Archive for creativity
Abraham Lincoln said that the patent system “added the fuel of interest to the fires of genius.” Today the fires of genius and the fire of innovation itself is getting doused with something less helpful than fuel. These fires are being cooled and, in some cases, extinguished with harsh attacks on the IP rights that once enabled and motivated lone inventors and small businesses to take the fruits of their genius to the market.
The owners of small businesses, the people who generate most of the innovation and business growth in the United States have good reason to be worried. Their ability to attract funding through valuable intellectual property is being compromised. Their ability to protect their products and innovations from the power of corporate giants is being whittled away. This has come from many quarters, but there is a widespread anti-patent movement driven by politics and misinformation. It’s the bitter fruit of a bitter anti-property rights movement that exaggerates the threat of a few bad actors to justify widespread weakening of property rights in ways that will hurt the economy and our society for years to come.
We have seen a recent series of Supreme Court cases that have made it much harder to obtain patents and enforce them. We have seen massive changes in US patent law that make it easier to invalidate patents after they are granted and make it harder and more costly to stop infringers if your patent survives. Now the bogeyman of “patent trolls” is held up as a threat to America that requires more sweeping “patent reform” to make it even harder to enforce a patent, and it looks like both parties are united in a quest to do “something big” to shake up the IP rights that helped drive the American economy for so many decades. Corporate giants benefit from this reform as it clears away the annoyance of other people’s IP rights standing in the way of their marketing muscle. But the economy as a whole and the rights of many are hurt in this process this amplifies innovation fatigue .
Several recent articles highlight just how serious the problem has become. Louis Carbonneau in “Toxic Asset: The Gradual Demise of the American Patent” (IPWatchdog.com, December 10, 2014), surveys the radical changes in the past two or three years:
On the judicial front, in 2014 we saw no fewer than 5 Supreme Court decisions going against patent holders on the various subjects of obviousness (a key test for patent validity), what constitutes “abstract ideas” (which now undergo a more stringent test for patentability), business method patentability, indefiniteness (how you construe claims), reasonable royalty (how you calculate damages), willful infringement (how you punish the “bad actors”) and fee shifting (making losers pay for winners legal fees). All of these decisions have collectively made it harder for patent owners to: i) maintain the validity of duly issued patents (previously presumed by law), ii) pursue infringement claims, ii) prove damages (let alone treble damages), iv) have open discussions with potential infringers prior to litigating, and have left the unsuccessful patent owner at risks of paying millions in legal fees to the other side if the judges so decides.
Parallel to judicial reform at the federal courts, recent US patent reform with the American Invent Act (AIA) introduced a new post grant review mechanism called Inter Partes Review (IPR) which allows a party to challenge the validity of any issued patent before the Patent Trial & Appeals Board (PTAB). Strangely, despite the PTAB being an emanation of the same USPTO that delivered all these patents in the first place, there is no longer a presumption of validity before the PTAB for the patents being challenged while other rules make it easier to invalidate patents based on prior art.
Finally, on the political front, in 2013 the US House of Reps. passed the Goodlatte bill, which would erode rights conveyed to all patent holders despite being primarily directed at NPEs. It is now expected that the new Republican led Senate will revive the bill -currently on hold- in early 2015 and, with a rare showing of bipartisanship from the White House, it is expected to be signed into law. At the same time, 27 US States have passed or are in the process of passing laws that make it harder for people to assert the patents they own.
Carbonneau goes on to explain that in recent Federal Circuit cases, patent owners are being crushed, and in Inter Partes Review (IPR) cases before the USPTO, nearly 80% of the owners of challenged patents are being told by the USPTO that their patents are not valid over the prior art that the USPTO itself supposedly considered before granting the patent in the first place. Carbonneau puts it rather wryly:
The most interesting statistics come from the PTAB [the USPTO’s Patent Trial and Appeal Board, which processes IPR cases] because it only focuses on validity issues based on prior art; the very same prior art patent examiners are supposed to have found and analyze prior to issuing a patent. Since patents going through IPRs are usually the same ones that being litigated, you would assume that owners did a lot of due diligence before investing in a costly patent lawsuit. Well, the PTAB is declaring 77.5% of reviewed patents invalid! And this is not limited to “abstract” software; patents related to biotech and pharmaceuticals, medical and mechanical devices, are being invalidated at an even higher rate! Remember, this is an offspring of the very same agency that inventors paid thousands of dollars in the first place to review applications and issue their patents. Now, after having to pay a quarter to a half million dollars in legal fees (average cost of an IPR procedure for a patent holder), the same agency is telling patentees nearly 80% of the time: “Very sorry we made a mistake; we would not have allowed your application had we looked more carefully for existing prior art. And no, there is no refund available.”
