Archive for February, 2012

Feb
22

Patents: Sucking the Lifeblood from the Economy??

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There’s an anti-patent sentiment in some parts of the public that argues that they are destroying the economy rather than helping. There is particular resentment against non-practicing entities (NPEs), often called trolls, for owning (and typically acquiring large numbers of) patents for products and processes that they don’t actually use themselves. That sentiment, naturally, is most likely to be held by large companies who want to make a lot of money by making and selling whatever they want without some little guy’s patent getting in the way. Trolls with their patents are, we are told, sucking the lifeblood out of the economy. They are especially deadly in the areas of greatest innovation such as software. The related field of business methods is one where the whole concept of patenting is viewed by some as especially dangerous and destructive.

A healthy perspective is now offered by Jeff Wild in his post for IAM Magazine’s blog, “If trolls are destroying US jobs, why is the apps sector booming?” Here is an excerpt:

Last week a shocking report was produced by an organisation called TechNet. Based in the US, it describes itself as “the preeminent bipartisan political network of CEOs and senior executives that promotes the growth of technology-led innovation”. Where the Jobs Are: The App Economy claims that more than 450,000 app-related jobs have been created in the US during the last five years and that the app economy could now be generating annual revenues of up to $20 billion. What’s more, there seems to be no sign of a let-up in the good news. “In the year ending December 2011, the average number of tech want ads containing the word ‘app’ was still 45% higher than the previous year. That’s rapid expansion by anyone’s standards,” the report states.

As I say, it’s shocking stuff. For those of us who remember the multiple news stories and blog pieces during 2011 that focused on NPEs such as Lodsys taking action against app developers in the US, the idea that the sector is actually booming and creating jobs at breakneck speed is hard to comprehend. Weren’t the “trolls” supposed to be destroying a nascent industry and driving jobs and dollars away from the US? How can it possibly be that the reverse seems to be happening? Indeed, how can a serious report on the American app sector not mention NPEs or trolls at all?

Surely, it must be an amazing oversight. Or perhaps not. Maybe all the outrage and doom-mongering last year was overhyped hysteria. Maybe the reality is that NPEs, or “trolls”, or whatever you want to call them, are really not a decisive issue in the app economy at all. And maybe that applies to NPEs and trolls generally: in the great scheme of things, they are not a big deal.

In a piece published by Forbes last week, Ken Lustig, head of strategic acquisitions at Intellectual Ventures, points out that the number of patent suits initiated in the US has remained relatively flat for the last 10 years and that only around 100 actually go to trial. What’s more, there is much less patent litigation now than there was in the 19th century, supposedly a golden age of American innovation. Indeed, says Lustig, revered names such as Thomas Edison used the NPE model to diffuse their inventions and grow rich. What is being reported today in such dramatic and negative terms is what has always happened in the US when new technologies appear:

Every major technological and industrial breakthrough in U.S. history—from the Industrial Revolution to the birth of the automobile and aircraft industries and on up to today’s Internet and mobile communications revolutions—has been accompanied by exactly the same surge in patenting, patent trading, and patent litigation that we see today in the smartphone business. This is how the rights to new breakthrough technologies have always been distributed to those best positioned to commercialize them—to the benefit of the whole nation in terms of new jobs, new medical advances, and new products and services.

He also summarizes the important research compiled by Michael Risch of the Villanova University School of Law. The bottom line is that both sides in the debate about NPEs have made mountains of molehills, though the defenders of NPEs do have a valid point in one particular area: “the evidence does support one defense of NPEs: they provide a better way for individual inventors to enforce their patents than bringing lawsuits themselves.”

NPEs don’t just include patent aggregators like Intellectual Ventures or Acacia. Universities and numerous lone inventors are often not (yet) in the business of producing and marketing goods but have significant inventions to market. Based on the research about the impact of NPEs and their patents, there is no need for alarm and no need to revise patent laws to stamp them out. Doing so could stamp out the fires of innovation that have brought us out of the stone age into the booming knowledge economy. IP needs to be protected and nurtured, not vilified and weakened. And certainly not discouraged with much higher fees at the USPTO, which the current Administration is proposing. Taxing innovation and other steps that discourage inventors by making it harder to protect their inventions are far more likely to suck the lifeblood from the economy than the existence of NPEs. More innovation fatigue is not what this economy needs.

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Feb
06

The Quest for Profit: The Mother of Invention, or Its Kidnapper?

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As we discuss in Conquering Innovation Fatigue, the profit motive can be important for inventors but is often not the real incentive behind the quest to invent. Steps that eliminate the opportunity to profit from invention, though, can be serious barriers to a nation’s innovation potential. The profit motive can be important for prospective innovators. However, a focus on profits can be utterly destructive to innovation within a corporation, where the incentives to those who lead other would-be innovators can create new barriers that kill the innovation future of the company. Ironically, what can be a helpful incentive for innovation to an individual can easily become a disincentive once distorted by the internal workings of a corporation. This is illustrated in recent analysis from Clayton Christensen. See an overview in the article “Clayton Christensen: How Pursuit of Profits Kills Innovation and the U.S. Economy” at Forbes.com. Christensen argues that ratio-based metrics for profitability distort corporate thinking and reward behavior that ultimately destroys the future of the corporation by creating short-term benefits in apparent profitability. We illustrate a related problem in the book with the Apple Tree Analogy, in which metrics for short-term profitability for an apple harvester get a dramatic boost when the apple trees are toppled, making it much faster to harvest the fruit. The future, though, becomes barren.

Corporations need to carefully consider the metrics they use for profitability, as Christensen teaches, and unlearn some of the sacred concepts they were given in business schools. They should also go one step further an consider the impact of their metrics on not just the long-term growth of the company as a whole, but also the individual innovator and the innovation culture within the company. Listening to the voice of the innovator inside the corporation should be an important exercise for its top leaders.

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