
My Biggest Surprise: How Law Shapes the Business Landscape, and a Patent Puzzle - DaniFong
http://daniellefong.com/2010/02/11/how-law-shapes-the-business-landscape-and-a-patent-puzzle/
======
tlb
Well written, Dani, thanks.

Big companies are smarter than gov't regulators, they understand their
business better, and they have a longer time horizon. So when the government
comes around to regulate them, they think "OK, how can we turn this into a
huge barrier to entry for new competitors?" They have large lobbyist and
strategy budgets. They generally win.

The most misregulated industries in the US are energy, medical, and
transportation. So there are lots of glaring inefficiencies, but they are
there for a reason. Technologists assume the reason is stupidity and that
clever inventions can fix things. Frustration ensues.

For your energy storage system, I suggest you target large energy consumers
like manufacturing plants. Big ones have access to spot markets. Give them a
system to store energy when it's cheap and deliver it to the machines during
the daytime. If you can show <5 year ROI, you'll be able to sell it.

~~~
thaumaturgy
This would be my one (minor) complaint with her essay; I think that there is
ample evidence in history, even fairly recent history, to refute the
deregulatory undercurrent the essay has.

Regulatory oversight is certainly not perfect, or ideal, or even completely
beneficial to anyone involved. Unfortunately, it is a necessary evil in any
market with a combination of a large enough cost of entry _and_ a captive
market in which the majority of customers can't simply opt-out altogether.

Medical insurance is a topical example that immediately comes to mind. Ten
people with some resources can't start an innovative new medical insurance
company; the costs are just too great. As a result, existing insurance
companies have no incentive to compete in terms of price or services, and
because a large enough number of people (and businesses) simply have to have
insurance, they don't have to worry about their market shrinking too much.

The flap over gas prices a year ago would be another example, and before that,
there was California's energy deregulation that resulted in serious problems
just a few years ago.

~~~
DaniFong
I may need to make some edits to change the tone. I am not against regulation
per se, though I am against particular regulations which have perverse
negative unintended consequences, as I describe. There are advantages to being
in a regulatory climate, and certainly I prefer a business world ruled by law
over anarchy.

I think that medical insurance here in the USA is particularly bad.
Nationalization is also bad, but relatively superior, I think, lowering costs
for everyone and improving care in the final analysis. Medical care, and
insurance in particular, could be orders of magnitude better, but only if
customers _actually care about medical insurance._ It's not exactly a
treasured consumer choice. If health insurance and medical care were rolled in
together, and marketed as being about healthy lifestyle choice, then you could
get people to take notice. Kaiser Permanente accomplishes some of these goals,
but is rather monolithic, and doesn't go far enough.

I've thought about trying to fix health insurance too. Another dramatically
huge problem with huge barriers to entry. But maybe there could be a Yelp of
health insurance that I could get people to care about. It was one of the
'alternative ideas' I had for that particular YC interview. Telling the
partners raised the predictable eyebrows!

~~~
lutorm
I also took some issue with the tone of your essay, which I found interesting
overall. Though I agree with you (who wouldn't?) that regulations that have
perverse unintended consequences need to be fixed, and I guess the question is
how to make the framework more nimble and less vulnerable to capture by
whoever is benefiting from the existing regulations.

~~~
DaniFong
Thanks. I'll think about this.

------
tokenadult
"If there’s one thing I’ve been surprised by while trying to start startups,
it’s the extent to which the business landscape is shaped by law."

Yes. People who go to law school, if the law school is any good, learn about
"freedom of contract" and how much that has to do with the business
environment in a country. Most of the examples in this blog post are examples
of regulatory restrictions on freedom of contract, and those restrictions are
indeed what shape the business environment even more than natural resource
disparities among countries or other things that members of the general public
suppose make one country or another thrive.

------
shimon
There's an important nugget in OP's pg rejection quote:

"...you’d spend most of your time dealing with legal and regulatory crap. That
sort of work doesn’t really take advantage of your skills.”

