Why patents, trademarks, and other intellectual property protections are bad--that's right, bad--for business.
By most measures, the Sten was a forgettable product. This British submachine gun, thrown together for World War II, was wildly inaccurate and so unreliable that the only thing troops counted on from it was a jam at the worst possible moment.
Yet the Sten was one of the true hit products of the mid-20th century, and with a run of some 4.5 million, it became one of the all-time bestsellers in the world of weaponry. By contrast, the U.S.-made Thompson M1 machine gun and its variants, used by American troops in World War II and a more accurate and reliable weapon, saw a run of only 1.7 million in its half-century lifetime. How could a gun as lousy as the Sten sell so well--and even outsell the M1? One big reason: It was easy to copy. The Sten's blueprint was widely circulated, and the gun was purposely designed to be easily manufacturable by anyone with modest metalworking skills and tools, making it the darling of resource-strapped Allied units. Though none of these Sten-alikes produced royalties for the weapon's originator and maker of record, London's Royal Small Arms Factory, the Sten's sheer familiarity became such that after the war Britain and other countries around the world ordered it from the factory by the truckload well into the 1960s, making the Sten a gold mine.
And therein lies a lesson for entrepreneurs today. Though companies continue to treat intellectual property as an asset to be kept out of the hands of others at all costs, there have long been compelling reasons that such aggressive IP protectiveness is not only unnecessary but also counterproductive. Today we're in the midst of a shift in which the potential benefits of relaxing IP paranoia are becoming less of an interesting exception, a la the Sten, and much more the rule.
That may sound like a strange claim, given the near-frenzied attention paid to the value of intellectual property today, as well as to efforts to bolster our patent and copyright systems. Some $5.5 trillion worth of IP is said to be rattling around the computers and file drawers of U.S. companies, accounting for just under half of the nation's GDP. About twice as many patent-related lawsuits were filed last year as in 1992, suggesting companies are more determined than ever to keep others' mitts off their good ideas.
And yet the simple truth is that companies rarely succeed because they succeed in protecting intellectual property, or fail because they do not. Ninety-five percent of patents end up being of absolutely no commercial value. Even in high tech, where IP is king, the best rule of thumb for patent protection is: Don't bother. "A long period of patent protection for a new technology isn't all that useful because a newer technology will quickly displace it," says Glen Whitman, an associate professor of economics at California State University, Northridge. "The faster the pace of innovation, the less important will be the patent." To put it another way: Superb execution trumps IP protection every time.
That's because it usually isn't individual big-bang product ideas in and of themselves that make or break a company; rather, it's a constant stream of smaller good ideas in any and all areas of the business. According to a study by researchers at Boston University and Princeton, patent protection is of little or no benefit when it comes to such an ongoing string of ideas--which makes sense, given the time it takes to get a patent into place and the relative perishability of any single idea.
Why do so many companies become obsessed with patents? In part, it's because they don't really understand their own business, says Danny Shader, CEO of Good Technology, a wireless software maker based in Santa Clara, California, and the main rival to Research in Motion's BlackBerry in the hand-held e-mail market. "A lot of people think they're in the invention business, but they're really in the application business," says Shader. "They confuse innovation with patents, and that's a classic mistake." Profitable innovation comes not from inventing a new product, he maintains, but from having a team of smart employees who figure out how to do a better job every time they interact with customers. "That sort of innovation will do a lot more for your company than a piece of parchment," he says.
It's not just that IP protectiveness is useless; it can be harmful, too. Companies that work to put walls around their IP tend to make a lot of enemies. Look no further than Bill Gates, who started sowing ill will as a student hacker when he refused to let other programmers use his code, in gross violation of all that hackers hold sacred. A continued trail of IP bullying has left Microsoft one of the world's most resented corporations. It's hard to argue that the company has failed because of this enmity. But it helps explain why Microsoft software now suffers so many hacker attacks that the company has designated one Tuesday a month as "Patch Tuesday."
It's not just the big guys that can offend with a mania for protecting whatever they might consider to be intellectual property. Make an online reservation with the easyGroup Companies' easyHotels in London or Basel, Switzerland, and you'll get a confirmation e-mail that includes this charming statement: "The easyGroup of companies has built up a significant reputation in the name 'easy' and has a number of trademark applications and registrations in many countries. easyGroup cannot permit others to use the 'easy' name without the group's rights being prejudiced. It follows that no use should be made of the name 'easy' (or anything similar to it) without our consent." What shouts "friendly host" and "thanks for your business" more than a gratuitous threat intended to curtail the use of the English language?
Alienating customers and potential partners are some of the soft costs of IP protection. The hard costs can be impressive too: a minimum of about $20,000 to see an application through the patent process, not counting the cost of the time of the employees who are pulled into it, and most definitely not including the potentially explosive costs of waving the patent at a defendant in an actual or threatened legal action. And remember, this is for a patent that has a 95 percent chance of being worthless. "Patents are expensive to get and more expensive to enforce," says Tom Bell, a professor at the Chapman University School of Law in Orange, California. "If I had a patentable invention, I might rationally say that I'd rather spend the money on having my engineers create something else."
Ninety-five percent of patents end up being of absolutely no commercial value. Even in high tech, where IP is king, the rule of thumb for patent protection is: Don't bother.
IP protection, goes the conventional wisdom, preserves an incentive for companies and people to invent and create. But when you talk to the people who actually do the inventing and creating, a different picture emerges. In a 2005 survey conducted by the American Association for the Advancement of Science, 58 percent of researchers whose work had been affected by patents reported that their research was delayed as a result of the patent process, and 28 percent said they ultimately had to abandon their work because of it. The Boston University and Princeton study concluded that inventors tend to have a greater chance of profiting when IP protection is relaxed and the door is opened to increased competition and imitation.
