20 July 2011

Myhrvold Hoist By His Own (Patented) Petard

There's a column doing the rounds at the moment that is generating some interest. It comes from the King of the Patent Trolls, Nathan Myhrvold. I urge you to read it - not so much for what he wants to point out, as for what he inadvertently reveals. Here's the key passage:

Most big tech companies inhabit winner-take-most markets, in which any company that gets out in front can develop an enormous lead. This is how Microsoft came to dominate in software, Intel Corp. in processors, Google Inc. (GOOG) in web search, Oracle Corp. in databases, Amazon.com Inc. in web retail, and so on.

As a result, the tech world has seen a series of mad scrambles by companies wanting to be king of the hill. In the late 1980s, the battle was for dominance of spreadsheet and word-processing software. In the late 1990s, it was about e- commerce on the emerging Internet. The latest whatever-it-takes struggle has been over social networks, with enough drama to script a Hollywood movie.

In each case, the recipe for success was to bring to market, at a furious pace, products that incorporate new features. Along the way, inconvenient intellectual property rights were ignored.

I think he's absolutely spot on. In the 1980s and 1990s, companies successively carved out dominant shares in emerging markets, often becoming vastly profitable in the process. And how did they do that? Well, as Myhrvold says, "the recipe for success was to bring to market, at a furious pace, products that incorporate new features." Their rise and huge success was almost entirely down to the fact that they innovated at a "furious pace", which led to market success.

They did not, that is, innovate in order to gain patents, but in order to succeed. They did not even bother taking out patents, so busy were they innovating and succeeding. Indeed, Myhrvold himself says: "Along the way, inconvenient intellectual property rights were ignored." They were ignored by everyone, and the most innovative companies thrived as a direct result, because only innovation mattered.

Fast forward to today. Now even the most innovative company has to spend millions of dollars fighting lawsuits over alleged patent infringement. Often these come from companies that don't actually innovate in any way - they just happen to own a patent that may or may not read on real products that genuine innovators have produced.

So by Myhrvold's own admission, ignoring "inconvenient intellectual property rights", companies innovated fiercely, created now market segments, and were rewarded for their innovation by market dominance and profits. Why then is he and others extolling the virtue of those same, inconvenient patent rights that did nothing for two decades?

The answer, of course, is obvious: because he and the other patent trolls (and burnt-out companies like Microsoft that are becoming a new kind of patent troll by default) have realised that it is not actual, on-the-ground, expensive innovation that counts, but the piece of paper from the USPTO assigning nominal "ownership" of that innovation.

He and his company have learned how to game the system and thus destroy the conditions that led to over two decades of uninterrupted and unprecedented innovation and wealth creation thanks to a level playing field offered by the absence of distorting intellectual monopolies - not their presence, as his column illogically tries to suggest at one point. This U-turn is doubly ironic given his unexpectedly candid opening analysis describes so well why we do not need patents at all.

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Anonymous said...

Is incorporate new features synonymous with innovate?

Glyn Moody said...

good question. I'm pretty sure that here it was meant to be, but probably not always, as history shows.

patent litigation said...

Certainly the patent system, like any other, has flaws as well as bad actors; but this doesn't strike me as a good enough reason for throwing out the baby with the bathwater and completely trashing a system that has given us the steel plow, cotton gin, and light bulb. Rather, it speaks to me of the necessity of addressing the patent troll issue. For one thing, trolls on average win 3 times more than practicing entities in patent litigation; removing this incentive of an oversized payday could go a long way toward reducing the number of trolls. Also, more corporations might look into obtaining the services of a patent aggregator or exploring the option of patent reexamination when hit with a patent infringement suit.

Glyn Moody said...

I give a more detailed explanation of my views here: