Investors Speaking Up About Patents Harming Innovation

from the good-for-them dept

One of the key things that we hear from people who defend the patent system is that patents are necessary for raising money from venture capitalists, and that investors won't invest if you don't have a patent. We've debunked that claim plenty of times, showing some of the most respected investors around who are equally as fed up with the problems of the patent system as we are. One of the most respected venture capitalists around these days is Fred Wilson. I have a friend (who once worked for a Wilson-funded startup) who insisted that should he ever start a company, he'll go talk to Fred, and if Fred won't invest, he'll know something's wrong with the idea. Over the past few years, Fred has been growing gradually more and more agitated by the problems the patent system causes, and has spoken out about it numerous times, with his latest words clearly showing his anger, as he says "enough is enough" when it comes to software patents specifically, mostly in response to the Lodsys lawsuits:
The whole thing is nuts. I can't understand why our goverment allows this shit to go on. It's wrong and its bad for society to have this cancer growing inside our economy. Every time I get a meeting with a legislator or goverment employee working in and around the innovation sector, I bring up the patent system and in particular software patents. We need to change the laws. We need to eliminate software patents. This ridiculous Lodsys situation is the perfect example of why. We need to say "enough is enough."
Fred isn't missing a chance to bring this up repeatedly, and he recently made the same point on a panel discussion with two other very highly respected investors, David Lee and Chris Dixon, who agreed about the problems of the patent system (with slightly different takes on it than Fred):
The key part from Wilson, again:
"The basic problem with patents is that you're trying to assign property rights to something that doesn't deserve property rights. The fact that these property rights end up in the hands of financial owners as opposed to the original inventors just exacerbates the problem. The basic problem is that Chris [Dixon] and a bunch of engineers can be sitting at Hunch designing some amazing new feature and somebody unbeknownst to them has a patent on this feature and never actually implemented it and can now screw them over… It’s just not right, it shouldn’t exist."
Dixon points out a key part of the problem is that so many patents are clearly obvious to anyone skilled in the art. He notes that any competent engineer could create what's found in the vast majority of software patents, and notes that the examiners simply aren't competent enough to recognize what's obvious. Dixon, who is both an investor and a long-term entrepreneur, certainly knows these things. What's amazing to me, honestly, is how few people in Silicon Valley actually think patents are a good idea any more. The system has become so distorted that most of the people they're supposed to benefit the most don't want them, but feel compelled to get them due to the system. What a massive amount of waste, leading to a mess that holds back innovation.

Wilson makes one other statement that I thought was interesting.  He compared patenting software to patenting music, noting that neither makes sense.

Filed Under: chris dixon, fred wilson, investors, obviousness, patents, software patents

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  1. icon
    Josh in CharlotteNC (profile), 9 Jun 2011 @ 7:35am

    Re: Re: Re:

    What you miss is that in a system without patents, the investors (and companies) that put the money into the research to create the original products just won't do it if they don't see good economic return.

    Venture capital investors expect that most of the companies they invest in to fail and lose their money. For example, if a VC invests in 20 start-ups, 16 will fail and they'll get nothing out of it. 3 will break even or show small profits, just not really go anywhere, but that one remaining could be the next Google and will more than offset the losses by the others.

    Obviously some VCs have better or worse track records, but they absolutely will invest even if success is not "guaranteed" by some piece of paper that the government gives you to claim you own an idea.

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