The IP specialist, the entrepreneur and the software patent.

Joff Wild wrote in the (excellent) IAM blog that he thought people having fought against the european CII directive, and software patents in Europe in general, were wrong, even if “many of them run companies too”.

I am one of them, and I’d like to shed some light on the debate by exploring the differences between the usual defenders and adversaries of software patents.

First a little background on myself: I’m one of those who

  1. run (after funding and founding) a small software company
  2. vocally opposed software patents, and still feel right about it.

More than that, 3. I also worked (and still do sometimes) at large companies developing software, as a product to sell, on a contract basis or as part of a larger service.

One of the central points against software patents is that, in short, software patents are okay for large companies and hurt small businesses.

Large companies

For large companies, software patents integrate well with the rest of the patents, within the defensive and cross-licensing strategy and the asset management strategy. The entry cost into this battle may be moderately high (at least you need to hire an IP specialist), but certainly within the grasp of a large company. Many advocates of software patents are recruited in the ranks of these IP specialists. They understand how software patents can be used as a tool to erect barriers to the entry of competitors, as a negociation tool in a portfolio, as a valuable asset when licensed. Certainly, they understand the IP laws details better than anyone else in the world, they know what IP protection to afford, how to write the patent, what court to use, what battle to fight and when to pass by.

Now, take the little guy (gal ?), that is, the entrepreneur. Most likely, she graduated in marketing, sales or engineering, not IP. She certainly knows much less about IP than Mr Fortune 500’s company VP of Intellectual Assets. But the perpective is quite different for her.

Guess what: the small software businesses aren’t engaged in intercontinental markets, they’re trying to secure a niche market. They don’t negociate portfolio cross-licensing, they don’t have one, software patents or not. Startups aren’t engaged in erecting a barrier like entrenched competitors do, they’re trying to break into the market. They aren’t (yet) planning for the day they could leverage their IP assets, they have too little. Entrepreneurs are just trying to get the to the market a product, better, faster, stronger than any normal man.

The only goal the entrepreneur may share with the VP of IP is when it comes to VC. When asking for money, a patent may be good to show there is something unique in what you’re doing. However, there’s more than your core product to be unique. And this isn’t a very good argument in Europe where venture capitalism is notoriously weaker than in the US (and many companies successfully live on their free cash flow — I’m one of them).

Entrepreneurship is about knowing a little bit about everything, knowing much about a problem without a solution (yet), and devising a way to get there. So it is true that most entrepreneurs don’t know IP with the same exquisite details that IP advocates do, a starting point for the accusation of IP ignorance many patents advocates throw at software patents opponents.

Entrepreneurs, however, know one thing or two, while I’m not so sure about the VP of IP. The entrepreneur knows to the last cent what amount of money the company needs to cash to get through the end of the month. The entrepreneurs can translate every euro put in IP into lost sales, since every sale contact has a cost. While selling to grow is the obsession at the basis of every successful startup, the lack of attention to sales is a sure path to bankruptcy.

Not taking into account that, for many small companies, management of patents is just a luxury they can’t afford, is a fundamental misunderstading of the small business economics, and the trap many patents advocates fall into.

When patents advocates understand that, they usually understand why entrepreneurs fight software patents so bitterly.

Who’s right, or why there are many small software editors and few small pharma companies.

“Entrepreneurs are foolish”, says the patent advocate. “They don’t understand. While they’re fighting against software patents in Europe, their american counterparts are piling patents. There is an arm race there, and Europe is losing ground”.

We’ll see, software is different [I should post about it one day]. Let me tell you another secret about the process of software making I’m pretty sure many software patents advocates don’t conceive clearly.

World has existed for some time now, and chances are when you’re running a small company that you’re doing something some big (entrenched) player is doing already, although in a more antiquated, less efficient way. For example, if you created the laser printer, there are companies already selling dot matrix printers. If you’re creating an ASP company, there are already companies selling a “traditionnal” software to do the same thing. Even google didn’t created on a vacuum, since altavista was there first.

As an entrepreneur, you’re trying to displace the big guy, first by filling a niche they neglected. So every morning when you wake up, many times in the day, and every night before falling asleep you ask yourself “what can I do they can’t ?”. It’s quite easy to discard many things they can, and you can’t. Advertising, distribution channels, mass, classical customer acquisition, buying a company to get something. All of these cost huge amount of money, need a lot of people, and they’ve got more than you do.

However, there are one thing you can always do with a small team. Write software. Because, believe me and check if you don’t, every commercial piece of software is always written by a small team.

I’ve worked at several companies and see many software project during the last 20 years, and I can tell you, this is the way software works. Software engineering is just not advanced enough so you can get a large team, have them to communicate in a software market compatible timeframe, and get results. Even at very large software editors, the core product is always written by a small team. Throwing a lot of money at the thing won’t make the development faster, only more cumbersome.

At least, here’s a place where you, the small guy, can compete with the incumbents, at least a place where, in spite of the efforts of several generations of scientists and engineers, the entrepreneur can still beat the guy with the deep pockets. In almost every other respect, marketing, sales forces, financials, everything, the big guys can do it better thanks to the money. But not the software product.

Software patents won’t help the small business in term of market access, only make it more difficult.

A last word

Patent is a monopoly that, at the society level, exchanges efficency of the market and of the research*, against an incentive to innovate. As such, it is a tool for economical policy, and should not became an end in itself. When talking of the software patent mess, don’t forget extension of patentability without enough consequences analysis first created another kind of mess on the other side of the Atlantic Ocean.
* the second to come invested as much money as the one arriving first to get the patent, but the second one doesn’t get much.