Contrarian Viewpoint: Patents Likely Matter Little to US Innovation and Job Creation

My Soapbox: Patents matter little to innovation and job creation.

Many experts insist that innovation cannot succeed without patents, and that the delays in the US Patent Office stifle innovation.  This viewpoint is like to become more widely believed by the public as US Patent Office Director Stephen Kappos sees a way to improve the dismal operations of the Patent Office by equating patents as job creation tools, which necessarily requires patents to be asserted as critical for innovation to occur.

I believe it is highly misleading, and even harmful in many cases, to say that patents are the end-all be-all to innovation.  I also think that fixing the Patent Office–which will invariably mean that more people will see value in obtaining patents to support their business idea–should be viewed more as a job creation engine for patent attorneys and those who support them (including Patent Office employees), as opposed to creating jobs that can help improve the dismal employment figures the US is experiencing today.

No doubt, it is true that patents are necessary to create value from many innovations, and that jobs can then result when the patent owner is able to build a business around the idea (assuming the company and its employees are actually present in the US–but we won’t go there).   As one example, I am currently working with a start up company with technology involving a disruptive energy innovation.  For this company, IP rights are critical to success.  But, our business model is based on licensing:  if we do not obtain bulletproof patent rights, we won’t have any way to make money, at least at the early stages.  Jobs do come into play with the patent rights, namely ours.  But, we do plan on building a sustainable business here in the US so, for us, it will be very important that we obtain patent rights and that these issue quickly from the US and other patent offices.

Another example where patents are important for both innovation and job creation is when small or medium sized companies that need ownership of their innovations in order to keep knock-offs out of the market.   Once they establish the market for their products, other companies can come in and undercut their prices before the innovator has a chance to recoup make sustainable profits and grow further.  Unfortunately, many of these companies fail to recognize the importance of patents to the sustainability of their business models.

These two examples are only a small subset of the business types and models that seek to obtain patent rights to protect their innovations, however.  And, I expect that more jobs are ultimately created from innovations that are not patented (or even patentable) than vice versa.

For business models based on innovations that the market will adopt because the technology is better than anything that has come before–that is–innovations that address an unmet market need–patents in fact matter very little to the success of the company and to the number of jobs created from that innovation.  This is illustrated by this TechDirt post that relates the story of how Yahoo passed on Google in the early days. Put simply, Yahoo just did not see how Google was going to eat their lunch.  As a result, patents were irrelevant to the Google’s market acceptance, at least in the early days.  I like this quote from the post:

Whenever we talk about innovation and things like patents, one common refrain is that no innovation would occur without patents because big companies would immediately copy the technology and destroy any up-and-comer. We’ve pointed out plenty of times that this simply isn’t true. For a truly disruptive innovation, big companies often won’t even notice you until you’re way ahead of them — at which point copying is fruitless. Hell, for nearly the past decade now, Yahoo’s tried every which way to “copy” Google, and it got them nowhere in terms of actual market share (actually, it got them so little that they recently gave up and outsourced it all to Microsoft).

Unfortunately, many entrepreneurs conflate their likelihood of success with the ability to obtain patent rights.  And, patent attorneys–the ranks of which are growing in number every year–clearly capitalize on this belief.  The problem will get worse because all these patent attorneys need to make money by writing patents because this is THEIR business model.  In turn, this will lead to more clarion calls of “innovation is stifled by the failure to get patents.”

At the end of the day, it is up to entrepreneurs to learn how to recognize when their business models will benefit from patent protection, as opposed to listening to “experts”–most of who benefit from the patent system.  Otherwise, these entrepreneurs will waste money and, perhaps worse, will center their activities and spend their money on obtaining a patent, not on getting consumers to see and adopt their product or technology.  And, when we talk about job creation mechanisms, we should first look at the viability of building a sustainable business model around the innovation that will require US-based employees.  If the longevity of the company in some way depends on the ability to keep competitors from selling the same or similar product, than it is correct to say that the presence of patent rights are an important aspect of US job creation.  In my experience, this is rarely the case: if it was true, we would not have seen the massive job losses of the last several years even while the number of patents has escalated dramatically in recent years.

As for patent attorneys, only when we can figure out how to make money by advising clients not to get patents, will we be truly able to provide unbiased advice that directed toward creating value for our clients, as well as ourselves. I have written about what I see as fundamental flaws in the IP lawyer business model previously, and will not go into detail here.  Suffice it to say, however, that there is no doubt that we IP lawyers had better figure out how to provide advice that better aligns with the client’s underlying business model or many of us will find our practices dry up as entrepreneurs and those who invest in them become better educated as to the actual value that patent rights bring to their ventures.

Off my soapbox now.

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