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Patent Protections, Healthy Innovation Ecosystems, and The Other Tragedy of The Commons
by Olivier Blanchard | September 26, 2017
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For some of you, today’s topic will be a stroll down memory lane. For others, it will be one of those “hey, I never knew that” journey of discovery – hopefully the short kind. Whichever bucket you happen to fall into, welcome. Today’s topic: the tragedy of the commons.

If you aren’t familiar with the term, let me cut to the chase and just paste what Wikipedia has to say about it. (Don’t lie; it’s how you were probably going to look it up anyway.)

The tragedy of the commons is an economic theory of a situation within a shared-resource system where individual users acting independently according to their own self-interest behave contrary to the common good of all users by depleting or spoiling that resource through their collective action.

The concept and name originate in an essay written in 1833 by the Victorian economist William Forster Lloyd, who used a hypothetical example of the effects of unregulated grazing on common land (then colloquially called “the commons”) in the British Isles.[1] The concept became widely known over a century later due to an article written by the ecologist Garrett Hardin in 1968.[2] In this context, commons is taken to mean any shared and unregulated resource such as atmosphereoceans, rivers, fish stocks, or even an office refrigerator.

Here’s another, albeit slightly different version of it: Say you have a public park in the middle of your neighborhood. The city is cutting spending, so it no longer has money to maintain it. It’s leaving it to the neighborhood to take care of it. Here is what is going to happen: At first, volunteers will mow the lawns, but eventually, they will get tired of doing the work for free. Other volunteers will pick up the trash on Saturday mornings, but they too will eventually grow tired of spending hours every week picking up trash. Flowers won’t be planted every season, because few people will want to take on the expense. Bees and wasps and ants will start colonizing everything, because hiring pest control teams isn’t cheap. In some parts of the park, some people will start chopping down trees for firewood. Others will pick whatever flowers are left to decorate their homes. More still will turn some of the lawns into gardens and start growing tomatoes and carrots and peppers, or whatever, but as passersby and thieves help themselves to the free food, the would-be farmers will eventually give up spending their precious time and money trying to grow food there. Eventually, and little by little, the park will fall into disrepair, because no one will want to put money and time into an investment that produces very little by way of rewards. In this instance, the park’s resources won’t be depleted by overuse. It’s the investment into and use of the park that will ultimately be depleted and cause the park to fail.

Now let’s apply this scenario to technology and 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. A new kind of solar-powered battery. New software that allows vehicles to avoid colliding with other moving objects. A new type of conductive glass that doesn’t shatter on impact. A voice interface that makes human-machine interactions feel more natural. It doesn’t matter what it is as long as it’s new. What inventors do then 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 out. To give you a little context, most of the technologies you use today – from WiFi, touchscreens, and 4G LTE connectivity to apps, voice-texting, edge computing, and device power management – are patented and licensed for use by their patent holders. If they weren’t, there wouldn’t be a smartphone industry today. There probably wouldn’t be a computer industry, for that matter. Goodbye internet. Goodbye mobile phones. Goodbye digital dashboards in vehicles. Goodbye Netflix, Hulu, Amazon, Facebook. There might have never been a Microsoft or an Apple.

The world we live in today is built on a framework of investments in invention, patent law protections that protect those investments, and a licensing ecosystem that allows these inventions to be shared with the world (usually for a for a fee) that rewards the initial risk and investment that went into developing the invention in the first place. It isn’t greedy. It’s a basic premise of capitalism: People invent things, and the use of those inventions costs money. (Sometimes, it’s a lot of money, but most of the time, it’s very little.) What allows them to innovate though, to work on developing new ideas into working products, is the promise of financial rewards for 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 is rewarding as well. The higher the risk, the higher the reward, especially when they chase “unicorns,” but as inventors get good at the invention business (and by good, I mean consistent,) investors start to notice. That is how we end up with innovation powerhouses like Qualcomm, IBM, Samsung, Intel, Canon, Google, Sony, 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 fueling our economic recovery and the future of both job and opportunity creation. 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 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 self-driving cars, they couldn’t get the funding they needed to get it done. Too many engineering problems to solve. Too many ultraspecialized tasks to connect. Too many variables. Too many people to put on the payroll to do it all. And without patents to look at and learn from, and put to good use, every inventor would be working in a silo, on problems already solved decades ago by other researchers behind closed doors. That isn’t where we want to end up.

Everything comes and goes in cycles: Weeks, months, seasons, ideologies, revolutions… And so it isn’t surprising that every few decades, arguments for the weakening of patent laws and patent protections make a comeback. The arguments are always the same: Patents are too exclusive. Patents are antithetical to democracy. Patents are unfair to the have-nots. Nonsense. It’s the opposite. Except for the odd patent troll (a topic we will revisit soon), patents facilitate and accelerate innovation and knowledge. Patent licensing also drives economies of scale, which in turn drives prices down and puts advanced technologies in the hands of even the most financially stressed consumers. It is this exact model that gave us the industrial revolution and every economic and technology boom we have enjoyed in our lifetimes. There is nothing more democratic than delivering innovation and new products at a scale and speed that makes them affordable to all. Don’t believe me? Look at the price of flat screen TVs. A model that used to cost $5,000 five years ago now costs $299. Why? Because innovation 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 people and misguided economists 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 though. No more licensing or public disclosures of innovation. All R&D would go in-house, just like manufacturing and distribution. Where thousands of companies once thrived, you would 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 two companies control 100% of that production.

Technology products especially are too patent-heavy to survive such a radical shift. The tech industry as a whole would cascade downward, and so would the global economy.

One thing you may not realize  is that attacks on our patent system happens regularly, cyclically. There’s a history lesson there that begs to be shared, so it’s coming. We’re doing research on that now. But perhaps more importantly, it’s important for you to be aware that a handful of companies that rely on large amounts of patents from industry partners, and could stand to cut costs out of their model by weakening patent protections around the world, appear to be engaged in a global effort to weaponize regulatory bodies and the courts to undermine the current equilibrium. Tip the scales in their own favor, so to speak. That too is a subject we plan to dive deeper into, so keep an eye out for that discussion, because it’s coming.

Until then, I have put together a short list of articles I think you should read, bookmark, and read again:

  1. This piece by Kevin Madigan for the Center for the Protection of Intellectual Property.
  2. This piece by Russel Slifer for The Hill.
  3. This piece by Neal Solomon for IP Watchdog.
  4. This piece by Robert Barnes and Alan Sipress for The Washington Post.
  5. This prescient piece by Robert Siegel for Strategy + Business.

Take it all in. Challenge your preconceived notions about patents and what drives innovation. Take notes. Write down your questions. Comment here at will. I’ll be back with more on this topic in a few days. Until then, happy reading.

Cheers,

Olivier

 

 

About the Author

Olivier Blanchard has extensive experience managing product innovation, technology adoption, digital integration, and change management for industry leaders in the B2B, B2C, B2G sectors, and the IT channel. His passion is helping decision-makers and their organizations understand the many risks and opportunities of technology-driven disruption, and leverage innovation to build stronger, better, more competitive companies.  Read Full Bio.