Victus Spiritus


Patent Taxing Startups is Like Child Labor

02 Jul 2010

And yet that's precisely what patent trolls are doing, and what people like Fred Wilson^ are working to reform (Bilski & Patent Reform). It's even more ludicrous than kids working, taxing startups at their first sign of health is like forcing a newborn to work just as they begin breathing.

Building something from nothing ain't easy

It's hard enough* to probe, discover, design, refine, and execute on a new product. Startups do this with zero resources besides the sweat equity of their founders. Then, if the potential market is large enough, founders pursue anyone crazy enough (angel investors) to fund their quest to build a sustainable business. If they can attract enough resources to hack together a wildly popular product patent trolls come out of the wood work claiming infringement on their business, software, and design techniques. This happens just as the startup is being reshaped from a single product creator, into a business.

Small companies can't afford the patent process for their inventions (prefunding) and they can't afford the legal parasitic drain even after social proofing** and a couple rounds of financing or early revenue. It's a damned if they do, damned if they don't scenario.

The Ramifications of a Patent Lock Down

Only existing businesses will be able to afford to both "land grab" software and business idea patents, as well as support a permanent legal company in their cost structure. What this leads to is large companies maintaining their dominance without healthy competition. This severely inhibits the potential for new business growth, and is both socially and financially counter productive.

The spirit of patent and copyright law is to prevent copycat businesses and protect heavy research investments. Copycat businesses are something a company should outmaneuver and out execute. One could argue they lead to better overall business health.

In industries where heavy R&D investments are made, legal protection of discoveries can serve an important role. But in the areas of modern software, algorithms, interfaces, and novel business models the patent has proven to be a greater barrier to new businesses than a protector to the lone inventor.

^= disclosure Fred's a venture capitalist, so he's got skin in the game
*= I should know I've been wrestling with the probe, discover, design iteration loop
**= social proof is a substantial or rapidly growing user & customer base