More Patents = More Jobs?

Paul R. Michel and Henry E. Nothhaft argue in a New York Times Op-Ed that it is foolish to divert U.S. Patent Office fees to general revenue, creating  a serious backlog.

This is the agency, after all, that issues the patents that technology startups and other small businesses need to attract venture capital to pay salaries. Three-fourths of executives at venture capital-backed startups say patents are vital to getting financing, according to the 2008 Berkeley Patent Survey, a national study of patents and entrepreneurship. And startups are responsible for almost all the new jobs created in the United States since 1977, according to a study by the Kauffman Foundation.

So far, so good. The authors are right at least to fear that the delay resulting from use of fees as a cash cow -- really a hidden tax rather than the originally intended user charge -- may be delaying funding for statups with significant innovations, according to the 2008 article. The latter also notes, though:

[W]e discover that startups are generally more likely to file for patents, as well as
hold greater numbers of patents, than was previously believed. But we also
reveal that these same companies report that patents provide mixed to
relatively weak incentives for core innovative activities, such as invention,
development, and commercialization.

In other words, investors' belief in the power of patents is warranted mainly as a self-fulfilling prophecy. Patents actually played a relatively small part in establishing some of the greatest information technology companies. When I wrote a commentary on the Microsoft antitrust case in 1998, I discovered in the U.S.P.T.O. database that Bill Gates had only one patent to his name, a shared one of 1994 at that, evidently for a feature of Microsoft Word. Larry Ellison founded Oracle on the basis of a published idea, also unprotectable as such, of the IBM research scientist Edgar F. Codd.

The relationship between patents and start-ups is complex. Some developers argue that software patents are evil. Big pharmaceutical companies also reportedly use (delayed) patents on production to thwart production of generic drugs once the underlying patent has expired. These grants count as much statistically as the underlying innovation. So more efficient processing of patents might harm some start-ups and entrepreneurs as much as it would help others.

And many companies big and small prefer trade secrets, which don't expire, to patents. Ask the people at Coca-Cola -- or Thomas' English Muffins