Imaginary Problems

In response to a problem posed by Jaisen Mathai, a Yahoo engineer, TechCrunch offered a solution. But is the problem real? The problem is stated as:

What can we do with failed startup intellectual property that might help the community?

In expanding on this problem, they state:

But there’s a problem: all this intellectual property is still “property” and is owned by someone, even after a startup goes bankrupt. If the company has raised any venture capital, or has any creditors, they own the property after the bankruptcy. In a very few instances that IP is sold off to return some money to creditors. This is exactly what happened with Edgeio, for example, a company that I co-founded and which failed late last year. Most of the IP assets were sold to third parties, and the proceeds went to pay off those who were entitled to the assets. [emphasis added]

The formulation of the problem is wrong from the start. There is no problem with intellectual property being owned. In fact if it wasn't owned, its unlikely it would have been created in the first place (open source software being the exception). But the intellectual property was created for one and only one purpose, to create value and wealth that did not exist prior. What TechCrunch implicitly assume in the formation of the problem is that intellectual property is not real property to begin with.

Later TechCrunch offers a solution:

But I can see how this could change. Creditors and investors could agree up front, via a standard clause added to agreements, that any IP that isn’t obviously valuable on its face would be turned over to a third party for a quick analysis and determination of its value (financial and otherwise). That third party could decide to sell anything of value, keeping a percentage of the sale (and giving them an incentive to find value when it’s there), and simply release the code for anything that may be interesting but has little immediate commercial value.

That third party would need to be funded, though, and the income from asset sales probably wouldn’t cover the operating expenses. Perhaps this would be a good project for a university, or group of universities, to support. Student developers and faculty may find academic reasons to pursue it. And they would certainly be giving back to the community as well. [Emphasis added]

I applaud the use of private organizations to facilitate the transfer of intellectual assets from failed startups to new organizations. However, if the value from the sale of intellectual property is so low, why waste time with this third party? Why fund something that offers so little value. If these assets are so easy to recreate, where is the problem?

The answer is that there is no problem. This is exactly how markets work. Sometimes, things of value get abandoned. But more often, businesses are aware of the value of their assets and attempt to squeeze every dollar from it. Whether or not a business wants to donate assets that are worthless to them to some non-profit organization is a legitimate suggestion, but certainly not one that should occupy the minds of most start-ups nor most creditors. Often, it simply isn't worth it.