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Home Publications Blogs Beat the Press Jury in Apple Case Rules for Big Government

Jury in Apple Case Rules for Big Government

Monday, 27 August 2012 06:57

It is remarkable that in a campaign season where the media are constantly telling us that the election is a referendum about the size and role of government, no one seems to have noticed that the jury's verdict in the Apple-Samsung case is a big victory for big government. The ruling gives strong protection to Apple's patents, which means that it will be able to charge more money for its iPad, iPhone and other related products in the years ahead. The additional charges could well run into the hundreds of billions of dollars over the next decade.

From the standpoint of consumers this has the same effect as if the government imposed a large tax on these products. However in this case, the government is simply agreeing to arrest competitors so that Apple can effectively impose the tax.

This is big government interference in the free market. Remarkably no reporters treat it as such. For some reason if it is not tax or spending policy, reporters generally fail to recognize the hand of the government. This is unfortunate since the impact of the government's actions in setting the ground rules for the market swamps the impact of the tax and spending decisions that dominate public debate.


[Addendum: For the record, I don't have strong views on this case. In general I am not a fan of strong patent/copyright protection, but I haven't studied this one enough to see the extent to which Apple has a serious case. On the other hand, there is zero doubt that if the ruling holds, Apple will be charging more for its products than if doesn't.]

Comments (25)Add Comment
Baker Reveals True Colors, Attacks Steve Jobs Tax that Drives Capitalism
written by Last Mover, August 27, 2012 8:16
From the standpoint of consumers this has the same effect as if the government imposed a large tax on these products.

A Steve Jobs Tax is not a tax. It is merely a user fee that constitutes the economic rent necessary to create and produce innovative goods and services. Without a Steve Jobs Tax there would be no iPad or iPhone for Samsung to copy and reproduce like a common thief. Instead both companies would still be competing to sell variations of newly digitized Morse Code over landline telegraph services provided by socialist government.

Without winners take all like Steve Jobs produced by the patent system, who would David Brooks and Tom Friedman hold up as models of entrepreneurial capitalists? Surely not the likes of Samsung cookie cutter anarchists who can only make the mousetrap better by reverse engineering the original with stolen working parts for counterfeit copies.

From the standpoint of consumers indeed. Without a Steve Jobs Tax they won't have anything to consume because eventually there won't be anything left to copy but the cookie cutters themselves.
Dean Baker: innovation killer
written by Bill Heffner, August 27, 2012 8:35
Without being able to ruthlessly drive any competition out of business, great innovaters like Steve Jobs and Bill Gates would have no reason to make the wonderful innovations that they do and improve the lives of the people of earth. Life would be dreary and horrible. Why would the likes of Jobs and Gates go to all the trouble and hard work that they do for the mere hundreds of millions that would be their reward without the government helping them to drive out of business anyone who became able to compete, and turning their reward into billions instead?
written by Random Lurker, August 27, 2012 8:35
In my opinion, we are living a replay of the 30s, but in slow motion.
One characteristic of the 30s was an increase in protectionism; IMHO this happened because the financial sector could not provide new debt to keep demand high (as is happening now), so each country tried to block imports and foster exports.
Korean judges gave a positive verdict on a reverse sue from Samsung against Apple; this verdict will block the sale of some Apple products in corea.
So we have American judges blocking a Korean company, and Korean judges blocking an American one; this seems to me an harbringer of future trade wars, expecially in those sectors seen as high added value sectors.
written by Daivd, August 27, 2012 11:01
Though not specifically mentioned in the above (blog + comments), Apple recently broke the record for market capitalization. And let's not forget that they don't add many jobs to the US economy. I wonder if anybody did a cost-benefit analysis of an approximate ratio of (loosely stated here) "market capitalization supplement guaranteed by patent law" [i.e. excess profit] to number of jobs created by that cost?
The Constitution and Patents
written by aaron, August 27, 2012 11:06
Let's not forget Article I, Section 8 of the Constitution, "The Congress shall have Power... To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries..."

We can argue over the duration of that protection, and cases can certainly be made that some periods of protection are too long (copyright has become ridiculous), and we can argue about the nature of inventions that should be given patent protection and whether certain inventions (e.g., software patents) should have a shorter duration than traditional mechanical inventions. We can also argue about when patent holders should be required to license their inventions, and at what price point. But the reasons to protect inventions are both obvious and deeply woven into our nation's law and culture.

