Software patents are the problem not the answer

Nathan Myhrvold and I have exactly the same goal. We’d both like to promote useful innovations that have a positive social impact. But we have very different opinions about how to do it. Nathan believes the patent system is the answer, and I believe the patent system is the problem.

The New York Times reported on Nathan’s approach yesterday and referenced an article he has written in the Harvard Business Review outlining his view.

The world needs a capital market for invention like the venture capital market for start-ups” … and that “creat[ing] a market where patents can be efficiently bought, sold, or licensed through investment funds that manage the high risks by amassing huge portfolios of patents and packaging them to maximize their value” will accomplish this goal.

Nathan supports this argument by comparing the current market for intellectual property to the early days of the computer industry. He argues that in the 1970s people did not believe the software industry could be an independent business and that it would always be linked to hardware. He says that software industry developed for two reasons. First, software vendors persuaded software users to respect intellectual property rights through both education and lawsuits, and second, the vendors overcame system incompatibilities and developed solutions that would work on different computers. Nathan suggests that a market for inventions would emerge if the same two conditions are met, and then offers his company Intellectual Ventures as a model for how to meet them.

I do not agree. Here’s why.

Let’s start with software analogy. Put aside the fact that in the 70’s software vendors used copyright law to prevent the outright copying of their software and not patents as Nathan proposes to do. The real reason the independent software industry emerged is that operating systems and APIs made it possible for independent software vendors to develop applications independently. They no longer had to ask permission of the hardware vendors. This same characteristic of permissionless innovation led to the explosion of independently created services on the internet. The rampant abuse of the patent system has created the opposite condition for the creators of software and web services today.

Not only is it becoming impossible to invent new services on the web without the permission of a patent holder who claims to own the intellectual property embodied in your invention, it is impossible to know who you need to ask permission of. I recently spoke to an entrepreneur who put it this way.

I ignored my lawyer’s advice not to do a patent search to avoid subjecting myself the possibility of treble damages for willful infringement. I hired several firms to search for patents that our service might infringe. Each of them came back with completely different patents and each time I sent them back to do it again, they came back with still more different patents. When I searched myself in the patent database, each time I entered the same search query, it would return different results. None of these patents seemed to cover what we did, so I eventually gave up.

Nathan sees the problem differently. He describes the entire internet industry as pirates.

While respecting intellectual property rights is a cornerstone of some high tech industries-branded pharmaceuticals, medical devices, and wireless, for instance-that’s sadly not the case in others, most notably software, computing and other internet related sectors. These ‘winner takes most” industries impose extreme competitive pressure on young firms to increase their market share by any means necessary, even copying the ideas of others. To this day, some software and internet companies take the very narrow view that saving money on patent licenses (by infringing) is good because it frees capital for expansion.

I have been investing in software and web services since 1993 and have worked in venture backed startups since 1985. I have never met the people Nathan is describing here. I have never been a party to a discussion about ignoring someone’s intellectual property rights for the sake of market share or to free up expansion capital. If anyone can point me to the clear cut abuses that Nathan is describing, I’d be grateful. My experience has been the opposite. As I described in this post, the companies I work with invest a huge amount of time and energy creating a service from scratch only to find after they have launched and become successful that a patent holder they have never heard of, operating (if they operate at all) in an entirely different market claims that our company has stolen their property.

The problem is not the internet industry; the problem is software and business method patents. Nathan, despite his mean spirited and uninformed (based on my experience) attack on the software and internet industry, indirectly acknowledges the weakness of software patents in his HBR article.

When he cites an inventor, he points to the inventor of the incandescent light bulb, Thomas Edison, not the creator of Facebook. When he describes inspiring inventions, he cites “bone screws that can be adjusted remotely, using a wireless power source” and “a new kind of nuclear reactor that all but eliminates the need to enrich uranium” not “one click” purchases on the web. And when he talks about the great companies that support stronger patent protection he mentions General Electric, Proctor & Gamble, 3M, DuPont, and Caterpillar, not Google, eBay or Facebook.

There is a reason for this. Even the average reader of the Harvard Business Review has a gut appreciation for the fundamental unfairness of software patents. Software is not the same as a drug compound. It is not a variable speed windshield wiper. It does not cost millions of dollars to develop or require an expensive approval process to get into the market. When it is patented, the “invention” is abstracted in the hope of covering the largest possible swath of the market. When software patents are prosecuted, it is very often against young companies that independently invented their technology with no prior knowledge of the patent.

I don’t know a lot about the invention of things like drugs, windshield wipers, and bone screws, so I don’t really have an opinion on whether or not the business model that Nathan proposes makes sense in that sphere. I am absolutely certain it makes no sense in software or web services. We have all benefited from the extraordinary innovation delivered first by the independent software industry and more recently by the web services industry. In both cases, this innovation was a direct result of the ability to innovate without permission. Nathan proposes to replace this world of decentralized innovation on open platforms with one dominated by a new gatekeeper, “intellectual property market makers”. In this world, young companies, may not need to ask permission of Dell, Microsoft, or Verizon, before they launch a new web service, but they will have to negotiate with Nathan’s firm to as he puts it “get all the patents they need to roll out an innovative product faster and at the same time reduce the risk that they’ll miss a necessary license and get blindsided by an infringement suit”

This is not a good idea.