The truth is, when someone figures out how to work the regulatory environment
in favor of their business, they'll have a defensible competitive advantage.
Accomplishing that requires a skill that is usually not found in technology
people, and explains why lobbyists and lawyers make a lot of money.

~~~
pg
Yes. This isn't a bad idea in itself; it just didn't seem a good idea for this
specific group of founders. It was the same with Reddit's original plan for
ordering food on cellphones. That would have been an ok idea for founders with
$1m in funding and connections in the fast food business, but it wasn't such a
good match for a couple college grads with (at the time) $12k in funding.

------
lionhearted
Dani,

That was really amazing and I learned a lot. A thought on presentation - I've
got a longer attention span and more endurance than the average blog reader, I
am rather completely fascinated by this topic and it's directly relevant to
me, and yet I had a hard time getting through that entire post in one sitting.

It required an awful lot of thinking on one unified theme (how law shapes the
business landscape), but all the examples were stand alone and thought
provoking in and of themselves. I wonder if a three part series might not get
more readers reading all the points, more exposure, and more knowledge spread.
But that's a presentation point only, cheers for the very fascinating,
incredibly well researched and presented piece. The regulation tying profits
to return on capital and inability to store surplus power strikes me as
particularly crazy.

~~~
DaniFong
I was worried about this a little bit. To be honest the major problem was that
I did not have time to make it shorter! I wrote this in a single sitting,
starting at 9:20pm and ending after 4:00am. Near dawn. I simply wanted to get
it out there...

I'll put some effort in the future to distilling the argument and contracting
the post. For now, at least it's available.

~~~
Psyonic
I'm no expert on the best way to get readers, but I felt the article was
extremely well written. It honestly felt like it belonged in a publication.

~~~
thaumaturgy
...which is the way I (for one) would really like to see more "blogging" go,
and is a large part of why I'm so vehemently against cutting up the rare essay
like this one for the sake of the video game generation.

~~~
Psyonic
I'm with you on that. If everyone presented their opinions with as much
thought and research as she has here, we'd all be a lot more informed.

------
notauser
Part of the problem with regulated markets in the US (and not just power) is
that the ingrained distaste for regulation seems to ensure that when it does
happen it's done as badly and obstructively as possible.

It is possible to use regulation to create more efficient markets (such as the
UK broadband market - where the distortions caused by the last-mile problem
are regulated, enabling smaller players to be competitive) but I think it's
only possible because people are more accepting and expectant of government
intervention.

If you are willing to let the government do more, they can step in and make as
many changes as they need to allow a market to function; if you are really
opposed to any sort of government interference then you will only let them do
the absolute minimum even if a tiny bit more intervention would make a big
difference.

The flip side is that we might be more susceptible to over-regulation. CAP is
a good example - although US agricultural subsidies aren't much better.

~~~
lionhearted
> Part of the problem with regulated markets in the US (and not just power) is
> that the ingrained distaste for regulation seems to ensure that when it does
> happen it's done as badly and obstructively as possible.

I'm always incredibly skeptical of the, "A little of this is going rather
poorly, what we need is more of it" argument.

Actually, I've been thinking about this quite a lot lately - I've been in
Taiwan and Thailand the last two months, and there's a wonderful culture of
street food here. You can buy roasted peanuts or get some noodles or meat or
vegetables stir-fried from a cart on the street.

We don't have this in the United States because of regulation - one particular
regulation in California says you need to have a sink to wash your hands in
order to sell food. Thus, no street vendors unless they have a portable sink
(really, I asked a farmer's market person on this - you need a portable sink
in a van to run a street market).

Now, on the surface, this is an imminently sensible regulation. Who wants to
have food by someone who didn't wash their hands? But that's just the thing -
_I do!_ The food is good, the vendor would be happy to sell it, I'm happy to
buy it, and I darn well know the guy with the cart doesn't have the highest
health standards and I make my own choices. Some street food is not up to my
standards, some is.

