Value is only created if patents are functioning as part of a system of disseminating ideas.

Imagine two possible worlds. In the first world, when you -- as an engineer -- have a particularly difficult problem in front of you, you first go to a catalogue of solutions, look up the problem, and see if there is a solution already. If so, you pay a nominal fee to the solver, incorporate it into your design, and move on to unsolved problems.

In the second world, you have the same particularly difficult problem, but there is no catalogue of solutions, so you buckle down and solve the problem yourself. Later, someone looks at your solution and declares that a portion of it is similar to something they wrote down in the big pile of disorganized ideas. You didn't know this, because looking in the big pile of disorganized ideas is a lot of work and rarely pays off, because most of the ideas are half-assed and don't really tell you anything you didn't already know. An exorbitant fee is then charged.

There may be some industries living in the first world; I can imagine that in -- say -- chemical engineering, it is very easy to organize the ways to produce chemicals by the formula of the desired end product, and that the standard for describing how to produce a chemical leads to a pretty useful solution.

The software industry, however, isn't.

Come now, you can't get away with a statement like that without explaining your argument.

Perhaps the idea that the cost of a service should equal the value provided, rather than the cost to produce the service.

when a company claims to have "created $50m of value" they mean that that's what they're producing is "worth" as valuated by their customers. For lean companies like those featured here, their cost doesn't enter the picture.

You are assuming that there is an argument behind it.

That struts and frets his hour upon the stage. And then is heard no more: it is a tale. Told by an idiot, full of sound and fury, Signifying nothing.

Off topic, but in that quote who is the idiot telling the tale?

Either nobody in particular or Macbeth himself, I guess.

Is all of life itself. Might also be Shakespeare being cynical about his own craft. He could be very post-modern for someone living that long ago.

[edit] also thinking about it, is a reference to god as well, as the tale is life, but the teller is the idiot.

Those are interesting interpretations, thank you for that.

all right, I'll explain it. One guy's cost is another guy's value (almost by definition - of course there are exceptions such as losing something to nature through accident instead of losing money to persons or companies [of any kind] by making an expenditure of any kind to them) - so the patent trolls "create" whatever value we add up to get to the number quoted.

I am not saying anyone supports patents. I'm saying hackernews should be more consistent - or otherwise admit that "creating value" isn't an end in itself. It's the wrong question.

Edit: I think the current title is fine. ("Patent trolls created $29B extra cost in the U.S. last year") I just want us to be clear that one guy's cost is another guy's "value".

I would love to see more cooperative-optimistic-tit-for-tat solutions to the prisoner's dilemma, so that instead of just saying "creating value" we are more specific about the whole system.

This is what (an unnamed restaurant review site) gets wrong and Google gets right, in my opinion. Google adds value whereas (unnamed) removes it.

Of course in a naive sense (unnamed) is also "creating value". Just as these patent trolls are.

We don't condone it, but let's be consistent.

You're free to argue that patents are a net positive to society, but to argue a priori that $29B of wealth transfer = $29B of wealth creation, almost by definition, is completely broken thinking.

By your standard, Bernie Madoff created $18B in value.

HN as a group may have many contradictions and blind spots in its general wisdom, but you haven't identified one of them.

There is a previous transaction though - the patent trolls acquire their patent portfolios from, in the long run, inventors. They "bought" and "own" them, and are now asserting those rights, to the expense of $29B to other companies who should be licensing the rights.

Nobody blames landlords of costing businesses billions of dollars a year - they own property and businesses pay rent. Nobody builds a business using a landlords property without paying rent, then plausibly claims their legal costs defending themselves against landlords asserting their rights are somehow an unexpected and unfair imposition. (Well, actually food carts probably do exactly that, but nobody writes academic papers claiming billions of dollars worth of cost for them…)

I haven't read the whole paper, but I wonder about two other numbers - 1) how much money did the NPE's pay to the inventors of the patents they're defending (who under the current system have every right to choose "selling their patents/IP" as their means of monetizing their inventingwork)? and 2) how much would licensing the existing patents (instead of running up legal bill later) have been, compared to the $29B losses described here?

I'm not saying the current system is "right", but it is reasonably well understood. I can only assume the $29B cost is accepted as a "cost of doing business" by companies who know (or even just suspect) they may be infringing patents? (or perhaps it's not an assumed "cost", and many businesses choose to gamble that they'll never be held accountable?)

Here is the thing: small business folks love free stuff. They love shifting costs onto other people. They think everything they have to pay for is a huge drain on the economy and everything they get for free is a justified incentivization of entrepreneurship.

Now don't get me wrong, I love small tech companies. The engineering companies I have worked at have been exclusively small tech companies. They're great. But most in the industry have constructed this idealization of the morally virtuous startup founder. Everyone likes free things, sure, but big companies at least seem to acknowledge the fact that they're inflating their profits at the cost to someone else. Small company culture doesn't do that. The AirBnB debate recently was a great example. People were decrying regulations that could undermine AirBnB, but it didn't even register to people that a lot of the "value created" by AirBnB was actually just costs that were shifted to the other residents of the building/surrounding community.

I see the same sort of thinking when patents come up on HN. There is this presumption of the morally virtuous innovator. Therefore, every $1 he must spend paying NPE's must be $1 of dead weight loss to society. There is no conception of the fact that some part of that $1 represents money he would rightfully have had to pay to the original patent holder, because (statistically!) he's not morally virtuous 100% of the time.

If wealth creation happens at any step, it's when an invention that is beneficial to society is created, and the patent system exists to account for that.

