Innovation, Intellectual Property, and Entrepreneurship in The Information Industries

On March 4th, Silicon Flatirons hosted a conference featuring industry leaders including Paul Jacobs, CEO of Qualcomm, to evaluate the appropriate role for government policy in facilitating entrepreneurship and innovation.

On March 4th, Silicon Flatirons hosted a conference featuring industry leaders including Paul Jacobs, CEO of Qualcomm, to evaluate the appropriate role for government policy in facilitating entrepreneurship and innovation. Click here for a full list of participants.

David Rea attended the conference, and his observations are set forth below. Until recently David was the Director of Technology Assessment at General Atlantic, a multi-billion dollar private equity firm based in Greenwich, CT. Prior to that he was involved in both startups and educational technology, including a stint in Boulder as technical director of CU’s Physics 2000 project. David is currently working on another startup and plotting a return to Boulder. NOTE: If you are interested in writing a guest column for the next Silicon Flatirons newsletter, please e-mail Jill Van Matre at

Comments of Silicon Flatirons “Guest Columnist” David Rea:

Paul Jacobs’ keynote was an apropos kickoff to the afternoon. Especially interesting — and relevant to later discussions — was Mr. Jacobs’ refutation of accusations that his company “taxes” the mobile phone ecosystem with that rationale that it is the R&D fueled by those royalties that continues to drive innovation in the field. The money quote was his claim that essentially all of each year’s royalties funds the R&D of the following year, with the company’s profit coming from float on that capital. I wish I could float my Visa bills and make Qualcomm’s margins. But regardless of whether Excel needs a function for “poetic license” the message was clear: Qualcomm is no patent troll; they work hard for their IP and in the absence of royalties the innovation would stagnate.

In the first panel, the discussion quickly centered on the question of who should be doing research, and whether for-profit companies, either startups or their mature forebears, have sufficient incentive to conduct long-term research. It seems to me, however, that the terms “short-term” and “long-term” are relative to expected outcomes: surely a university research scientist who sees a paper published after a year obtains a relatively short-term benefit. The term “basic research” was offered, which perhaps gets more to the point, but even so it provides no useful test for demarcation.

An audience member made a comment (in the form of a question) that a lot of government money that could have been funding research has been diverted to the War on Terror. While undoubtedly much of that money is essentially going to waste, and despite the opinion of many researchers that the current administration in “anti-sciencie”, there are in fact many interesting technologies that have seen increased investment. Image processing, 3D cameras, biometrics, sensors, pattern recognition, chemical detection, RFID, robotics, visioning, cryptography and steganography, and a host of others have all seen activity. The government’s intended use of these technologies may raise the hackles of civil libertarians, but federal money almost always comes with baggage. One’s pet technology may not be on the list, but certainly there is R&D money available.

In any event, on the topic of differentiating between short and long term research I am reminded of a quote which, unfortunately, I can only paraphrase: “the phenomenon of dawn does not invalidate the difference between day and night.” We all know there’s a difference between these two types of research, one of which has apparent and achievable potential for profit, and one of which does not. The question is how, in the absence of a capitalist rheostat, can we choose which projects of the latter sort to fund. The answer I think lies in some comments Richard Green made in reminiscing about the research utopia of his youth: we gather the smartest people of an appropriate disposition and give them funding, facilities, and time to think and create. Doing so, however, leads us to the questions addressed in the second session of the conference: who “owns” the resulting ideas?

I quoted “owns” because I find the premise of the word even more interesting than the answer to the question, and Geoffrey Manne touched on that point when he introduced the legal definition of “property” in the context of that currently pervasive phrase “intellectual property.” According to Geoffrey property implies “allocation of decision making rights,” a definition which conveniently encompasses not only physical acreage but also innovations in single click shopping.

The point missed, or perhaps dodged, is that the debate about intellectual property — be it songs or algorithms or codes on toner cartridges — is taking place not just in courtrooms but in public forums, and the very phrase “intellectual property” is used by parties on one side to sway public opinion by very deliberately equating the more ephemeral sorts of ownership with something concrete we can all understand. Coincidentally, about two hours before the conference started Ars Technica posted an essay on this same topic but arguing very much from the other side which does a more eloquent job arguing the point than I am able to. In any event, while the proposed replacement term “Imaginary Property” is a bit propagandistic in the other direction, perhaps we do need a more emotionally neutral descriptor.

The lively second panel discussion was full of contentious points, but on each one it seemed to me that stricter enforcement of the “non-obvious” requirement for patents would alleviate much of the disagreement. On the subject of software patents, for example, I would have liked to ask Jason Mendelson if he would really be opposed to protection, for example, for Whitfield Diffie and Martin Hellman back in 1976. Then Geoffrey raised some eyebrows (seemingly a hobby of his) with his suggestion that patent trolls were in fact good for the ecosystem by providing and important secondary market, a distributorship if you will, for intellectual output. My initial reaction was nearly as apoplectic as Jason’s, but when reconsidered in the context of a stricter interpretation of “non-obvious” the point makes some sense. Again, think of Diffie-Hellman: I for one would not object to a patent on such a clear innovation. We only denigrate these brokers with the term “troll” because of the embarrassingly poor quality of the vast majority of their wares.

Of course, the pure-play trolls aren’t the only ones profiting from IP friction; the larger problem for entrepreneurs is the one that gets Jason so irate, namely incumbents using large patent portfolios the way the Reagan administration used Star Wars: to bankrupt the poorer rival. John Posthumus explained that startups need patents as a defensive measure, and described a scenario in which a small company fends off a litigious incumbent with cross licensing, and “everybody walks away happy.” Happy? Relieved, perhaps, but it’s hard to see how anybody except the lawyers would find much joy in this. Certainly neither company would be more productive as a result. By the way, at least one panelist was skeptical about Jason’s claims that large companies attack new competitors this way, and I was disappointed that nobody offered the Vonage example.

The final session of the day was less contentious but touched on an interesting and perhaps more solvable question: what are the environmental factors that correlate to startup activity, and what can be done in Colorado to encourage more entrepreneurship. Many of the answers are what one might expect, but I found the most interesting comment to be an observation that University of Colorado engineering grads seem unaware or uninterested in business. A lack of understanding of how stock options work was cited as the example. In contrast, somebody else mentioned the palpable entrepreneurial spirit one finds in the Bay Area, in which every overheard conversation seems to be about a business plan or venture deal. Perhaps there’s something there; perhaps the most important lever in Colorado’s innovation machine is in the very home of Silicon Flatirons. If so, and given the work ATLAS is doing at CU, I think that bodes well for the region’s future.

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