Guest Post by Robert Merges and Pamela Samuelson, UC Berkeley School of Law; Ted Sichelman, University of San Diego School of Law
In our previous post, we discussed some of the major findings from the Berkeley Patent Survey—the most comprehensive survey to date in the United States, probably worldwide, on how patents are used by and affect entrepreneurs, startups, and early-stage high technology companies. (For those interested in more information, a detailed discussion of the survey results is available here; a focused analysis on the drivers of startup patenting, here; and some background on the genesis of the survey, here.)
As we noted at the end of our last post, when asked about the role patents play in directly driving the innovation process, our respondents reported relatively weak effects. As Figure 1 below indicates, executives at biotechnology companies stated that, on average, patents provide slightly less than "moderate" incentives to invent, perform initial R & D, and commercialize products. For software companies, the responses fall to just below "slight" incentives.
Even when respondents are limited to those companies that hold at least one patent or application, the results do not change much. For these patent-holding companies, biotechnology companies report just slightly above moderate incentives and software companies report just above slight incentives for these same innovation-related activities.
Figure 1: The Role of Patents in the Innovation Process
These results are somewhat surprising for biotechnology companies, because anecdotal reports had indicated that biotech companies relied heavily on patenting to protect their investments in R & D. On the other hand, the results do generally accord with anecdotal reports from the software industry.
The authors of the 2008 Berkeley Patent Survey report are not all of one mind about how to interpret the incentive effect findings of our study. Some of us would discount these results in that they reflect the perceptions of executives about how patents work, and might not accord with economic reality. Specifically, while these executives may have understood our questions, they may not have fully comprehended the role patenting plays in the innovation process, which is often subtle. For instance, in an earlier post we noted important secondary effects of patents, such as attracting capital and enabling arm's-length transactions. These effects may contribute enough of a "plus factor" to make certain projects viable, even if executives do not think of patents in those terms. In other words, if patents are effective in garnering investment capital—which is then used to perform R & D—although executives might not view patents as the immediate cause of innovation, patents might still play an important role in the innovation process that is not fully reflected in our study results. Yet, others of us are more willing to give credence to the perception of entrepreneurs who report that patents provide weak to moderate incentives to invest in innovation. Who are we as scholars to say that they are incorrect in their assessment about the importance (or not) of patents?
We acknowledge that our analysis to date of the study results do not allow us to say one way or the other whether the views of the executives accurately reflect the economics of the patent system. Thus, it would be wrong to conclude, as one commentator has, that one of the key findings of our study is that patents "play essentially no role in fostering innovation among startup companies . . . outside biotech and other limited areas." In the same fashion, it may also be wrong to conclude that the executives taking the survey were not fully aware of the economics of patents, and the reality is that patents play a major role in promoting innovation. Rather, based on our study results, one can draw competing inferences that explain the results. As such, we come to no conclusions in this article regarding the actual role patents play in fostering startup innovation (or not).
To be sure, relying on other evidence, several of us have expressed views on the topic elsewhere. Unfortunately, even combining this additional evidence with our study data does not definitively answer the question. The data, however, present an interesting paradox: If executives believe that patents provide relatively weak incentives to innovate, why are so many startup firms seeking them? Our first post indicated that securing financing was a reason why many firms reported seeking patents.
Reinforcing that finding is another significant result. Our survey asked entrepreneurs to report their views on the importance of patents to potential funders, such as venture capitalists (VCs), angel investors, other firms, commercial banks, and friends and family. Our respondents indicate that many potential investors with whom they negotiated said that patents were important to their investment decisions. Of companies negotiating with VC firms, 67% report that these firms indicated that patents were an important factor in their investment decisions.
Interestingly, this result was not just driven by biotech and medical device firms. Broken down by industry, the figures were 60% for software companies, 73% for biotech, and 85% for medical devices. Respondents also report that substantial percentages of other types of investors, such as angels, investment banks, and other companies found patents important to their investment decisions.
In our view, this last finding may help to explain why many high tech startups seek patents, even though their executives report that patents provide relatively weak incentives to innovate. Raising money, rather than invention itself, may be the key.
