Feb 21 2010

Sawyer Weighs In On Intellectual Ventures

I have a number of friends who are patent attorneys.  Some have strong negative feelings about software patents that mirror mine while others keep me entertained by arguing both sides of the situation with themselves while I sit around and listen.  One of my friends – let’s call him Sawyer – has very strong negative opinions as he’s spent most of his time recently defending his clients against software patent suits including an increasing number from patent trolls (non-practicing entities).  He spends a lot of time in East Marshall, Texas and has figured out where all the best restaurants are.  While East Marshall isn’t quite as nice as an invisible, mysterious island in the middle of the Pacific Ocean, it clearly has a number of similar characteristics.  Sawyer has decided that he can’t write publicly about his thoughts and experiences so I’ve agreed to channel his experience into my own parallel universe.  Look for more missives from him (and better references from me with regard to Lost as I finally learn what really has been going on.)  In the mean time here’s his reaction to the New York Times profile last week on Intellectual Ventures.

Last week there was an article in the New York Times profiling Nathan Myhrvold and his company Intellectual Ventures ("IV").  I suppose since it’s a profile, the article is by nature one-sided, but given how I broke into a cold sweat upon reading it, I was a little surprised at how unbalanced the presentation was on the merits.  Mr. Myhrvold is characterized as a savior of inventors while his detractors are those big scary companies who want to infringe patents without compensation to the little guys.

What is the underlying premise of IV as a net positive for innovation and the U.S. economy?  The traditional defense is that patents incentivize innovation.  That has to mean innovation in a particular field, e.g., "software patents incentivize innovation in software."  Let me underscore this point:  there is no positive evidence for software patents improving or increasing innovation in software.  None.  I could make the same statement for pretty much any other field except biotech (which has its own problems that can be explored another time).  There are a variety of articles setting forth why patents actually hurt innovation in software particularly, (e.g., the famous Bessen and Maskin working paper on the subject).  Note that raw empirical data is hard to come by either way by nature of how the patent system operates, but the lack of positive evidence is telling.

Perhaps Mr. Myrhvold recognizes this, because in the article he says “I’m trying to get inventions that kind of respect as an economic entity.” (Emphasis added).  IV apparently incentivizes innovation on…inventions?  "Inventions" are actually a term of art in patent law, they are the things for which one can legally be granted patent rights.  IV, therefore, seems to admit that it wants to enforce patent rights so that we can…have more patents.  Mr. Myhrvold wants to create an entire economic category based on payments to entitles that don’t build, produce, sell, etc, any products, or create anything of value (i.e., that don’t innovate, at least in any useful way that advances human progress), in exchange for not being sued on exclusionary patent rights.

Let’s internalize that for a second.  IV has collected over a billion dollars so that it can get more patents.  They make no products.  They apparently don’t funnel ideas to anyone else who makes products.  Heck, the only useful thing I’ve seen out of IV is that mosquito-killing laser that Mr. Myhrvold showed off at TED this year.  They collect massive amounts of money for their investors, and funnel much of it into buying and developing more patents.  When I talked to a headhunter recently, in the midst of the worst market for legal jobs ever, she told me that the one employer who was always hiring people with experience in patents was IV.  So, anecdotally, they hire a lot of lawyers.  They set up a lot of shell companies.  They sue people, or threaten to sue people, for massive license fees. 

Now think about where this money would go otherwise.  Microsoft, Apple, and Google, not to mention other large technology companies, have sizable legal departments with teams of attorneys focused full-time on managing the 50+ software patent cases they each are a defendant on.  My guess is that they individually spend hundreds of millions of dollars defending and settling such suits per year.  Most of the suits are backed by investment funds (here’s an example of one) through shell entities.  Many of these funds are backed (with no transparency) by traditional investment banks and hedge funds.  What we have, then, is a net outflow, on a yearly basis, of at least several hundred million dollars, from technology companies who "make stuff" and unquestionably innovate, to speculators and investors who don’t.  I don’t think that baseline fact is something anyone would question.  IV dresses that up in the clothing of "invention," but they’re really just out to capitalize on a broken patent system like every other non-practicing entity ("NPE" as we call them – they hate being called trolls).  What kinds of cool products and technologies would that money be used to develop?  We’ll never know, I suppose.  At the very least we can presume that the pace of innovation in technology is being slowed by this net outflow of capital to non-innovating parties.

One thing I haven’t mentioned is that it isn’t just big companies who get sued.  Startups, especially in software, are constantly targetted by patent suits, especially by pseudo-competitors who want to kill more innovative upstarts.  How many great companies have been sunk by the costs of patent litigation?  Think about it this way – if Facebook had been sued on a social networking patent within a year of its existence, would it be around today?  It’s doubtful.

Finally, I think it’s important to address the moral point that’s always in the background when NPE’s talk about their business – having a patent doesn’t mean that you really invented anything, or that the person you’re suing would actually infringe in a rational world (the U.S. Constitution also only allows Congress to grant patents for "promoting progress," not for moral reasons).  Patents are legal documents, highly opaque, and the meaning of patent claims rarely, if ever, rationally corresponds to a real world product.  Patents are granted through a pseudo-adversarial administrative procedure where highly trained lawyers do their best to push extremely broad claims with extremely sparse/vague disclosure through overworked and underpaid patent examiners.  That’s the name of the game.  As much as companies like IV want to turn patent enforcement into a moral issue, it isn’t.  Patent lawyers are paid to get broad patents, not capture the essence of a real "invention."  And alleged infringers, in every case I’ve been involved in at least, don’t flagrantly violate patents.  They’re caught unaware, and even when they are aware, have the impossible task of figuring out if they would infringe.  It’s really a difficult Catch-22, but the patentees enjoy it, because it allows them to call defendants the "bad guys" while taking the moral high ground.

Mar 4 2010

Are Apple’s Competitors Stealing Its Patented Inventions?

The Apple patent suit against HTC really riled up my friend Sawyer.  I wasn’t planning on posting another missive from him until next week, but I thought this was particularly timely given the public statement from Apple, including a specific quote from Steve Jobs about its competitors stealing their patented inventions.  Sawyer explains why this is simply inflammatory rhetoric and actually has no basis in fact or the way patent law works.  He also makes the case – using this as an example – that patents stifle, rather than promote innovation.  Enjoy.  And, after you read this, if you want a little “doesn’t this sound familiar” action, take a look at the Wikipedia page on Apple Computer v. Microsoft Computer with regard to the GUI – with a little Xerox tossed in as a side dish.  And now, my friend Sawyer.

The other day Apple announced that it is suing HTC for infringing several patents related to the iPhone, including patents on the UI, i.e., software patents.  As part of the press release, Steve Jobs said the following (emphasis mine):

“We can sit by and watch competitors steal our patented inventions, or we can do something about it. We’ve decided to do something about it. We think competition is healthy, but competitors should create their own original technology, not steal ours.”

The rhetoric of "stealing" and "theft" surrounding accusations of patent infringement is bothersome, both because substantive patent law doesn’t embrace the concept of theft, and because most patent cases don’t involve credible allegations of actual theft or even copying. 

Plaintiffs try to use "theft" to inject a moral element into patent suits, but there is no substantive moral element in patent law.  The point of a patent is to grant a monopoly in exchange for public disclosure, and patentees want people to use the ideas (in exchange for license fees), otherwise the public disclosure aspect is pointless.  The Constitution doesn’t authorize patent or copyright law for moral reasons either:  “To promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries…” 

The only doctrine in patent law that shades into morality is willful infringement.  The shifting law on willful infringement will be the subject of another post, but in any case, willfulness isn’t a morality doctrine; willful infringers aren’t bad people, they are just people who decided to continue possibly infringing because they didn’t think they infringed, thought the suit was frivolous, or thought they would lose more money by stopping, at least in the short term.  The doctrine is set up to penalize people who recklessly infringe by potentially trebling damages, and so acts as an incentive to settle suits and pay licensing fees.  This isn’t a moral calculus, it’s a utilitarian one.

Willfulness, however, acts as the main vehicle for plaintiffs to inject moral rhetoric and copying allegations into a patent suit.  “Copying” in a patent law sense means that an infringer either literally read the patent and copied what the claims said wholesale, or saw a product embodying the patent and copied the patented aspect of it.  Copying in patent law does not mean “theft.”  Theft of secret ideas is actionable under trade secret law, and I know of very few cases pairing the two.  Literal copying is often actionable under copyright law as well.  Isn’t it the case though that patentees want people to copy?  Doesn’t copying mean that their ideas are spreading and being used for follow-on innovation, which are good things?  The issue if anything is proper compensation, not the act of copying itself.

Unsurprisingly, we don’t usually even get into copying as a consideration.  A paper by Mark Lemley and a good blog post titled Patent defendants aren’t copycats shows that the vast majority of patent cases don’t involve an assertion of copying (and we’ll have to see if the Apple case does).  Putting in place an independent invention defense to infringement, as suggested recently by Brad Burnham at Union Square Ventures, would potentially wipe out 90% of patent cases. 

Setting all of that aside, in my experience, when plaintiffs do allege copying, particularly in software cases, the allegations are uniformly flimsy and bogus litigation tactics aimed at getting “black hat” stories about defendants told to juries.  And it’s a great tactic because juries are people, and regardless of the merits, they like to stick it to the bad guys, especially so where the merits are boring patent law issues that no one understands anyway.

Now we have one of the biggest and most innovative companies out there, Apple, trying to sue one of its competitors out of the market with patents, and using the false rhetoric of theft to justify the suit.  This underscores that the patent problem isn’t just "trolls" versus "big companies," it’s big companies using patents to sue others in the same market into oblivion, cutting off competition and destroying innovation.  Imagine, if HTC weren’t making great Android phones to compete with the iPhone, would Apple be incentivized to significantly improve its products?  Would we have no iPhone if patents didn’t exist?  I think it’s fairly obvious that in the absence of patents, we would have more competition and more innovation here, not less.

In any case, the takeaway for reform advocates is that we need to shift the rhetorical frame in discussions around patents from the moralizing of "stealing" and "theft" to what the issue actually is, a dry utilitarian calculus about what outcomes are better for innovation and competition.  When we think about the issues in that frame, it sort of takes the wind of out of Steve Jobs’ sails, doesn’t it?

Apr 10 2006

Abolish Software Patents

I spoke on a panel last week at the Silicon Flatirons Telecommunications Program titled “Re-examining The Patent System.”  My panel was the last one and came after a few hours of stimulating discussion about the problems with patents, the problems with patent reform, and the reason our government is struggling so much with what to do.

When I was at MIT in the 1980’s, copyright and patents were just starting to be a major issue in the personal computer software business.  I vividly remember attending a lecture in one of my classes by the general counsel of Lotus who was suing Borland for copyright infringement between Quattro Pro and Lotus 1–2–3.  This was around the same time that Apple vs. Microsoft / Xerox vs. Apple lawsuits appeared, as well as the nonsense Ashton-Tate vs. Fox Software lawsuit.  Forget about patents – this was about copyright! 

Some of the research I did when I was a doctoral student at MIT was around the sources of innovation in the software industry.  In the late 1980’s, the three primary mechanisms for protecting innovation were copyright, patents, and trade secrets.  Copyrights (as evidenced by the legal action above) was the most active area and I – among many others – thought that copyrights were a problematic way to fundamentally protect software innovation, especially around look and feel (which was all the rage at the time.)  Of course, with the widespread emergence of the GPL and open source, the dynamics of software copyright have changed radically in the past decade, which is likely part of the reason the focus has shifted to patents.

I personally think software patents are an abomination.  My simple suggestion on the panel was to simply abolish them entirely.  There was a lot of discussion around patent reform and whether we should consider having different patent rules for different industries.  We all agreed this was impossible – it was already hard enough to manage a single standard in the US – even if we could get all the various lobbyists to shut up for a while and let the government figure out a set of rules.  However, everyone agreed that the fundamental notion of a patent – that the invention needed to be novel and non-obvious – was at the root of the problem in software. 

I’ve skimmed hundreds of software patents in the last decade (and have read a number of them in detail.)  I’ve been involved in four patent lawsuits and a number of “threats” by other parties.  I’ve had many patents granted to companies I’ve been an investor in.  I’ve been involved in patent discussions in every M&A transaction I’ve ever been involved in.  I’ve spent more time than I care to on conference calls with lawyers talking about patent issues.  I’ve always wanted to take a shower after I finished thinking about, discussing, or deciding how to deal with something with regard to a software patent.

I’ll pause for a second, take a deep breath, and remind you that I’m only talking about software patents.  I don’t feel qualified to talk about non-software patents.  However, we you consider the thought that a patent has to be both novel AND non-obvious (e.g. “the claimed subject matter cannot be obvious to someone else skilled in the technical field of invention”), 99% of all software patents should be denied immediately.  I’ve been in several situations where either I or my business partner at the time (Dave Jilk) had created prior art a decade earlier that – if the patent that I was defending against ever went anywhere – would have been used to invalidate the patent. 

When I made the assertion that we should simply abolish software patents entirely, I noticed a lot of lawyers heads moving vertically up and down.  I took this as a good sign, especially since a number of them had gray hair (and a few were on the earlier panels and sounded very intelligent and experienced, especially for lawyers.)

After wrestling with software patents for the past 15 years, I’ve concluded that there simply is no middle ground.  If we continue on the path we are on, patents will continue to increase in their overall expense to the system, everyone will feel compelled to continue to apply for as many (and as broad) patents as possible, if only for defensive reasons (one of Fred’s VC Cliche’s of the Week was “Patents are like nuclear bombs, you just got to have some.”)  Let’s take a page from geopolitical warfare and focus on global disarmament, rather than mutually assured destruction.

Nov 7 2011

Another Day, Another Patent Troll

These days I’m regularly exposed to patent trolls. Sometimes I read about them, sometimes friends email me about them, and sometimes companies I’m an investor in gets sued by them. Whenever I read the claims in the lawsuits, I often think that the claim in question is “obvious.” For those of you out there who know how patents are supposed to work, for something to be patentable it needs to be “non-obvious” as well as “unique.” While the specific claims may not be obvious to the patent troll, especially those who are lawyers who own patents they’ve picked up from other people (bankrupt companies, individuals who applied for and got a patent, patent factories), they are often extremely obvious to any software developer.

For a while I was frustrated by software patents. I tried to educate some of my friends in government about this. I was hopeful when the Supreme Court heard Bilski that they would take a stand on it. And I hoped that the people I talked to in the Obama administration, who acknowledged that they understood the issue, would try to do something about it. I hoped that the Patent Reform Act would actually have some teeth in it that would help address the completely messed up dynamics around software patents and my strong belief that this is a huge tax on the innovation process.

I had zero impact. Zero. As I sit here at the end of 2011, the software patent situation has spun completely out of control. In addition to endless patent trolls, who are multiplying like tribbles, large companies are now fighting massive legal battles with each other using patents. Some of the inventors (including a number of amazing software engineers) listed on the patents are finally speaking up against the patents, but since they’ve assigned them to companies they are no longer at, or the company that owns the patent acquired the company the original patent creator was at, their only recourse (and impact) is to get tangled up in a lawsuit as a witness.

In his 2003 letter to shareholders, Warren Buffet famously called derivatives, “”financial weapons of mass destruction” that could harm not only their buyers and sellers, but the whole economic system. “ You may recall that AIG, thanks to its non-transparent and heavy investments in derivatives, was almost bankrupt once the mortgage-backed securities it was insuring began to drop in value. The $85 billion bailout of AIG was the beginning of the government’s response to the financial crisis and we are still feeling the after-effects of that calamity.

Today, we are experiencing a similar threat to innovation with patents playing the role of “weapons of mass destruction.” Sadly, the America Invents Act, which seeks to provide the Patent Office with tools to operate better and passed recently, does precious little to address the patent litigation mess.

Like derivatives, there are thousands of software patents that are not transparent and remain available to do damage in the hands of patent trolls – and even respectable companies – who use them in lawsuits that bear little relationship to protecting inventions or spurring innovation. As others have detailed, there are increasingly destructive dynamics at play here and the easiest solution is to abolish patents in areas – most notably, software and business methods – where they are doing more harm than good.

Unlike the financial system, which derivatives helped bring to its knees, it is not clear how our innovation system will get to a breaking point that will require attention from policymakers. The Supreme Court could address the problem, but it missed a golden opportunity in the Bilski case, where it declined to end (by a 5-4 vote) the patenting of business methods. Perhaps the Supreme Court will realize that the situation requires fixing, looking for other ways to limit the damage.

The are simple options, such as disclosure where patent applicants should be required to disclose the source code behind their inventions, thereby ensuring that the invention is real and not merely a basis for a future lawsuit, which is what many software patents have become. Indeed, this requirement of the Patent Act (Section 112) is applied with some rigor in the biotech context, but has yet to be happen with regard to software. Such a change cannot come soon enough.

At some point the software industry is going to have to do something about this. We seem to not be able to rely on the government to take action that will affect change. I can only hope there are other leaders in the software industry, especially the amazing developers creating the innovations in the first place, who will take some collective action before it’s too late.

Jul 7 2010

Sawyer on Why Bilski Really Means That Software Companies Should Leave the US

My friend Sawyer was as disappointed in the outcome of Bilski as he was in the ending to LOST.  In fact, he asked if I’d change his pseudonym to Joseph Adama of Caprica but I vetoed this over extreme nerdiness.  Nonetheless Sawyer let loose on Bilski and helps clarify both his perspective on why the Supreme Court took such a milquetoast approach as well as what one of the unintended consequences of their action – or lack thereof – will be.  And for those of you who have forgotten Sawyer’s background, he’s a patent attorney that is channeling his opinion through me.  And we’ve been discussing setting up a very large data center on an island somewhere in the middle of the Pacific Ocean.

Seeing the reaction to Bilski, what has struck me is how surprised and disappointed some people are with the weak will of the Supreme Court to act to limit the damage that software patents are causing, and will keep causing, to innovation in the U.S.

As I’ve written before, software patents amount to an innovation tax, transferring wealth from people who build things and make stuff to investment bankers, hedge funders, and, most of all, patent prosecutors and litigators.  If you think that bankers and lawyers drive innovation, this is a “good thing”; otherwise, this is an utterly disastrous government-sanctioned redistribution of wealth that discourages software innovation.  Software innovation continues, by the way, in spite of the patent system, not because of it.

Courts may or may not understand the negatives of the patent system, but they’re the last place we should look for positive change.  As others have written about, the Supreme Court has become a rubber stamp on public opinion and on Congress.  On the issue of IP, Congress is in the pocket of media companies, biotech companies, large software companies, and lawyers (all of whom can afford to litigate IP suits), and popular opinion skews in the “pro-patent” direction because awareness and interest are low when thousands upon thousands of people remain unemployed for the longest periods of time in decades.

Given a fearful, conservative Court unable to affect meaningful change in most areas until the whole country is behind it, the expectation that the Supreme Court would strike software patents down was folly.  Judges don’t know enough, and don’t care enough, to stick their necks out against the monied special interests that control the levers of power.  The current system, constructed in part by the pro-patent judges at the Federal Circuit, who have appointed themselves as the ultimate shepherds of this country’s pro-patent mentality, will continue to rule the roost.  And the PTO, headed now by the pro-patent former head of IP at IBM, David Kappos, will continue to treat patentees like “customers” and pump economy-destroying patents out as it if were the Fed printing money.

So, yeah, we’re a little screwed.  The Federal Courts have bought into the patent system; the PTO grants patents like there is no tomorrow; and Congress is poised to pass a completely eviscerated “patent reform” bill that will make patents harder to render unenforceable, among other things.  The outlook is bleak.  So what’s the answer, as more and more software patents are issued, and more and more startups and small businesses are sued into nothingness?

Move VC and seed investment in software abroad.  This, I think, will be the unintended consequence of Bilski and the alignment of the government against innovation in software.  When patents are the rule, and only big companies can play the patent game, small companies, the ones that are driving lots of employment and lots of innovation, will move to places that are both cheaper to live, and less risky legally.

As a counterpoint, a law professor claims that “startup executives reported that nearly 70% of venture capital firms and 50% of angel investors said that patents were important to their investment decisions.” This study was, of course, repudiated by the most credible person on it, Professor Pamela Samuelson.  As Brad Feld and Jason Mendelson have said repeatedly, patents have almost no impact on VC investment because, among other things, it takes 4-5 years to get them, and in the current software startup climate, your business will prove itself in 1-3 years one way or another. The fiction that strong patent rights lead to more domestic VC investment is highly damaging and utterly false in software, an industry where low capital intensity and low barriers to entry make product and user acquisition, not “IP,” king.

What Bilski means for software is that the advantages of starting software businesses abroad have become even more clear.   The tax situation and cost of living in, say, South America, is much better than in the U.S. currently.  Now that startups have to live in fear of the uncertainty of the U.S. patent system, when they could be wiped off the face of the Earth by legal fees and customer loss in the span of a few months by the mere filing of a patent suit, and with an entire government that seems to have no sympathy toward their small businesses, why start a software company in the United States?  A determined group of developers could start the same company in, say, Brazil, make their venture money last much longer, and with a higher quality of life at a lower cost of living.  Seed and VC investment beginning to move to more hospitable legal climates is inevitable, and Bilski will be the straw that begins the flood of such investments overseas.  The only barrier is moving the developers abroad, but communities already growing in foreign countries could begin an exodus that our government seems to want to encourage.

At minimum, U.S. startups will begin locate some portion of their operations abroad.  Although the law is unsettled, and highly dependent on the patents at issue,  the AT&T v. Microsoft and NTP v. RIM cases indicate that moving operations abroad, like the creation of golden masters and the location of web servers, could insulate some portion of a company’s operations from U.S. patent damages, which cannot be extraterritorial.  For sure, locating everything in the U.S. is an invitation for patent plaintiffs to claim worldwide damages on software patent system claims involving a server.

Surely the Supreme Court didn’t intend to drive our most innovative companies abroad, but it may be time for innovators in the U.S. to fight the system the only way that they can when the whole government is out to get them – get out of dodge.

Jun 6 2010

Mailing Out Patent Absurdity

On the eve of re: Bilski, the anxiously awaited Supreme Court decision on business method patents (with potential implications for software patents), I decided to collaborate with the End Software Patents coalition and send out 200 copies of the short movie they recently produced called Patent Absurdity about why software should not be able to be patented to a focused list of key people.  The letter follows.

Dear XX

My name is Brad Feld and I’m a venture capitalist who has a popular web blog about innovation and investing in tech start-ups at www.feld.com.

I’m writing to you about a new documentary film "Patent Absurdity: how software patents broke the system", and including a DVD of that film with this letter. I hope you will spare 30 minutes to watch.

I selected you as one of two hundred influential people to receive this DVD because I wanted to make sure that the film is reaching the right people–people who can help inform the debate over the patenting of software. Specifically, I’m hoping the film will bring you to an understanding of why patents on software are a massive tax on and retardant of innovation in the US.

I’m including with this letter a full list of the 200 people who are receiving a copy of this film as well as publishing those names on-line at: https://en.swpat.org/wiki/Who_should_see_Patent_Absurdity.

Any day now the US Supreme Court will issue a ruling in a landmark case known popularly as "Bilski". This ruling is likely to have significant impact on the US economy and the prospects for the new innovative companies that I partner with and who create great new products and services.

Patents, as you are probably aware, are government granted monopolies that last 20 years. They allow the patent holder to restrict others from entering the market. Historically, patents have covered novel machines, processes for industrial manufacture, and pharmaceuticals. In more recent years, patents on software have been granted–hundreds of thousands of patents. These patents cover essential techniques in computer programming, and their existence is having a chilling effect on the startup companies that I work with. These start-ups are finding it increasingly difficult to make headway through this software patent thicket.

Here are some specific points I would like to bring to your attention about software patents:

* The financial cost of defending yourself against a software patent claim are impossible to overcome. Just to analyze whether the claims being made against you are justified will incur legal fees in excess of $50,000.00, and more than $1 million in legal fees before trial. Yet it costs the price of a postage stamp for a software patent holder to make a legal claim against you.


* Economic research demonstrates that software patents are acting as a drag on the US economy.


* Programmers – those skilled in the art of writing software, would be expected to benefit from, and support the patenting of software. They do not. They uniformly despise them as a limitation on their art.


* Venture capitalist like me, who work with new innovative start-ups can testify that software patents have a chilling effect on the market.


* With well over 200,000 software patents having been issued, non practicing entities and hedge funds are buying up tens of thousands of these trash patents and using them to extract hundreds of millions of dollars from US companies. This activity takes the form of a protection racket.


I would be happy to offer my time to answer any questions you might have about this film and what we can do to help end this software patent absurdity.

Yours sincerely,

Brad Feld

Feb 18 2010

Patents Are A Weak Measure of Innovation Activity

After not seeing the word patent in my daily information routine for a few weeks, I saw it twice today – first in an article titled Turning Patents Into ‘Invention Capital’ (in the NY Times) and then in Region Sustains Robust Patent Production in the WSJ.  Both stirred me up early this morning, but for different reasons.

If you are interested in patents, I encourage you to read Turning Patents Into ‘Invention Capital’ as I’m very interested in your reaction.  I’d love to hear what you think in the comments (anonymous is fine if you are concerned about attribution on this one.)  I have an opinion and this article didn’t add anything to my thoughts (which is partly why I’m looking for yours as I’m curious what others think.)  So I hit Ctrl-W and went to the next tab in Chrome.

The title of Region Sustains Robust Patent Production was fine (and yes it refers to Silicon Valley), but the first sentence in the article made me nuts:

“The economic slump has yet to damp innovation in Silicon Valley, at least not by one widely followed measure: patent production.”

It’s a short article that basically states that Silicon Valley received a similar percentage of utility patents granted in the US in 2009 that it did in 2008 and 2007. 

“Silicon Valley denizens received 13,231, or 7.9%, of the total 167,350 "utility" patents granted in the U.S. in 2009, according to IFI Patent Intelligence, a unit of Wolters Kluwer Health that analyzes patent data from the U.S. Patent and Trademark Office. That is on par with Silicon Valley’s share of patents nationwide in 2008 and 2007, according to IFI.”

Other than the factual statement, there is no possible way the conclusion made in the first paragraph can be extracted from this data.  The primary flaw here is that patents take many years to be granted.  The number of patents granted in 2009 has nothing to do with the innovation activity in 2009! 

Now, I don’t believe that patent activity correlates to innovation.  While this might have been true in the 1970’s, there are so many factors in today’s broken patent system that undermine this.  The article even points one out in the list sentence:

“Like many tech firms, Cisco offers some financial incentives to employees who file and receive patents, he (Tony Bates, SVP at Cisco) says.”

The “pay to file” dynamic is a mechanism that undermines the integrity of the patent system.  Here’s the issue: assume I am a huge company that pays my engineers on average $100k / year.  I offer $1k for every patent filing they make during work time.  So, as an engineer, you can increase your compensation by 1% for every patent you file (forget about whether it actually gets granted).  As the large company, I’ve got a huge legal machine in place to file the patents – all you need to do as an engineer is going through a prescribed process, write up a bunch of stuff that gets dropped into the patent application, and come to a few meetings to review the patent application.  Is that worth an additional 1% of your comp regardless of the quality of the application?  Sure! 

Regardless of whether you think patents are useful, this is just such a crummy indication of “innovation”. 

Dec 6 2013

The Supreme Court Has Another Chance To Fix The Software Patent Problem

I’ve been railing about the evils of software patents – how they stifle and create a massive tax on innovation – since I wrote my first post about it in 2006 titled Abolish Software Patents. Seven years ago this was a borderline heretical point of view since it was widely asserted that VCs believed you should patent everything to protect your intellectual property. Of course, this was nonsense and the historical myths surrounding intellectual property, especially the importance and validity of software and business methods, have now been exploded.

My post from 2006 lays out my point of view clearly. If you don’t want to read it, here’s a few paragraphs.

“I personally think software patents are an abomination. My simple suggestion on the panel was to simply abolish them entirely. There was a lot of discussion around patent reform and whether we should consider having different patent rules for different industries. We all agreed this was impossible – it was already hard enough to manage a single standard in the US – even if we could get all the various lobbyists to shut up for a while and let the government figure out a set of rules. However, everyone agreed that the fundamental notion of a patent – that the invention needed to be novel and non-obvious – was at the root of the problem in software.

I’ve skimmed hundreds of software patents in the last decade (and have read a number of them in detail.) I’ve been involved in four patent lawsuits and a number of “threats” by other parties. I’ve had many patents granted to companies I’ve been an investor in. I’ve been involved in patent discussions in every M&A transaction I’ve ever been involved in. I’ve spent more time than I care to on conference calls with lawyers talking about patent issues. I’ve always wanted to take a shower after I finished thinking about, discussing, or deciding how to deal with something with regard to a software patent.”

Companies I’ve been involved in have now been on the receiving end of around 100 patent threats or suits, almost all from patent trolls who like to masquerade behind names like non-practicing entities (NPEs) and patent assertion entities (PAEs). We have fought many of them and had a number patents ultimately invalidated. The cost of time and energy is ridiculous, but being extorted by someone asserting a software patent for something irrelevant to one’s business, something completely obvious that shouldn’t have been patented in the first place, or something that isn’t unique or novel in any way, is really offensive to me.

In 2009, I got to sit in and listen to the Supreme Court hear the oral arguments on Bilski. I was hopeful that this could be a defining case around business method and software patents, but the Supreme Court punted and just made things worse.

Now that the President and Congress has finally started to try to figure out how to address the issue of patent trolls, the Supreme Court has another shot at dealing with this once and for all.

I’m not longer optimistic about any of this and just expect I’ll have to live – and do business – under an ever increasing mess of unclear legislation and litigation. That sucks, but maybe I’ll be pleasantly surprised this time around.

Aug 7 2011

Time To Really Deal With The Broken Software Patent System

I’ve been railing against software patents for a number of years. I believe software patents are an invalid construct – software shouldn’t be able to patented.

For a while, I felt like I was shouting alone in the wilderness. While a bunch of software engineers I know thought software patents were bogus, I had trouble getting anyone else to speak out against software patents. But that has changed. In the last few month the issue of software patents – and the fundamental issues with them – have started to be front and center in the discussion about innovation.

There have been two dynamite stories on NPR recently – the first on This American Life titled When Patents Attack! and one on Planet Money titled The Patent War. If you have an interest in this area, the two are well worth listening to.

In the past week, the discussion exploded starting with a post from Google titled When patents attack Android. The word “patent” shows up in 20 of the Techmeme River articles from the last week. Martin Fowler, a software developer, had a well thought out article titled SoftwarePatent. And they kept coming, such as Why Google Is Right Yet Short-Sighted To Complain About Mobile Patents.

But my favorite was Mark Cuban’s post titled If you want to see more jobs created – change patent laws. He starts strong:

“Sometimes it’s not the obvious things that create the biggest problems.  In this case one of the hidden job killers in our economy today is the explosion of patent litigation.”

And he ends strong:

“We need to face the facts, patent law is killing job creation. If the current administration wants to improve job creation, change patent law and watch jobs among small technology companies develop instantly.”

I hope my friends in the White House are listening. And to all the software engineers who are co-authors on patents that they aren’t proud of, or think are bogus, or were forced to create the patent by their company, or were paid a bonus by their company to write a patent on nothing, or are now working for a company that is getting sued for a patent they co-authored that they aren’t even sure what it says, speak up!

Jul 11 2006

More on Abolishing Software Patents

The partners of Union Square Ventures (Fred Wilson and Brad Burnham) recently had a “Union Square Session” on “Innovation, Entrepreneurship, and Public Policy.”  In these sessions, they get together some of the smartest people they know around a topic to spend a day talking about a set of issues – in June, one of the subjects of the “Innovation, Entrepreneurship, and Public Policy Session” was patents.  I was on the road and wasn’t able to join them, but I was interested to see what came out of it.

There’s a short summary up on the Union Square Ventures website titled “Do Patents Encourage or Stifle Innovation.”  Fred referenced my post “Abolish Software Patents” and his subsequent post “Patently Absurd” as starting points for the discussion.

While the summary is interesting, the actual transcript of the session is fascinating if you are interested in this issue.  It’s relatively short (16 pages – less than 15 minutes of reading time.)  In it, you see three different perspectives: academic, legal, and entrepreneurial in conflict generally about the patent system, whether or not it is an effective and appropriate mechanism for protecting intellectual property, and how it could be improved.

My original post focused specifically on software patents and my ranting against the patent system continues to be limited to software patents.  While some of my perspective can be generalized, I don’t know enough about the fundamental dynamics of other industries (such as biotech) to either have a strong feeling or any credibility discussing these areas.  However, I believe I do with regard to software (I’ll leave you to be the judge of that.)

After reading the transcript, I came away feeling more strongly than ever that software patents should be abolished.  All the counter arguments – especially about creating a liquid market – sail right past the key point of the difficulty with software patents – a requirement that the patent be non-obviousness or that there be no prior art.  I’ll restate the central point of my original argument – I’ve carefully read hundreds of patents (yes, parts of my life are extremely tedious and boring) and most – if not all – of the software patents that I’ve read fail either the non-obvious or the no prior art requirement. 

However, once a patent is granted, it’s now a property right and the only way to deal with it is to pay for the right to use it or to litigate against its validity.  For a young, cash strapped, entrepreneurial company working on new innovations, paying for the right to use something that you believe shouldn’t have been patented in the first place is effectively the equivalent of a regulatory burden which is well known to stifle innovation.  Your alternative to litigate in advance of creating your innovation is impractical – it’s almost certain that you won’t have the financial resources to do this.  For a large, cash rich company that employs lots of lawyers, creating more property rights (e.g. patents), even if they are bogus, is now part of their business process.

All of the current argument in favor of software patents presume that software patents are legitimate. If 99% of them were, my argument wouldn’t be valid.  However, my guess is that – if subjected to a deep, open, and all inclusive review approach like the one that John Funk recently proposed – less than 1% of software patents would stand.  Even if I’m wrong and it’s 80/20 or even 50/50, I believe my point holds.  If your property is illegally or inappropriately gotten, you should not stand to profit from it.  If you think you should because of “the system” or the lack of expertise / ability / time / whatever of the current patent system, just go read Atlas Shrugged again for a doomsday scenario. 

I think this is a hugely important debate that will have a profound impact on the software industry over the next 20 years.  I know I’m taking an extreme position – that’s deliberate – in an attempt to really generate debate on this.  Interestingly, the reaction from people deeply involved in this issue – including several academics and lawyers – seems to be split 50/50 – half of them tell me how naive I am; the other half nod their heads up and down vigorously.  Whenever there’s such a split in consensus, I think it means I’m on to something.