. "5 Findings and Recommendations." Assessing the Impacts of Changes in the Information Technology R&D Ecosystem: Retaining Leadership in an Increasingly Global Environment. Washington, DC: The National Academies Press, 2009.
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Assessing the Impacts of Changes in the Information Technology R&D Ecosystem: Retaining Leadership in an Increasingly Global Environment
The reasons that may explain this decline in technology IPOs and in returns from IT venture investments are multiple and hard to quantify. Nevertheless, the committee believes that they are, at least in part, symptoms of an added friction in the U.S. IT R&D ecosystem. There is no way to interpret in a favorable light the sharp decline in the number of IT companies reaching the IPO milestone. Although reaching an IPO is not a guarantee of long-term future success, IT companies that do not have the opportunity to tap public equity markets will not have the capital required to grow into major industry players and to contribute meaningfully to the creation of high-quality jobs in the United States.
Over the years, new laws and regulations have been introduced that appear to have had negative, unanticipated, and unwanted side effects on the effectiveness of the U.S. IT R&D ecosystem. Moreover, there are indications that older laws and regulations have not been fully adapted to the changing realities of a globalized IT environment that is based on new technological platforms and new innovation methods.
As one example, a major source of friction for young IT companies is the current U.S. patent system. Patents have been more actively acquired and vigorously enforced in recent years.26 Firms are facing dramatically increased hazards of litigation as plaintiffs and even more rapidly increasing hazards as defendants (see Chapter 4).27 The sharply increased probability of being sued implies an increase in the “tax” per R&D dollar that litigation imposes on innovation. Small firms face much higher marginal enforcement costs and marginal taxes on R&D.
As the U.S. IT R&D ecosystem has become far more contentious, the cost of protecting and defending intellectual property is undergoing rapid inflation. The long-term effects of this phenomenon may be more pernicious, in terms of the costs of protecting an invention, the costs of defending against an infringement claim, and the size of damages awarded, relative to the contribution of an infringed patent.
Taken together, these trends may have a stifling effect on young IT companies, especially those just bringing products to market, that have limited funds and no patent portfolios for use in cross-licensing agreements or as the basis for countersuits. These companies run a greater
National Research Council, A Patent System for the 21st Century, The National Academies Press, Washington, D.C., 2004, p. 19.
According to Bessen and Meurer, the number of patent lawsuits filed annually in the United States doubled during the 1990s, from almost 800 in 1990 to almost 1,600 in 1999; their research also “suggests that patent litigation can affect innovation incentives.” James Bessen and Michael Meurer, “The Patent Litigation Explosion,” paper presented at the American Law and Economics Association Annual Meeting, 2005, p. 1, available at http://papers.ssrn.com/sol13/Papers.cfm?abstract_id=831685#PaperDownload; accessed March 6, 2008. For litigation hazard findings, see ibid., Table 2.