Patent Reform Is Only Bad For Startups Who Rely On Patent Law

from the patents-are-not-a-business-model dept

There are some news reports coming out about "small inventors" and "startups" coming out against patent reform, but when you read between the lines, that's not what's happening at all. What's happening is that a few entrepreneurs who have relied heavily on patents as part of their business model are coming out against patent reform. That's not surprising. After all, this form of government protectionism did help them. However, that does not mean that it's good for society or promoting innovation overall (which is the purpose of the patent system). There is no single view from startups. If a startup's business model is going to rely on patents, then obviously they'll want stronger patent protection. However, plenty of startups these days don't rely on patent protections, and focus on other types of business models instead. For them, patents are a real worry -- because even as they innovate, they always need to be wary of some no-name, no-product company suddenly suing them for actually building a product people want. So, while the press and some lobbyists will spin the press conference as "startups" against patent reform or even (as they're trying to say) "startups" vs "big tech companies," it's really "startups who rely on patents" vs companies who recognize they don't need patents to innovate.


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  1.  
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    RandomThoughts, Sep 21st, 2007 @ 5:46am

    What's happening is that a few entrepreneurs who have relied heavily on patents as part of their business model are coming out against patents. That's not surprising. After all, this form of government protectionism did help them.

    Don't you mean coming out for patents?

    As for my comment about the Wall Street Journal the other day, I agreed with you on that topic. Does that surprise you? Its not like you are wrong all the time :)

     

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  2.  
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    Willton, Sep 21st, 2007 @ 5:53am

    The Purpose of the Patent System

    You're wrong, Mike. The purpose of the patent system is not to promote innovation. The purpose of the patent system is to encourage disclosure of invention. When inventors are not given any protection as to their inventions and ideas, they tend to keep them secret and out of society's hands. The patent system gives these inventors an incentive to put their inventions out in the open and available for everyone to see and learn by giving them limited property rights over them for a limited time. It is true that we stand on the shoulders of giants, but if no one tells us where those shoulders are, we fall.

    If you want to continue your crusade against the patent system, that's fine. The system has flaws and it would be nice to see those flaws remedied. But please, don't state that the patent system is missing the target when you don't know what that target is.

     

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  3.  
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    Crosbie Fitch (profile), Sep 21st, 2007 @ 6:13am

    Disclosure?

    Remind me why an inventor who can get rich by not disclosing their invention is going to jump at the chance to disclose it by patenting it?

    Patents are simply monopolies.

    Patents do not make inventions public, they make people think up all the possible things that manufacturers might one day consider using in products in order that they can then prevent manufacture unless a certain amount of money is paid.

     

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  4.  
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    John B, Sep 21st, 2007 @ 6:30am

    Another use for patents

    Another reason for having patents is to protect intellectual property that people and companies have invested time, effort and, usually, money to create. If people and companies cannot reap the fruits of their R&D, then they won't engage in as much of it. Pretty simple economics and business model basics.

    On another note,it looks like Mike M is the only writer left at TechDirt, which means that TechDirt is now basically worthless. Time to take it off my Google homepage. So long, Mike. I'd like to say its been fun, but I don't want to lie.

     

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  5.  
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    Danny, Sep 21st, 2007 @ 6:32am

    True

    Small "companies" that are nothing more than a group of patent holders are against reform because that means they would actually have to bring something to the market in order to make money. For some reason these "companies" think that just for merely entering the market they are entitled to making profit no matter how questionable (or outright illegal) the means. In short they don't think they should have to work for their profit margin, it should just be handed to them by a court ruling.


    Large companies that are looking to prevent competition are against said refore just as much. They seem to have developed the notion that once they have risen up in their market they are entitled to keep that position no matter how questionable (or outright illegal) the means. In short they don't think they should have to continue to work for their profit market, it should just handed to them by a court ruling.

    However instead of, "Patent Reform Is Only Bad For Startups Who Rely On Patent Law" I would have called it, "Patent Reform Is Only Bad For Businesses Who Rely On Patent Law". By using startups I get the impression that you are only calling out startup businesses when we all know that large corporstions are just as guilty about abusing patent law.

