Ten Miles Square


June 11, 2012 9:00 AM Apple’s Newest Patent: Wholly Unnecessary

By Danny Vinik

Last week, the Patent and Trademark Office (PTO) awarded Apple a patent on the “wedge” design of its MacBook Air laptop. The “wedge” design has a hinge at the back and tapers down to a point in the front due to the thin body. While my knowledge of patent law is a bit thin, I do know that such a patent violates the logic behind intellectual property law, if not the law itself.

Article I, Section 8, Clause 8 of the Constitution gives Congress the 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.” Patent law should create an economic bargain to incentivize inventors to put money into researching and developing something in return for a monopoly over that something for a limited period of time. The key word here is incentivize. If Apple had not received the patent, would it stop designing innovative computers? Does Apple need this patent as an incentive to continue investing in research and development?

Here’s Apple’s dirty little secret: it doesn’t spend much money on R&D. Last year, Apple spent $2.6 billion on it. Google? $5.2 billion. Microsoft? $9.4 billion. Apple spends just two percent of its revenue on R&D. That’s not necessarily a bad thing. Even though it spends so much less than its competitors, Apple has lead the way in innovation for the past decade and it has made quite a profit doing so.

Over at Seeking Alpha, a website devoted to stock market analysis, Stephen Rosenman wrote an article about the incredible job Apple does turning low R&D costs into hugely profitable products: “Apple has been making extraordinary profits from its R&D team. There is no let-up in the trend. Innovation is alive and well at Apple.”

Apple updates its products fairly often so R&D costs from two and three years ago will drive a lot of its current operating income. So far in 2012, Apple is earning $40 for every dollar it spent on R&D in 2010. It’s earning $52 for every dollar it spent on R&D in 2009.

In contrast, Microsoft has never earned more than five dollars in operating income for each dollar it invested in research in development two years ago. Relative to the rest of its industry, Apple gets an incredible bang for its buck in research and development. And like most other Apple products, the MacBook Air has a high profit margin, between 28 and 37 percent.

Given all of that, does Apple really need a patent for the “wedge” design as an incentive to invest in R&D?

The answer is clearly no. Apple has patents for many of its innovations (multi-touch software, Tiger OS X operating system, etc.) and rightfully so. If it didn’t, other competitors would swoop in and use Apple’s inventions and that would eat away at Apple’s bottom line. In such a patent-less world, Apple would profit more by letting others spend money on R&D and stealing their inventions immediately. But this runs into a collective action problem where no one has an incentive to invest in R&D and so no one does and innovation never occurs. Patent law is meant to fix this problem.

Apple deserves and has patents for many of its innovations, but it does not need or deserve one for the broad design of the MacBook Air.

But the PTO went ahead and gave Apple a patent anyway. And Apple isn’t afraid to use its patents so other ultrabook producers will have to be very careful in their designs so as to avoid Apple’s wrath. That economic bargain between inventors investing in R&D and the public granting them a monopoly for a limited time now looks very one-sided. It’s not going to incentivize Apple to invest more in R&D, but it’s going to give Apple a lot more control in the ultrabook market. It could even give them a monopoly in it.

That’s not the purpose of patent law and if technology innovation continues down this road, it won’t be long before undeserved monopolies are everywhere.

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Danny Vinik is an intern at the Washington Monthly.