What's wrong with patents, exactly?

Thanks, P, for that great post. I agree with most of it for sure. The battle over software patents is a complex one and not easily summarized in bullet points. However, I'll try to make a few quick ones here. Take the following premises:

* A patent is a monopoly on human and scientific knowledge. Whomever has a patent controls the use of that knowledge, not matter how socially beneficial it might be or how much society might need access to it.

* By giving exclusive control to their owners, patents are inherently anti-competitive. There can be no competition for the technology when one person or company holds all the keys to utilizing it.

* On the flip side, patents can potentially provide incentives for people to discover new knowledge or innovate and create new technologies.

* Thus, the idea behind patent law is to provide enough incentive to facilitate enough innovation that it outweighs the bad effects of the anti-competitive behavior.

* For each area of technological innovation, it is important to assess whether or not the patent system is doing a good job.

* In the area of software and business method patents, there is a growing feeling that it is hurting more than helping. This comes from evidence in the Free/Open Source software movement that patent-based incentives may not be needed at all for innovation to happen. The Web 2.0 movement is also supporting this notion.

* If this is all true and we don't need patent-based incentives for innovation in these fields, then we are not actually receiving any of the benefits that patents are supposed to give us. Instead, all we are receiving are the negative anti-competitive effects. This is bad, and not something we should have.

So what does this mean for companies like Satisfaction and other startups? Well, each company plays a different role in their field and the patent game. While the patent system is still in play as it is, most companies file patents for two reasons: (1) to fight back against other companies if they are sued for IP violations and (2) to convince VCs and the public that they are on the cutting edge in their field. However, as a practical matter, few startups ever use their patents productively. Thus, they tend to be sunk costs that never become profitable assets.

So startups should be careful about over-investing in patents and thinking they'll rely on them later to secure market share instead of actually innovating and staying ahead of the competition in terms of product quality and experience.