Personally, I cannot think of any industry that could survive more than a month with a nearly 80% defective rate, let alone by forcing you to spend a fortune for the “privilege” to confirm that indeed your title was invalid in the first place! Only a government can come up with such a broken system and get away with it.
The impact of these anti-patent efforts has been a surprisingly sudden break from the trend of increasing IP litigation, with litigation in 2014 down about 13% from the previous year according to a new 2015 PwC report on patent litigation. The problem of explosively increasing patent litigation, a common excuse to justify the slashing of patent rights, is not supported by the data.
Richard Lloyd, writing for the IAM Blog, draws this observation from the PwC report:
Of these three classes [of patent litigants considered], NPE [non-practicing entity] companies have been successful 31% of the time in patent cases brought since 1995; this compares with a success rate for universities and non-profits of 48% and a lowly 18% for individual inventors. Individual patent owners also do far worse with damages pay-outs, getting a median award of $3 million compared with $11.5 million for company NPEs and $16.2 million for universities/non-profits.
There could be many reasons for individual inventors doing relatively badly. Although the PWC study doesn’t provide any, it’s easy to speculate that small inventors may have lower average quality patents to begin with, while they probably don’t have the same kind of litigation savvy as other NPEs and are much less likely to have access to the same kind of litigation expertise that larger, better funded patent owners can turn to.
But what PWC’s numbers also strongly suggest is that the US patent litigation system is strongly stacked against small, patent owning entities. Bearing this in mind, it is worrying that the main packages of reform proposed in the House of Representatives (the Innovation Act) and the Senate (the PATENT Act) are only going to penalise them further.
Lloyd notes that potential irony now that many lone inventors, recognizing that they have little chance of winning and have almost no chance of affording the punitive legal bills they may face if they sue and lose, may be more likely to turn to NPEs (“patent trolls”) for help as the most practical way to realize any benefit from their work.
There is a need to rebuild an innovation climate in the United States, starting with educating our leaders about the need for IP rights and the value of patents. If we don’t teach this lesson from within, it will eventually be taught rather loudly from without, for Europe and China are both moving to strengthen IP rights and strengthen IP enforcement. Europe’s Unitary Patent system could be a boon to IP there, though much remains to be seen, but the changes in China are strong and dramatic. That nation has gone from no patents and no IP system in the early 1980s to the world’s biggest source of IP generation and IP litigation, with many changes steadily strengthening the nation’s IP system. There is a long ways to go for China still and there have been some setbacks, but at current rates we can see China becoming a leading source of global innovation while the US loses its lead.
Will the flames of innovation be largely quenched in that nation? Much depends on what we do with IP rights now, the rights that will shape our culture and economy for decades to come. May the fires of genius be encouraged with something other than the cold water Congress and Courts have been sloshing.
Many leading IP professionals working with the US patent system are growing increasingly concerned about the weakening of the IP system there. Some are so concerned that they are wondering what steps can be taken to save it. Save it from what, you might ask? Save it from erosion of the basic property rights that the Constitution sought to protect. Solve it from the capricious destruction of the incentives that inventors need to create and share their work. Save it from judges and politicians who see patents and property rights as problems.
One man who wants to save our IP system is Rep. Dana Rohrabacher (R) from California’s 48th District and a member of the House Science and Technology Committee. He recently authored a piece for the Washington Times called “Patent ‘reform’ is killing the right to invent: How a congressional misstep could imperil creativity” (March 1, 2015). I agree with much of what he says.
He warns that Congress’s zeal to stop “patent trolls” will actually result in them simply doing the bidding of powerful companies who are annoyed by little guys able to defend themselves with patents. In effect, Congress is being manipulated into apparently “reforming” the US patent system but in reality they will be weakening it for small inventors and making it more friendly to the big empires that see patents as unpleasant sources of cost and annoyance. Here is some of what Rohrabacher has to say:
With the best intentions, and naively going along with the corporate world’s hugely financed publicity machine, Congress is about to stomp on America’s most creative citizens, its inventors.
