Jeff  Carter

When a company finds itself stuck and getting surpassed by more innovative competitors, it faces a choice. Innovate or legislate. Innovation is hard. It can be very expensive depending on the industry. Legislation is cheaper, and can derail competitors for a long time.

That sort of evolution is manifesting itself today. If you have been watching Yahoo, you know what I mean. Twice they blew their dalliance with Microsoft ($MFST). They got their pants beat by Google ($GOOG). But they also were beaten by several other competitors in other areas, like Bloomberg.

Much of it was a problem of focus. What kind of company was Yahoo and where do they fit? Are they a media company, search company, advertising company? They forgot to listen to the marketplace and figure out their role within it.

It’s not just Yahoo that uses the tactic of the courts or legislation to bolster up barriers to entry. Different industries do it with tariffs, taxes, restrictions and other artificial means to restrain competition. Steel, Railroads, Computer chips, Farming, Auto, Insurance, and Banking have all lobbied Uncle Sam at one time or another for a special cut out or provision designed to block a competitor.

It works for a short time, but usually the competitor figures out a way around the block. They eventually eat the competitor for lunch. For example, Toyota was perfectly happy with import restrictions. It allowed them to raise the price on their cars. They still crushed GM($GM) and Ford($F). That’s just one example, there are many more in businesses you would never think of.

The broader point is should there be patents on software? It’s a fantastic question to ponder. My gut tells me that there shouldn’t be patents on ideas, but there should be patents on ways to implement those ideas. But I am open to a lot of discussion on this. I am no intellectual property rights attorney.

Jeff Carter

Jeffrey Carter is an independent speculator. He has been trading since 1988. His blog site, Points and Figures was named by Minyanville as one of The 20 Most Influential Blogs in Financial Media.