At our recent Union Square Sessions event, we discussed three primary topics relating to public policy and innovation; net neutrality, copyrights, and patents. In this post, I'll try to summarize the patent discussion and highlight some of the most interesting points that were made. If you'd like to read the transcript of the entire patent discussion, it's available on our wiki for download here.
There's an awful lot of industry innovation and traditional IT innovation going on and being financed today, and it's a shame that we don't have a mechanism for enabling the trades of rights of -- the notion that because s are complex, we should abolish the property, right, which is sort of the argument against patents, has always seemed to me to be both rational and wrong. Really the answer in a very substantial way is to come up with and innovate, as the Creative Commons folks have, come up with ways to lower the information costs. Come up with valuation models that make sense. They need to be based on first principle. Byron Scholls once told me that the Black Scholls Model isn't widely used because it's right. It's right because it's widely used. And very similar arguments can be made about the way the copyrights -- intellectual property rights generally, to the extent they're transacted in, are valued. So the argument here or discussion that we were having centers on the question of whether it's a policy matter or matter of private innovation, we ought to be working to create a market -- a market impact rights that enables transparency in , that enables meaningful evaluation so people don't feel like they're being held hostage, but that as a result, creates a wide range of s in patents.
Irwin actually made this argument to me in a conversation late one night at the D conference and I've been fascinated by it since. However, most of the participants at Sessions weren't buying it.
Albert Wenger and Peter Semmelhack both blamed it on the patent process. Albert said:
Copyrights are sort of easy, because I can write a book and I can put a copyright on it and I got a copyright. Patents, I have to go through the gauntlet of saying here's some arbitrary third party telling me that this is unique or not. Half the time they don't know what they're talking about, and I'm being generous.
Peter and Albert are both entrepreneurs who face the issue of what to do about patents and are incredibly frustrated by the choices they have. Dave Morgan is another entrepreneur who is frustrated by the patent system. Dave argued that the lack of clarity, transparency, and good faith in the system is equally problematic:
Habib Kairouz reminded everyone that while patents may be problematic in the information technology business (Brad Feld's point in his post), they are critical to the funding environment in the biotechnology business:
My takeaway is that the patent system has value, particularly in industries where there are lengthy development cycles and high capital costs, but in the information technology industry, I see very little value to the patent process and system. Maybe we can get to a liquid market in patents, but only if there were some forcing mechanism. As I said at one point in the discussion:
But the problem with all of that -- and I thought a lot about this since you sort of posed this to me a couple weeks ago -- I think we would all welcome liquid marketplace in intellectual property around patents, but the reality is whether somebody -- whether it's IBM or Nielsen or an operating business as opposed to a financial entity owns a patent, they don't actually care that much about extracting the financial value of that patent. They care about the operating advantages that it gives them in the marketplace to operate a monopoly. So there's no incentive for them to license that patent. They frankly would rather not license that patent. They would rather make it such that everybody not compete with them.
It was a great conversation. Again, if you'd like to read the entire patent conversation (it's only 16 pages), you can download the patent discussion transcript here.