Of course, this conclusion begs the question of why patents are important in the startup financing process in the first instance. Like the innovation incentives issue, the authors are not in full accord on the explanations here. One possible interpretation is that startup executives are generally unaware of the link between patents and success in the innovative process, which results in financial markets selecting those companies that patent more heavily. Another interpretation is that patents serve important functions not related to the innovation process, such as helping to prevent infringement lawsuits, providing leverage in cross-licensing negotiations, and acting as "signals" of firm competency, which drive investment. A third interpretation may be that investors want startups to patent so there will be some marketable assets if the companies fail in the market. And these interpretations are not mutually exclusive. Unfortunately, as we indicated earlier, our analysis cannot resolve this dilemma. We hope that further research by us and others ultimately will make progress in doing so. In the meantime, we believe our study offers one of the most important resources for understanding the effects and use of patents by entrepreneurs.
link to patentlyo.com
Star Weather,such key policy green beat near achieve familiar kid listen partner find public except conservative leave hang her really except favour early might charge therefore revenue hope sun yet place minute could avoid will grey not class area industry rain strange still match forest surround reach capacity finding literature work order once hot interview such conclude occur wall regional per expectation world destroy place popular paint council affair team justice pair impact practical fail pupil weekend equally information enjoy early refer cover block may quickly ready people
And thus patents provide an incentive for innovation despite what the leftists at Berkeley say.
Leftist? Um, you might want to do your homework a little better: the people that denounce patents are more likely to come from the Cato Institute than from Berkeley.
“patents increase the chance that an appropriate return on investments will obtain”
And thus patents provide an incentive for innovation despite what the leftists at Berkeley say.
“Open your eyes.”
They will refuse until the last moment that they possibly can and still appear sane.
Little do they know, that moment already came and went.
patents and published applications provide an excellent technical library, well indexed and easily searchable
a real asset
A friendship founded on bussiness is better than business founded on friendship. Do you understand?
Except of course, that there would be no major music industry and everything would look and sound like my neighbor’s garage band. You want to call that “promotion”?
It worked for Dispatch, it’s working for Trent Reznor of Nine Inch Nails, and it’s going to be the way of the future. Musical acts are making money without heavily relying on copyright law. Record companies are going the way of the dinosaur. Copyright is being infringed left and right by file-sharing, and yet the music industry is making more money than it ever has in years past. Open your eyes.
“ I imagine that if copyright were removed from the picture, music distribution would likely look very similar to the current state of affairs.”
Except of course, that there would be no major music industry and everything would look and sound like my neighbor’s garage band. You want to call that “promotion”?
Does copyright protection drive the songwriting process? I think not. Songwriting happens regardless of copyright, but commercialization and public distribution would probably be quite different in the absence of copyright law.
I wholeheartedly disagree. Sure, maybe back in the day, distribution and commercialization would be much different in the absence of copyright law. But given the massive amount of file-sharing that happens in spite of copyright laws, I imagine that if copyright were removed from the picture, music distribution would likely look very similar to the current state of affairs.
The music industry is booming right now, even despite the amount of file-sharing that occurs in spite of copyright. If copyright were removed from the picutre, the only sector that would suffer would be the currently-suffering record companies.
I think John Sasdler (and some others) really nailed this one. The ability to put a patent plaque on the wall is rarely the reason to invent.
I think the question is very poorly phrased. I think the authors were intending the question to mean more “does the ability to protect an innovation direct you into innovating in that area” That is, would the ability to patent an invention solving problem A encourage you to try and solve problem A over problem B where a solution to problem B could not obtain a patent.
Take the following questions as an example of the problem with the way the question was asked. If I am trying to determine if the existence of insurance products increases home ownership, which question should I ask:
“Does the availability of fire insurance encourage you to invest in a house?”
compared to
“Does the desire to own fire insurance encourage you to invest in a house.”
Posted by: Malcolm Mooney | Jul 22, 2010 at 01:11 PM: “Does copyright protection drive the songwriting process? I think not.
Of course it doesn’t. But I bet you that you could survey some executive types in the music industry and find plenty of clueless diptwits who would tell you otherwise.”
The question is a red herring of sorts.. The answer is no if you are writing songs for fun. But answer quickly changes to yes if you are writing songs for fun and profit.
Whether its a jingle for your commercial, a theme song for your TV show, or a single on your new CD which will make great ring tones or a movie sound track, you better believe that Copyright protection is not only essential but is the driving force behind the motivation to create.
