Conventional wisdom in the tech industry says the U.S. patent system has become a murky swamp, safe only for corporations with the deepest of pockets. Some experts, such as Stanford Law School professor Lawrence Lessig, even believe that patents are now a barrier to innovation. But Ronald Mann, co-director of the Center for Law, Business & Economics at the University of Texas School of Law, draws on three years of interviews with entrepreneurs, financiers, and lawyers to come to a different conclusion. "There is no patent thicket in the software industry," says Mann. "The idea that there are so many patents in the software industry that small firms don't have the freedom to innovate is wrong."
His research, published in March, finds scant evidence that large companies are using claims of patent infringement to fend off competition from smaller ones. On the contrary, he says small businesses still believe they can use patents to their advantage, even in the software industry, which has seen an explosion of new patents in the past decade.
Mann advises small companies to figure out a patent strategy even before ringing up their first sale. His data show a significant correlation between the pursuit of patents and the later success of startups. Looking at 877 software companies that won their first round of funding between 1997 and 1999 -- a group that includes search icon Google (GOOG) -- Mann found that startups with patents are four times as likely to go public than those without and only half as likely to fail. They receive an average of $11 million more in financing. Similar trends held true when Mann looked at 212 biotech startups: Those without intellectual property protection consistently fared worse. "The people that do best are the people that recognize this is a serious problem," he says. "If they don't take the steps to protect their technology, they're going to regret it."
By Andrew Park