In the latest episode of the podcast ‘Understanding IP Matters,” which is available today, veteran technology investor Gary Lauder discusses why many large tech companies fear the power of disruptive ideas and the patents associated with them.
Lauder, whose Lauder Partners, LLC has an impressive track record in technology investing, has been working in Silicon Valley since 1985. He has seen trends come and go. In ‘Investor View: Why Market Leaders Want to Kill Creative Destruction’ he discusses why the theory of creative destruction originally presented by Joseph Schumpeter in 1942 is feared by some incumbents.
“Big Tech claims to be worried about patent trolls, but that’s not true. They’re more worried about a real operating company with very valid claims coming after them.”
Keeping disruptors as bay or, at least, containing them until they are acquired or can otherwise be controlled, has become a tech strategy that is perhaps good for some shareholders, but ultimately destructive for commerce and innovation. It also makes it more difficult for the U.S. to compete with China, who fuels its innovation with virtually unlimited capital and a flood of global IP rights.
Some notable responses in the Lauder episode:
Are patents more important today?
“Patents are less important today than they used to be,” Lauder says. In the early days, patents were unimportant in software because they were non-existent. Whereas in most other fields, “patents were actually very important.”
They’re less valuable because they’re more difficult to enforce, which Lauder attributes to court cases and the 2011 America Invents Act, which he describes as “really unfortunate legislation.” However, most investors and entrepreneurs don’t realize this.
“I don’t know if it’s good news or bad news, but I would say that investors and entrepreneurs, by and large, are not that well aware of how problematic patents are and still place higher value on them than is deserved. The notion of how badly damaged our patent system — that information is not well-disseminated.
“We want the kind of investment in the kinds of new things that belief in a patent system engenders, and the fact that there is more belief than reality now encourages more of that to occur. Having said that, I think the solution here is to try to save our patent system before it continues to weaken.”
Lauder has seen a lot of interesting companies worth investing in that would be very patent-intensive not get funded.
He laments the reality that as patents become less valuable, trade secrets become more valuable, because protecting trade secrets is particularly challenging for startups, whose employees come and go.
Do incumbents fear the disruptive force of new companies?
“Yes, absolutely. Joseph Schumpeter, the economist, had a good term for what made the American economy so great. He called it ‘creative destruction.’ The innovators destroyed the incumbents and in so doing, improved the productivity of our economy. The incumbents don’t like the destruction part of that, and so they will generally do whatever they can in order to try reduce or mitigate it. Copying the innovator is an example of what they do…
“Big Tech claims to be worried about patent trolls, but that’s not true. They’re more worried about a real operating company with very valid claims coming after them.”
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Listen to this episode here or on Apple Podcasts, Google or Spotify to hear Lauder’s perspective on technology investing, the Patent Trial and Appeal Board, open source (which he likes) and competition. For the full story and quotes, visit IPWatchdog.
Image source: understandingip.org
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