The Patent Trap

Last week I saw an article by Mike Masnick on Techdirt, TiVo Apparently Considering Patent Trolling As A Second Act:

… for big companies, who haven’t been doing much innovating lately, suddenly there’s a temptation to focus more money on investing in their patents, rather than on investing in actual innovation.

Having spent the last several years managing innovation and technology related to digital media solutions, I have personal experience with this situation. During my recent job search, I discussed with a company whose products were innovative when they were developed to address a new market over a decade ago. Now this market and the products developed for it are mature and the company’s management is planning for the future. They were looking for someone to help them analyze their patent portfolio with a view toward generating value from it.

 Anyone who has spent any time in innovation will probably have heard of the Innovator’s Dilemma. The reality of it is more than just declining profits for shareholders and dwindling funds for innovation when technology and markets undergo rapid changes and successful companies are caught by surprise; there’s the very real threat of lay-offs for their employees. It’s also understandable that when the lifetime cost of a patent can run up to $100,000 or more, companies facing hard times will look for options to get value from that investment, even if they have also invested in innovation.

While I am sympathetic to the plight of companies and their employees who were left behind by disruptive innovation, I cannot help but remark that the patent system does not serve these companies well. Many companies do work hard to innovate, only to find that “obvious” solutions have been patented by trolls or competitors. Since patents protect inventions for up to twenty years, which is quite a long time compared to current technology life cycles, these companies end up spending even more to work around existing patents, or simply abandon their ideas if too many patents have been filed and no workaround can be found.

This situation doesn’t seem to benefit anyone, with the possible exception of patent attorneys. Surely the millions of dollars companies spend on building and maintaining their patent portfolios, most of which will serve as nothing more than deterrents to would-be competitors, could be better spent funding actual innovation projects.

I took a one-week Business Strategy course at MIT Sloan School of Management a few years ago. It was one of the best courses I’ve ever taken in any subject, and it changed the way I think about business and technology strategy. Led by Arnoldo Hax, the course followed his customer-based strategy framework, the Delta Model, that emphasizes mutually beneficial customer-supplier relationships as opposed to the more conflictual frameworks that focus companies’ energies on beating their competitors. “Make love, not war,” Hax taught us.

I think this advice should be applied to innovation too. Innovation, even patented innovation, can be so more powerful when it is used less selfishly. Mike Cane recently provided some wonderful examples of inventions whose patents were relinquished for a greater good in his post Glamour Doesn’t Change The World. When innovations are used in this way, everybody wins; except maybe the patent attorneys.

Of course, the premise of the patent system was to provide companies with an incentive to invest in innovation by granting them an exclusive access to the fruit of their investments during a period of time long enough to make a profit. Unfortunately, the system doesn’t effectively serve this purpose anymore in a world where startups launch and may go under in less than the time it takes for a patent application to be granted, where there is no such thing as “reasonable return on investment” and where companies are at war with each other.

I told the company with the patent portfolio position that although I was interested in working for them, the job was not for me.

This entry was posted in Innovation. Bookmark the permalink.

2 Responses to The Patent Trap

  1. Corinne says:

    Yes, you are right that patents do not encourage innovation by themselves, although they might still encourage disclosing innovative know-how, so that it becomes widely available to the whole mankind within 20 years, which I (idealistically?) think is also an important purpose of innovation. Remember that spreading scientific knowledge out of privileged, closed, secret corporations was one of the major goals inherited from the Enlightenment ideas at the time when France and the US organized their patent systems (by Thomas Jefferson, etc) in the 1790s.

    Now, claiming that the patent system “no longer” serves its purpose of giving incentives to invest into innovation development seems a bit of a shortcut to me:
    1) In our current, industrial world when there is no more slavery but where private property (hence competition for it) still rules the whole economics, those who invest the money (and want the property of what they put money in!) and those who invent and design (and need the money!) have no other alternative than using contracts to define their relationship, have they? And this is where patents do help lawyers; there are much more formalized than the vague know-how definition (“oh, yes, you know, you have to ask Laura about how she does that…. maybe just put Laura’s brain in the contract?”). In fact, without this formal piece of “paper” called a patent, there would be less investment (alternately, I’m afraid you need to reform the whole capitalism, and as always I will follow you then ;-)
    2) I think your “no longer” comes from the fact that the patent issues you describe are fully field dependent. You cannot compare the tech dev cycles and patenting ROI of an internet software company and a pharma/biotech startup. Internet software companies did not exist in the 1790s, hence your “no longer”, but it has to do with the field of application, not the patent system itself. I’m less familiar with life sciences, but I don’t see the “no longer” applying there? BTW, in the field of mechanics, even patent trolling was reported on patent contract ancestors in… the 17th century. It’s just a side effect of separating the formal piece of “paper” and the brain, i.e the patent system. If you want to change that… back to 1).

    And you cannot compare the adverse effect of patents on innovation for garage startups at early stage and mature, large companies either; the patent risk is very different. I’m afraid the NIH (“I’m the smartest engineer/I have the smartest engineering team in the world so every of our ideas is necessarily novel and inventive”) more or less combined with the ostrich tactics (“I don’t look at other patents so they do not exist”) has more adverse effect to innovation success than patents will ever have in both cases. So much brain time lost in re-inventing the wheel, just because of the lack of curiosity and knowledge about what others do! And for this we engineers have no more excuse, with the deluge of technical information accessible two clicks away… including millions of patent publications. You (or your patent attorney, your engineers, your managers, your lawyers, your investors…) have seen the same idea patented by someone else – so what? Accusing patents of being an evil thing? That won’t solve the issue… Be creative technically, to design around, and even improve the technology. And/or be creative commercially, to find a win-win licensing strategy. And/or be creative legally, to invalidate it. It’s part of the game complexity, be creative, be smart, and you will overcome it! Or wait less than 20 years, if you’re not creative enough: you’ll still be able to join the game later on… There is no game over.

    Thanks for your note, that helped me clarify my ideas on those issues ;-)

    • laura says:

      Corinne,

      Thanks for such a thoughtful response to my article. You’ve helped me clarify my own thinking on this as well, which is a great attestation to the power of the blog. It’s the 21st century equivalent of the 17th-18th century English Coffee House! Although I would prefer to have coffee with you in person. :)

      I’m in complete agreement with you regarding the motivations for the creation of the patent system. Unfortunately, I think the argument that patents are somehow granted in exchange for disclosing knowledge, which will only be available to be used in twenty years’ time (barring payment of arbitrary fees), is an idealist view that doesn’t reflect the reality of how the system works today. Patents are often some of the most obscure technical documents in existence. Some of them are indeed quite educational, but others are so opaque and full of legalistic prose that engineers, who should be the primary beneficiaries of the patent’s “instruction in the art,” often have a hard time understanding what they actually mean. Oftentimes, this obscurity is intentional to prevent other parties from understanding exactly what was done for fear of revealing industrial secrets or making counterfeiting too easy.

      I am not sure I follow your argument about needing patents to define a contractual relationship between investors and inventors. In many cases, the inventors work for the investors and have employment contracts that clearly assign ownership of inventions to their employers. Inventors provide other types of documentation and technical reports that clearly capture their “know-how,” so patents aren’t a necessary part of that equation. It seems to me that patents really serve one purpose: preventing others from using an invention without specific consent or payment to the patent holder. This could prevent an inventor from leaving the company to start his own venture in the hopes of profiting from work he has done that was funded by someone else. Clearly, this is a good example of the “fairness” the patent system was intended to provide. It would not seem ethical for someone to accept investment for fundamental research and then refuse to relinquish rights to using the invention to the investors.

      However, this sort of thing happens all the time. Engineers leave companies to start their own endeavors or don’t disclose their knowledge to their employers. Giving someone a twenty-year exclusive right to use an idea won’t stop that.

      I fully agree with you that technology development cycles are field dependent, and one positive step toward reforming the patent system might be to grant different lengths of protection in different fields. Perhaps certain types of patents should not even be granted at all in certain fields. Trolling could be significantly reduced if using a patent were a prerequisite to filing a patent infringement claim. In that case, intellectual property owners would have to at least offer a product or solution themselves using the claimed invention before they could “blackmail” others for having “stolen” it.

      However, even that wouldn’t stop companies from using patents to stop competitors from offering competing solutions, yet these may offer significant improvements over the original such as having better performance or being less expensive. Let’s be clear, twenty-year patents offer a de-facto monopoly for their owners. Free of competition, they can offer the highest price and the lowest functionality the market will bear. Sometimes designing around a patent just isn’t possible, especially when the claims are written to be as broad as possible. Improving an invention doesn’t necessarily get you off the hook either. You might be able to patent your improvement, but if you offered a product based on it, you may still be infringing the original patent. Why should companies who can more quickly bring to market efficient and low cost solutions be penalized at the expense of companies who pay for legal protection but don’t actually use their knowledge to bring viable products to market?

      The reality of the matter is that patents are being used by companies today as an absolute weapon against competitors to create de-facto monopolies. Your comparison with capitalism is apt, since in this war, it’s the deep-pockets that win: those who have millions to invest in building, maintaining and enforcing massive patent portfolios. There’s nothing to prevent companies from imposing outrageous license fees on competitors either. I’m sure we both know of cases where companies trying to extract revenues from their patented technology demand fees that exceed the market price of the complete solutions that make use of them. I’m not a big fan of extensive regulation, but in this case it seems to me that requiring companies to offer fair and reasonable licenses for patented technologies would be start. I don’t think it would be easy to sort out what is fair and reasonable in practice either, but if we could do so, it might be a step in the right direction.

      I would ask this question: With the globalization of knowledge, do we really need the patent system as it currently stands to make sure companies innovate and people share their knowledge? Won’t they do so regardless? You are in a good position to evaluate the global status of human innovation potential and sharing. It seems to me that there is more innovation and sharing of ideas globally than when the system was put in place. Given that patent applications are not published until some 18th months after their submission, it’s already the case that several different groups of researchers sponsored by different companies may be working on the same problems at the same time. The risk of duplicating innovation is already high, but the risk of being capriciously blocked by competitors is certainly equally as high. Isn’t it equally as detrimental?

      I agree that this is not an easy problem, and I don’t mean to suggest that “patents are evil,” or that we should just “let the market decide.” I don’t claim to have the answers, either. You are in a much better position than I am to know how the system could be improved. I’m simply suggesting that the current patent system has been subverted to serve business and financial interests, and that the patent wars that are being waged today are of no benefit to either innovators or consumers. Of course in biomedical and pharmaceutical fields, it often takes years to come up with breakthroughs that result in actionable discoveries, followed by years of work to industrialize those and create viable, and safe products. It does seem reasonable that companies that dedicate that kind of investment can be able to make a reasonable profit.

      I suppose my thinking boils down to this: If it takes money in the form of a 20-year monopoly to motivate anyone to develop medicines that will cure diseases or produce medical procedures and devices that will save and improve the quality of lives, then it seems to me that we’ve really not come so far since The Enlightenment.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s