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.
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.
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”.
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.
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.
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.
I have to keep reminding myself that some things just take a long time. My rampage against software patents continues and, while my efforts around the StartupVisa have dominated my “government time” in the past quarter, I’ve still got my eye on the ultimate goal of rendering the construct of a software patent invalid.
I smiled yesterday when I saw the short article titled 3D Computer Graphics Patents Deemed Invalid. The key line from the article is “Though the calculations may be performed on a computer, they are not tied to any particular computer. For these reasons, the claims of the [patents-in-suit] fail to pass muster under the Bilski machine implementation test for patentability under 35 U.S.C. § 101.”
This is super important because the vast majority of software patents have this problem.
In addition, the Federal Circuit issued an opinion in Hewlett-Packard Co. v. Acceleron LLC that makes it much easy for a company to file a declaratory judgment action when threatened by a “nonpracticing patent owner” (also known as an – ahem – patent troll). The law firm Morgan Lewis has a great summary of this up on the web and the opinion is online.
I am an optimist. And I am optimistic that progress will be made against software patents and for a Startup Visa in 2010.
In my quest to abolish software patents, I’ve been pondering "short term approaches" since I doubt the Supreme Court is going to wave a magic wand and make my fantasies come true anytime soon.
I’ve been hearing about something lately that bothers me a lot. More and more companies are paying engineers a bonus to file patents. Not "get patents" – simply generate patent applications. The intended consequence is an obvious one – companies get to file more patents. The unintended consequence is a particularly nasty one – lots of shitty patents get filed and the PTO has to wade through that much more garbage.
A friend of mine – who recently was "paid to file a patent" said he considered requesting that – if granted – the patent only be used defensively. I asked him why. He responded that he felt conflicted and thinks a lot of his peers feel the same way. He didn’t think the patent was particularly valuable, useful, or valid. However, he was reluctant to turn down the bonus that he was getting for simply filing the patent. He didn’t view it as a good use of his time (or of his company’s time or money), but he realized that the patent system is motivating his company to file as many patents as they can. He has little expectation that the patent will be granted, but he was happy to get paid the bonus.
I asked him what would make him feel better. He surprised me when he said "My company should agree to only use the patent defensively if it is granted." I asked him if he thought this was a unique perspective and he said no – he thinks many experienced software engineers are skeptical of software patents. While they are skeptical, they understand the battle going on right now and realize the value of ever increasingly large number of patents for defensive purposes.
Wouldn’t it be interesting if there was a grass roots movement of experienced software engineers around software patents for defensive purposes only.
Dave Roberts – the VP Strategy and Marketing at Vyatta – has written a solid post on Open Source Juicer that tears apart Steve Tobak’s CNet article titled The Patent Reform Act will harm the US technology industry. There is a ton of meat in Dave’s post – which is (unfortunately) also titled "The Patent Reform Act will harm the U.S. technology industry".
Dave has 10 patents to his name, so he’s speaking from a position of someone who has spent plenty of time on the "inside of the patent game." Two telling paragraphs:
"What’s all the more infuriating about the current patent situation is that many of today’s patents go against the original social contract surrounding patents. The original goal of the patent system was to get inventors to share their innovations for the common good. In return for a limited monopoly, you, Mr. Inventor, share your invention so that We, the public, can understand how you did it and can then innovate on top of it. Rather than stifling innovation, patents were supposed to drive it forward.
Unfortunately, many patents, even the ones that are legit, would have been created independently anyway. It’s obviously a balance, but at least in the world I live in, I see patents getting in the way rather than helping me. I have never gone and looked at old patents to get new ideas for products. The only time an independent patent, one that I’m not working on filing myself, comes to my attention, it’s because somebody is getting sued for infringing it. This tells me that we have lost the original goal that patents were supposed to foster."
Great stuff Dave. Thanks for speaking out.
I’ve written plenty about patents in the past, including a provocative post titled Abolish Software Patents. I was having a conversation with John Funk, a partner in Evergreen Innovation Partners, at the end of last year after a catch up lunch. We got into a serious conversation about the fact that so much of the software patent good vs. bad rhetoric seems like it’s more about opinions, anecdotal experience, and agendas – rather than a comprehensive review of the facts. So – we decided to take it up a level and see where the conversation went.
Now – John and I have some interesting history around this. We have been colleagues (I was an investor in Exactis (fka Mercury Mail / Infobeat – his first company), adversaries (Infobeat sued a company I co-founded – Email Publishing – for patent infringement – which was eventually settled for $1 and a cross-licensing agreement between Exactis and MessageMedia (the company that acquired Email Publishing)), and once again friends and colleagues (I’m an investor in John’s latest company, Evergreen IP.) While we’ve both struggled personally with an emotionally charged issue, we’ve ended up friends.
Interestingly, given the wide range of experiences we’ve each had around software patents, we have pretty similar views. So – John fired off a long email to me which I’ve edited and broken up into several posts with the following premise: What if we attempted to craft a social policy hypothesis that would defend the existence of software patents, and then we went about creating an experiment that would attempt to disprove that hypothesis? Hmm – social science – disproving a null hypothesis – how academic!
Let’s begin with this: Patents in general, and software patents in particular, are a government conferred monopoly that rewards the public disclosure of a software method or program. The rationale for patents is anchored in (1) public disclosure accelerates innovation because future invention rests on prior patent disclosures (e.g., innovation is a chain that builds on prior building blocks), and (2) conferring a patent monopoly will encourage innovation that otherwise would not occur due to perceived risk/return (e.g., in absence of patents, competitors will trounce new entrants by rapidly copying; therefore monopoly is needed to be able to raise capital and take the risks).
More coming in part 2 – same bat time, same bat blog.
Several years ago when I first started saying things like “software patents are invalid constructs” or “software shouldn’t be able to be patented” or “software patents are a huge drag on innovation”, I was told by many people (lawyers, journalists, patent trolls, and other VCs) that while I might be right, no other venture capitalist would agree with me or support this position.
Several years ago my partner Jason Mendelson agreed and since then he’s become outspoken about his desire for the end of software patents. Some people said that was cheating since he’s one of my partners at Foundry Group, but I’m ok with getting people on board one person at a time. BTW – my other partners – Ryan McIntyre and Seth Levine – also strongly agree with this position.
Several months ago, Brad wrote a great essay titled We need an independent invention defense to minimize the damage of aggressive patent trolls. I’m good friends with Brad and his partner Fred Wilson and we’ve had a number of conversations about this over the past six months, including the creation of an ad-hoc group we are calling “Abolish Software Patents” (which is similar in structure to the group behind the Startup Visa Movement.
Today, Brad wrote Software patents are the problem not the answer in response to the New York Times article on Nathan’ Myhrvold’s firm Intellectual Ventures approach to creating “invention capital” which was a soft profile piece in response to Myhrvold’s HBR article The Big Idea: Funding Eureka!
Brad’s post is outstanding and mirrors my perspective on this. And – if you want some entertainment (and additional perspective on what’s really going on) go take a look at TechDirt’s post today titled Nathan Myhrvold’s Intellectual Ventures Using Over 1,000 Shell Companies To Hide Patent Shakedown.
This problem with software patents (and the patent system in general) is going to come to a head in the next year or two and I hope the venture capital industry and broader software / Internet entrepreneurial community can rally behind intelligent solutions to this problem.