Eyes on the Prize

It is, of course, the silly season, or rather the silly year. That is, leap year, when the presidential campaigns make the year seem longer than the one extra day might otherwise indicate. It is a year when candidates try to display their care and concern for whatever concerns the public at that particular moment. They advance “ideas” (I use the term advisedly) whose purpose is not so much to be serious policy proposals as to be markers for their empathy with the voters. Most of these “ideas” do not survive until inauguration day, and that's probably for the best, at least in most cases. The “ideas” were only campaign ploys and most do not—and should not—survive the campaign. Since the major concern du jour is gas prices, candidates have to come up with something that indicates their solidarity with the suffering public, even if the idea makes no sense. Certainly, Obama's support of ethanol falls in this category, although it also has to do with his pandering to corn state voters. McCain's “gas tax holiday” is a bit of silliness designed mainly to use a few billion dollars of public money to buy votes, with no discernible benefit to the public.

But occasionally, candidates come up with something that actually could be a good idea and do touch on real issues. This is probably accidental, nevertheless, we take good ideas where we find them. And McCain's proposal for a $300 million prize for a new auto-battery could be a good idea, depending on what McCain actually means. Now, it is likely that the candidate has no idea of what he means; it was likely just a publicity stunt to begin with. In its present undefined form it is somewhat useless. Whoever comes up with such a battery will get a patent that will be worth a lot of money, maybe even $300M. In that case, the “prize” is of no effect whatever, and will just be an additional payment for what somebody was going to do anyway. There is a tremendous amount of research in this area, and pretty soon someone will break the code and find the answer, regardless of what the govmint does.

However, if McCain means that the government will buy the patent for the new battery in behalf of the people of the United States, this could be a very good idea indeed. The whole idea of a patent is to ensure that those who come up with new ideas will reap an economic reward. The theory is that this will both encourage and fund new research, to the betterment of all. The problem with patents, however, is that they create monopolies and spread economic inefficiency throughout the economy. Further, they are not necessary for funding new inventions. They could easily be replaced with licenses. Inventors could be required to license their ideas to however can pay the license fee and meet the manufacturing standards required for the product. This means that the inventor will receive a proper revenue stream to fund new discoveries, while providing multiple firms the right to make the product and thereby eliminate monopoly pricing while encouraging competition.

We see the effects of monopoly pricing most prominently in drug prices, where products that cost a few cents to manufacture cost $10's, or $100's, or even $1000's per dosage, depending on what the market will bear. Big pharma claims they need these high prices to pay the costs of research, but the claim is dubious. Actually the high prices mostly fund high marketing expenses. A good portion of our health care problems can be traced to the current system of patents. But the problem is not just with drugs; patents spread monopoly pricing throughout the economy in many areas. Wherever you see a product with a patent, you are probably looking at at least some economic inefficiency in the pricing of that product.

Now, if McCain wants to buy the patent and license it to firms making both the battery and the car on American soil with American workers, this could be a very good idea, and $300M would be a small price to pay. If he merely means to give an additional wad of taxpayer money to a monopolist, then it is just a publicity stunt, and an extra expense for the taxpayers. We will just have to see what McCain means. Most likely, McCain will have to see what McCain means. I suspect he has not thought this thing through and hasn't the faintest idea of the relationship between patents and monopolies. It is not one of the things he seems to think much about. But I am willing to give him the benefit of the doubt and see how this plays out.

9 comments:

Viking Tuesday, June 24, 2008 at 11:09:00 AM CDT  

John, this sounds very interesting, but my lack of automotive knowledge betrays me here. What would a better battery do that the ones we have now don't, other than perhaps last longer?

Viking

Jim Curley Tuesday, June 24, 2008 at 11:41:00 AM CDT  

Very interesting. I haven't thought much about this-even though I am a patent agent.

One question on the licensing idea... I thought a tenat of Distributism was that ownership/capital and production should be (as much as possible) in the same hands. That being said, let's see if I can answer my own questions: The inventor is in the business of inventing-he owns his business and derives his income from selling his product (licenses to his invention.) The licensee, is owner and manufacturer-so the criteria is met. If that's it, thanks for letting me think aloud.

This brings another question: Does this violate the principle of subsidarity--that is, the government is regulating how the inventor sells his product? Is this necessary?

