn't be a lone inventor working out of his garage. He'd have to go work for KFC or something. He'd be there meat research and development department.

GOLDSTEIN: So here is the core of this whole debate - we can all agree that there is a benefit to patents and there's a cost to patents. The benefit is they create an incentive for people to come up with new ideas. The cost is that without the patent-holder's permission, no one else can use those ideas for 20 years. No one else can tweak them or make something a little better. So the question is, which is bigger - the benefit or the cost?

KESTENBAUM: What would the world look like if you didn't have patents? Would the speed of invention and innovation slow down? Would companies and engineers and computer programmers say, eh, I got a great idea, but why work on it? Someone's just going to steal it afterwards.

GOLDSTEIN: Or would you get more innovation because everyone can steal each other's ideas and improve on them without waiting 20 years? In a world without patents, nobody could just sit back and collect patent royalties. Everybody would have to keep coming up with new stuff. I mean, who knows? Without patents, we might be years ahead of where we are now.

KESTENBAUM: What would the world look like if you got rid of patents? Even if you did have more innovation overall, wouldn't you break some things? We asked David and Michele what part of the economy could get really messed up in a world without patents. They were both really excited to answer this question.

LEVINE: It would have to be the pharmaceutical industries.

BOLDRIN: Nuclear - nuclear energies.

KESTENBAUM: (Laughter) Let's do one at a time. Michele...

GOLDSTEIN: Let's do drugs. Drugs is a good one.

KESTENBAUM: OK, let's do drugs first, all right.

Jacob, this was something you and I had been wondering about for a while. If you're not careful, a world without patents is a world without AIDS drugs or cancer drugs or new antibiotics or any drugs, really.

GOLDSTEIN: And clearly, the pharmaceutical industry, at least as it exists today, would not exist without patents. Making a new drug is really, really expensive. Say I'm a drug company. I've got armies of scientists testing molecules. A lot of those molecules are failures. They don't go anywhere. When I do finally find one that looks promising, I have to start testing it. Eventually, I'm testing it on what can be thousands of people. Sometimes, I have to follow them for years. I've spent hundreds of millions of dollars. Finally, if everything works out, I get to start selling a new drug and trying to make all that money back.

KESTENBAUM: In a world without patents, I could start my own rival drug company, wait for you to finish all that nice work, thank you, copy one of your pills - cost me a few pennies to make them - and sell them really, really cheap. Sorry, man.

GOLDSTEIN: Well, so David and Michele acknowledge that this is a problem - just exactly this of you coming along and stealing this thing that I spent all this money on - and they have a few ideas. David laid out one possible solution, and it would be a really radical change from the way the world is now.

KESTENBAUM: First of all, the government would take on a much larger role in drug development. It would pay for a lot of the work that drug companies are paying for now. The government would fund the initial research and early work on new drugs.

GOLDSTEIN: And then, if a new drug looked really promising, the government would go to private drug companies and say, OK, you guys are really good at doing those big, expensive tests to see if the drug works. Why don't you guys bid against each other to see who can do it the cheapest? And whoever bids the lowest and actually carries out the tests, you get a cut of the profits if the drug works out.

LEVINE: What we do is we say, here's some new drug. We would like this tested. It's very expensive. What you do is you tell us in advance what royalties you would demand in order to do the clinical trials for this drug. And then the clinical trials go to the person that promises the lowest royalty rate.

GOLDSTEIN: For example, one company might say, I'll pay for the clinical trials, and if the drug works, I want to get - I don't know - $20 for every pill that gets sold. Another might say, I'll do it for less - $18 a pill.

KESTENBAUM: I have to say, this is a very clever solution. But it is also, frankly, a little bit scary because you're dealing with people's lives. If this does not work, we might not get those new drugs everyone's hoping for - drugs for cancer, for Alzheimer's. This system would put the government in charge of deciding which molecules to pursue. What if the government just wasn't very good at doing that?

GOLDSTEIN: David Levine points out that the government is really involved in a lot of this stuff now. It already funds basic research at universities, which is where a lot of new drug ideas come from. The government also creates all these special rules to try and encourage drug companies to work on certain drugs.

LEVINE: Here's the thing - the government is already in this business, just in a really, really crude and stupid kind of way. So if the government's going to be the business of picking the winners and losers, might as well do it in a reasonable way.

GOLDSTEIN: So what if these guys are right? What if we'd be better off if we got rid of all patents on everything? How do we do that? How would we get from here to there? I mean, we've got an economy with companies that have invested billions of dollars in patents who have armies of lawyers to enforce them.

KESTENBAUM: David and Michele point out that patent systems over history, they tend to grow, not shrink. Some new industry comes along like software, which originally could not be patented. People lobby and say, hey, we need patents, too.

GOLDSTEIN: David and Michele do have a plan for how you could start to change things, and it's pretty simple. Instead of giving a patent holder a 20-year monopoly, start by reducing it a bit. Make patents last for, say, 18 years. If it looks like the change is a disaster, if the pace of invention and innovation slows down, you can just stop.

So you're saying start by just making patents shorter?

BOLDRIN: Yeah.

LEVINE: Yeah.

KESTENBAUM: So this is your modest proposal? Let's go from 20 years to 18, see how you like it.

LEVINE: Well, maybe we need to go a little bit farther than that before we see how much we like it, but yeah...

KESTENBAUM: What do you want to go to?

LEVINE: ...Let's start cutting down the length.

KESTENBAUM: What do you want to go to?

LEVINE: Zero.

(LAUGHTER)

GOLDSTEIN: That's not modest.

KESTENBAUM: David and Michele say that when they first looked at patents and decided they were a disaster, they were kind of in the closet about it. When they did start writing papers about 15 years ago, people didn't really take them seriously. We asked what kind of reaction they get these days.

BOLDRIN: Oh, reactions have been improving.

KESTENBAUM: (Laughter).

BOLDRIN: I mean, I was very - about a few months ago, I was sitting at dinner with a famous economist. Maybe I shouldn't say the name, but he's got a Nobel Prize. And he might be one of the most reputed around that, back when we came out, was a very strong opposer to our view. And he was - it was nice to have him come over. He says, you know, I guess you guys were right on that thing. You're right. It's quite clear that's the way to go. That's the right model. The facts and the theory go that way. And I said, well, I wish you had said it 15 years ago. We would have had an easier life, but, you know, thank you.

GOLDSTEIN: Is there anyone who is - like, anyone who is a policy maker - is anyone in the real world, all due respect, talking about getting rid of or even, you know, significantly reducing the life of patents?

BOLDRIN: No, nobody is.

GOLDSTEIN: Today, a Nobel Prize winner - 15 years from now, maybe a congressman.

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GOLDSTEIN: Our show today was produced by Jess Jiang. Welcome back, Jess.

KESTENBAUM: If you want to send us email, we're planetmoney@npr.org. If you're looking for more podcasts, NPR recommends Ask Me Another. You can find it on iTunes under podcasts. I'm David Kestenbaum.

GOLDSTEIN: And I'm Jacob Goldstein. Thanks for listening.

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