Understanding IP Matters – Investor View: Why Market Leaders Want to Kill Creative Destruction

Some technology companies embrace new inventions and patents; others just stockpile them out of fear for how they may disrupt their leadership position. Some investors regard IP rights positively; others do not.

After massive legislative and judicial weakening, can patents still be relied upon to help generate reasonable returns?

In Episode 2 of Season 2 of the “Understanding IP Matters” podcast, Bruce Berman sought out veteran venture capitalist (VC) and technology investor Gary Lauder to find out.

Lauder’s Background

As a venture capitalist, Gary Lauder is an outlier and an advocate because he’s an inventor who believes that patents and other intellectual property rights need to be more reliable and licensing less arduous. A Silicon Valley VC since 1985, Lauder is Managing Director of Lauder Partners, a firm with an impressive track record that has invested in over 150 private business.

Past portfolio companies, or current public ones, include Uber, 23andMe, Beyond Meat, and WebTV. From time to time, he publicly advocates on subjects that are important yet misunderstood. This includes preserving and improving our patent system for the benefit of tech entrepreneurs who innovate in fields where patent protection matters.

He is a co-inventor on 17 patents. (Most of his inventions are suggestions that he made to various companies after investing in them, he says).

Key Responses

Are patents more important today? Or less important?

“Patents are less important today than they used to be,” Lauder says. In the early days, patents were unimportant in software because they were non-existent. Whereas in most other fields, “patents were actually very important.”

They’re less valuable because they’re more difficult to enforce, which Lauder attributes to court cases and the 2011 America Invents Act, which he describes as “really unfortunate legislation.”

However, most investors and entrepreneurs don’t realize this.

“I don’t know if it’s good news or bad news, but I would say that investors and entrepreneurs, by and large, are not that well aware of how problematic patents are and still place higher value on them than is deserved. The notion of how badly damaged our patent system — that information is not well-disseminated. That’s good and bad news because we want the kind of investment in the kinds of new things that belief in a patent system engenders, and the fact that there is more belief than reality now encourages more of that to occur. Having said that, I think the solution here is to try to save our patent system before it continues to weaken.”

Do IP rights and IP play a significant role in many of your current investments?

“I tend to be attracted to companies that are doing fundamentally new things, such that IP rights would be important if they were enforceable.”

Software today, under Alice and as a result of 101 and patentability issues, is virtually unpatentable. You can get a patent, but you may not be able to enforce it. What does that do to your investment thinking?

“The fact that the Patent Office is so slow in granting patents and the software industry is so fast in how it moves, those factors themselves tend to relegate software patents to lesser importance. Even before those decisions happened, [patents] were relatively unimportant in software. And while software is an important part of just about every company I invest in, pure software companies are a different category.

By and large, I like big, revolutionary, change-the-world kinds of investments. Many of those are ones where there’s a lot of difficulty in figuring out what the right technology should be. But then once that’s figured out, it would enable someone else to copy it much more readily — and that that’s the type of business where the patents are the most crucial.”

Lauder has seen a lot of interesting companies worth investing in that would be very patent-intensive not get funded.

He laments the reality that as patents become less valuable, trade secrets become more valuable, because protecting trade secrets is particularly challenging for startups, whose employees come and go.

Do incumbents fear the disruptive force of new companies?

“Yes, absolutely. Joseph Schumpeter, the economist, had a good term for what made the American economy so great. He called it ‘creative destruction.’ The innovators destroyed the incumbents and in so doing, improved the productivity of our economy. The incumbents don’t like the destruction part of that, and so they will generally do whatever they can in order to try reduce or mitigate it. Copying the innovator is an example of what they do. Witness Instagram’s copying of Snapchat….

Big Tech claims to be worried about patent trolls, but that’s not true. They’re more worried about a real operating company with very valid claims coming after them.”

Listen to this episode to hear Lauder’s perspective on the Patent Trial and Appeal Board, open-source software, and more, including:

  • Why he views Bionic Wrench inventor Dan Brown as a hero;
  • How Big Tech has weakened and continues to weaken the U.S. patent system
  • Why patents are typically a backstop of value for investors
  • How the behavior of so-called “patent trolls” is a net positive for the patent system;
  • Why Google countersuing Sonos in so many countries around the world should be considered an antitrust violation.

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3 comments so far. Add my comment.

  • [Avatar for Gary Lauder]
    Gary Lauder
    October 8, 2022 03:03 pm

    @Pro Say: Actually, even before the AIA, the dollars lost or spent defending patent lawsuits were small rounding errors to the multi-billion/trillion companies that are funding the destruction of the patent system. I think that it’s more about a lobbying effort that has gained a life of its own, and there is no countervailing force within these organizations to question the ethical implications of continuing.

  • [Avatar for Pro Say]
    Pro Say
    October 7, 2022 08:40 pm

    Why Market Leaders Want to Kill Creative Destruction can be summarized thusly:

    $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

  • [Avatar for Anonymous]
    Anonymous
    October 7, 2022 05:21 am

    Interesting that patenting – so often criticised by nay-sayers as inhibiting innovation – is properly viewed as being an essential part of true anti-trust behaviour and actually encourages innovative creative destruction !
    We shouldn’t forget that Google, a highly active patent-buster in various ways, was created on the back of the original page-ranking patent from Brin and Page…

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