Patents and Private Data Ownership: A Catastrophe in the Making

Unless IP laws are modified, technological developments will take us towards a monopolistic economy.”

By Andres Rodriguez Brauer

     Automated cars are expected to become a mainstream phenomenon in the near future. With it, creative destruction will result in a displacement of more than 4.4 million worker; around 3% of the employed population. While this problem is certainly striking, it might not even be the biggest issue stemming from the development. The challenges of automation, job displacement and compensation is one we have seen in the past and ones which we have seen discussed in multitude. We know that worker compensation, combined with worker training might serve to ease the pain that will come to this large segment of the American population. A new, more significant challenge comes into play with the rise of the data economy, stemming as a result of our patents based system and the private ownership of data.

Over-Patentization and Patent Trolls

     Currently, a technological innovation receives a patent, by preventing copycat competitors from stealing the development, which would eliminate a large portion of the incentive to innovate. The effects of this incentive are certainly beneficial, as we currently see a race to develop the efficient and safe technology necessary to make driverless cars work effectively. While it is currently unknown just how much of driverless car technology is patentable, it is clear that significant developments required to make one function are able to be patented, as was the case with smartphones. Just like smartphones, we likely see the market overrun by patent trolls. This will effectively create large barriers to entry, existing beyond the logical protection of actual technological innovations. In the end, just as in the smartphone market, we will see a couple of companies, and perhaps a single company, control the rights to develop such products for a long period of time.

     This issue of patents is also seen in health care markets. By preventing generic drugs from an extensive period of time, drug prices and health care spending as a percentage of GDP is extraordinarily high. By creating a large amount of small monopolies, competition in the demand side leads to higher drug costs. Because of this factor, governments have had to create monopolies in the demand side, such as those created through a single payer market, and resort to price controls in order to limit these costs. (Canada,Singapore).

Private Data Ownership, Economies of Scale and Monopolization

     However, in the driverless car market, the issue extends beyond extensive patents. Driverless cars are reliant on data. The sensors, combined with previous situations, informs the machine on how it should act in a similar situation in the future. This can inform vehicles on fastest routes and safe maneuvering. The more cars from one company that exist and the longer that these are used, the safer and more efficient they will be. As we can see, data thus benefits greatly from economies of scale. In a system where data is owned privately, the result for the driverless cars will likely be one of indefinite monopoly, perhaps even in a system without patents. However, patents still reinforce this phenomenon and guarantee this occurrence, as the innovating firm will have a large period of time where they are able to gather data, while other firms are left behind. While in other technological markets the magnitude of returns to scale from data might be less than in the driverless car market, they are very much still present. Here, the patent system will create monopolies where there would not be otherwise, due to the advantage received from patents.

What should they do?

     Looking at this situation, it is clear that the mechanisms we utilize to regulate data and innovation are greatly antiqued and are unsustainable for an economy more and more technologically reliant. The combination of patents and private data ownership will lead to an economy dominated by monopolies, leading to lower wages, more income inequality lower and lower economic productivity. Open sourcing might be necessary for the United States to maintain a healthy and competitive economy. Patents must be eliminated and data must be held public. In its place, we must start to think of more effective ways of rewarding innovation and the acquisition of data in order to prevent the free rider problem that would stem without a replacement. A possible solution would be to utilize government funds to reward innovation by a value stemming from expected economic value. While taxes would likely increase in order to fund these rewards, consumers will overall save money due to the added competition that would stem from the removal of these large barriers to entry.




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