The target is not the much-hyped “patent trolls.” They are a minuscule matter. What’s at stake is average Americans’ constitutional right to own what they’ve created. We’re really up against corporate lawyers acting like ogres, devouring the little guy’s innovative accomplishments.
Many of my colleagues, without understanding the legislation’s impact, will soon vote on “HR 9,” a misnamed “patent reform,” also dubbed “pro-innovation,” that is anything but. In reality, it deforms our patent system beyond recognition.
This legislation — pushed by my Republican colleague, House Judiciary Committee Chairman Bob Goodlatte, and deep-pocketed multinational corporations — appears on its way, again through the House, to the Senate, thence to an eager President Obama for signing.
When that happens, America’s exceptional system of invention will be shoveled into the depths of mediocrity, there to seep into the murk in which less scrupulous global competitors spend their resources.
In the last session, a bipartisan band of my Republican friends (some of whom made their pre-political marks as patent-holding inventors); members of the Black Caucus; and a heroic Ohio congresswoman, Democrat Marcy Kaptur, failed to dissuade our House colleagues that the bill was not the litigation-curbing effort as advertised.
The bill went to the Senate where, fortunately, it stalled. It’s back, this time resurfacing in the House with just one hearing. A whole class of small inventors, among the many who will be injured, is being kissed off as scarcely deserving a voice. All in a day’s work for the corporate influencers who shaped HR 9 from start to finish.
Just because a measure holds itself up as “tort reform” should not mean it escapes the scrutiny of free-market Republicans. It should instead call for a skeptical second look, and then more throughout its progress. Guaranteed: Such close-eyed analyses of this bill will encourage deep suspicion.
Fair-minded members will find themselves aghast at how this leaves defenseless our individual inventors, small and midsized companies, researchers, even universities who depend financially on their patent portfolios. It is a coup in the making by the biggest and best protected operators….
Legislative reform efforts invariably build on a narrative of great injustice. This one moves wildly beyond the need to fix real abuses, wherein at considerable cost companies must defend their legitimately acquired patents against unscrupulous claimants.
But the term “patent troll,” directed against such bad actors, has been transmogrified by corporate marketers to include legitimate small inventors — many of them minorities, which is why my Black Caucus friends sized up the issue astutely — who are outgunned and outspent when they try to protect their intellectual property.
Almost all infringement cases are brought by people who own a patent legitimately. If not, such cases should be decided in court. There is nothing wrong with bringing such matters to court — a cornerstone, not of crony capitalism, but of the free market itself.
Our economy and culture depend on the disruptive nature of innovation. Our Constitution deliberately made all people equal, giving no advantage to those of social status, wealth or position. The founders, even before they added the Bill of Rights, secured the right to hold patents in the Article I of the Constitution itself, the only right mentioned prior to the amendments.
We all know our country’s history of innovation. Large companies reject new ideas. It is the innovator who challenges the status quo, not the corporation.
Under the proposed bill, the pretrial discovery process — just one part of many dubious sections — tilts heavily against the small inventor, who of course must share his or her secrets with an opposing corporation’s well-armed legal team. In another era, I might have considered this an innocent, unintended consequence of ill-considered drafting. Not now.
I implore my colleagues in both the House and Senate to stop this monster aborning.
At the Marcus Evans Innovate 2014 Conference in Shanghai today, I met Rosalie Wu, the head of marketing in China for the rapidly growing startup, Uber. Rosalie was Uber’s first hire in China and exemplifies the energetic, entrepreneurial spirit that is driving Uber to global success. She spoke about the development of Uber’s innovative business model and the many innovations they continue to add in their unique approach to “glocalization,” wherein a company going global adapts its products and business model to the unique constraints and opportunities of each local market. I see Uber at the poster child for sound and innovative glocalization.
Uber began when one of its founders and first CEO, Travis Kalanick, attended Le Web in Paris in 2008 and struggled to get a cab in snowy weather. He realized there had to be a better way to use the free market to solve the basic problem of getting a ride. His passion for solving this problem resulted in forming a San Francisco start-up that began in 2010 with a mobile app for ride sharing in San Francisco. Today they offer a refined and clever business model with services in over 200 cities. Beijing was #200, and Uber is marching rapidly across China and other parts of the world. Rosalie’s enthusiasm for Uber is contagious and really stirred the audience here at the Hongqiao Marriott Hotel.
