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Excessive IP protection causes economic gridlock, says expert

Intellectual property laws which were designed to protect inventors are actually stifling innovation, according to a leading US law academic.29 Aug 2008

Michael Heller is an academic at Columbia University in New York and told technology law podcast OUT-LAW Radio that intellectual property laws are being used to stop new products and services being made.

"I discovered a paradox in the free market and it is this: usually private ownership creates wealth, but too much ownership has the opposite effect, it creates gridlock," he said. "When too many owners control a single resource – it can be a patent, a copyright, land – when too many people control a single resource, co-operation breaks down and wealth disappears, everybody ends up losing."

Heller has expanded on his theory in a just-published book, The Gridlock Economy – how too much ownership wrecks markets, stops innovation and costs lives.

He uses the example of someone who has come up with a new medicine and is trying to get it to market. To do that they must use systems, processes and tests which are owned by other people.

"Imagine a drug developer walking into an auditorium and seeing 50 or 100 or several hundred patent owners, each with their essential patent on their lap, and the drug developer knows that unless he's able to negotiate successfully with every single one of those patent owners, his drug can't come to market," said Heller.

The same can happen with technologies, said Heller. Even the standards process which allowed DVD players, CD players and file formats such as JPEG for images and MP3 for sound to be universally usable is not infallible, he said.

"A standard, when it works, can solve the problem of gridlock. But to create the standard you need to get, in the context of a DVD, seven or eight hundred separate patents pooled together into a single patent pool; but there are many areas that we don't have because entrepreneurs can't get the pools together or can't get the standard negotiated," he said.

One way of minimising the problems associated with gridlock would be to change the patent system in the US, said Heller.

"There are tweaks to patent law – so for example in the US the area of damages available for infringement of a patent needs to be fixed," he said. "When a patent is infringed the damages that are available now under American law are super-compensatory. They give much more to the patent owner than the contribution of that patent would have been to the product, which means that a couple of lawsuits can sap the entire profits available from a new product."

Heller also said that the US courts system should clamp down on forum shopping. The Eastern District of Texas is a very popular court for those looking for patent infringement damages because it is perceived as being friendly to those claims. This does not make for a fair system, said Heller.

He did say, though, that the problems are fixable, as long as there is the political and industrial will to fix them.

"Gridlock is a choice, so in area after area in the modern economy we see resources being wasted through to under-use because you have the problem of too many uncoordinated owners, but that's a choice that we make," he said. "We can always fix gridlock if we come up with a smart legal solution."

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