Fighting Back Against Patent Trolls, or Inequality in a Nutshell

Newegg has won a huge victory for all consumers by getting an appeals court to throw out patent lawsuits from Souverain Software. Souverain is not a real company; it's a shell set up by investors and lawyers to file patent lawsuits, based on three patents they acquired from now bankrupt OpenMarket back in 2001. Souverain clamed that all online shopping systems were based on its patents for "shopping cart" technology. Using this claim, they had extracted more than $100 million from online retailers, including $40 million from Amazon. But Newegg argued, and the appeals court agreed, that those patents were bogus because OpenMarket's software didn't do anything that Compuserve Mail didn't do five years earlier, which Compuserve never tried to patent because it was so obvious. It would be like getting a patent on setting up your cash register near the door and having customers line up to pay.

Patent trolling is one case of the financial shenanigans that are driving inequality. Think about how this worked. Online retailers were required to pay millions to a company that had no employees, just lawyers and investors. All of the money, extracted from online shoppers, was paid to those fat cats. It's a straight-up transfer of wealth from ordinary people to the rich.

And that is how patents and copyrights increasingly work today. The purpose of patents and copyrights, according to the constitution, is not to reward creators but to encourage invention. Letting Souverain file those suits did nothing to encourage invention; the inventors disappeared years ago, and the "inventions" were nothing much anyway.

If you ask me, this is the model of how spiraling inequality is created. Systems that seemed like good ideas for everybody have been co-opted by the rich and their clever henchmen to create rents for themselves. To fight inequality we need to rethink all of those measures and ask whether they really help all of us. The clearest example is the lower tax rate we charge on investment income. This was put in place because we thought the economy needed capital to grow, which would benefit everyone. But now there is too much capital in the world, leading to crazy investment booms, but we are still giving rich investors a tax break that benefits no one but them.