As a second-time software start-up CEO, I have a much greater appreciation of the value of patents than I did the first time around. Many high-tech start-up entrepreneurs such as myself come from a technical rather than a business background. They are highly motivated, innovative people, but may not appreciate the critical value of patents in attracting the capital necessary to realize their invention and/or protecting it once it has been achieved. I believe that this disconnect could be bridged by providing inventors a more direct stake in their inventions. A thousand bucks and a plaque on the wall adds very little incentive to the actual creative process. A small percentage of revenues would be much more effective in keeping the creative people engaged and focused on maximizing the commercial viability of their creations.
Does copyright protection drive the songwriting process? I think not.
Of course it doesn’t. But I bet you that you could survey some executive types in the music industry and find plenty of clueless diptwits who would tell you otherwise.
When it comes to software, patents do not cause a company to get financed. They are the effect of getting financed. Once it is clear that a company has an interesting enough idea/product to bring in VC money, the VCs recommend patent protection. An entrepreneur has no incentive to patent their inventions until they are either on the brink of financing or have already secured it (remember, many software startups fail before they ever raise a seed round of funding). It isn’t something he/she would do on his/her own dime. Furthermore, software startups patent for purely defensive purposes. They want to put their priority date in writing in case the market heats up. If your software startup wins, you may need your patents for defensive purposes. If you startup loses, but a market was created, you may be able to liquidate your patents to a troll. I think the authors have misinterpreted the importance of patents to startup financing.
Does copyright protection drive the songwriting process? I think not. Songwriting happens regardless of copyright, but commercialization and public distribution would probably be quite different in the absence of copyright law. Likewise, patents do not *cause* people to invent. I think the survey is asking the wrong question, or perhaps asking the respondents to speculate on how things would be if patent protection was weakened or absent.
Some of us would discount these results in that they reflect the perceptions of executives about how patents work, and might not accord with economic reality. Specifically, while these executives may have understood our questions, they may not have fully comprehended the role patenting plays in the innovation process, which is often subtle.
I agree with this view, particularly seeing as the survey deals largely with executives of startup companies who in the early stages anyway are often techies without significant business acumen.
I know precious few engineers/scientists that sit down at their chair in the lab and say to themselves “ok, got to get creative today so I can get a patent!”. What they do however say to themselves is “oh, that would work better this way” or “man I’d better put the ol’ thinking cap on to stay ahead of my competitors/get this to work!”.
As a computer engineer having worked in the software industry for both multinationals and startups, I agree. The problem comes after you come up with a winner, and you want to commercialize your innovation. That’s when you call the IP lawyer. The key there being knowing what you know, and knowing what you don’t.
The fact that patents are not an incentive for patenting means that the patent system, as it now operates, works only for keeping the status quo. Only if there is a strong patent system does it help start up businesses. When patents are really presumptively valid and the patents of even individuals and small companies in all areas of technology are given the same presumption of validity that pharmaceutical patents are given, the incentive to promote the progress of the arts will be back.
There are several links near the beginning which detract from readability and decrease the visibility of the link targets both in the article and in the search engines. The following three links all are mislabeled with the string “here” instead of a semantically relevant word or phrase:
link to papers.ssrn.com
link to ssrn.com
link to ssrn.com
Think of the anchor element in HTML as another way of emphasizing text, like with Bold or Italic. That helps draw or keep the reader’s attention on the content of the article. With the search engines, the word or phrase between A and /A is what gets associated with the URL it links to. So if the text says ‘here’, the link will be buried in the millions of other links labeled ‘here’ If it says ‘2008 Berkeley Patent Survey’ then someone searching for Berkeley, Patent, Survey alone or together has a greater chance of finding that page.
Your blog is is very sound and comprehensive !I love reading your blog, it transports me. I think your blog will concert brought the house down
“dude with the ski mask told the old lady”
WINNER – non sequitor of the day.
From another critic of this study, as reported on another blog:
“[They did not] collect any economic data, all they collected were respondent impressions and opinions. Their conclusions are then reported as if they were economic facts, not collections of opinion.”
Re: “I know precious few engineers/scientists that sit down at their chair in the lab and say to themselves “ok, got to get creative today so I can get a patent!”
