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US Trading Practices Damage Reputation

April 2, 2010

Whatever the merits of the case, the news that Facebook is being dragged into the Federal courts over a patent challenge can only be bad news for the credibility of US commercial practices.

These high profile patent litigation stories only appear to arise in the United States (most recently it was of course RIM and the Blackberry that was forced into a multi-million dollar settlement). They simply re-inforce the impression of a get-rich-quick culture that has dubious morality. Coming so soon after the financial crisis (again, rightly or wrongly seen as inspired by US trading practices), this case sends out a negative message to the world – and the global Facebook community.

First, what is wrong with cases like this? The impression they give is that the US patent system allows people who have invented and invested nothing simply patenting ‘ideas’, often written in such general terms that they can apply to many later endeavors. It often seems like these individuals then just wait until an innocent party has successfully invested time and money in developing a similar idea – and then they pounce.  Morally, this seems wrong. The argument in favor of patents and intellectual property rights is that many inventions take substantial investment and it would be wrong to deny those investors a reasonable chance to make money from their endeavor. If they were so denied, the argument goes, then invention itself would suffer.

But the counter-side of intellectual property rights is that they can become a restraint on trade and open competition. At their worst, they can in fact stifle invention – and that is what the current US system at least appears to enable. US inventiveness in the 19th century itself relied quite heavily on poaching ideas from elsewhere. The US prospered because it excelled at developing low-cost versions of those ideas. Today, cases like Facebook give the impression that US ‘entrepreneurs’ are trying to hold the world to ransom and gain income from the work of others.

So second, what are the possible consequences? If I were sitting in China or India or any developing nation hungry for new ideas and sources of wealth, I would question the integrity and morality of a patent and IP system that appeared to constrain competition. I would find it hard to understand why individuals who invested nothing could patent some general idea or concept and then make money from someone else’s risk and endeavor. And as a result, I would feel little obligation to honor intellectual property rights that were linked to such a debatable process.

Overall, for world trade to flourish, there must be systems that are visibly fair and equitable and which are based on broadly accepted standards of moral behavior. The US does so many good things – for example, its principles of openness, its campaigns against bribery and corruption. It is therefore such a pity when it fails to recognize how badly its image is dented by apparent ‘get-rich-quick’ schemes that are clearly against the wider public interest. The patent laws and thier operation need urgent overhaul so that they represent a model for the global networked economy.

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