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.

Filed Under: dean kamen, inventors, patent reform, patents, steve perlman

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  1. identicon
    mr. vilms, 27 Sep 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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