Having studied the technology industries and IP policy for several years, I have learned to appreciate opposing views. On some occasions though, I cannot help but ponder what opponents of IP have in mind for American innovation. The US is number one in the world in technological innovation. We have the most successful companies; and lead in frontier R&D, research facilities, capital structure and competition focused regulatory policies. Who then do opponents of IP look out for when proposing changes to the innovation system?

In contrast to what Professor Lessig and others claim, few, if any, IP supporters argue for oppressive IP policies. PFF recently released an amicus in the KSR case arguing the need to raise standards of obviousness in patent policy. Personally, I tend to agree with rules allowing reverse engineering for legitimate reasons, narrow interpretation of IP rights in some industries and high standards of IP protection. I also find that there is a lot of flexibility in IP doctrines, such as the self-regulating limitations in IP that distinguish IP from other forms of property; and allow IP laws to be balanced by market forces and commercial activities.

Such observations are not recognized by those who seem resentful of successful companies and thus propose far flung policy changes aimed at curbing IP. Often these are open source or free software companies that merely commoditize competitor technologies to sell complementaries such as services, and operate under self-anointed importance as “movements” or “revolutions.” A good example of their views is drawn out in the recent issue of Inc.com Magazine.

Drawing on the historical dominance of a sub-par but easily cloned British machine gun over a better US competitor, the Inc.com author generalizes the wider adoption and sales of the British invention as a lesson resurfacing in today’s technology industries: “Today we're in the midst of a shift in which the potential benefits of relaxing IP paranoia are becoming less of an interesting exception… and much more the rule.” The article conveniently brushes under the rug the fact that the inventors of the British machine gun did not appropriate the returns from clones of their product, or any of their investments at all.

The Inc.com article makes an unexplained jump from talking about the cloneability and proliferation of a sub-par machine gun to lessons for IP policy in the modern technology industries. I do not know of any companies that would want to sell a cloneable product while not receiving returns. Inc.com reasons otherwise, stating: “… inventors tend to have a greater chance of profiting when IP protection is relaxed and the door is opened to increased competition and imitation.”

I found flaws elsewhere in the article: "... in high tech, where IP is king, the best rule of thumb for patent protection is: Don't bother. A long period of patent protection for a new technology isn't all that useful because a newer technology will quickly displace it.” That’s a bit broad. A short-lived market life is no indication of the non-necessity for patents in general, and if taken to inform policy changes, would disadvantage companies that build next generation innovations on top of their current ones. Of course new technologies will eventually displace existing inventions, but technologies can remain a part of a company’s business strategy, even in peripheral roles, or become assets licensed to others.

Several different business models exist in the technology industries, with the level of patent protection sought by a company correlating with its business model dependency on services vs hardware or software for revenue. Thus, when I read about a technology company saying that patents are not important, the first question I ask is how does it draw revenue. There’s no a priori superiority of one business model over another, but to use an example of a services company, or a tag-along-innovation company that commoditizes core technologies in order to sell complementary solutions and services, to downplay the importance of patents, would be an extreme form of anecdotal evidence. Inc.com quotes an industry executive who criticizes patents, saying that businesses often confuse themselves as innovators (the gall!). Hence, my point…

Why do so many companies become obsessed with patents? …they don't really understand their own business…A lot of people think they're in the invention business, but they're really in the application business…They confuse innovation with patents, and that's a classic mistake." Profitable innovation comes not from inventing a new product, he maintains, but from having a team of smart employees who figure out how to do a better job every time they interact with customers.

It's not just that IP protectiveness is useless; it can be harmful, too. Companies that work to put walls around their IP tend to make a lot of enemies. Look no further than Bill Gates, who started sowing ill will as a student hacker when he refused to let other programmers use his code, in gross violation of all that hackers hold sacred. A continued trail of IP bullying has left Microsoft one of the world's most resented corporations.

Perhaps most disturbing of IP opponents is their attitude towards those who pursue investment backed ventures. Inc.com takes the position that even if various undertaking are no longer plausible under weakened IP laws, that’s “just a sliver” from an industry, as the rest of an industry would adjust. I have fundamental disagreements with this approach. It introduces regulatory changes where none is needed, often to punish the successful players in industry, not to the benefit of consumers, but to rivals who can't get it done in the market place. Do these rivals have consumers in mind- they would laugh all the way to the bank if you thought so.

… the blockbuster movie business, where piracy makes it more difficult to recoup the $150 million or so needed to go into the black on big-budget films. But that's just a sliver of the entertainment business... there really are relatively few cases where easing IP protection would endanger an entire industry or class of product, even if it caused a bit of scrambling to adjust. "Most would do okay without it. Businesses wouldn't be dying, and we'd enjoy most of the products we enjoy now."

posted by Noel Le @ 3:45 PM | Markets: Business, Investment & Innovation, Patents

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