While acknowledging your quip for what it is, I would argue that monetizing a portfolio of patents that were legally acquired (either 1st or 3rd party) while capturing profit due to inefficiencies in the system is no different than what a typical hedge fund manager does so I don't see the problem. Inventors are able to bring liquidity to their otherwise illiquid patents and LPs get a return.
Arbitrage traders automatically eliminate the market inefficiencies which they exploit. In theory, all purely financial operations, such as hedge funds, do the same (although this orthodoxy is now less certain). This is not true for patents, because patents are a government granted monopoly.
> Arbitrage traders automatically eliminate the market inefficiencies which they exploit.
True enough, although, having worked in a stat arb hedge fund for four years, let me assure you that the process is far from automatic ;)
> In theory, all purely financial operations, such as hedge funds, do the same
Aren't banks "financial operations"? Is franchise business not a "financial operation"? There are many other reasons, but I disagree, even in theory, with the idea that all financial operations eliminate market inefficiencies, aside from the en-passant contribution to overall liquidity.
> This is not true for patents, because patents are a government granted monopoly.
This strikes me as a non sequitur. Just because patents are a government-mandated monopoly doesn't mean there can't be an arbitrageable market in them. After all, all property is in some sense government-mandated. And the fact that patents are limited period presents no major difficulties -- I need only point out that a large segment of the London property market is for leasehold, which is in effect a owner-given (ultimately backed up by the force of the state, of course!), time-limited monopoly on the use of the house.
Of course, there's not going to be an arbitrageable market in the sense you're speaking of anyway, for an entirely different reason: bonds and, and to a much lesser extent, stocks, are easily comparable, whereas this is not the case in patents. If you think that Greece is a lot more credit-worthy than the rest of the market thinks it is, you can go long Greek 10 years, go short the bund, and with virtually zero outlay you have the ability to profit from any mispricing of "country risk". There's simply no analogue the "go long A, short B" in the domain of patents.
I think the comment you replied to erred in characterizing the activity of of a patent fund as "exploiting ineffciencies". It really is more akin to Warren Buffett-style long-term investing. While it's certainly true that Berkshires' activities reduce market inefficiencies, it's safe to say that that's not what's at the forefront of Buffett's mind when he invests.
There are valid reasons to be opposed to the patent system in its current form. I don't think the absence of Gordon Geko-style arbitrageurs from patent market is one of them, though ;)
Well, I'll defer to your greater knowledge of the financial industry. I'll just note that not only are patents not easily comparable, they aren't usually substitutable.
All of that being just, fair and useful is predicated on a reasonable definition of patents.
If there was a reasonable definition of patents then suing for infringement would be rare in comparison to companies legally acquiring licenses to patented technology.
Instead its easy to patent something and then wait for someone to independently come up with a similar enough technology and sue them. This would be very difficult with an appropriate definition of patents, because independent invention would be unlikely. Now in the case that another company independently comes up with infringing technology, you can happily wait for them to assume all the business and manufacturing risk and then hold the patent over their heads for unbelievable sums of money.
In this extortion model of pricing for patents the more obvious and less specific a patent is the higher its value. In contrast specific and innovative patents are much less likely to trip other companies up, so they have to be priced according to their value to actually make things before all the manufacturing and other business risks have been factored in.
Actual patents as means of transferring and trading in invention seems to be completely dwarfed by the ability of patents to be used to extort money from successful businesses.
While acknowledging your quip for what it is, I would argue that monetizing a portfolio of patents that were legally acquired (either 1st or 3rd party) while capturing profit due to inefficiencies in the system is no different than what a typical hedge fund manager does so I don't see the problem.
Ideas are not fungible. Consequently they are not supposed to be treated as currency, as commodities, or otherwise as subjects for speculation, except to the extent that doing so "promotes progress in the useful arts and sciences," according to the US Constitution.
When someone shows me how Myrhvold's efforts do that, I'll reconsider the argument.
