Pace of Innovation

Charles Hughes Smith (OfTwoMinds) has posted a very interesting short article (with charts) regarding innovation and the ability to profit from that innovation.

You should read the article, but for the impatient, I would summerize it as follows: As innovation spreads, and skills become more widely available (worldwide), the ability for one company to maintain a large “profit gap” over its competition diminishes more rapdily. In other words, with more of the planet able to compete with American companies, it stands to reason that the profit margin that those US companies used to achieve will not last as long. Commoditization has become institutionalized.

As an example, he sites Apple and the premium that it used to command over devices running the Microsoft operating system. Today, however, even though the iPad and iPhone created a new category in the tech industry, Google has been able to make comparable (or arguably better) devices for half the cost in just a few years.

Smith’s observation echos that of Daniel Boorstin in “The Discoverers” who noted that the speed and expense of communication set the pace for learning and innovation. The obvious example of that observation is the changes wrought by the Internet.

This increased pace of innovation highlights a conundrum for patent attorneys. As the pace of innovation increases, the “lag time” between when a technology is developed and when it gets patented becomes more accute. In other words, in a fast-paced (innovative) industry, patents get issued after the profit differential (per Smith) has disappeared along with the utility of that patent. Picking up scraps for that patent is left to the patent trolls. Perhaps in those fast-pased industries, a patent registration system or a deferred adjudication system (like Japan) might be a better fit.

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