Listen to this article now
Everything you know about patent and IP protections is probably wrong: Patent protections actually accelerate innovation.
I don’t want to cover a news item today. Instead, I want to talk about the fuel that drives the tech sector’s engine: Innovation. And more specifically, the critical role that patent/IP protections and patent/IP rights play in helping drive, secure, and accelerate innovation.
Currently, the way innovation works is, an inventor spends time, money, and whatever resources he or she has to turn an idea into a product. It could be anything, really: A new wearable medical device, a new type of microprocessor, smart driver-assist software that keep cars from crashing into each other, a new type of conductive glass that doesn’t shatter on impact, and so on. It doesn’t matter what it is as long as it’s new. What inventors do once they have worked through their engineering problems is file for a patent to protect their invention. In exchange for that protection, and the right to do with that invention what they want to for x number of years, they agree to reveal it, in detail, to the world. They don’t hide it in a safe. They don’t keep it secret. It isn’t like keeping “ingredient X” in an underground vault. Filing a patent means everyone can see it. Everyone can benefit from the knowledge of that innovation even if they cannot freely copy it or use it without permission.
This is important. Under a patent system like the one we currently have, innovation isn’t closed or hidden behind firewalls. It’s wide open.
Once an inventor has secured a patent for that invention, he or she has options: Do nothing with it, sell it, gift it to the world, or license it. To give you a little context, most of the technologies you use today – from WiFi, touchscreens, and 4G and 5G connectivity to apps, smart speakers, and even arcane device functionality like smart power management – are patented and licensed for use by their patent holders. If they weren’t, there wouldn’t be a smartphone industry today, or a connected vehicle industry, or a transition to EVs in the auto industry, for that matter. There probably wouldn’t be a computer industry either. Goodbye internet, goodbye mobile phones, goodbye Netflix, Hulu, Amazon, Facebook. Without IP protections and technology licensing, there might have never been a Microsoft or an Apple, or a Samsung, or a Xerox.
The world we live in today is built on a framework of investments in invention held together by a foundation of patent law protections that protect those investments. This creates the basis for the licensing ecosystem that allows these inventions to be shared with the world (usually for a for a fee). This ecosystem of innovation, licensing, and monetization rewards the initial risk and investment that went into developing the invention in the first place. This is capitalism at its best: People invent things that make the world better. Monetizing these innovations at a fair price, in a competitive market filled with lots of innovation, allows innovators to innovate even more, or invent faster and at scale. As our economy becomes increasingly dependent on and hungry for better, faster, safer technologies, both the pace and scale of innovation are expected to improve in order to keep up with demand, market expectations, and the general betterment of our technology experiences: We wan our phones and laptops to last 24+ hours on just one charge. We want to be able to stream 4K video on our phones in the subway. We want AI to help detect cancer cells faster and better than the human eye. We want our cars to be able to drive themselves so that DUI-related crashes will become a thing of the past.
What allows innovators to innovate though, to work on turning new ideas into working products, is the promise of financial rewards for their would-be investors. This may come as a surprise, but venture capitalists don’t invest in startups because they’re bored of buying yachts. They invest in startups because funding the development of disruptive inventions is a pretty great way of making a lot of money and of enabling progress and innovation, which are rewarding as well. The higher the risk, the higher the reward, especially when they chase proverbial “unicorns,” but as inventors get good at the invention business (and by good, I mean consistent,) investors, particularly institutional investors, start to notice.
That is how we end up with innovation powerhouses like Qualcomm, IBM, Samsung, Intel, Canon, Sony, Google, and Amazon, which then share their inventions with each other and any company with a cool idea, and so on. That is what ultimately gives us a vibrant technology sector, and what is increasingly going to fuel our economic growth. It is also how habitually strong technology stocks stay strong year after after year after year, and this matters when investment is what makes this all possible.
What would happen if IP protections began to erode?
What do you think would happen if that system of patent protections went away though, and investors no longer had a way of making money from their investments in innovation?