     

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  6.  
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    Ed French, Sep 21st, 2007 @ 7:10am

    Patents and small companies

    As someone who works on making very small investments in early stage companies I'd urge people not to generalise here! Outside software, and outside the US the patent system works well, maybe not perfectly, and genuinely helps innovative small companies. Sure there's often "prior art" issues, but that doesn't stop the good companies making money and the patent protection is really helpful in negotiating deals with the large partner companies and follow-on investors.
    Within software and within the US that's a different matter! It'd be really short sighted to look at the undoubted problems with rubbishy US software and business method patents and project from that that "patents are evil"! I'd be really happy to introduce you to a dozen or so CEO's of really small and innovative tech companies who, universally, would like to see the US patent system reformed, but not removed!

     

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  7.  
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    angry dude, Sep 21st, 2007 @ 7:19am

    Mike, stop smoking weed !!!

    Mike wrote:
    "What's happening is that a few entrepreneurs who have relied heavily on patents as part of their business model are coming out against patents."

    Hey, Mikey
    What kind of weed did you smoke yesterday ?

    I am getting really annoyed by (some) of your articles where you deliberately twist the facts.

    The fact is this:
    Startups which invent new technology want strong patent protection for their technology.
    Startups which just copy and matket other people's creations do not want patent protection at all.

    Plain and simple, dude

     

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  8.  
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    excidioinanis, Sep 21st, 2007 @ 8:24am

    Re: Mike, stop smoking weed !!!

    I agree with angry dude, This is what i comes down to in it's simplest form and only an idiot couldn't see that.

     

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  9.  
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    AJ, Sep 21st, 2007 @ 8:39am

    Mike: I think your second sentence is missing a word, it doesn't seem to match the rest of the text. Did you not mean to write: "What's happening is that a few entrepreneurs who have relied heavily on patents as part of their business model are coming out against patent reform."

     

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  10.  
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    Crosbie Fitch (profile), Sep 21st, 2007 @ 8:52am

    Monopolies are great for those who get them

    Most understand that a monopoly is highly lucrative.

    Who wouldn't have an extreme commercial advantage if given the privilege of prohibiting competitors?

    The issue is not whether monopoly holders benefit from monopolies, but whether the public or the market benefits from them.

    For every fortunate monopoly holder there are a billion unfortunate manufacturers held back, inconvenienced, or extorted.

    Monopoly is a double-edged sword, that on balance, costs far more in hindering progress than it does in rewarding the fortunate individual for filing first - irrespective of how much original work they did (whether they used someone else's work or replicated similar efforts).

     

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  11.  
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    Steve, Sep 21st, 2007 @ 9:22am

    You're obviously wrong on this

    When we tech entrepreneurs go out and pitch our startup ideas to investors, inevitably they want to see that we have filed patents to provide some measure of protection against larger software or electronics companies simply copying what we've done. Patent filings are a pre-requisite for tech startups. To the extent huge corporations don't have to worry about infringing startups' patents, life gets much harder for tech startups, and investors should and will shy away from investing in tech startups. If there's a legal way to distinguish "real inventors" from patent trollers, or to treat "real technology startups" from guys just trying to stake out IP territory, that's worth exploring, but I haven't seen any attempt to make those kinds of distinctions yet. If we took the extreme position of simply eliminating the ability for startups to protect their inventions, we'll be making a very big mistake.

     

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  12.  
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    Mike (profile), Sep 21st, 2007 @ 9:41am

    Re: The Purpose of the Patent System

    You're wrong, Mike. The purpose of the patent system is not to promote innovation. The purpose of the patent system is to encourage disclosure of invention.

    That is incorrect. First of all the purpose of the patent system is clearly laid out in the Constitution.

    Second, the idea that disclosure is important is a myth.

     

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  13.  
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    Mike (profile), Sep 21st, 2007 @ 9:46am

    Re: Another use for patents

    Another reason for having patents is to protect intellectual property that people and companies have invested time, effort and, usually, money to create. If people and companies cannot reap the fruits of their R&D, then they won't engage in as much of it. Pretty simple economics and business model basics.

    For someone who keeps claiming to have a degree in economics, it's amazing that you seem confused about basic economics.

    I could say the same thing about giving a monopoly to Pizza Hut for pizza restaurants. Obviously, they would like protection for the "invested time, effort and, usually, money to create." However, no one suggests that, because they know that competition is important in driving innovation.

    You probably learned in economics why protectionist policies are bad. Why are you suddenly in favor of them in this case?

