Software Patents: the Investor's and Venture Capitalist's perspective
Investors appreciate certificates that promise them a monopoly position. However such promises are often unreliable, based on expensive card houses, and the presence of patents in a field raises the risks associated with investments in that field. Thus the comments from the investor circles on software patents are rather diverse, ranging from press releases of unknown start-ups boasting about monopoly positions which they of course deservedly earned due to their enormous R&D investments, to standard formulas in SEC filings by which giant corporations deplore their fragility in view incaclulable patent risks.
News & Chronology
2005-01-00 Declaration of venture capital firms against software patents (Benchmark Capital is behind a large part of eBay's capital)
- 2004-11-00 Declaration of venture capital association in favor of software patents (sent to MEPs)
Purpose of this page
- Document the perspectives of various venture capital investors, collect their opinions, provide some critical analysis.
Interview players of the scene, get some to participate in our November Conference
- collect some statements from VC scene players on this page (and a later static version of it)
Sources of Distortion in Opinions
- Venture capitalists are happy when their company has a perspective of monopoly somewhere. For them a right to erect unjustified toll booths is just as good as a patent for very admirable research efforts. They are fairly insensitive to the question of what the effects of monopolies are on the economy as a whole. They just want the patents to be as broad as possible. Even if a minefield of patents decreases profitability, they may still be happy with the situation, because financing high-risk business is their job. VC is useful especially where chances of short-term product developments are low and investment is instead fuelled by hopes for long-term monopoly rents. Gene patents are a typical case, but in the software sector is is usually very easy to commercialise new ideas immediately. Software may not be a sector in which VC is a particularly fruitful approach. Some observers say that software companies enter a downward spiral when they start to become dominated by investors.
- Sometimes patent lawyers masquerade as venture capitalists. Since patents play an important role in the capital market and patent lawyers are highly paid experts (paid for evaluating the patent situation in the market where a company wants to invest and for implementing the company's own patenting strategy), patent lawyers will tend to speak in the name of venture capitalists, although perhaps they are merely praising the system to which they owe their expert status rather than objectively assessing the overall effects of this system on the VC economy.
- The VC market started late in Europe and is segmented into smaller national markets with regulatory burdens and disparities. Some (e.g. Sylvain Perchaud) say that this is the chief reason for its relative weakness in comparison to the US, others prefer to attribute the US strength to the US patent system.
obtain presentation of Sylvain Perchaud on European venture capital market given at ffii conference of 2004/04/14
- document the software related startup and VC scene
- in 2000 ENEF, an association of the software startup scene, joined our opposition against swpat, but they seem to have faltered with the dotcom boom
Venture Capitalist arguing against software patents (text by Laura Creighton)