Without patent protections, why would investors bother funding innovation at all? What bank would loan inventors any money? Why would anyone bother with technology stocks ? It isn’t to say that there wouldn’t be innovation. There would be. But at what scale? At what speed? Even if researchers and inventors wanted to discover a cure for cancer, or develop wireless phones and personal computers, or build smart homes and autonomous, without the promise of a healthy return on investment, they couldn’t get the funding they needed to get it done. And without adequate funding, every inventor would be working in a silo, either on problems too big for them to solve on their own, or on problems already solved decades ago by other researchers behind closed doors.
Investment drives innovation. Without the ability to monetize innovation, investment in innovation no longer yields an attractive enough ROI. Without strong patent and IP protections, it becomes difficult to monetize innovation at scale. Therefore, strong patent and ip protections are essential to innovation. More so now than at any other time in human history.
Everything comes and goes in cycles, including arguments for the weakening of patent and IP protections. These arguments are always the same: Patents are too exclusive. Patents are antithetical to democracy. Patents are unfair to the have-nots.
Nonsense. Patents are not “too exclusive,” antithetical to democracy, or unfair to anyone. Look around. Technology licensing enables every smartphone to seamlessly connect to cellular networks, work with all of your favorite apps, make purchases faster than with a credit card, store and access your photos, videos, and files to the cloud, help you find your way around a new city, and do a million other things they could not do otherwise. Patent and IP protections, because they are the underpinning of technology licensing, support democracy and competition, and level the technology playing field so that small companies (startups) can compete against established industry behemoths, disrupt industries, and redefine them.
Except for the odd patent troll (a topic we will revisit soon), patent and IP protections both enable and accelerate innovation and the sharing of knowledge. Technology licensing takes full advantage economies of scale to drive prices down so that even the most financially stressed consumers can enjoy advanced technology features in their must-have devices. Look at the price of flat screen TVs. A model that used to cost $5,000 five years ago now costs $299. Why? Because as innovation moves forward, it also drives the price of old technologies down, and as long as the innovation engine cranks out better products each year, last year’s models become more affordable.
So what would happen if suddenly, patent protections went away? Would we be better off, as a few misguided souls claim?
No. As consumers, we wouldn’t be. A handful of companies large enough and liquid enough to consolidate all the capacity they need could create a completely vertical stack for their markets. No more partnerships. No more licensing or public disclosures of innovation. All R&D would go in-house, just like manufacturing and distribution. Where thousands of interconnected and interdependent companies once thrived, you would ultimately be left with impenetrable oligopolies. Investors would back those companies while the rest of the ecosystem withered and died. Instead of innovation coming from every corner of the ecosystem, it would only come from less than a handful of companies. Goodbye choice. Goodbye competition. Goodbye market forces. Goodbye new ideas. It would be the technology equivalent of killing off every food source in the world to focus exclusively on corn and soy production. Not only that, but letting a handful of companies control 100% of that production.
And with a captive market and no competition to speak of, the incentive to innovate faster would be near-zero. Continuing to sell their bestselling products year after year would be fine. No need to challenge the status quo when no outside competitor, no hungry startup, is going to challenge you. If patent and IP protections were to vanish tomorrow, technology innovation would grind to a halt. Investors would move their funds elsewhere, where they would be more likely to maximize ROI. And with the tech industry crashing out, so would the global economy.
Warning: Attacks on patent and IP protections are back in fashion and could ruin everything.
One thing you may not realize is that attacks on our patent system happens regularly, cyclically, and that they are often triggered by incumbent forces that either find themselves losing ground to more agile competitors or unable to stem the flow of innovation outside their own ecosystems (or both). Generally, they engage in an effort to weaponize regulatory bodies and the courts to undermine the current equilibrium, either in one country or globally if the stakes are high enough, and tip the scales in their own favor, so to speak. That will the subject of Part 2 of this series.
Until we reconvene, here is a short list of articles on the topic that you may find illuminating:
- This piece by Kevin Madigan for the Center for the Protection of Intellectual Property.
- This piece by Russel Slifer for The Hill.
- This piece by Neal Solomon for IP Watchdog.
- This piece by Robert Barnes and Alan Sipress for The Washington Post.
- This prescient piece by Robert Siegel for Strategy + Business.
- This piece by yours truly about the FTC’s current and reckless assault on IP protections.
As always, feel free to comment or leave questions below.