    Your second hugely incorrect assumption is that without patent protection "cannot reap the fruits of their R&D." I've pointed out a ton of research, examples and studies that prove this is simply not true.

    Your economics are wrong and your assumptions are wrong.

     

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  14.  
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    Mike (profile), Sep 21st, 2007 @ 9:52am

    Re: You're obviously wrong on this

    When we tech entrepreneurs go out and pitch our startup ideas to investors, inevitably they want to see that we have filed patents to provide some measure of protection against larger software or electronics companies simply copying what we've done.

    Having raised a fair bit of money myself, I would argue that this is less and less true -- especially for the best VCs. Many have started coming out publicly against the patent system, noting that it harms innovation, and talking about how meaningless patents are to startups.

     

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  15.  
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    RandomThoughts, Sep 21st, 2007 @ 10:24am

    Mike, quite a few companies will not pursue an idea for commercialization unless it is patented. How can this not harm innovation?

     

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  16.  
    identicon
    Anonymous Coward, Sep 21st, 2007 @ 10:55am

    Re: Mike, stop smoking weed !!!

    You listed two facts. There are more facts. Such as this:

    Businesses which bring to market products that employ other people's petty and ridiculous patents do not want patent protection for petty and ridiculous patents.

     

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  17.  
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    Anonymous Coward, Sep 21st, 2007 @ 11:10am

    Re:

    Certainly, to the extent that this effect encourages innovation, it is helpful. Are you just going to ignore the extent to which it _retards_ innovation?

    You must consider which one outweighs the other.

     

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  18.  
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    Luke Smith, Sep 21st, 2007 @ 11:34am

    Patents = Business Strategy

    Courts should not be used to define any business strategy.

    The only patent reform needed is one which encourages licensing rather than litigation.

    The current process is like elementary kids on the playground playing soccer-- when the kid who brought the ball becomes unhappy for one reason or another and decides to steal the ball and run home before the end of the game.

     

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  19.  
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    RandomThoughts, Sep 21st, 2007 @ 12:00pm

    Luke, I agree, but the question is who is the one who stomps home? Is it the inventor or is it the company?

     

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  20.  
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    Anonymous Coward, Sep 21st, 2007 @ 12:07pm

    Re: You're obviously wrong on this

    If investors are beginning to make patent filings a requirement then wouldn't it stand to reason that if this goes on long enough tech startups will be painted into a corner by the fact that any idea they try to use for a tech start will be impossible because some other previous company hold a patent on a small piece of that idea?

    When it gets to the point that there are no more tech startups the innovation will really be hurt. Imagine not being able to laungh a tech startup not because you don't have a innovative idea but because your startup idea crosses paths with 4 patents held by 4 other companies.

     

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  21.  
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    Xiera, Sep 21st, 2007 @ 2:12pm

    Progress over innovation, open licensing over pate

    Firstly, everyone seems to be forgetting one very important aspect of this discussion: progress. Innovation is not the same as progress. Innovation describes the creation of a new product or idea from an assortment of existing products or ideas. If we limit our discussion to this, patents work fine. But progress is also very important, and generally more so. For those who have not yet made the distinction, progress is the adaptation of existing products into another form (for better or worse).

    It may be cliche, but certainly we can agree that "two heads are better than one". Patents limit new products and ideas to one head. While this definitely helps the company with the patent, it does not help the consumers. With multiple companies working to improve the new product or idea, progress can be made much more quickly and much more broadly.

    Logically, then, it would follow that multiple companies working to progress the evolution and development of the base product could end up with two entirely different final products, two entirely different applications, and two entirely different markets. Yet this diversity is lost (or at least slowed) with patents.

    Open licensing, on the other hand, encourages people to not only work on the same product concurrently, but also to collaborate on the product (or products, if different groups are working on different paths).

    So, then, where does protecting the inventor come in? To be honest, I don't know, but it seems pretty obvious to me that patents are not the answer. (Perhaps they were at one point, but that does not seem to be the case any more.)

    Perhaps patent laws have been patented so long that they're now immune to progress...

     

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  22.  
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    Mike (profile), Sep 21st, 2007 @ 3:48pm

    Re:

    Mike, quite a few companies will not pursue an idea for commercialization unless it is patented. How can this not harm innovation?

    That's like saying quite a few restaurants won't open up on a street unless they're guaranteed that no other restaurants will open up on that street.