If the invention is junk (like the Lodsys patents), it doesn't matter how wealth has been transferred around; no value has been created. Any rent sought on those patents is an economic distortion and (in my opinion) immoral.

I didn't even start this off to take a side (though I guess I have by now) - I was just pointing out a fallacy in GP's thinking.

Trademarks require proof of use in commerce to be valid.

Perhaps patents should require proof of use- If not by the inventor, then by the patent owner within a probation period of 3 years or so.

All right: how much of the quoted sum do you think the (for-profit) patent troll companies book as revenue? I think the order of magnitude is right. (Remember that traditional comapnies can also play the game and book some of the settlements etc as revenue - i.e. elective litigation.)

Give me your guess, if you think that the article quotes the systemic cost and not the part that is booked as revenue.

What I'm saying in it doesn't matter what the patent troll companies book as revenue. That's just the wealth transfer.

Wealth transfer is not necessarily value creation. This is obvious, because if we all pay everyone else on the planet $100 a day we don't magically have an econmy worth $1.3 × 10^24.

Wealth transfer often destroys value. Wealth unjustly taken away from value creators becomes a disincentive to produce.

You have to look at wealth creation. Are the patents involved in litigation honest to god inventions that made the world a better place? Wealth was created. Eg, the first retrovirus medication.

Are the patents involved non inventions that were of no use, but are broad enough that patent trolls can, without merit, start seeking rent on products from companies they no part in creating? No wealth was created. Eg Lodsys.

In general, different segments of HN disagree over which patents fall into which categories, but the vast majority agree, myself included, that software patents basically all fall in bucket #2.

This is my last reply to you, as I'm pretty sure by now that you're just trolling, and HN doesn't need to be polluted with this thread.

What you said doesn't make sense. One guy's cost is another guy's revenues, not value.

A good way to put it would be: "Patent laws and companies created a market for Patent Trolling that is worth $29B per year."

That is fair and unbiased, I would approve of this change to the title.

Depends on what's your definition of value. Yours seems to be "profit".

In the typical entrepreneur sense, you are selling/renting something that the other people want or need without any coercion whatsoever.

I bet the people being sued didn't want or need to pay lawyers and settlements, short of being forced by the system.

They weren't forced by a nebulous system but by a for-profit company. Hackernews needs to be consistent - that for-profit company saw value there, and created that value. (In the ycombinator sense.) Do you really not see the difference between a broken window and a company getting people to pay it to install windows through legal pressure?

I'm disagreeing with the definition of "value" used around here - for normal companies, not patent trolls - and to show my disapproval with this notion I insist that the word value be applied here as well.

I'm not aware that the ycombinator sense of value is profit (or maybe income?). Not saying it isn't, I'm just unaware of that.

And when I said system, I meant the law forcing the companies to pay, not the troll using the law as a tool to create profit.

We could enter murky territory on whether other forced forms of income (taxes or fines, for example) provide value, they are forced but on the other hands they are supposedly used to common benefit, instead of private profit.

Consistent? There are thousands of commentators here trying to gratify each others' intellectual curiosity. We aren't required to agree on everything, and if we did, hardly any of us would have anything useful to say. For me, value is relative to the status quo ante. The difference between trade and extortion is in what would have happened if you weren't present and making the offer. Is everyone slightly worse off, or better?

This is the broken window fallacy.

Patent trolls who serve no purpose other than to litigate don't create value. And if we take one in particular Lodsys. They had the potential to destroy a lot of value when they sued small app developers many of whom simply didn't have the resources to defend themselves.

Exactly. And yet by the business ethics that are rampant here, they do create value (see my cousin comment). These aren't "the system". These are specific for-profit enterprises.

If an enterprise shrinks the size of the economy by $1b but in the process gets people to pay it $100m, then by getting people to make that payment it has "created 100m of value." Nevermind the effect on the rest of the system.

Please be consistent here.

There is no inconsistency here, you're again falling for the broken window fallacy. Busy work does not create value; eliminating it does.

The simplest way to demonstrate it is to look at the industrial revolution. Vast amounts of people were put out of work because automation made the economy more efficient. $1bn industries, as you say, were permanently shrunk to $100m industries, left right and center.

All those workers displaced eventually found employment elsewhere, and it turned out to be one of the largest economic booms in history.

Would you rather we still weave our sheets by hand employing 100 times as many workers as the modern textile industry, each one costing $1000?

Because that's exactly the consequence of your line of argument.

We're talking about the revenues the company creates for itself. (See my other comment.) I think the order of magnitude is right for the amount for-profit troll companies and troll legal divisions at bigger companies doing elective litigation book as resulting revenue. The systemic cost could be higher.

I don't think the majority of HN readers view patents in a positive way.

http://news.ycombinator.com/item?id=2552740

I know - and I don't either. But we need to be consistent in how we talk about companies that have a revenue stream they create at a systemic cost to everyone: this is (from the companies') perspective, "building value."

By that argument the KLF were building value when they made a million quid with the express intention of setting it all on fire. And they possibly were, in artistic terms.

However, if we are talking about people who are just shifting money around without creating anything other than unnecessary work, then they are a cost to the wider economy, they are not increasing it's value.

To be fair the cost of burning 1 million dollars is only the cost to print and transport the money.

Assuming it only costs 10c to print a $20 bill then the cost to society of the act was a meagre $5000. I imagine the entertainment value provided would been worth more than $5000. Thus the act could have been a net gain for society.

The other $995,000 would have been redistributed through-out the money supply in the form of deflation.