I have mixed feelings on Apple v Samsung, because to some degree it highlights a form of patent that I think should have shorter-term protection (e.g., the "bounce at the end of a scroll" patent, consider also Amazon's "one click" patent), but at the same time (a) a lot of things seem obvious in retrospect, (b) a lot of money can be spent researching and developing small user interface improvements that are cheap and easy to replicate, and (c) if corporations cannot recoup their R&D costs, they will shift their focus into other areas in which deficient protection of their IP won't result in their losing money.

As you know, you're not really complaining about Apple here. Samsung filed a countersuit and, if anything, that lawsuit highlights a bigger problem - the fact that wealthy corporations and patent holders ("trolls") can extort huge licensing fees from, or bankrupt through litigation, smaller companies that cannot afford to prove in court that they have not violated a patent or that a patent should not have been issued. To some degree, companies have to build up patent portfolios to defend themselves in the present, highly litigious high tech environment, but it's one thing to use patents defensively or to defend your valid patents, and another to use your dubious patents to squelch nascent competitors, extort licensing fees that may not actually be due (from an inventor who was probably unaware of your claimed patent), or to bring countersuits of dubious value when you're sued for violating a competitor's patent in the hope of driving up the cost and complexity of litigation and forcing a more favorable settlement or licensing arrangement.
written by fuller schmidt, August 27, 2012 11:36
In this case, the patent distinctions that are being defended in these comments are pretty meaningless. But they make the case that rewards for research, etc. can almost certainly be arrived at more intelligently and without excessive cost to customers.
Corporate concentration
written by Andy, August 27, 2012 11:42
I am always amazed that the same people who fight the perceived oppression of taxes jump so eagerly in to the soft-lined shackles of corporate replacements.
The argument is mostly emotional: Anglo-Saxons are known for moving to the suburbs in order to escape the city taxes imposed for the services, even though by paying privately and directly for these services the overall cost is higher.
Yet is this unconditional support for laissez-faire corporatism only the switching of one master for another? Divorcing the politician from the warm embrace of the capitalist mistress can work for a while, but when the latter romance fails divorce is no longer an option.
As the writer suggests, the excess rents emerging in the large corporate world, due to corporate concentration and support from the policy makers, is tantamount to a tax. It is a testament to the success of the political and cultural strategy of this group that we submit to them so eagerly.
written by skeptonomist, August 27, 2012 1:48
Apple and Microsoft are not the technological innovators that many seem to think, their success has largely been driven by imitation, chance, legal operations and marketing. Apple especially takes ideas that others come up with and determines how to optimize them for simplicity in operation and how best to market them. They are innovative and expert in user interfaces, but the standard graphical computer user interface that first became popular in the Macintosh was actually invented by Xerox; what if Xerox had patented those ideas and defended them in court as Apple has defended its copyrights and patents? The memory-based music player was around for some time before Apple jumped on it at a critical time when memory became cheap. Microsoft's original success was largely by chance. Two operating systems were originally offered for the IBM-PC, and Microsoft's DOS - a derivative of UNIX - turned out to be the better one, thus giving Microsoft a perpetual monopoly on OS's for this type of computer.

The decisions on patents are apparently often made by juries which have little understanding of the technological matters, and often when the original innovation is long past.
Most Powerful Idea in the World
written by George Fleming, August 27, 2012 2:03
From an Amazon review:

"If all measures of human advancement in the last hundred centuries were plotted on a graph, they would show an almost perfectly flat line — until the eighteenth century, when the Industrial Revolution would cause the line to shoot straight up, beginning an almost uninterrupted march of progress.

"In The Most Powerful Idea in the World, William Rosen tells the story of the men responsible for the Industrial Revolution and the machine that drove it — the steam engine. In the process he tackles the question that has obsessed historians ever since: What made eighteenth - century Britain such fertile soil for inventors? Rosen’s answer focuses on a simple notion that had become enshrined in British law the century before: that people had the right to own and profit from their ideas.

"The result was a period of frantic innovation revolving particularly around the promise of steam power..."

It is disappointing that Dr. Baker, one of our finest economists, should be so prejudiced against patents. It would be a relief if he would object only to patents which the holder does not deserve.

He has been doing this with drug patents. Much of the research for these patents is funded by the government, yet only the drug companies profit.

It seems that many E-tech and software patents are no better. Bill Gates and Steve Jobs mainly took advantage of government-funded or private research by others to make their billions. If they did nothing illegal, it would indicate severe deficiencies in patent law.

For those interested in the monumental foolishness of software patent law, I recommend Greg Aharonian.

Dr. Baker has apparently declined to copyright some of his later work. This shows that he is attempting to practice what he preaches. If patents are bad, copyright is outrageous for the length of its term, which is continually being extended and is now far in excess of the term for patents. There is no legal justification for this discrepancy.