    Others will come along and find the business models that work. Assuming they need patents is a false assumption.

     

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  23.  
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    RandomThoughts, Sep 24th, 2007 @ 8:34am

    No mike, its not like saying that no other restaurants will open up on that street. Its like saying no other same restaurants will open up on that street.

    Ever see a McDonalds open up next to another McDonalds?

     

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  24.  
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    mr. vilms, Sep 27th, 2007 @ 1:32pm

    competition, innovation, and patents

    To understand the role of patents, and the current attempt at patent reform, it is helpful to step back and look at it from a very basic level. Just to remind ourselves, a patent is a temporary, 20-year ownership title to a described apparatus or method, like a temporary ownership title to land.

    Most things we do as individuals and as groups are not covered by patents, but depend on our access to resources such as stored wealth, skills, talents, and relationship to larger groups and organizations. Without patents, we are essentially in market competition with other people and groups of people all the time, regulated by various conventions, rules, and laws on property rights, contracts, fair competition, and interaction manners.

    Individuals first go through an unproductive, learning phase called education, which is usually paid for by parents and taxpayers. We learn to copy what others do or make now, and what they did in the past, not so exactly as to violate impersonation laws, copyrights, trademarks, and professional license rules, but in general terms, and we find ways to improve on that. This becomes our work, and it is typically production, including provision of services, with some innovation thrown in, to stay competitive.

    Innovation, like education, is an unproductive phase that has to be paid for by someone. Individuals and groups of people, like governments and corporations, typically invest some of their resources, whether in the form of stored wealth, time, or energy, for innovation, because everything is eventually copied by others who can do it cheaper. How this works out in practice varies greatly by profession, industry, and available resources.

    Can there be innovation without patents? Clearly yes, innovation is not optional but absolutely necessary for staying competitive and improving one’s position. The question is only about how much of total stored resources gets invested in innovation, who can innovate and under what conditions, and what are the implications for our quality of life along such parameters as technological progress, respect for rights and agreements, distribution of wealth, prospects for economic upward mobility, and social conflict.

    Without patents, investment in innovation in excess of what can be immediately employed in competing, can go to waste unless it is kept secret, because anything new that looks good will be copied by others. Rewards may go to others who have some competitive advantage in using the innovation.

    Patents are a way to open up more investment for innovation. The idea is to prevent copying by others for 20 years, without requiring any further investment by the innovator beyond the innovation itself.

    With patents, innovations can be produced for many years ahead of time, and they can be discussed and compared with everyone else’s. The best ones can be selected, which others can pay to license. This improves the efficiency of innovation.

    Second, patents allow investment in innovation only, without requiring subsequent investment in factories and organizations to use the innovation, in effect allowing innovation itself to become a profitable business. This increases the amount of total available resources invested in innovation. Stored wealth that earlier was invested in trading in assets such as real estate, commodities, and in businesses, can now be directly invested in innovation. Universities, independent research laboratories, start-up companies, and venture capital companies make up the innovation industry. Its products are patents and combinations of small organizations and patents. The products are sold to large companies as patent portfolios and as acquisitions, to improve their existing competitive position and to branch into related emerging fields. The products are also sold to entrepreneurs with general investment backing, to build new companies that can grow and compete against existing large players while protected from copying, by the patent system. Now many more people will be employed to innovate, i.e., study and develop new and improved ways of doing things and making materials, devices, and sytems-- than were employed with limited innovation only by large companies and governments.

    Greater efficiency and more investment in innovation steps up the pace of technological progress, and increases high-value employment. Both help to improve the quality of life.

    Beyond that, small companies that can successfully compete with established industry are an unprecedented vehicle for economic upward mobility to a significant number of people (who can be only smart or clever and not wealthy, talented, or well connected). This would not exist without patents. By increasing high-value employment and growing a crop of start-up millionaires, our patent system helps to diffuse the distribution of wealth and privilege, and thereby helps to reduce social conflict. In the history of conventional competition, large fortunes by newcomers are made either through exceptional talent, which is rare, or by deceit and violence against others, which can be more readily available. Some call it luck. Our patent system, however, enables a model for making it big without cutting corners, and keeps alive our image as a land of hope and opportunity.

    The key to this magic is the aspect of preventing copying without further investment. A reform that weakens that aspect of the patent system will dispel the whole magic.

     

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