It may be hard to sympathize with start-ups sporting million (or even billion) dollar valuations, but their struggle to grow should worry you if you care about a free market and seeing superior technology replace inefficient and higher-cost services.
A wide variety of groups that are interested in preserving the status quo are blocking innovative progress in industries ranging from health care to drones to driverless cars. Boiled down, these groups are using the courts and government regulation to have you pay more for poorer service.
What can we do about it? That was precisely the topic of a fascinating panel I attended at South by Southwest in Austin, Tex. Afterward I spoke to one of the panelists. In the video below Gary Shapiro, head of the Consumer Electronics Association, talks about some possible solutions to encourage innovation and discourage inhibitive behaviors such as patent trolling.
Rex Moore: Motley Fool analyst Rex Moore here in Austin, Tex., at South by Southwest and it's my honor to be joined by Gary Shapiro, president and CEO of the Consumer Electronics Association. Gary you were just on a panel, "Disruptive Innovators Under Attack" -- and you literally wrote the book on Innovators -- Ninja Innovation. What problems and issues were the panel addressing today?
Gary Shapiro: We were talking about the fact that some of the easy innovation involving the Internet has past. And some of the tougher innovation is coming involving health care and education where there are these huge and very complex institutions set up trying to preserve the status quo. And that's what every innovator faces. You're facing a status quo business that often uses the government and payment systems to keep out new entrants but we need those new entrants to make things better.
Rex: What paths to solutions are you guys seeing?
Gary: We're seeing whether it's with education or health care or even transportation like Uber, or drones for example, 3D printing, we're seeing a lot of opportunities there, but we're seeing government rules blocking innovation. And the solution really is for the nations and states who say they're the most innovative and act like they're innovative will attract innovation and investment.
Rex: So drones, e-cigarettes, ride-sharing like you mentioned. What kind of conversations do government officials and these industries need to have in order to get this done?
Gary: The thing about writing books about innovation is you go around the world and people ask you talk about it and they say, "How can we be like Silicon Valley?" Of course they can't be like Silicon Valley but the can create a government infrastructure which promotes innovation, as Israel and the United States have done. And that makes a real big difference. So what they can do is say, "We're going to allow these new things. We're going to look at our laws. We're going to look at our laws affecting drones and 3D printing and driverless cars and all this. And we're going to try to encourage them to come here. We'll allow the Ubers of the world to do business, and others." And that's whether you're for innovation or you're against innovation.
Rex: I receive a lot of email from you about patent trolls. It's an issue near and dear to your heart. First of all if you could explain patent trolls, what they are, why you hate them, and then maybe some solutions down the road for that.
Gary: Well, the United States has one thing we produce a lot of in surplus, that we should export, and that's lawyers. So there's a lot of unemployed lawyers, and they figured out they can send pretty annoying letters to thousands of businesses at once and say you've interfered with XYZ patent without even really identifying it. And you owe us money, so pay a few thousand dollars and we'll go away. Well, for a start-up or smaller company, to just try to deal with that is very difficult to hire a law firm that costs six figures just to defend that. We're saying if you say you own a patent because you bought some old patent that's expiring, you have to be very specific about what you're claiming, you have to refer to a patent number, you have to say who you are and who owns you, and if you go to court and you lose, you have to pay that small company's or start-up's attorney fees. So we try to level the playing field here, that's all.
Rex: Is this a U.S.-unique problem? What about other countries?
Gary: It's totally unique to the United States because other countries are less litigation-friendly. Also we have a problem, we have this one area in Texas where all the patent trails go and the entire community is based on the fact that they are supporting patent trolls, and people that invest there and they say they have companies that are based there. So it's a unique U.S. phenomenon, it's really tragic for start-ups because they can't get funding once they have a patent troll hovering over them and it affects thousands if not tens of thousands of mainstream businesses including restaurants and hotels and Internet start-ups, you name it. They've probably been hit with a patent troll letter.
Rex: Gary Shapiro, always a pleasure, thanks for joining me.
Gary: Thank you for coming, and it's always fun talking to you.
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