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Are patents any good for entrepreneurs?

Yesterday, I attended an IP Review Event organised by the Intellectual Property Office in the UK. The focus was a review of "Intellectual Property" and how it impacted entrepreneurs. About 30 startup founders were represented in the audience.

Intellectual Hot Pot

Intellectual Property, of course, covers a great many different types of things.

Some (like Trademarks) are hard to argue against. If you start a company called "Daniel Tenner's Widgets", and register that name as a trademark, it is reasonable that your neighbour shouldn't be allowed to start another company by the same name and compete with you.

Others (like copyrights and patents) are more nuanced. Entrepreneurs know, from everyday experience, that ideas aren't worth a whole lot. Execution is everything. Some "ideas", such as innovative mechanical inventions which require a lot of experimentation to get right, are clearly worthy of protection, but most ideas that earn patents are far too generic. And no one, not even the big boys, is immune to being sued by the owner of a spurious patent.

The first thing to do with this, then, is to split out the debate into its reasonable parts. Patents are not copyrights are not trademarks are not trade secrets are not design rights. Let's take just one strand out of this hot pot and examine that: patents.

Patents and startups

A number of feelings were echoed by pretty much everyone at the event yesterday:

  • patents are effectively useless at protecting young companies; they are too expensive to acquire and too expensive to enforce;
  • on the other hand, patents can much more readily be used by larger competitors to squash smaller innovators; larger companies can afford the costs of enforcement and can register a lot of patents;
  • therefore, patents, as they exist, are a risk which startups must simply live with, and hope that it won't turn into a full-fledged catastrophe, as that can easily kill their company if it comes at the wrong time.

All this is true whether you are in the US or the UK.

The feeling about patents was best captured by one attendant who stated, during the event "The more I learn about Intellectual Property issues, the less I want to do a startup".

Another attendant, woefully optimistic, suggested that "we don't want patents now (while we're small), but we'll want them in a couple of years (when we're large)". Actually, even large companies who have used patents to their advantage often don't think they work as they are. Jeff Bezos, who applied the ridiculous One-Click patent against Barnes and Nobles, later (back in 2000) wrote a letter arguing for patent reform. Since then, things have only gotten worse, with countless ridiculous patents being awarded, and some companies even setting up shop as high-volume, highly structured patent trolls to exploit this gaping hole in the legal framework.

It's pretty clear that companies large and small either dislike or just about get along with the patent system as it is, at least within the IT industry. It protects no one who needs protection, creates a constant threat for those who can't afford the protection, and generally its main effect is to provide data for nice infographics about who is suing who in an industry (answer: everyone is suing everyone they can).

In short, patents are an overhead to innovation, one that smaller companies avoid paying by taking on an existential risk that could kill them, and an overhead that simply increases the cost of doing business for larger companies.

And what about everyone else?

The original purpose of patents and copyrights, according to the US constitution, was:

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.

The purpose was to promote progress, which would make things better for everyone. In order to achieve this, the founders of the United States of America were willing to make an exception to their otherwise staunchly anti-monopolistic views. This seems like a valid purpose for any law: to make things better for everyone.

So, excluding for a moment the people who file patents and get sued by patent holders, do patents, as they are now, make things better for everyone else?

I believe the answer is clearly "no". Patents, being an overhead, drive up the prices of goods and services, and reduces the amount of innovation happening. Everyone loses out, most of all consumers who don't get new products and services or who pay more for them. The only ones who win out of the current system are the patent lawyers.

Conclusion

My conclusion is simple.

The patent system, as it exists today, both in the US and the UK, is a nuisance, an overhead, a problem that everyone could do without. I would cautiously advance that the system that we have in place for patents is worse than no system at all. That said, there is a place for a patent system, but it needs to go back to the fundamental principle of making things better for society.

Patents (or other forms of intellectual property law) should not be predicated upon moral considerations of who owns an idea. From a moral standpoint, ideas, unlike physical things, are owned by everyone and no one, and to impose a false economy of scarcity on ideas is a significant burden for society. However, this burden is reasonable so long as sufficient benefits come with it.

So, a review of Intellectual Property Law, whether focusing on patents or other areas of interest, should primarily concern itself with this fundamental question:

Is the system designed in a way that benefits society sufficiently to outweigh the costs to society?

As far as patents are concerned, the answer is a resounding no.


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