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Forget Patents, Says Stanford Prof

The author of The Entrepreneur's Guide to Business Law explains why patents may not protect you in the new economy.
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Using patents to protect proprietary products and processes has long been an important means for entrepreneurs to insulate themselves from competition. But the sheer speed and unpredictability of the new economy, argues Stanford Business School professor Connie Bagley in her forthcoming book, The Entrepreneur's Guide to Business Law, are making such legal barriers less viable. Here's what she told us:

"The historic model was that in order to get venture capital, companies needed proprietary technology. Now, in the post-Netscape world, people are beginning to rethink that model. It might take 18 months to get a patent on a product that has a 12-month life cycle. By the time you finally get the damn thing litigated, it's meaningless.

"So people are focusing less on proprietary assurance and more on first-mover advantage. Netscape didn't have legal protection, but it bought market share, and once it's out in front it can use new features to leapfrog any competitor. You can't sit on a technology for the two years it takes to get patented anymore. So you do what you can--you keep your trade secrets secret until the launch, you put on copyright notices. But then you run like mad and never look back.

"Why did we end up with Windows as the standard when it's not the best operating system? Because Apple stuck to the traditional proprietary strategy, relied on the law to protect the technologically superior Macintosh, and refused to license its operating system so that others could write applications for it. In contrast, Microsoft focused on market share, then used that as leverage to promote Windows applications. After Apple lost its copyright-infringement case against Microsoft, in 1993, it had no way to effectively compete.

"In the future, fewer entrepreneurs will try to erect fireproof legal walls, because by the time it matters, the wall's fallen down or everyone's run in the other direction and you have a wall sitting there in the middle of nowhere. The barriers people erect will be more strategic and innovative than legal. The law is just too slow for this high-speed economy.

"If the economy is a bed of hot coals, companies won't have time to fashion protective footwear anymore. They'll have to plunge in barefoot and just move like hell before the heat catches up with them."

-- Jerry Useem




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