Perhaps patents are worse than Dr. Baker believes, but for a different reason. The Industrial Revolution is responsible for the ever-increasing destruction of the natural world, and for one of the major causes of that destruction, the population explosion. This is a difficult truth for me, a mechanical engineer and inventor.
patents or not?
written by Daivd, August 27, 2012 2:51
@aaron: although the constitution gives the government the right to issue patents, that same constitution allows for amendments should something the writers didn't think of arise and threaten the general welfare of the nation. Ben Franklin issued no patents for his work, out of a sense of ethics and community; and Thomas Jefferson, even after his presidency and having served as a patent officer, still thought of patents as "an embarrassment" http://press-pubs.uchicago.edu..._8s12.html
Society may give an exclusive right to the profits arising from them, as an encouragement to men to pursue ideas which may produce utility, but this may or may not be done, according to the will and convenience of the society, without claim or complaint from anybody. Accordingly, it is a fact, as far as I am informed, that England was, until we copied her, the only country on earth which ever, by a general law, gave a legal right to the exclusive use of an idea. In some other countries it is sometimes done, in a great case, and by a special and personal act, but, generally speaking, other nations have thought that these monopolies produce more embarrassment than advantage to society; and it may be observed that the nations which refuse monopolies of invention, are as fruitful as England in new and useful devices.

Just because you can't think of something better for driving innovation, doesn't mean that there isn't something better. As Mr. Fleming suggests, we don't have to have a "one tool" mentality about migrating to a more sustainable system of the fostering of innovation. Clearly inventors need time and money to bring their inventions to market; but are patents really the best choice for this? A 200+ year old legal tool of the British monarchy?

This ruling in favor of Apple does provide fuel for further innovation as someone comes up with the next best thing to take over that market. But I do side with Mr. Fleming that it's an ever-widening vicious circle that threatens to suck down the entire system.
I find it incredibly ironic
written by Brett, August 27, 2012 3:54
That Big Government comes to Apple's side in this case despite fact that Apple uses every trick in the book to avoid paying taxes (including doing most of their manufacturing/production overseas).


Rather than punish them for this, the government rewards them by stomping out competitors and raising costs for anyone wishing to compete with Apple.

Seems corporations get to have their cake and eat it too. They get to whine about being overtaxed, they get to do all they can to avoid paying taxes and contributing to society, and they get the benefits of the strong Federal government to keep sending profits their way. No one asks them to pay for any of this, and it's not even commented upon in mainstream press that these corporations are raping and pillaging and getting away with it. In fact, the government is helping them get richer.
apple good for america?
written by mel in oregon, August 27, 2012 4:29
nope they aren't. apple has copied as much or more than samsung ever could. all major corporations steal any possible information they can from other outfits, then use their super attorneys to patent info. the net result as baker & others point out is americans pay a heckuva lot of money for over priced junk. only people that don't know much about patent law & patent history think otherwise.
written by urban legend, August 27, 2012 4:52
Patents have been around for a long time, and Adam Smith recognized them as legitimate -- depending, of course, on defining an appropriate right of exclusivity the patent provides. But it is absurd to say that this is "Big Government." This is classic distributed enforcement of the law: once the patent is granted, the market determines how valuable that exclusivity is. Government has no involvement except for providing the court and its few employees involved in a particular case.

Having some government-created organization handing out rewards for hundreds of thousands of inventions -- one of Dean's unrealistic suggestions for an alternative -- is a lot clearer case of Big Government with centralized decision-making.
Assumes facts not in evidence, Low-rated comment [Show]
written by saurabh, August 27, 2012 6:09
Two operating systems were originally offered for the IBM-PC, and Microsoft's DOS - a derivative of UNIX - turned out to be the better one, thus giving Microsoft a perpetual monopoly on OS's for this type of computer.

This is not correct. DOS was not a dervative of UNIX - it was a very simple shell written in BASIC that allowed the user complete access to every function of a computer system - after all, this was a "personal computer", not a networked one. The advantage of DOS was that, since Bill Gates wrote it himself and owned the rights, it involved no complex negotiations over UNIX, which belonged to AT&T. It was essentially a dummy operating system (or rather, "Direct Operating System") - it didn't actually do anything. Afterwards they bolted on a "windows" system as an application that ran in the DOS shell.