True, but not statistically relevant to this allegedly statistial survey. Only a small percentage of inventors these days obtain patents to own or enforce personally. So this is confusing the purpose and use of getting patents in the real world today. By now at least 90% must be by the entities paying for the R&D and the inventor’s salaries and benefits.
other people shouldn’t be doing what aint theirs, now should they
Yes, that’s what the dude with the ski mask told the old lady before he asked her for some money.
Love that word “shakedown”
Full of naughtiness. Cepts, other people shouldn’t be doing what aint theirs, now should they? We see who the real naughty is don’t we?
You can pay me now,…
..or you can pay me later.
I cannot fathom serious businesses having as part of their business plans investing dollars in research and innovation and patent prosecution for the sole purpose of putting patent plaques on the wall.
How about a serious business having as its entire business plan that involves no R&D or products but just the acquisitions of patents so they can shakedown businesses that actually produce products and do research?
Can you fathom that? I hope you can.
It is likely correct that patents do not drive innovation. But, patents play a role in innovation because patents increase the chance that an appropriate return on investments will obtain.
“I agree with Solyhhit. The questions asked have no meaning, if he and I are interpreting them correctly. I cannot fathom serious businesses having as part of their business plans investing dollars in research and innovation and patent prosecution for the sole purpose of putting patent plaques on the wall. This simply isn’t how businesses are run–well, not any business I’ve heard of, anyway. Instead, a business has sales of its novel product or service as its ultimate goal, and seeks to monopolize that novel product or service through patent protection, such that competitors cannot undersell and overtake the business, having sidestepped those costs of research, development, and patent prosecution.”
Sometimes I get the feeling, Robert, that patent attorneys themselves are somewhat out of touch with how most businesses are run. They seem to only know about the ones they themselves know about, and those are the ones trying to go down the patent route. Sometime you might want to visit some companies who have chosen to go the other route, competition in the marketplace, and observe how many of them there are.
“like employing an extra boffin”
Or a few hot chics from 3rd world countries?
Either way Max, what he said was true. Business people know that patents don’t keep their company afloat, save perhaps in Bio. Their ability to sell products is what keeps their company afloat. And there is a huge disconnect between the two things. Wider than the grand canyon, to put it mildly.
“Specifically, while these executives may have understood our questions, they may not have fully comprehended the role patenting plays in the innovation process, which is often subtle.”
I think you meant to say “which is often non-existant”.
“patents might still play an important role in the innovation process that is not fully reflected in our study results.”
It is too bad your study didn’t go the extra mile to go ahead and end that discussion, adversely for those believing such nonsense.
Other than AI (who probably isn’t an engineer or scientist in the first instance) and possibly JAOI, I know precious few engineers/scientists that sit down at their chair in the lab and say to themselves “ok, got to get creative today so I can get a patent!”. What they do however say to themselves is “oh, that would work better this way” or “man I’d better put the ol’ thinking cap on to stay ahead of my competitors/get this to work!”.
“like employing an extra boffin”
Or a few hot chics from 3rd world countries?
Either way Max, what he said was true. Business people know that patents don’t keep their company afloat, save perhaps in Bio. Their ability to sell products is what keeps their company afloat. And there is a huge disconnect between the two things. Wider than the grand canyon, to put it mildly.
“Specifically, while these executives may have understood our questions, they may not have fully comprehended the role patenting plays in the innovation process, which is often subtle.”
I think you meant to say “which is often non-existant”.
“patents might still play an important role in the innovation process that is not fully reflected in our study results.”
It is too bad your study didn’t go the extra mile to go ahead and end that discussion, adversely for those believing such nonsense.
Other than AI (who probably isn’t an engineer or scientist in the first instance) and possibly JAOI, I know precious few engineers/scientists that sit down at their chair in the lab and say to themselves “ok, got to get creative today so I can get a patent!”. What they do however say to themselves is “oh, that would work better this way” or “man I’d better put the ol’ thinking cap on to stay ahead of my competitors/get this to work!”.
I’ll say again what the physics professor turned venture capitalist says in his lectures: the brutal reality is that, in EE, a patent portfolio in nothing more than the comfort blanket that will give investors the courage to sign the cheque.
