Michael D. Moberly August 18, 2010 (Part I)
This post is about ‘the 2008 Berkeley Patent Survey’ and how software start-up firms perceive, use and are affected by patents. Trust me, if you are an entrepreneur, part of a management team, board member, or investor, this post is worth your time to review and reflect upon.
Respondents to the 2008 Berkeley Patent Survey consisted of 1,300 high technology entrepreneurs in the software, biotechnology, medical devices, and computer hardware fields. Each of the respondent firms had been started prior to 1998 with the respondent sample coming from software firms registered with Dun & Bradstreet (500+) and from the VentureXpert (less than 200). Eighty percent of the respondents reported their position to be either CEO or CTO of their respective firm with most reporting experience in previous start-ups.
The survey reports that two-thirds of the software entrepreneur respondents have not, nor are they seeking patents for properties embedded in their innovation, i.e., products and/or services.
Interestingly, the respondents collectively rated patents as being the least important mechanism, among seven options, for achieving a competitive advantage in their particular market space. Even software start-ups that already hold patents, the survey reported, regard them as providing only a slight incentive to prospective investor’s invest – don’t invest decision.
To be sure, there is nothing in the survey findings to suggest ‘a software patent abolitionist’ movement is afoot, e.g., a third of the software entrepreneurs (respondents) reported they already have or are seeking patents and perceive patents to be important to prospective investors, i.e., firms from whom they hope to obtain financing.
So why was this survey conducted? According to the principal investigators, they were curious to know the extent to which high tech start-ups were utilizing the patent system and to learn their reasons for seeking a patent, or not.
Of course, as the investigators stated, the basic economic principle underlying the patent system is that technology innovations are often expensive, time-consuming, and risky to develop. But, once developed, the innovations themselves often become relatively inexpensive to produce but easy to copy.
But, absent intellectual property rights (IPRs), technology firms may have insufficient incentives to invest in innovation relative to recouping their R&D costs that would justify additional investments in innovation due in part to the illegal and inexpensive copies that can be readily produced – available to undermine a company’s investment recoupment strategy and most competitive advantages.
One conjecture of the investigators was that early-stage technology firms may be more sensitive to intellectual property rights than their more mature brethren. This conjecture was based on the view that early-stage tech firms tend to lack complementary assets, i.e., marketing channels, access to credit, etc., in other words, intangible assets, that mature firms are more likely to have developed and are available to exploit.
With respect to the question ‘why start-ups decide to patent’, the survey respondents revealed the following as being ‘moderately important’, i.e., to
1. prevent competitors from copying the innovation
2. enhance the firms’ reputation
3. secure investment and improve the likelihood of an IPO
The survey revealed differenences in the rate of patenting among the VX and the D&B software companies. Three-quarters of the D&B firms had no patents and were not seeking them. In contrast, over two-thirds of the VX software start-up firm respondents, all of which were venture-backed, had or were seeking patents. The investigators were not able to assess precisely why VC-backed firms were more likely to seek patents than the D&B firms. Speculation was that VC’s urge the firms they fund to seek patents; or perhaps VC’s choose to fund the development of software technologies that they believe are more amenable to patenting.
(This post was adapted by Mr. Moberly from the work of Professor Pamela Samuelson’s article in ‘O’Reilly Radar’ and the recently published article, “High Technology Entrepreneurs and the Patent System: Results of the 2008 Berkeley Patent Survey.” )
The ‘Business IP and Intangible Asset Blog’ is researched and written by Mr. Moberly to provide insights and additional views for company management teams, boards, and employees to aid in identifying, assessing, valuing, protecting, and profiting from their intangible assets. I welcome and respect your comments and perspectives at email@example.com.