Patent Laws Aren’t a Replacement for Good Business Execution

Patents grant legal monopolies under a guise that inventors need legal protections to make money. Those same legal protections reduce competitive pressures on inventors to avoid slowing innovation and technological progress.

America’s most valuable tech companies have built their market dominant positions through superior executions. As we consider ways to boost innovation, congressional lawmakers should consider scaling back and eventually repealing patent protections.

The idea of protecting inventors is much older than the US Patent Act of 1790—many considering the Venetian Republic as the first to pass patent laws in 1474. Patent law protection then and now is meant to stimulate inventions and technological development by granting temporary monopoly powers to inventors.

However, today’s most valuable internet companies raised billions of dollars from investors but never relied on patent protections to carve out their market-dominant positions. Amazon, Facebook, and Google command dominant market shares in their verticals and generate attractive profits in tens of billions of dollars annually.

Most of those companies weren’t even first movers in their segments—Barnes & Noble dominated the book selling business, MySpace was one of the first social networks, and Yahoo was the first popular search engine. Their near-monopoly market positions are a testament to superior execution.

Even when strong competitors try to enter their industries, competent incumbents can maintain their market dominance, as when Facebook’s successful execution edged out Google’s foray into the market with Google+.

Blue Origin in 2009 filed a patent for “sea landing of space launch vehicles and associated systems and methods,” which the US Patent and Trademark Office granted in 2014. A year later, yielding to legal challenges from SpaceX, Blue Origin requested to cancel the patent.

In 2016, SpaceX landed its Falcon 9 rocket on a drone ship. As of today, Blue Origin still hasn’t capitalized on the idea behind its patent filing. SpaceX won the space race without patents; Blue Origin didn’t execute.

While it’s hard to tell what would have happened if Blue Origin had maintained its patents, it’s hard to see how SpaceX still wouldn’t emerge as the winner. Perhaps the only impact of patents would have been a delay in development of sea recovery for SpaceX and millions in legal fees as companies took the fights to courts.

Tesla famously stated in 2014 that it wouldn’t launch any patent enforcement action if its patents were used by others in good faith. Despite Tesla’s pledge, 10 years later, major auto manufacturers have yet to gain a meaningful market share in the electric vehicle market.

At their core, patents are details of ideas or discoveries. Even if well-resourced companies try to replicate ideas, they will fail if incumbents can out-execute. The implications for American technological dominance are obvious—we need to focus on incentivizing superior execution. Even if state actors steal our intellectual property, execution is where America’s entrepreneurs excel.

We have a cutting-edge software industry because of our people, not because we have sophisticated patent laws. Therefore, the best way to maintain dominance is to reduce legal obstacles and let everyone compete on an even footing.

Without patents, incumbents would be kept on their toes, the only way for them to survive would to constantly re-visit their product portfolios and invest in transformational new products.

New energy would enter corporate America as entrepreneurs launch companies to take market share from slow moving/changing incumbents. Innovation and new product development would become priorities at every board meeting.

Recent efforts to regulate artificial intelligence have been presented as a way to protect safety and national security. If those regulations had passed, incumbent AI companies would have achieved a monopoly position.

Competitive pressure to execute would have been significantly reduced, and incumbents’ market positions and profits would be guarded by regulation and not by superior products/technology. Such regulation would hurt not only our startup eco-system but also the overall economy.

Patents yield similar results, functioning as a legally protected monopoly. The only difference is patents have an expiration date, while regulation doesn’t.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Mislav Tolusic is managing partner at Marlinspike Partners, a venture capital firm investing in companies focused on US national security and commercial markets.

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