Uber’s business model innovation includes systems for registering, insuring, and rating drivers. It offers flexible pricing that helps tap the power of the free market much better than conventional taxi pricing and taxi systems can. With Uber you can select quality drivers and have simple, positive experiences getting to where you need to go when you want to be there. The business model is being extended with many other innovations such as delivery of products and even services (in China, they have even offered the service of having a traditional Chinese lion dance sent to be performed in your office). The innovate their offerings to meet local needs and adapt to local regulations and customs, while finding clever ways to continually make people’s lives better. This will inspire the competition to do more and bring ongoing innovation that will benefit us all. Amazing what a bad snowy night can do when an innovator is around.
Less than a year ago, Uber was valued at over US$3.5 billion. A few months ago in 2014, Uber was valued at around $17 billion. This is the power of doing something that brings people together in new ways.
Uber has faced and overcome a host of innovation barriers. Funding challenges, regulatory burdens, and stiff competition. But they have forged ahead with a relentless focus on making life better for its customers with green, energy saving, disruptive innovation . May the path before them remain wide open. Kudos, Uber!
So often I hear Westerners complain about innovation in China or about innovation from Chinese employees. There is a perception that Chinese people are great at following directions and working hard but poor at creativity and innovation. Yes, there is a cultural emphasis on respecting authority, following instructions, and sticking to one’s duties. There is also an understandable but often very strong aversion to losing face, and that can lead to hesitancy to speak out in a group setting when there is a risk of being wrong, and certainly weighs against challenging the views of leaders. None of this needs to be a barrier to innovation. But it’s easy for those barriers to seem insurmountable to Westerners.
If you bring a team of Chinese employees together for a brainstorming session looking for fresh ideas, it’s very easy to get blank stares and a lot of people looking silently at the ground. A Westerner might interpret this as lack of creativity or unwillingness to innovate. But the real problem might be that the boss is in the room and everyone knows what the boss thinks is needed for the future. They aren’t going to challenge that directly. They also don’t want to risk being “wrong” by offering silly ideas. Or perhaps the problem is that they don’t trust you yet and don’t know what you’re really after. In my experience, respect for authority and a desire to follow the rules can be turned to advantage in an innovation session. The trick is helping them understand the process and giving them new rules that promote creative participation. And you must earn their trust and give constant encouragement.
One type of innovation session I do with Chinese teams is aimed at rapidly creating enabled intellectual property to jump start an IP initiative. The goal is not just a list of wild ideas, but a few ideas that can be challenged, critiqued, and improved iteratively until we feel we can actually make it work and have enough detail for an enabled description (“constructive reduction to practice”). With a creative, technically competent team of 6-15 people, during the course of a day we may be able to product 5-10 concepts that seem novel and have enough meat to them to support a reasonably enabled invention disclosure that can then, pending more thorough prior art searching and business considerations, be turned into a patent application or defensive publication, as desired.
In preparing one Chinese team for this exercise, I offered some sample exercises for associative thinking, one of the tools I use in my innovation sessions. I asked for their ideas and got nothing. Blank looks, looking at the ground, obvious discomfort. Few were willing to risk sharing new, untried, possibly crazy thoughts with the group, and this was without the boss being present. I then had to do some coaching. I explained that the rules today required us to express new ideas, that it was OK to be “wrong” and it would not just be OK but even necessary to point out the gaps and problems with our ideas so we could improve them.
It was almost time for a break then, so I also added this: “And we can’t take a break until I get at least 3 ideas from this associative thinking exercise.” Suddenly my quiet, shy team started bubbling with interesting comments. And on each one, I offered praise and acceptance. When they came back from the break, as we did a few more exercises, I soon noticed that these kids were excitedly going the extra mile, trying to get as much as they could from the few minutes of time I gave them. And I found my biggest problem wasn’t getting them to talk, but getting them to stop talking. They wanted to go on and on explaining their creative concepts and how they could be used and all the variations they had thought of and so forth. I felt like I had struck oil.
When I met with them a few days later to get deep into a particular new product concept and tap their thinking, the problem once again was getting too much, not too little. I found them to be enthusiastic inventors anxious to contribute and perhaps even to show off a little. Group exercises added a touch of competition where being quiet would be the way to lose face. By making the rules encourage participation, by reducing risks of losing face, and by giving them positive experiences as they participated, I found that they were every bit as creative if not more than American teams I’ve worked with, and was often impressed with their contributions.
