Entrepreneurs (and other IP investors) want to have some assurance that an inventor is not going to be able to take everything with them to a competitor — or threaten to do so — at a crucial stage. As you know, building a company requires a complex, multi-stage strategy. The risk that a key person is going to defect to a competitor is one that entrepreneurs (and their investors) want to hedge against in any way possible.

Just as any company would prefer a monopoly of some sort. But most people with any inkling of basic economics knows that’s actually not good for the overall economy.

Again, I point you to the studies on people and idea flow in Silicon Valley to show why the point you’re trying to make above is meaningless. Just because some companies want it doesn’t mean it’s actually good for those companies or the overall industry. As the studies have shown, the opposite is often true.

If inventors move to competitors, it’s all part of the process, and it simply drives more competition.

If we had things your way, the computer industry would be quite different than it actually is today, because Robert Noyce, Gordon Moore and Andy Grove never would have been able to leave Fairchild to create Intel (hell, Noyce and Moore wouldn’t even have been able to leave Shockley to create Fairchild).

But shouldn’t the company that spent the time and money investing in R&D get at least part of the benefits of the work that the inventor did on that R&D while he or she was working for them? In a world with only trade secret and tort, two companies will end up fighting out in court (or settling with a handshake, Silicon Valley-style) what could be handled with a (tense) negotiation were patents stronger.

Again, you’ve failed to explain why competing in the marketplace doesn’t solve this issue most effectively. You again are weighing way too heavily the importance of the idea itself. Trust me, I’ve been at companies where the original idea generator left to start a competitor, and since the *company* itself had more actual experience implementing, we were able to stay ahead of his “idea” at the new firm.

You are giving way too much weight to the idea.

The real world doesn’t work that way.

Now we’re on the same page. The market for the innovation as a whole is absolutely the relevant market. And the contribution that early-stage entrepreneurs make is very important to demonstrate the value of the IP. You’ve essentially agreed here with the point I’m trying to make — that inventors’ time is still part of the value that’s being paid for in the market for innovation. In the world we live in in Silicon Valley right now, only the handful of inventor/entrepreneurs who are lucky enough to be connected into the VC community can get anything near fair value for their work. Everybody else gets cents on the dollar.

Hmm. I’d love to see some actual evidence on that. Again, this comes down to the same point: you are overvaluing the importance of the idea. You have decided what “fair value” is, when the market has clearly shown it to be much lower than what your made up number is.

I trust the market to be correct.

Two responses: first, you say everything points in one direction. What direction is that? That we should get rid of the patent system? That issued patents should be higher quality? The problem with the papers I read is that none (with a few important exceptions) are based on an accurate THEORY of how the patent system adds value to the economy.

Oh really? I agree that some have used odd proxies, but the combined weight of all that research suggesting no real increase in innovation/economic growth thanks to patents seems fairly damning concerning the entire point of patents.

I certainly understand that there are situations where the market may fail, but it’s pretty clearly the exception, not the rule. The patent system assumes that market failure is the rule. I think that if you’re going to regulate by handing out economic incentives to correct a market failure, you should at least be required to prove the market failure first.

The Founding Fathers and the Venetians had a theory — give artists and inventors exclusive rights to their work, and they’ll produce more of it. Almost none of the academics have any theory about how inventions add value to society.

Really? Most of the ones I’ve seen have a pretty good grasp on it.

It’s a very complex economic theory of endogenous growth; there aren’t many economists even who understand it. In point of fact, economists are STILL arguing about how endogenous growth works. But that’s just because it’s difficult to measure. There’s no argument about the fact that it does occur, or that human capital is a big driver in promoting endogenous growth.

Hmm. I agree that the economic research on endogenous growth is still in its early stages, but I think there’s plenty of economists who do clearly understand it, and there’s been enough important work in the field over the past 25 years that to brush it all off is silly.

if you pay an engineer the same salary in Euros or Yuan or Rupees, the engineer can afford to live a much higher quality of life in Europe, China, or India than they could afford in Palo Alto.

THAT’s your theory? Either in simplifying it you left out a *LOT*, or your theory is total bunk and attempts to refute pretty much all basic economic theory.

If for whatever reason, you want the engineer to stay in Palo Alto, you have two options:

(A) Close the trade deficit and increase the value of the dollar relative to foreign currencies;
(B) Pay more U.S. dollars.

Yes, this is why so many foreign engineers are dying to get into the US and applying like mad for US work visas.

You have heard of quality of life, right?

(B) makes sense in certain circumstances (like when its a startup and the business people and investors live in Palo Alto), but it’s not worth it for many businesses when — on top of the additional expense — they have to worry also about their IP walking out the door with the engineer later. Ask any lawyer about the enforceability of non-competes in California, and you’ll see what I mean.

Again, you are overweighing the importance of that one person’s ideas. See the recent research I pointed to on startup founders who die early in the life of their company. It rarely impacts the growth trajectory of the company. One person leaving is not something that companies should be worried about.

And, clearly, you did not read the research I recently spoke about concerning NDAs and Silicon Valley if you think you need to tell me about the enforceability of NDAs in Silicon Valley.

That’s the whole point. The fact that they’re NOT enforceable is what made Silicon Valley so successful. The fact that people jump ship and ideas percolated across companies, allowing them to more rapidly compete in the *real* market is what helped *grow* the industry and incent more innovation.

In a world without strong patent rights, the U.S. will lose the best engineers again and again.

Right. And that’s why engineers flocked to Switzerland when it had no patent system.

In actuality, they went there *because* of the lack of the patent system. Because it allowed them to innovate more freely without having to pay that expensive “cost” of dealing with patent thickets.

That’s why you see so many engineers against software patents as well. They know that it *increases* their expense in developing and makes it harder to innovate.

You’ve got the economics exactly backwards.