Regulation prohibits me from making that adult decision for myself, so I'm
forced into higher priced food of similar quality, or going to Taco Bell
instead of getting some stir fried chicken, vegetables, and noodles.

I imagine at least one-third of regulations make sense on some level and do at
least as much good as harm, but it's a little like censorship to me. It's a
door you don't want to open if possible, despite the fact that there is rather
nasty stuff you'd rather suppress. You'd rather suppress the bad stuff, it's
probably objectively good to suppress the bad stuff, but you're always going
to wind up with well-intentioned-yet-misguided people going too far. Hence,
we're unable to buy street food due to the seemingly sensible regulation that
no one can buy food from someone unless that person has a sink.

~~~
lutorm
"I darn well know the guy with the cart doesn't have the highest health
standards and I make my own choices. Some street food is not up to my
standards, some is."

While that sounds good and well, how _do_ you make that choice? What are the
input data that you have that makes it possible for you to make an informed
choice about this?

I suspect you can't. You just have the _illusion_ of an informed choice,
because you have no idea of knowing whether someone's food is full of
salmonella or E Coli until _after_ the fact, when you get sick.

The key question is _why these regulations exist_. If it's because there is a
significant chance of someone dying, I see nothing wrong with it. But the key
is that there needs to be some dispassionate assessment of objective risk.
Since at least the US population seems to be extremely risk-averse in some
ways (e.g. terrorism, child abductions) but happily accepts a vastly higher
risk in other situations (e.g. driving a car) the key is to not be swayed by
emotions.

------
fragmede
Near the end, patent-avoiding strategies are discussed. Something I've
wondered is of compulsory licensing. In copyrights and songwriting, there is a
trio of copyright judges that determine the going rate for music in $/minute,
and anyone can then reproduce music by paying that price without any
negotiation. Of course, better deals can be worked out between parties, but
that option is always there. Would it be possible to apply the same sort of
thing to patents, to effect a positive change where one is desperately needed?

~~~
DaniFong
It might work: I am not sure if there are any laws in existence now. It seems
like it would be a hard sell since it strikes directly at organizations whose
lifeblood is litigation: patent trolls.

------
Shooter
[I've written about this on HN a couple times before, but it was a long time
ago and I can't find it in my history.]

I designed a software program to detect skin cancer a few years ago. At the
time, there were probably already a dozen such skin cancer pattern recognition
programs/systems for sale. Almost all of them are/were significantly more
accurate at detecting melanomas than dermatologists. I was mainly just trying
to improve the accuracy of the existing software a tiny bit and to improve my
programming skills. I didn't work on the hardware side of the equation at all.
I didn't expect to make any money or to achieve much...I'm not too sharp as
far as algorithms go and I usually coast by on marketing and domain knowledge.
But, miraculously, I did eventually achieve my accuracy/consistency goals. I
was unbelievably excited. I formed a small company to handle the IP for all my
medical software experiments - including the skin cancer software - and I set
about marketing the software to medical companies with dollar signs in my
eyes. And it was one of the few times I DIDN'T run into crazy patent issues. I
eventually sold the company to one of the largest engineering conglomerates in
the world (to their medical division, specifically) so that I wouldn't have to
deal with the regulatory crap. Being greedy, I worked out a royalty scheme on
the skin cancer software in exchange for a smaller company sale price.