Don’t assume that your Chinese team members are naturally less creative or innovative than Westerners. It’s easy to focus on the moat and wall that China, in Western eyes, seems to have around the “forbidden city” of innovation. In reality, access is easy, but you’ve got to use the right approach and find the (very large) entrance. Recognize that there are cultural differences that need to be bridged, but when you set up your innovation efforts appropriately, you can obtain great results regardless of where your team comes from.
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.
Contests can be one of the most interesting innovation tools. With the right challenge and incentives, creative groups from across the world can help invent and innovate rapidly. The creativity of crowds fueled by a content was just demonstrated in the Shredder Challenge contest that was launched October 2011 by the U.S. government’s DARPA (the Defense Advanced Research Projects Agency). DARPA wanted to know what could be achieved with computer tools in reassembling shredded documents to recover the originals. Since many different approaches were possible, this was an excellent candidate for crowdsourcing. Rather than hire a huge team for a short while to pursue many different paths, or use a small team pursuing many paths over a long period of time, just throw this one out to the crowds for healthy competition. The objective in this competition was to create a system for reconstructing shredded documents. The system would have to demonstrate success by reassembling the shreds from five documents whose shredded remains were posted on a website. As reported at Gizmag, the “All Your Shreds Are Belong to U.S.” team won the $50,000 prize for this contest by assembling all five documents two days before the Dec. 4 deadline. Given the hours that the winning team put into this competition, $50,000 was a very good deal for DARPA (and the American taxpayers) and not such a good deal for the winning team. If you consider all the thousands of additional hours put in by many other teams working on the competition, DARPA got quite a lot for a small investment.
Companies can and do this kind of thing as well, with varying degrees of success. Capturing the imagination of people with the skills needed for the problem is the key. Prizes help, along with fame and bragging rights. Intellectual property issues can get in the way for some companies. I’ll point to Local Motors as one of the leading examples of for-profit crowdsourcing. Their business model is sophisticated and highly refined, something I’ve written about here previously.
As for the hilarious title of the winning group, you might enjoy reviewing the history of the classic phrase, “All your base are belong to us.”
In the United States and many other nations, a question is being asked by many who struggle with the brutal reality of innovation fatigue. In many sectors, it is taking bigger investments, longer times, and much more pain to deliver innovation, and much of what passes for innovation in some sectors ends up being incremental fluff or mere cost-cutting. Some blame it on employee productivity, some blame it on short-term thinking in pubic companies driven by the unnecessary compulsion to please stockholders above all others, some blame it on the MBA culture instilled by leading business schools, and others blame it on governments that make every entrepreneurial move a slow trudge across the regulatory mire and a possibly fatal descent into quicksand. Some point to numerous factors including the capital crunch, creating a perfect storm in which even cash-rich companies are afraid to invest in real innovation because of uncertainty and fear.
Innovation fatigue, of course, is not uniform. Individuals and individual companies often buck trends and rise above currents of fatigue, and sometimes entire sectors seem energized and vibrant with innovation. For example, innovation in mobile applications and devices seems vigorous, but even then we have former innovation leaders like Nokia and Motorola feeling the burn of fatigue across many parts of their business.
Where are the real pressure points? What are the next steps that America or other nations need to take to restore a vigorous innovation culture across many sectors and help their nations overcome innovation fatigue? What do corporate leaders need to be doing differently to turn their companies in havens of innovation that can deliver growth and success for the long term? What do our political leaders need to do and understand to let the fire of innovation burn more brightly?
Let me know your thoughts. The five answers I like best will be rewarded with a free copy of Conquering Innovation Fatigue mailed to wherever you are. All submissions will implicitly have your permission to share them, though I will withhold your name if you ask me to. Send your comments to jeff at magicinnovation d0t com.
During the CoDev 2011 conference in Scottsdale, Arizona, I was impressed with a speech given by a local CEO, John (“Jay”) Rogers of Local Motors in Chandler, Arizona. This small company designs exciting new vehicles using design contests that are open to the public. Their rapidly growing community (12,000 participants so far) contributes designs and feedback to help in the selection of potentially successful concepts that Local Motors will then build locally in a microfactory, with final customization of the appearance being achieved with an environmentally friendly and durable vinyl wrap that eliminates the need for paint and gives the owner freedom to have a unique look. The final assembly is done with hands-on help from the new owner, who becomes intimately familiar with the vehicle and with its maintenance.