Jim

John Médaille Tuesday, June 24, 2008 at 12:12:00 PM CDT  

Jim asks Does this violate the principle of subsidiarity--that is, the government is regulating how the inventor sells his product?

I think its just the opposite. A patent is a guarantee from the gov't to use its police powers to protect and defend the patent holder's interests, interests which are defined by law. No one need use the patent system, even today. You can license your invention to whomever you choose under whatever terms you choose and depend on contract law. However, the problem is that if somebody else comes up with the same idea (or steals yours) they can patent it, and lock you out of using your own invention.

One problem with patents (or licenses) is that several people or institutions often come up with the same idea at about the same time. Who gets the patent is simply a question of who gets first to the patent office.

And of course things are "patented" today that would never have been allowed in the past. Natural substances, native cures that have been used for centuries, the "look and feel" of a particular software package, gene sequences, etc. If of these creates a "property right" and a monopoly where neither is required or reasonable in any sense of the the term.

Viking asks what a new battery would do. I don't actually know, at least not in any great detail. But I presume it would do something, since everybody seems to want it.

Jim Curley Tuesday, June 24, 2008 at 1:00:00 PM CDT  

"One problem with patents (or licenses) is that several people or institutions often come up with the same idea at about the same time. Who gets the patent is simply a question of who gets first to the patent office."

The US patent law (as opposed to much of the world) is a "first to invent" as opposed to "first to file". Thus record-keeping on when you invent etc. is important. The property right is granted to the "first to invent". (In practice, there may be some mistakes made sometimes, but in general it works.)

Unless there is some kind of gov't enforcement or proof of invention, the license system is also ripe for the same abuse, i.e. people stealing others' inventions. I am not sure I see the way clear here.

I heartily agree that many things are granted patents these days which shouldn't.

Jim

Tpolg Tuesday, June 24, 2008 at 2:32:00 PM CDT  

The battery would mainly be for electric cars that currently have notoriously poor rang and mileage. According to McCain the new battery would increase potency by 30%.
The “prize” is basically just a bonus for blessing humanity with such a “gift”.
Of course, unless your house is totally wind/solar powered, it is still probably using a non-renewable fuel at some point. But I suppose it might not be one that supports terrorism (depending on what you mean by terrorism).

Viking Tuesday, June 24, 2008 at 5:54:00 PM CDT  

Thank you, Tpolg, for that. I had considered that, but it sounded to me as though John was referring to a gasoline-powered car, where the only significant improvement for a battery that I could think of was greater longevity. And I agree with you, currently we're not likely to power too many such autos without using some fossil fuel or other. Btw, do you know what mileage electric cars currently get prior to needing a recharge? It turns out, I've read, that the hybrids are mainly good for saving fuel in city driving, not so much on the highway. I wonder if the low capacity of electric cars has a lot to do with that.

Viking

John Médaille Tuesday, June 24, 2008 at 8:12:00 PM CDT  

Jim, you said Unless there is some kind of gov't enforcement or proof of invention, the license system is also ripe for the same abuse, i.e. people stealing others' inventions. I am not sure I see the way clear here.

Exactly. I said as much in my reply. The point is, you will need to police powers of the state to arbitrate this, so it is no violation of subsidiarity. But the state can choose what it will defend, and it is much more economically efficient for it to defend licenses rather than patents. Patents create monopolies. One reason patent drugs cost as much as they do is that they are artificial monopolies. But if you licensed the drug to many producers, they would have to compete on price, thereby lowering the cost to all, while still providing a revenue stream for R&D.

Tpolg Wednesday, June 25, 2008 at 9:12:00 AM CDT  

Electric cars currently get about 100 – 150 mil/charge, which is actually not that bad unless you are planning a road trip. But they are also rather small, not exactly family cars. Improved batteries would help, but with the current grid, you would still probably be charging them off coal or diesel so I do not see that they are the “savior” McCain is making them out to be.

Viking Sunday, June 29, 2008 at 12:52:00 PM CDT  

Thank you for the information, once again TPOLG. Jim Curley, or anyone who's able and willing to answer this, I thought I'd ask you something now. If a patent-holder were to want to grant the use of his/her/their invention for a fee, as John suggested would be best, would that be fully legal under the current system? It would seem to be the smart thing to do under many circumstances, along with being more socially responsible.

Viking

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