June 1, 2013

New Directions in Making Innovation Pay

Here is a feature sent to me by Amy Clark at the Minute MBA blog/website [1]. This is a sped-up white board animation [2] of 3 ways to fix the patent system. As many people are aware, there are a number of problems and drawbacks to the current patent process. Some of these are true inefficiencies, while others have grown out of the self-referential complexity of the existing system.

Before we discuss the three proposals, let's review why patents exist. Patents [3] exist to protect novel ideas for an inventor. In this way, there is a legal claim on the innovation (a principle based on the enclosure of land). If the innovation is properly marketed, this (at least in theory) ensures a financial reward for the inventor. This is meant to either allow the inventor to recoup the cost of innovation, or reward the innovator with financial incentives. In principle, this should at least maintain or perhaps accelerate the rate of innovation over time. Yet for a number of reasons, this is far from being the case:

* in some cases, the management of key enabling innovations in a certain field can hold back innovation. Particularly in cases of technological rivalry (such as the War of Currents -- see [4]), protection of the winning innovation can constrain the development of new markets, thus increasing the (financial) barriers to entry.

* in other cases, patents may serve as a means in and of themselves. Patents consist of claims, which are supposed to define the scope of a given innovation. Claims may serve the purpose of either carving out a niche for the invention, or claiming a wide of scope as possible. While this can be good for creating value where none previously existed, it can also be the source of much litigation and the ultimate exercise in semantics.

* while patents are meant to be legal documents, and have an implicit value, so-called patent trolls have attempted to extract value from patents and their allied claims. This can obfuscate the true value of the invention, and ultimately minimize the significance of innovation in a given field.

Overview of the proposed solution.

These points suggests a need to reform the current system. This is where the Minute MBA video comes in. They propose three ways to reform the current system which could hopefully serve to benefit smaller innovators:

1) Get rid of the patent altogether. The argument is made that it does not improve productivity or innovation.

* this is based on the relatively weak payoff potential for being awarded and maintaining a patent. Couple this with the monetary costs of patent filing, and the modern patent does not particularly benefit small-scale innovators.

Recapping point #1.

2) Tighten the scope of what exactly constitutes an invention so that it is highly specific. This should be done to minimize patent infringement litigation.

* the Samsung v. Apple litigation (a $1 billion investment in and of itself) is used as an example. In this case, Apple argued that the overall design and form of the tablet computer were protected under their existing patent. Yet the question must be asked: is this a valid use of patent protection, or a way to muscle competitors out of a lucrative market?

Recapping point #2.

3) recruit more specialists who know subject areas not well known (e.g. practiced) by judges, lawyers, or patent officers.

* this would help to clear the backlog of patents currently plaguing the system. The key criterion is that the rewarded innovation must be a "never thought of idea". While this might be hard to define, people familiar with the field of practice itself might be more qualified to make these decisions. This could be in the form of technology managers at University technology transfer companies, or a peer-review system similar to what exists for academic journals and conferences.

Recapping point #3.

Now I would like to follow up on a few of these points with my own insights. I am not a patent lawyer or MBA, so these are from a decidedly different perspective. The first and second points focus on the use of formal rule systems to allocate value, something that in my opinion needs to be rethought across all areas of our society. There are parallels between placing a value on innovation and placing a value on intellectual properties such as books, media, and other partially-tangible forms of information [5]. But there are also lessons we can learn from rethinking how things get to be valued by society [6].

Three kinds of "free", courtesy of [6, 7].

Additionally, the second point is related to our semantic definition of what an innovation is. From a non-legal perspective, every claim is an exercise in semantics. However, even if we eliminated legalese, we would need to properly parse the innovation and then map this to a natural language. The current patent system requires this to some extent in that a proof-of-concept (or prototype) is usually required. This "parsing-and-mapping" requires specialists in a given area (e.g. science) rather than simply larger legal teams or an all-purpose government agency. Viewing innovation as a semantic system gets at something I call "value-added relativism".

What is value-added relativism? A better question is: how much would you pay for a circus? The answer is: it depends. While most circuses have a fixed admission fee, each attendee values the experience differently. Since this is a subjective experience, this is not surprising. Surely a tangible object (like a coconut) has a more consistent value (like land or gold). But wait: even the coconut has a relative value (as it turns out, also like land or gold). In the case of the coconut, different attributes are used by different groups of people. Thus, a single innovation can have vastly different values depending on who is using it.

Hopefully, this has provided food for thought. Do you have ideas you would like to share? Comments are welcome.


[1] For more videos like this on various economics and business-related topics, please see the Minute MBA website.

[2] For more videos in this style, see more RSA (Royal Society for the encouragement of Arts, Manufactures and Commerce)-style Animations on YouTube.

[3] patents are generally country-specific and time-sensitive (lasting anywhere from years to decades). The US system is governed by the USPTO.

[4] Here is my tongue-in-cheek take on the "War of the Currents", originally posted to my micro-blog, Tumbld Thoughts.

In the heat of a battle called the "War of Currents" [a], Edison did the following to promote and ensure that his DC (direct current) technology was adopted as the household standard: 1) electrocuted an elephant, and 2) invented the electric chair.

These melodramatic demonstrations were meant to highlight the dangers of Tesla's [b] AC (alternating current). Topsy [c] and numerous felons died to screw over Tesla, but at least Edison does not have a dubious association with death rays and spontaneous human combustion [d].

[a] "War of the Currents" image taken from the infographic "The Current War: the tale of an early tech rivalry".

[b] AC was licensed to Westinghouse and developed with contributions from other inventors as well. In this sense, perhaps the "Edison v. Tesla" story is perhaps an indulgence in historical narrative. 

[c] see Guerilla Explorer and the "Bob's Burgers" episode "Topsy" for fun facts about Topsy.

[d] see this PBS feature on Tesla's work ("A Weapon to End War") for more information. The spontaneous human combustion reference is mere urban legend, but is just one example of the odd ideas that follow from combining fringe science and speculation.

[5] For more information on Kevin Kelley's "free" model and its relationship to innovation, please see the following blog post:

Alicea, B.   Freedom of information versus the economics of information. Synthetic Daisies blog, January 21 (2013).

[6] Anderson, C.   The three kinds of FREE. The Long Tail blog, September 05 (2008) AND Anderson, C. Free: the future of a radical price. Hyperion, New York (2009).

[7] Armano, D.   Visualizing Chris Anderson's "Free" Model. Logic and Emotion blog, September 29 (2008).

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