Later on, the lack of the useful pieces of an operating system (a real security model with users and permissions, and controlled access to the system kernel) proved a serious liability to MS-DOS when these systems began to expose themselves to the Internet, and suddenly the wide-open personal computer did not seem to be such a good idea.
written by liberal, August 27, 2012 7:01
Dark Helmut blithered
Reasoning by ideology is intellectually bankrupt.

Uh, no. The reasoning is by economic theory, backed up by centuries if not millenia of economic data: monopolists abuse their monopoly.
Adam Smith says ...
written by David, August 27, 2012 8:42
written by urban legend, August 27, 2012 4:52
Patents have been around for a long time, and Adam Smith recognized them as legitimate ...

And if Adam Smith recognized photographing a grizzly bear from 50 yards away as being (or maybe jumping off a bridge) legitimate, should we follow him? Are you really saying that in over 200 years (with all due respect for Adam Smith in his limited intellectual framework), nobody has come up with a better, less economically destructive idea? Patents are part of what makes this system of capitalism unstable. As Thomas Jefferson said, they are an embarrassment, because they are not ultimately necessary.

I've got an idea for something better than the patent system. Should I patent it? :-P
patent abuse is "normal"
written by David, August 27, 2012 8:52
Assumes facts not in evidence
written by Dark Helmet, August 27, 2012 5:30
"The ruling gives strong protection to Apple's patents, which means that it will be able to charge more money for its iPad, iPhone and other related products in the years ahead."

Yes, but will it? You haven't the faintest idea, do you?

Actually, not only do we have the faintest idea, we have incredibly spelled out, in-you-face examples that only the willfully ignorant could possibly ignore. There are so many examples of anti-competitive behaviors in big pharma alone. But Apple itself has been sued for price setting behavior, which it used to force competitor Amazon pay more for ebook publishing rights: http://techcrunch.com/2012/04/22/apple-anti-trust/. So, Dark Helmet, the schwartz is not with you. Defenders of patent law either have no idea of the corruption, or just choose to ignore it or are getting a pretty penny out of the situation.
The true genesis of MS-DOS
written by jm, August 28, 2012 12:27
Per Wikipedia (for whose accuracy I can vouch based on personal memories of the era):
"MS-DOS was a renamed form of 86-DOS ... by Seattle Computer Products, written by Tim Paterson. Microsoft needed an operating system for the then-new Intel 8086 ..., so it bought 86-DOS for $75,000 [and used it as the basis for MS-DOS 1.0] released with the IBM PC in 1982. (86-DOS, in turn, was a clone of Digital Research's CP/M ... ported to run on 8086 processors and with two notable differences ... possible because of the increased availability of RAM ..."

Because Bill Gates had inside information (from his mother, an IBM board member) that IBM needed an 8086 OS, but Seattle Computer Products had no way to know of that, he was able to buy it from them for chump change. He wrote none of it (and it certainly wasn't written in MS-BASIC -- you don't write operating system kernels in interpreted BASIC).

Regarding patents, my recollection is that innovation in computer software was much greater back in the days before software patents were allowed (copyright was the only protection). If the early pioneers of software had patented their ideas, the industry would never have developed as it did.
jm mostly correct, but wrong on mother details.
written by AndrewDover, August 28, 2012 6:44

"According to Fire in the Valley, he also reportedly told Gates that when IBM CEO John Opel heard Microsoft would get the contract, he said "Oh is that Mary Gates' boy's company?" since Opel and Bill Gates' mother served together on the national board of the United Way."

IBM simply went to Microsoft twice about an OS, there was no inside information. The first time Microsoft refered them to Digital Research, the second, Microsoft and IBM agreed that Microsoft would buy and improve what became DOS. Crucially, IBM did not pay a per unit fee to Microsoft, thus making a PC-Clone DOS sale more profitable to Microsoft than an IBM.

written by PeonInChief, August 28, 2012 11:28
I don't know enough about the technical patents to make an informed judgment, but a rectangular devise with rounded edges? Formica kitchen table, 1950s!
written by PeonInChief, August 28, 2012 11:38
Oops. Device. Sorry.
written by Calgacus, August 28, 2012 8:24
Last Mover: Izzatso? :-)
Dean --
written by Brett, August 29, 2012 8:21
Here's a good article on this case if you haven't seen it. http://www.ft.com/intl/cms/s/2...z24wP4Yr9U

Though the author gives way too much praise of patent law regarding Big Pharma, he does have some good points about how it's out of control in the technology sphere.
The Financial Times on patents in the USA
written by Stefano, August 29, 2012 2:20
I'm sure you saw the recent article by the Financial Times on the insanity of patent protection in the US:

"American law is patent nonsense"

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.