SERENDIPITOUS SIDE STORY: I was working on the software one day while my wife
was getting ready to go to an amusement park, and I noticed she had a mole
that reminded me of one of my cancer training slides. I asked her to get it
biopsied. She put it off for a week or two, but I kept nagging her that I
didn't like the looks of it. She went to her GP, and they told her it was fine
and not to worry about it. I was pissed off, and asked her to go to a
dermatologist to have it looked at. She went to a dermatologist...and was
again told that it was fine and not to worry about it. I demanded she have it
biopsied...to ease my mind. My wife works at the same hospital with these
physicians, and she didn't want to rock the boat...but I'm very annoying when
I get stuck on something. So, my wife finally had it biopsied. It comes back
as a particularly nasty melanoma. She ends up having several large excisions
and her lymph nodes biopsied. They eventually completely removed her axillary
lymph nodes on one side (which caused some other problems), but she was
extremely lucky overall. She had PET scans and other monitoring for a bit.
Then they said she is completely cancer-free. They do exams every other month
for her now, because she is pregnant - and pregnancy increases melanin
production. Melanoma also has a large genetic component, which I didn't really
know about until all of this happened. Her uncle died of the same type of
melanoma yesterday. And they had told him HE was completely cancer-free about
10 months ago. This shit can keep you up at night.

My plans to move to a tropical paradise have been derailed, unfortunately, but
my wife is still cancer-free.

So...in the few years since the sale I've made exactly $0 in skin cancer
software royalties. It turns out the huge conglomerate bought my company for
the insurance/billing stuff we had designed, not the skin cancer software.
They have been largely unsuccessful in selling complete skin cancer detection
systems that they already own, and don't intend to do much in that area for
the foreseeable future. Most dermatologists simply don't want the
software/devices, for starters.

~~~
DaniFong
Wow, Shooter, what a story. Congratulations on writing that software,
achieving your accuracy/consistency goals, and selling your company, though I
share your disappointment with the fact that it never came out as a real
product. It's probably difficult to sell to dermatologists something that sees
what they see and does it better. That's why we were interested in the much
more challenging technical environment of using software on consumer devices
(like handheld cameras and cellphones).

If you have the time, I'd really like to chat some more about your experiences
and your work. My friend, Adam Stein, who once worked for the FDA that I
mentioned is looking for a cofounder in this area, and says that he's learned
the ropes to deal with the regulatory issues.

As for the side story involving your wife, again, wow. I hear too many stories
like this. Medical experts simply don't have a big enough stake in your health
to be counted upon. Health is something you have to take in your own hands. I
am so glad that you did.

------
EastSmith
Why don't you build Skin Cancer detector and sell it as Image Viewer? The end
result will be someone telling the customer to go to doctor or not. It's a
hack but if you are sure about the end result why not?

~~~
yummyfajitas
Possible issues:

1.) Some John Edwards ambulance chaser type finds patients who had skin cancer
which was not found by the detector. He finds a doctor to say "if they came to
see me, I would have spotted it."

2.) The FDA doesn't care about the disclaimer and calls it a medical device.
Then you need a doctor's permission to use it.

3.) It isn't a medical device, but the FDA persuades congress to rewrite the
law slightly to make it into a medical device.

Incidentally, I'm pretty sure 2 will apply, since that's the same system which
applies to other medical imaging devices.

~~~
emmett
I voted up your comment; you bring up three very likely scenarios. This is a
side issue, but an important one in my opinion:

Why did you mention John Edwards there? Did it really make what you were
saying more clear? Or was it just a great opportunity to get in a political
dig?

"""

In Artificial Intelligence, and particularly in the domain of nonmonotonic
reasoning, there's a standard problem: "All Quakers are pacifists. All
Republicans are not pacifists. Nixon is a Quaker and a Republican. Is Nixon a
pacifist?"

What on Earth was the point of choosing this as an example? To rouse the
political emotions of the readers and distract them from the main question? To
make Republicans feel unwelcome in courses on Artificial Intelligence and
discourage them from entering the field?

"""

<http://lesswrong.com/lw/gw/politics_is_the_mindkiller/>

~~~
yummyfajitas
At the time I was trying to personify the ambulance chaser - I had two
choices, John Edwards and Lionel Hutz (a Simpson's character). I chose the
real one.

However, your comment has convinced that it probably would have been better
not to personify at all, since it wasn't strictly necessary and is
distracting.

