Cutting Through the Patent Thicket

The current U.S. system is harming innovation. A simplified process with stronger patents would encourage economic growth

by Greg Blonder

For over 200 years, the U.S. patent system has catalyzed economic growth and protected the national interest. Unfortunately, over the past few decades, patents have become irrelevant -- even harmful -- to the innovation process.

I say this as someone who grew up believing in the value of patents. As a teenager, I sat raptly in the U.S. Supreme Court gallery listening to attorneys argue University of Illinois Foundation v. Blonder Tongue Laboratories, a landmark patent-infringement case involving my father's company. As an inventor, I earned some 70 patents. And as a scientist, I managed research labs generating hundreds of patents a year.

But now, as a venture capitalist, I have come to the conclusion that protecting intellectual property (IP) with today's patents is virtually worthless -- despite the large court awards you may read about in the morning paper.

HIDDEN FROM VIEW.

The first problem with patents is that the entire process takes too long: three years on average, often as long as five, and getting longer all the time. So when a venture capitalist invests in a company, its IP "dowry" remains, at best, provisional. How much would you pay for a company when its assets are hidden from view?

Second, a company's most valuable IP almost always results from later insights, gleaned by developing its early products and interacting with customers, not from the IP it originally filed. Competitors are busy inventing as well, and since the U.S. Patent & Trademark Office often grants trivial and overlapping patents, IP minefields may be waiting to explode. Or perhaps the IP is all duds. Who knows?

Third, the $50,000 to $100,000 lifetime cost of patent application, protection, and maintenance effectively limits the number of patents a young, financially constrained company can file. Much patentable IP is left on the cutting-room floor, at the risk of allowing trivial variations filed by competitors to block the originator's path to market.

Fourth, and probably most important, few venture-capital-backed companies will ever dare to defend their IP in court. If they do, they'll risk losing customers and squandering anywhere from $1 million to $5 million of their precious venture funding.

REDUNDANT CONCEPTS.

So what good is owning something you can't quantify or won't defend? Very little. It's a bluff, mere saber rattling.

The greatest value in patenting IP for a young company, ironically, may lie in the fact that it's often essential in attracting venture capitalists -- who, I would argue, are often pursuing a misguided model of company creation. Successful companies transform ideas into products customers want to buy. But the existence of IP usually has little to do with that ability.

Outside of venture capital, the situation is no better. Common business practices, obvious to anyone in the field, are enshrined in overly broad and problematical patents that reduce competition. Patent "trolls" are buying up dubious IP, then suing companies actually engaged in productive activities, such as building products and serving customers. Wasteful court cases, like the recent BlackBerry imbroglio, occur because patents are granted for narrow, redundant concepts that courts find difficult to unravel, and so are open to interpretation.

We need to invent ourselves out of this mess.

DEAD ENDS.

The patent system was designed to encourage the free flow of ideas, in exchange for a temporary monopoly. Not all ideas, however, are worth pursuing, worth defending, or worth backing financially. And this gets to what, at bottom, is wrong with the patent system: We issue patents too easily for trivial ideas, thus diminishing protection for true breakthrough ideas.

Patents are meant to be useful. Yet most studies show that something like 95% of all patents have never been used in any product and have created zero economic value. Nor, as far as anyone can tell, have they ever been used as evidence in a patent lawsuit. They are evolutionary dead ends.

Patents are government-sanctioned short-term monopolies, and not supposed to be "obvious to those skilled in the art."