Big tech hates stronger IP---they’ll retaliate with lobbying tactics

https://www.cato.org/regulation/spring-2021/why-big-tech-likes-weak-ip?fbclid=IwAR0nD2gHEYNiVmzImumMx3sLILLwTa-1aHGmfao8ilRsQDbR5mr__ySLV5E

Specifically, weak‐​IP environments are hospitable for large, integrated firms that maintain internal markets for financing and conducting R&D and then embed the resulting intellectual output in goods and services for the end‐​user market. By contrast, strong‐​IP environments enable entry by smaller firms that specialize in R&D and monetize the resulting intellectual outputs through external relationships with third parties. This organizational distortion matters because larger firms tend to excel in incremental and process‐​related innovation that refines existing technologies while smaller firms tend to excel in product innovation that challenges existing technologies.

The most striking examples are found in the biotechnology and semiconductor industries, in which patent‐​dependent business models have facilitated significant entry by R&D‑specialist firms and a vertical disintegration of the market supply chain. Counterintuitively, a strong‐​IP environment can lower entry costs by relieving firms from having to assemble a production and distribution infrastructure in order to earn returns on R&D investments. This may explain why in 1966 (during the postwar weak‐​IP regime) small firms accounted for only about 5% of business R&D spending, but they accounted for almost 24% in 2006 (during the strong‐​IP regime starting in the early 1980s).

Lessons from Political Economy

As an empirical matter, it is notoriously difficult to establish definitively the extent to which patents are necessary to support innovation by particular firms or industries. I adopt an alternative approach that assesses the value that firms themselves place on patents as indicated by firms’ advocacy and lobbying actions. If it is true that patent protection facilitates entry by smaller and less integrated firms that specialize in R&D, we should expect to observe those firms expressing policy preferences favoring stronger IP rights. If it is true that larger and more integrated firms do not rely heavily on patents or can even derive competitive advantages through non‐​IP‐​dependent production and distribution capacities, we should expect to observe that those firms express policy preferences favoring weaker IP rights.

Lobbying behavior/ To test this hypothesis, I reviewed and gathered evidence on the lobbying behavior of various technology‐​intensive industries. Historical examples show that large, integrated firms resisted strong patent protection in the late 19th‐​century railroad industry, as did large, integrated firms like IBM in the computing industry of the 1960s and 1970s. Both industries have in common the fact that incumbents offered a bundled package of intangible and tangible assets and therefore resisted patent protection that facilitated entry by suppliers of discrete components of that package. More recent evidence shows that some of the largest technology firms were among the most vigorous supporters of the America Invents Act. Enacted in 2011, that statute substantially expanded opportunities for third parties to contest the validity of patents, principally through the Patent Trial and Appeal Board (PTAB). It is likely not accidental that these same firms have been among the most active petitioners at the PTAB seeking to invalidate issued patents.