Apple beats Samsung

8/25/2012 07:36:00 PM
Yesterday, in the first verdict of many major court cases around the world involving patent disputes between Apple and Samsung, the court essentially sided with Apple on all the key points, penalizing Samsung on the order of $1 billion. The likely result is that Samsung will have to pay licensing fees to Apple for use of their patents, thus driving up prices of Samsung products. In effect, this grants Apple a monopoly over concepts they were the first to develop, such as the pinch-to-zoom technology, as Matthew Yglesias notes.

Most people, I think, understand the reasoning behind the existence of patents: by granting the inventor of a device a monopoly over the market for that device, we can increase the potential payoff for inventing and thus spur more innovation in the economy. Put differently, without the potential for a monopoly, many types of products simply would not be invented, especially those in which the initial research costs are large and the marginal production costs are low, since competitors could simply steal the initial research and mass produce the product at virtually no cost.

But patent protection is a very shaky concept. Optimally, patent protection should expire as soon as the inventor of a device has made up the initial research costs plus some amount of risk premium through profits. Thus, policy makers face two unresolvable problems in trying to promulgate a patent policy: (1) the optimal length of patent protection is different for every type of invention and varies wildly from no protection at all, to an infinitely lived patent, and (2) the key variables needed to determine the optimal length of patent protection--in particular the risk premium needed to induce investors--are entirely unobservable.

These problems make it easy for firms to exploit legislatures and courts to secure profitable yet sub-optimal levels of patent protection, and Apple may be a great example--is not clear that Apple deserves any protection at all on pinch-to-zoom user interfaces. That is because, if I understand it right, while Samsung "stole" the idea for this type of user interface from Apple, they did not steal any of the actual programming code or other research that went into implementation of the idea. As an old co-worker used to say, "ideas are a dime a dozen, it's the people who implement them that count." Since it cost Apple nothing to think up the idea for those inventions (after all, touch screen technology was thought up by science fiction long before Apple touched it--does apple owe money to Gene Rodenberry?), they deserve no compensation for them. But both Apple and Samsung had to pay for their own research and development teams to actually write the programming code to implement the idea, so both deserve compensation for this cost. And economics tells us that since this is a cost-to-entry for everyone, there is no need for patent protection.

There is, however, a silver lining, predicated on my belief that this whole touch-screen fad has gotten out of hand. The fact that, I think, everyone knows but few are willing to publicly aknowledge is that touch screen devices are fundamentally less useful than traditional mouse-and-keyboard computers. What they gain in portability they loose in the restrictiveness of their operating systems and clunkiness of their user interfaces. Now its all well and good if people want to have both tablets and regular computers, but ever since Microsoft has started releasing details of its new tablet-oriented operating system Windows 8, I've become increasingly alarmed that the rise of tablets will crowd out the conventional computer options.

Now, by granting Apple a monoploy, the court has just ensured that the supply of tablet devices will be less than it otherwise would be. Hence, since I happen to like the windows smart bars, the precision of mouse clicking, the comfort of real keyboards, the ability to play flash videos, the right to install whatever programs I want even if I don't get it through an app store, and--perhaps above all--the ability to arrange multiple windows as I please, the court's ruling is welcome news.

But to anyone who doesn't share my objections to apple's tablets, the court has made a huge mistake.