Think about it. If you had your own funds, and didn’t need the money that those venture capitalists are sitting on, would you spend your own money on that patent portfolio? Or would you spend your own money on something else (like employing an extra boffin) that will advance your own start-up faster, to keep it ahead of the chasing group of competitors?
I think this survey bears out what the prof. said, don’t you?
I agree with Solyhhit. The questions asked have no meaning, if he and I are interpreting them correctly. I cannot fathom serious businesses having as part of their business plans investing dollars in research and innovation and patent prosecution for the sole purpose of putting patent plaques on the wall. This simply isn’t how businesses are run–well, not any business I’ve heard of, anyway. Instead, a business has sales of its novel product or service as its ultimate goal, and seeks to monopolize that novel product or service through patent protection, such that competitors cannot undersell and overtake the business, having sidestepped those costs of research, development, and patent prosecution.
Furthermore, one obviously does need to, or want to, tell clients, who might repeat it, that their patents are giving them a vital near-monopoly marketing position for certain products as the main reason to justify their filing more of them.
So, your basic instance of lawyers blatantly lying to people who are gathering data to help shape policy in their field, for the sake of not admitting the obvious to the public, and on the pretext that their clients might get sued for asserting rights created by statute for the exact purpose for which they were created under express constitutional authority, which those clients are clearly actually doing.
No, these rights aren’t important for excluding others from our markets. They don’t further our business goals in any way. They’re … ummm … part of the corporate ribbon collection.
We are talking about an unprivileged written response to a survey here, not specific client counseling. Furthermore, one obviously does need to, or want to, tell clients, who might repeat it, that their patents are giving them a vital near-monopoly marketing position for certain products as the main reason to justify their filing more of them. There are other good reasons.
there is the important natural tendency of competent legal counsel, with natural legal sensitivities to any possible future anti-trust concerns for clients with patented products, to advise the responding client NOT to suggest that their patents are vitally competitively protective,
What is the official answer you’d get from these competent legal counsel if you asked the obvious follow-up question of why they would bother spending money obtaining and maintaining patents in the first place if they’re not useful for their intended purpose? Or the only slightly less obvious follow-up question of why they are so afraid of the legal implications of openly using a purely statutory (and purely optional, and expensive) right for its intended purpose?
Re the Authors conclusion that: “we asked how much of a role patents play .. Somewhat surprisingly, the responses on the whole are rather tepid.”
That is not so surprising if one takes into account the fundamental responsive-bias in all surveys like this. Besides all the responses from CEOs and research directors responding to such an survey without having accurate facts about their patent protection, there is the important natural tendency of competent legal counsel, with natural legal sensitivities to any possible future anti-trust concerns for clients with patented products, to advise the responding client NOT to suggest that their patents are vitally competitively protective, especially in such an unprivileged, non-secret, survey. Not even to mention SEC concerns about making such statements.
In my own experiences, even when certain patents were clearly preventing competitors from incorporating important patented features into their otherwise competitive products, the management outside of the patent department was generally not aware of it, and the patent attorneys were careful not to say so in writing in view of such AT concerns.
Executives have limited resources to get the products out the door. That is job 1. Patents are normally an afterthought, at best.
But to the investors, having the deed to the land is as important as planting and reaping.
I just feel like a patent should be more of a “hey I invented something, I should protect it” kind of thing rather than “I want a patent so lets go invent something.”
It sounds like that’s what’s happening now, at least for small businesses. Except it’s more like “you invented something, you should protect it”, as said by the guy who’s fronting the money for the whole operation. Of course, that money is what turns a clever idea into a business with products on the shelves, which is a benefit to society in and of itself.
Even larger companies don’t seem to say things like “I want a patent so let’s go invent something”, except maybe if there are companies that are only in the business of inventing stuff and licensing it out. It’s more like “I have a budget for product development, let’s orient it toward technologies I can get a patent on”.
With regards to patents directly driving the innovation process…is that even the right question to ask? People have invented things for thousands of years without patents, and even today you can realise (some) profits without patents. I would imagine that the majority of startups invent things because they love what they are doing.
I just feel like a patent should be more of a “hey I invented something, I should protect it” kind of thing rather than “I want a patent so lets go invent something.”
Maybe I’m just missing the point?
Comments are closed.