Myopia in the C-Suite is Wrecking America’s Patent System

By Gene Quinn
April 13, 2017

While there are notable exceptions to the general rule (e.g., IBM, Qualcomm, Apple, Microsoft), innovation primarily comes from truly small entities [1], such as start-ups, small businesses, individuals and entrepreneurs. This is true because innovation, by its very nature, requires three ingredients: (1) risk-taking; (2) challenges to the status quo; and (3) a significant investment of time, money and resources.

Large corporations that dominate their marketplace typically do not have a vested interest in upsetting the status quo, but rather they are entrenched players in a mature market that have as their primary goal the objective of staying on top of their market.  And the singular goal of staying on top of a mature market that you dominate almost universally leads to Chief Executives and others at the C-Suite executives to be highly risk adverse. With those two critical legs of the innovation triad missing, no amount of investment will lead to any meaningful innovation, let alone disruptive innovation that moves markets, creates jobs and uplifts economies.

The simple truth is you do not get from where you are to where you want to be as a C-Suite executive by taking risks or looking for disruptive solutions. Even well calculated risks are fraught with danger because, after all, why would you want to trade a marketplace that you already dominate for one that you may or may not wind up leading? This is why the media, the public and a subset of high-risk investors find charismatic characters like Elon Musk so intriguing. Say what you will about Musk, and we have and will continue to point out the hypocrisy of his patent beliefs, but he is an excellent businessman who is not afraid of taking risks and dreaming big, even if it isn’t always with his own money.

That risk taking entrepreneurial spirit that gets things done is the exception, not the rule, which is why Musk and those few that are like him stand out in the crowd. It is also why those types of start-up, visionary CEOs tend to leave as a company matures because there is simply no place for that personality at the helm of a market leader in a mature marketplace. Even the great Steve Jobs famously ran into problems at Apple.

By and large most Chief Executives and C-Suite executives suffer from extreme myopia. At best the life expectancy of a Chief Executive is measured in small number of years, not decades. At worst the life expectancy of a Chief Executive is measured in a handful of quarters, which is why so many chase earnings and profits rather than engage in any kind of sensible long-term plans. Indeed, by some estimates 40 percent of CEOs are fired within the first 18 months. When you know there is a 40 percent chance you will be fired before a patent application filed today even publishes, there is understandably little incentive for CEOs to think long-term. Still, the myopic view of so many Chief Executives is at the same time difficult to accept given that the corporations they are entrusted to run as fiduciaries can theoretically live forever.

While the “here today gone tomorrow” world that C-Suite executives live in it is clear they have personal incentive to make decisions that are not in the best interests of an entity that legally can live forever. Furthermore, chasing earnings and profits quarter after quarter while allowing the erosion of your main competitive advantage strikes me as a clear and indefensible breach of fiduciary responsibility. I’m truly shocked there have not been class action shareholder lawsuits brought against C-Suite executives for destroying the future of their own company in pursuit of getting to their golden parachute before the day of reckoning comes. Perhaps it would be a defense that they didn’t take the time to become educated on patent law and policy, or that they were being advised to take positions that directly and unmistakably devalued their own assets.

Whatever the reason, few Chief Executives are really stewards of their corporations as if the corporate entity will live past 3 to 5 years, which is why so many in Silicon Valley, for example, have spent so many millions lobbying to destroy the American patent system at a time when virtually the entire rest of the world is doing the exact opposite. Unwilling, or perhaps unable, to devise a strategy to deal with frivolous lawsuits these shortsighted Chieftains have taken aim at the U.S. patent system, and at the same time taken aim at their own substantial patent holdings that were acquired for important business reasons — business reasons they obviously do not comprehend or they would be making very different decisions and taking a very different approach.

Still, I suspect someday it will be very hard to explain to a jury why spending millions of dollars lobbying to destroy assets they spent many billions to acquire made long term sense for the corporation. I understand the business judgment rule, I just don’t see how it is going to provide any kind of straight-faced defense to the dismemberment of the patent system and individual patent portfolios.

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[1] The term “true small entity” is used here to distinguish from the Patent Office definition of “small entity,” which includes companies that have 500 or fewer employees, many of which would not ordinarily be considered “small” by most real world standards.

