Patents are so French

Netflix is suing Blockbuster for “stealing their idea” of online DVD rentals for a fixed monthly price. Nothing like a business method patent to throw a wrench into this whole idea of competition and free markets, eh? So it got me thinking about the patent system again, and how patents are so French. Allow me to explain.

At its core, the patent system is meant to incentivize innovation. If you spend the time inventing something useful, then you get a time-limited monopoly on that useful thing to make sure your investment was worthwhile. It’s not an inalienable right to your idea, it’s a quid-pro-quo: you get something in return for your time and effort, because society wants you to invest your time and effort. That something you get in return may temporarily prevent further innovation by others…. but we make this compromise to enable innovation in the first place. So, again, it’s not a right, it’s an incentive.

In a world without business method patents, would Netflix have thrown up its hands and said “never mind, we can’t exclusively control this idea of renting online, let’s not do it?” I highly doubt it. So now we’re left with a situation where the innovation would have happened anyways because it made good business sense, yet our patent system is effectively preventing competition. After all, where did Netflix get the idea to rent DVDs in the first place? Had Blockbuster exercised some business method patent on DVD rentals, we would never have benefited from Netflix’s innovation. When Blockbuster launched its online competitor to Netflix, Netflix was forced to lower its prices. So who’s losing here? Consumers, of course.

Why is this happening? Because the vocabulary we use — patent rights — makes people think that they have a basic right to “own” their ideas, never mind that these ideas are derived from many other ideas. We’re dealing with a complex system of economic incentives where every monopoly both creates and destroys innovation. If we bias the system too far in one direction, we’re in trouble.

Interestingly, this is the same issue that the French are dealing with regarding employment law. Most French think of employment as a “right.” It probably shouldn’t be. Instead, there should be incentives to hire. The employment market is a complex system of economic incentives. Instituting too many inalienable rights inevitably increases transaction cost and slows everything down.

So, Netflix, welcome to the French way of thinking. In the French way of thinking, everything is static, the rights of one party do not affect the rights of others, and there’s no such thing as a feedback loop.

Except the world is not a bunch of disconnected islands. There are bridges. There is traffic between the islands. Tweaking rights changes the traffic and changes the system. What’s initially good for one island may be very bad for the system as a whole.