According to Nathan Myhrvold, invention is set to become the next software. Nathan Myhrvold is the head of Intellectual Ventures, an invention capital firm. Myhrvold states:
I believe that invention is set to become the next software: a high-value asset that will serve as the foundation for new business models, liquid markets, and investment strategies. The surprising success Intellectual Ventures has had over the past 10 years convinces me that, like software, the business of invention would function better if it were separated from manufacturing and developed on its own by a strong capital market that funded and monetized inventions.
He believes that we significantly under invest in inventions. Inventions are generally funded under a charity model according to Myhrvold.
Rather than relying on the charity model and its overdependence on government-sponsored research, we should be looking for ways to harness the tremendous financial power of the private sector to fund invention. Consider this: Inflation-adjusted federal spending on academic research rose by 60% from 1983 to 2007. Meanwhile, investments in the business sector by the U.S. venture capital and private equity industries soared by 1,140% and 1,940%, respectively. The total $1.6 trillion (in 2008 dollars) invested by venture capital and private equity firms in this period is three times the $537 billion that the U.S. government spent on academic research.
In his article in the Harvard Business Review, he states that patents are not given the respect they deserve. For instance,
In affluent nations, product companies too often see inventors and other patent holders as adversaries, and vice versa. But product companies should see inventors as wellsprings of innovation and should trust them—and invention capitalists—enough to tell them what new technology the companies actually need. Inventors, for their part, should see manufacturers and invention capitalists as customers and should trust them to pay fair prices for the ideas they use. We aspire to be a trustworthy matchmaker that helps make this happen.
Interestingly, Intellectual Ventures obtains a significant number of patents from individual inventors.
One significant source of patents is the archetypal solo inventor. Many such inventors have no interest in writing a business plan or building a company; they prefer to just hand off their invention to a licensee and move on to the next great idea. Investment firms like ours spare them the work of tracking down and negotiating with lots of potential licensees separately, and we can almost always give them a fairer deal. We’ve paid about $315 million so far to individual inventors, making us one of their largest sources of new capital.
This is additional evidence that Congress needs to make sure that our patent laws are friendly to individual inventors. Congress is considering changing our patent laws so that they are less friendly to individual inventors, by converting our patent system from a first to invent system to a first to file system, weakening the penalties associated with stealing other people’s patented technology, and requiring all patent applications to be published at 18 months.
As the US moves from a manufacturing economy to a knowledge economy more people will be involved in the business of inventing. We need strong patent laws and an efficient Patent Office to facilitate this transition. We also need entrepreneurs, like Mr. Myhrvold, to create an efficient market in patents. Many people do not remember that before title companies, buying real property required expensive title searches and determining the boundaries of your land was expensive and uncertain. In the 1800s lawsuits over title and land boundaries were extremely common. No one suggested that we should not have real property rights in the 1800s because of these problems. The same evolution will occur with respect to patents, if we allow the market to work and maintain strong patent laws.
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