 

The Author

Gene Quinn

Gene Quinn is a Patent Attorney and Editor and founder of IPWatchdog.com. Gene is also a principal lecturer in the PLI Patent Bar Review Course and an attorney with Widerman Malek. Gene’s specialty is in the area of strategic patent consulting, patent application drafting and patent prosecution. He consults with attorneys facing peculiar procedural issues at the Patent Office, advises investors and executives on patent law changes and pending litigation matters, and works with start-up businesses throughout the United States and around the world, primarily dealing with software and computer related innovations. is admitted to practice law in New Hampshire, is a Registered Patent Attorney and is also admitted to practice before the United States Court of Appeals for the Federal Circuit. CLICK HERE to send Gene a message.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 8 Comments comments.

  1. H2H April 13, 2017 12:02 pm

    I don’t know all the CEO’s of big companies, or even 5% of them, but I doubt most of them think about patents beyond the occasional bombastic threat to start thermonuclear war with their patent portfolio.

    CFO’s, accountants and finance directors think a lot about patents, especially how much patents and royalties cost the company or affect the balance sheet.

    Corp. Strategy folks think about patents as an asset of a target, a business opportunity, or possibly a negotiating tactic.

    GC’s think about patents when there is a lawsuit or when the above mentioned parties tell them to.

  2. Paul Morinville April 13, 2017 1:25 pm

    If you have an big idea in a large company, the idea has to at least be relevant given the size of the comapny. For example, a big idea to me might build a $10M company. But if I am in a $10B company that big idea is really nothing but a rounding error. This means that ideas with scope smaller than the company never see light of day in a large company. Nobody is going to put their professional credibility on the line in a corporate environment if the idea is not even big enough to get any attention.

    Also, large corporations tend to focus on one thing, or at least the division within the corporation does. That means if your idea is outside of the corporate box, it will not be taken seriously even if it has a large scope.

    It is about risk, but it is also about scale and field of invention. Many things work against new technology development in a large corporation.

  3. Gene Quinn April 13, 2017 1:33 pm

    Excellent point Paul. Thanks!

  4. Inventor0875 April 13, 2017 2:41 pm

    Executive compensation & incentives are based way too much short term. So they destroy customer & employee goodwill/etc for short term gain.
    But Company Value (e.g., Net Present Value) actually depends on cash-flow/value generated many, many years after the executives have left.
    Problem is the huge mismatch of the incentive timelines versus Company Value timelines.
    Therefore, change executive compensation & incentives payout timelines to be similar to the Net Present Value discount timelines.
    Then there will be greater focus on their legacy of future product & talent developments/culture that will payoff further in the future (well after they have left).

  5. angry dude April 13, 2017 10:10 pm

    Paul @2

    And this is precisely why Apple is going to fall

    They are going to lose the majority of their desktop, notebook and even smartphone market just because of one thing – VR (which they don’t support)

    To hell with Apple – they’ ll get what they deserve

  6. Eric Berend April 14, 2017 7:56 am

    @ 2., Paul:

    Thank you for pointing out the mental “scape” of these larger corporations’ point of view. I described an aspect of this myopia from an entrepreneurial stance, in paragraphs 5 and 6 of my comment to the recent IPW article “Do You Need a Patent?”:
    http://www.ipwatchdog.com/2017/03/11/do-you-need-a-patent/id=79290/#comment-2736833

    There is also an artificial urgency that distorts corporate governance and strategy at most publicly owned corporations, in the stock market influences. Perhaps, a study has been or could be made, of private vs. public equity, in this regard.

  7. FRANK LUKASIK April 14, 2017 9:41 am

    I have been saying for a long time, Corporations own the Patent System (Lucree V. US). I am now asking Judge Neil Gorsuch to take a look at how expiring 1.500 Patents every week for non-payment of Maintenance Fees “Promotes The Progress Of The Sciences And The Arts”.

  8. Anon April 14, 2017 12:39 pm

    Frank,

    As to your recurring complaint about maintenance fees and the effects (known a priori) of not paying those fees, I would recommend that you sit down and talk with an attorney knowledgeable about the allowable cost structure in place for even having maintenance fees.

    You appear to be enraged over something that is entirely permissible under the law, and your counters really just do not make any legal sense.