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

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.

[JV-1]

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.

_______________

[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.