Here's a counter example: ARM.

In ARM's case, patents serve a valuable purpose: they allow a separation of concerns. The company that designs the microprocessor does not have to be the company that builds things using the microprocessor. Allowing ARM to focus on what they do best--designing microprocessors, and allowing say Samsung to focus on what they do best, manufacturing things, helps everyone. The patent in this case is simply a legal device that allows people to transact in terms of a design.

Also, looking at the outlier damages award from a patent infringement isn't really meaningful, in the same way that looking at the damages award for medical malpractice isn't really meaningful. Occasionally, you'll have a jury that awards someone $10m for a stubbed toe, but if you look at comprehensive studies of medical malpractice suits you'll see that: 1) most of the time the jury is right; 2) the actual overhead of the system is 1-3% of a $1.5 trillion industry, which is tied to a profession that is otherwise almost entirely self-regulated. People tend to focus on the damages awards and think "oh that's costing the economy money" but obviously damages awards just shift money from one place to the other. The "cost" is in the litigation fees and how the law changes peoples' incentives, and that's much harder to evaluate than just looking at a big $100m judgment.

This doesn't make sense to me. Are you saying that, without patents, ARM couldn't license it's designs to Samsung? Why not?

Or are you saying ARM wouldn't be able to stay in business because Samsung would just steal their designs? I don't think that is true, for the exact "expert" reasons you mention: ARM is great at designing processors. If Samsung wants reasonable updates to stay competitive with other manufacturers, they would need to pay for those experts.

Both.

Consider how ARM might initiate a licensing transaction with Samsung. Don't you think Samsung will want its engineers to go over the design extensively to see how it'll work with their manufacturing process, etc, before committing to buy? Without IP protection, how does ARM give Samsung the blueprints without giving up any leverage they have in the transaction? What's to stop Samsung from just taking the blueprints and not paying? What keeps Samsung from turning around and selling the blueprints to other people at a lower price?

Moreover, sure ARM might be better at designing microprocessors, but once ARM does the heavy lifting, it's much easier for Samsung to hire its own people to do updates. They might not be as good as ARM's people, but its hard to argue with free.

I worked for two tech companies that sold only IP. We were in the business of developing the software that was incorporated into heavy-duty networking equipment and military radios. Our customers were companies like Raytheon, etc. Our competitive advantage was our expertise and our size. We could do experimental stuff much quicker than the big companies with more internal bureaucracy and more risk aversion. But there is no way we could match their manufacturing, distribution, and sales expertise. That wasn't up our alley. It's very difficult to conceive of working relationships like this without being able to transact in IP. The type of work we did was kind of like crypto in the sense that it took years and millions of dollars to figure out what worked, but it was pretty straightforward to verify the working solution. Without being able to patent the product of that research, we'd have no leverage against the companies that had the big manufacturing muscle. As soon as we showed them our designs they could just run with it. If we shipped them binaries, they could easily just reverse engineer them.

I think peoples' opposition to IP really stems from the fact that most of the patents people are exposed to are pretty crappy. It causes them to think of the average software patent as something they could stumble onto accidentally. But that's more of an opposition to the bar used for software patents rather than an opposition to the concept. Realize that highly complex inventions like OFDM are the subject of patents too.

Contract law is perfectly adequate in that situation - Samsung signs a contract with ARM which specifies the exact terms under which they can use ARM's designs.

It's not perfectly adequate. E.g. ARM can't let Samsung see the design until Samsung signs a contract. It makes it difficult to shop the design around. Also, a contract that provided the protections similar to a patent would be an ad-hoc informally specified version of patent law, and we'd replace patent litigation with more contract litigation.

It also provides no recourse against third parties. What if someone reverse engineers the design from one of Samsung's products? This is not theoretical--there's a major Chinese networking company that used to copy the designs of a major US networking company down to the silk screening. It also prevents ARM from publishing details in trade journals and forces them to keep documentation and designs under lock and key. It makes industrial espionage tremendously more valuable. Sub licensing, transferability, etc, become a huge hassle.

And to what benefit? Consider one suit wildly maligned on these boards: Oracle v Google. Without copyright, that lawsuit still would have happened more or less along the same lines, except it would be about whether Google violated its contract with Sun about how Google was allowed to use Sun's code. And t would have been longer and more expensive because the parties couldn't speak the common language of copyright law.

With the important difference that a truly independent reimplementation is not covered.

It also provides no recourse against third parties. What if someone reverse engineers the design from one of Samsung's products? This is not theoretical--there's a major Chinese networking company that used to copy the designs of a major US networking company down to the silk screening. It also prevents ARM from publishing details in trade journals and forces them to keep documentation and designs under lock and key. It makes industrial espionage tremendously more valuable. Sub licensing, transferability, etc, become a huge hassle.

Is this US networking company you speak of still profitable? Looks like ARM are fairly heavy-handed with defending their designs at the moment, so you'll forgive me being skeptical of patents encouraging the sharing of IP: http://www.eetimes.com/electronics-news/4042770/Student-s-AR...

It's not perfectly adequate. E.g. ARM can't let Samsung see the design until Samsung signs a contract. It makes it difficult to shop the design around. Also, a contract that provided the protections similar to a patent would be an ad-hoc informally specified version of patent law, and we'd replace patent litigation with more contract litigation.

It also provides no recourse against third parties. What if someone reverse engineers the design from one of Samsung's products? This is not theoretical--there's a major Chinese networking company that used to copy the designs of a major US networking company down to the silk screening. It also prevents ARM from publishing details in trade journals and forces them to keep documentation and designs under lock and key. It makes industrial espionage tremendously more valuable. Sub licensing, transferability, etc, become a huge hassle.

And to what benefit? Consider one suit wildly maligned on these boards: Oracle v Google. Without copyright, that lawsuit still would have happened more or less along the same lines, except it would be about whether Google violated its contract with Sun about how Google was allowed to use Sun's code. And t would have been longer and more expensive because the parties couldn't speak the common language of contract law.