Great post as always. I share your thoughts on software patents, I'm against them However, I have to wonder how one can protect one's idea without a patent. My partner and I are currently in the process of building a product that will help mobile web and widget developers build better mobile websites and widgets. However, it's just the two of us, we're set to go into beta shortly and want to start sharing our product with the world. Our advisers are encouraging us to pursue a patent before moving forward. I'm finding that the process itself is slowing down our innovation and development effort since we now have to focus on mitigating the risk of a competitor "stealing" our idea. The act of allowing early beta testers to start providing us with feedback could actually prevent us from getting a patent should disclosure happen. And yet, it's that very act that will help us mature our product and move it forward!

I'm torn about the benefits of a patent to begin with, but this is our first time being faced with acquiring one. I guess at the root of it I have to wonder… if we put out a product but then someone else comes along and builds a better one, with more features, better performance, etc. Don't they deserve to win?

My gut is telling me to focus our energy on building our product, bringing it to market, and making it more valuable to our customers then what the market offers today rather then getting a patent. There is much more I can write, but I think I've already taken up a lot of space here

Brad- there is also research that suggests pretty emphatically that if innovation = creativity + entrepreneurship (the 'ICE' model), the limiting factor is never the ideas but the implementation.. (more 'A' ideas than 'A' entrepreneurs).

However, the most recent evidence is that the number of ideas that get implemented 'pulls' the number of new ideas. IOW, the number of new ideas pushed into the pipeline matters much less than the pull from ideas getting turned into reality. (Just as it's easier to pull fluid through a small, kinked-up hose than to push it through…)

It's a bit weird to think that while there's a loop, entrepreneurs appear to be causally prior to ideation (but time series analysis shows that the # of business exits predicts future business entries…)

What patents are *supposed* to do is encourage implementation – what they too often do is slow it down or even block it. If I have a patent but the product that actually delivers value to customers is not very protectable by that patent… so do I go ahead and protect my IP by other means or do I keep finagling to find a product that *is* protected by my patent? Investors might encourage the latter – yes?

Another excellent book on the issue is ‘gridlock economy’ by Michael Heller. He focuses on overall effects of patents, copyrights and other commons vs. anticommons issues. Highly recommendable.

Of course not. You get another patent for the version that "delivers value", if your first patent is so narrow that it doesn't cover the final version….See now why patents are broad?

I'll dig up some good references & email -most of it is written by economists so it's not exactly in English, LOL. The most recent is a pending dissertation so i'll need permission to share (only a formality).

Even if patents slow innovation, aren't they necessary to protect the investments made in producing patented innovations? Who would pay for pharmaceutical research if the inventing companies didn't have patents to ensure that they received a return on their R&D investments?

Thanks for the clarification, Brad, and for encouraging this kind of discussion.

Great post, Brad! At eHarmony we were besieged by patent trolls throughout the time I served as GC: Five patent suits in three years, all of them asserting dubious software patents regarding relatively obvious approaches to things that had become common sense and/or standard practices among Web 2.0 companies: Dynamic Web page generation from information in a database; regulating access to user info in a database using a password login system (come on!) and so forth. Combined with the unfairly slanted local rules in the Eastern District of Texas that drag so many companies into Marshall or Texarkana, these patents act as a tax on innovation — at least in the consumer Web/social media world with which I'm most familiar.

I do advise new startup clients to explore patentability of truly innovative, breakthrough technologies that they've developed, but fervently wish that I could tell them not to worry about the morass of crappy patents and related defense and licensing costs into which their new enterprise might sink if and when it grows large enough to become an attractive target, with dollar signs painted on its forehead. I come out on the side of abolishing software patents; most other countries seem to do OK without them. Pragmatically, I don't see that happening, but at least the Supreme Court has started reining in the most obnoxious excesses in In re Bilski and other recent patent cases.

If the goal of patent protection is to promote development of ideas to marketable products and reduce risk of early stage investment in those ideas, then the protection should be related to the risk involved: Software 1-2 years (and a very quick review time,) novel drugs 15 + years.

Additionally, (if goal of IP is to promote development and reduce risk,) protection should be contingent on active investing and development of the idea. I imagine something like the homestead act. The intellectual property "exists" out there somewhere. If you can lay claim to it and define it, you can own it so long as you continue to develop it and make it useful within a reasonable amount of time.

Actually, if you talk to people in the industry, patents don't show up in the list of main weaknesses when discussing Europe's ICT research or economic growth. Have a look at e.g. the HiPEAC Roadmap (page 48-49) for what they do consider to be the main weaknesses: http://www.hipeac.net/system/files/lr_3128_hipeac…

In case you wonder what HiPEAC is and why anyone would care about what they say: it is a so-called Network of Excellence (NoE), funded by the Seventh Framework Programme of the European Commission. An NoE brings together people from academia and industry in order to improve international and academic-industry cooperation on research. Industry members of HiPEAC include people from Intel, IBM, ARM, Microsoft, SAP, Nokia, Sony-Ericsson, STMicroelectronics, Thales, …

On a related note, you might also be interested in the fact that Europe has much more extensive support for protecting database rights than the US. This was introduced at the request of publishers such as Elsevier, who claimed that this would strengthen EU companies' competitiveness vis-à-vis their US competitors.

