Good for Patents, Bad for VCs

I spent the first half of today watching SportsCenter reruns (Troy Brown sure is swell), followed by a bit of research for a VC Investment in Digital Media panel Im moderating this Friday at the Wharton Private Equity Conference. Among my reference materials was a 2002 BusinessWeek Q&A with Morgenthaler Ventures partner — and Wharton panelist — Greg Blonder. Lots of interesting comments, but this one held particular intrigue:

“Patents are issued much too readily, for really trivial ideas. The patent system already has a perfectly fine standard: It says patents are given for ideas not obvious to those skilled in the art. If you gather a group of scientists and ask them to dream up some inventions, whatever they come up with, off the tops of their heads, is obvious and ought not to be patentable. I did this experiment a half-dozen times at Bell Labs. Each group of scientists inevitably thought of TiVo before it existed — and Napster. Such ideas just don’t deserve patent protection. Patents should be reserved for the few critical inventions — and these occur rarely.”

My initial reaction was to wonder how this applies to the venture capital market, until quickly realizing that it doesnt. VCs would not be terribly successful if they only invested in unique ideas. Sometimes its the copycat that outperforms the innovator (such as Microsoft with Windows, after Xerox and then Wang Labs had dropped the ball).

More importantly, ideas themselves are worthless. For example, I told my parents two things when I was seven years old. First, donut shops should have drive-through windows. Second, they should buy Disney stock (they had just taken me to Orlando). Both great ideas in retrospect, but worthless to my dismissive parents. It only matters if you put it into action (i.e., are an entrepreneur), and that goes for both 7-year-old me and the 40-something scientists at Bell Labs.

In fact, many of the most successful entrepreneurs are those who marry a very obvious idea with an aggressive/competent business strategy. And its the VCs job to determine how that marriage will fare compared to other similar marriages.

Id wager that no early TiVo investor is ashamed that the idea was obvious, just like Id also bet that each of those Bell Labs scientists now wishes he had taken a leave of absence to pursue the idea. Trust me; I feel it every morning when I pull up at Dunkin Donuts for a cup of coffee