I was impressed enough with what I heard that I changed my evening plans to drive down to Chandler and attend an open house at Local Motors hosted by Jay himself. He allowed photography, so below you can see some views of Jay speaking and some shots of his vehicles in various stages of construction. The Rally Fighter that I am standing by sells for $59,000. It’s an incredible rugged, safe, and fun car that is legal on the road but a load of fun off road as well. It’s able to do very nice jumps.
These cars weigh much less than other cars their size, offering a huge bonus in mileage. Great engineering and innovation at many levels makes this possible.
The microfactory concept involves assembly of a small number of vehicles at a time in sustainable, efficient processes.
Do you recognize how much innovation is behind the simple pleasures of life like a carbonated beverage? A great deal of clever physics and science has gone into the subtle innovations that allow us to enjoy these beverages without, say, risking blindness every time we open a bottle of Sprite. In the early days of soda innovation, there was some risk in opening a screw-top container because the pressure was locked in by the interconnected threads until the screw cap came off: then the high pressure in the container could propel the up and away. Packaging engineers tacked the problem, leading to the first big breakthrough described in a 1961 patent, “Gas Escape Closure Cap” by Leo Garvey, US Patent No. 2,990,079. There were other earlier solutions proposed, including more complex venting caps, but the solution of grooves in the threads is elegant. Part of the patent is shown below, where in the lower right-hand corner you can see a drawing showing grooves in the ridges of the threads of a cap that help allow pressurized gas to escape while the bottle is being opened. A variety of later patents build on that theme, with 21 different patent families citing the Garvey patent. Today grooves in the threads of the bottle are also used, as shown, for example, in US Pat. No. 4392055 of Owens Illinois, providing the same kind of safe venting that Garvey sought. (That also reminds us of the need to consider alternative solutions in pursuing patent coverage.)
Gas venting threads are a tiny tweak of the bottle design that many people overlook, but they play an important role. There are numerous subtle innovations in almost every aspect of the soda bottle, from the design of the flange, the materials use to make it, the shape of the foot of the bottle allowing it to stand without the need for a separate stand or ring, the attachment of labels, the design of the cap, and the basic bottle manufacturing process itself. It’s all worth a toast the next time you have a sip. Innovation adds fizz to our daily lives–and safety.
For years, China has been making progress in creating laws and systems that enable protection of intellectual property. Respect for IP rights is essential in creating a culture where innovation and collaborative partnerships can succeed. If individuals and companies lose trust in a government’s ability to respect such rights, the incentives to innovate are reduced (though incentives to copy may be high). Now China threatens to erode some of the trust they have been building with this week’s announcement that they are considering forcing foreign makers of electric cars and hybrids to transfer their technology to China. From today’s Wall Street Journal, we have the story “China Spooks Auto Makers.” Here is an excerpt:
China’s government is considering plans that could force foreign auto makers to hand over cutting-edge electric-vehicle technology to Chinese companies in exchange for access to the nation’s huge market, international auto executives say.
China’s Ministry of Industry and Information Technology is preparing a 10-year plan aimed at turning China into “the world’s leader” in developing and producing battery-powered cars and hybrids, according to executives at four foreign car companies who are familiar with the ministry’s proposal.
The draft suggests that the government could compel foreign auto makers that want to produce electric vehicles in China to share critical technologies by requiring the companies to enter joint ventures in which they are limited to a minority stake, the executives say.
The plan is “tantamount to China strong-arming foreign auto makers to give up battery, electric-motor, and control technology in exchange for market access,” says a senior executive at one foreign car maker.
I understand the importance that China places on electric vehicles for the future and I can understand the desire to encourage technology transfer instead of exploitation, but when the rules change midstream and companies are forced to turn over intellectual property if they wish to do business in that market, the word “spook” is appropriate. Not only will some automakers be scared away, but it sends a broader signal that IP rights may be disrespected when the economic incentives are strong. This action may result in short term gains for China, but in the long run many prospective business partners will be more reticent to share and collaborate, and innovators within China may consider the threat of lost IP rights and take their best concepts elsewhere.
The unintended consequences of China’s attempt to accelerate its prominence in electric vehicles may be a larger setback in innovation capabilities overall by signaling disrespect for IP rights.
Related problems occur throughout the business world. In many corporations, for example, corporate decisions aimed at achieving a short-term gain can lose the trust of prospective innovators and result in an empty innovation pipeline that could have been full and healthy had a culture of innovation been more carefully nourished.