Result: when the effect of the directive was evaluated 8 years after it went into force, it turned out the EU:US database production went from from 1:2 in 1996 to 1:3 in 2004 (see http://ec.europa.eu/internal_market/copyright/pro… for links to the PR, evaluation and stakeholder replies). So much for the argument that adding more "protection" can be equated to adding more carrots and increased economic activity.

And let's not forget that each patent at the same time is also a land mine for every other innovator, which can completely rob them of the fruits of their labour (even if they never heard of the patented "invention" before).

Yes, you arfe on the right track, they discussed the options and were advised by their industry connections (not my area) that it wasn't going to be economically viable to forge the FDA trail only to have the other major players follow them into the market.

As for if it was true innovation, that is certainly debatable, but I will say when they told me the application for the drug (which I had heard of already) I laughed out loud, thinking they were kidding.

You might want to re-read what I wrote about the database directive. The ratio of databases produced in the EU to those produced in the US went from 1:2 (1 EU database produced for every 2 US databases) at the time of the directive's introduction to 1:3 eight years after the directive was introduced. I.o.w., the situation became worse rather than better for the EU with the increased "protection".

On the patents front: the "innovating around" and "cross-licensing" arguments are well known and extensively discussed in e.g. the 2003 FTC report on patents and innovation: http://www.ftc.gov/os/2003/10/innovationrpt.pdf (it has separate sections of both the semiconductor and software industries)

In short:
1) cross-licensing is basically a form of MAD (mutually-assured destruction). It's a way to avert some of the negative effects, but
a) is pure overhead (brokering such deals costs time and money)
b) doesn't generally work with non-producing entities
c) doesn't generally work in an optimal way when you have a small vs. a large company. See e.g. http://www.forbes.com/asap/2002/0624/044.html

2) the "design around" theory generally doesn't really work in the software industry:
a) "In some settings design-around may be technically impossible." (remark made in the context of ICT)
b) "design-around may be economically impossible" (in case of standards or existing technology lock-ins that have to be conformed to) (remark made in the context of ICT)
c) "In still other contexts the design-around may add little value, merely requiring that competitors “work harder to get to the same place.”" (remark made both in the context of ICT and the patent system as a whole)
d) "Indeed, analysts emphasize that design-around is not costless, but rather consumes resources that, absent the initial patent, might be more fruitfully employed" (remark made in the context of the patent system as a whole)
e) "Others observed that programmers can only design around those patents that are published, and the absence of a publication requirement for all patent applications means “it may be years beyond the time that a particular piece of technology has hit the marketplace before it is evident that it, in fact, is covered by a form of patent protection.” (obviously in the context of ICT)

The hypothetical "$500 vigilance fee" might or might not help in some cases, but it sounds unlikely to me at least that it would fundamentally change anything to the picture (how much R&D can one really do for $500?).

To conclude, a quote from a statement given by Robert Barr (back then vice-president and IPR director at Cisco Systems) during the consultation process that preceded the aforementioned FTC report:

"My observation is that patents have not been a positive force in stimulating innovation at Cisco. Competition has been the motivator; bringing new products to market in a timely manner is critical. Everything we have done to create new products would have been done even if we could not obtain patents on the innovations and inventions contained in these products. I know this because no one has ever asked me "can we patent this?" before deciding whether to invest time and resources into product development."

I guess that sums things up quite nicely, and it's also reflected by the industry input to the HiPEAC report I mentioned earlier.

The countries with the strongest patent laws have the most innovation and the greatest diffusion of technology. Every major downturn in the US economy is associated with an attack on the patent system and a decline in the number of patents issued to US inventors. In the 1930s and 1970s the government used antitrust law to gut the patent system. In this decade we have weakened out patent laws significantly. In the 1980s we strengthened our patent laws and this trend continued into the 1990s – both decades were associated with a burgeoning VC and technology sector.

Dale B. Halling, Author of the “Decline and Fall of the American Entrepreneur: How Little Known Laws and Regulations are Killing Innovation.” http://www.amazon.com/Decline-Fall-American-Entre…

The interesting thing is that I don't see why people want to shoot down the Patent System, when they CAN adapt to it.

http://volokh.com/posts/chain_1240849478.shtml

This was a posting symposium from a guest blogger on The Volokh Conspiracy. He hearkens back to the Sewing Machine Patent Wars that took place in the Mid 1800's. Like the internet, sewing machines were some of the first steps in an economy-changing revolution.

You can read through all the details (which are very interesting), but in a nutshell, the proliferation of Patents had driven the industry to a litigated, stilted morass. So what you found was that mechanisms like Patent Pools freed the wheels of innovation again. Those who insist that schemes like "cross licensing" wouldn't work should look closely at these previous examples that prove (empirically) otherwise.

I don't deny that execution is as important as innovation, but Patents prevent large companies (with larger capabilities) from just shutting down the little guys through copying. Many people insist that large companies are not more innovative than the small start-ups. But this just isn't true. Geoffry West of the Santa Fe Institute has researched this stuff and found that (much like biological organisms and cities) larger companies can innovate better. Although the Goog is famed for its Search Innovation that made it a huge company, today it is turning out much more innovative ideas- from mail to phones to operating systems. Likewise think of Apple, Xerox Park, Bell Labs, etc. We perceive Startups as being more innovative because we see them rocketing out into the market with market-changing ideas, but don't see the hundreds that failed in the mean time. Those larger companies can easily put more eyes on the market to turn out second-mover innovations before the little companies can attain significant market share.

If you are one of those hundreds of startups that has a good innovation, one of the only things that can save you from those large companies is a title to your innovation. Just look at TiVo. They weren't the first into the DVR market-space, but they had a bunch of key innovations that actually MADE DVR's a viable consumer product. But they went up against powerful TV-Providers. At first those providers did everything they could to shut out Tivo. Then, when they realized the way things were headed, they just tried to copy them.

The only thing protecting TiVo was its patents on time shifting and other innovations. They were going up to monopolies who stood atop massive barriers to entry. They clearly executed better than the big companies, but those companies had privileged access to customers, command of the set-top boxes, etc. But TiVo survived the onslaught (barely) because all the big companies couldn't put out DVRs with such great UI and functionality…And why couldn't they? Because they were patented.

In a patent-less world, little guys would have less chance. Today, it is very hard to go IPO, so these little companies need to have tangible assets for a buyout exit strategy. Big companies will always be tempted to buy the entire company, but without patent protection, the large companies would certainly weigh the company's cost against the cost of just shamelessly copying them.

There are many documented cases in history showing that when patent rights are weak in a country, the local industry and innovation flourishes. Once some of these new players become big, want to consolidate their market position and protect their newly gained market share from new competitors, then these compaies start lobbying for stronger patent protection.

As a result, in quick succession you get stronger patent laws and a flurry of patenting activity by these companies. That does not mean that these patent laws stimulated any innovation though.

Here's a nice summary with some examples from the Netherlands and Switzerland: http://www.commondreams.org/views02/0312-06.htm (along with a ton of basic inventions that were done there during times with of little or no patent protection, such as milk chocolate, margarine, chocolate fondant and powdered soup.

It is dangerous to equate correlation with causation.

It looks to me like many of the comments critical of the patent system are coming from academics, economists, or other abstract "researchers" – what I would call armchair generals. If you have a truly new idea and try to go for funding yourself you will experience the blowback from investors if there is no IP. No consideration. I would suggest these insightful individuals take a shot at being a bona fide inventor/entrepreneur and then report back.

"The purpose of a patent, IMHO, is not to promote innovation, but to protect the innovator." This is exactly backwards. The only legal justification for 'protecting the innovator' ie. granting them a government-enforced time-limited monopoly, is that this will presumably "promote the progress of science and useful arts". If that presumption is not true (and we have growing evidence that it is not, in many circumstances), then we need to re-examine patent law.

Pharmaceutical patents seriously impact and restrict the medical field. I always bring up AndroGel — a simple testosterone base in a simple alcohol gel. The concept of AndroGel is older than modern testosterone-replacement therapy, but Solvay has a patent on the 10mg/gm formulation (and no other).

The effects of this is are profound: you'll pay $250/month (no lie) for AndroGel, but anywhere from $40-$170 for compounded testosterone (depending on markup). To give a good comparison, people can easily buy a testosterone base for $20/100g (tops). Add in a small cost for the gel base and you have a recipe for a huge market in illegal steroids, since you have about 30 months of medicine made for under $50.

The nearest (legal) competitor is generic injectible, which costs around $10/week plus syringes. More guys use it because it's weekly and costs less, but it requires deep muscle injections which can be really painful to do to yourself.

And the truly sad aspect of this is that it lures in people who really need the medicine. $250/month is totally unreasonable, and Solvay is seeking an extension because they are making so much money off of people.

So original, Stephen: “their parent’s basement”. How about doing a “knock-out search” for some new rhetorical instruments?

If the behemoths like Microsoft can get stung by patent trolls and companies with extensive patent arsenals, I guess that either their legal people are vastly overpaid or that $1000 ceiling is a bit low by several orders of magnitude. And thanks for the laughable remarks implying that business gets stuff done while the academics fiddle in their ivory towers – if that were so, you wouldn’t have everyone and their dog trying to patent academic discoveries and skim the cream off publicly funded research.

It’s refreshing to see a venture capitalist spell out the deficiencies of patents. Unlike the likes of Stephen, who presumably claim that they’re “pro-capitalism”, I guess actual capitalists don’t need an entire bureaucracy dedicated to corporate welfare to get stuff done “in the real world”.