Month: February 2010
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.
I’m extremely impressed with Vivek Wadhwa’s posts on TechCrunch. He’s been blogging periodically for them since last fall and has shown that he’s willing to take on difficult, controversial, and complicated issues and discuss them in data driven and systematic ways.
Recently, Vivek wrote a post titled Silicon Valley: You and Some of Your VC’s have a Gender Problem that resulted from a research project he did with the National Center for Women & Information Technology (I’m chairman). I thought the post was excellent. The comments, however, were really enlightening to me. The amount of anger and hostility, especially irrational attacks, surprised me. Well – I guess it only surprised me a little – it mostly disappointed me.
After that article, Vivek sent me an email with the following questions “why did you originally get involved with NCWIT” and “how would you fix the problem of the dearth of women entrepreneurs?”. The first one was easy – I pointed him at a post I wrote in September 2005 titled Why the NCWIT Board Chair is a Man. I then spent some time thinking and emailing with Lucy Sanders *the CEO of NCWIT), about what we have learned to address the question of “how would you fix the problem of the dearth of women entrepreneurs?” My goal was to boil my answer down into a very simple set of suggestions, as NCWIT has several programs in their Entrepreneurial Alliance that address this problem. In my experience, a simple answer is much better than a complex one, especially for people who haven’t yet thought hard about the problem but are interested in it.
I came up with two specific things that I’ve learned over the past five years and have incorporated into my brain:
1. We simply need more technical women in the software industry. If there were more, there would be more starting software and Internet companies.
2. Existing entrepreneurs and VCs can help a lot by encouraging women to become entrepreneurs and then supporting them when they take the plunge. It turns out that the simple act of encouragement (from parents, teachers, peers) is hugely impactful across the entire education and entrepreneurial pipeline so it shouldn’t be a surprise that it is also important in the startup phase.
At some level it’s that simple. The implementation and execution of these two (related) concepts is really difficult. So, when I read Vivek’s post this morning titled A Fix for Discrimination: Follow the Indian Trails I realized he had once again totally nailed it. The example of how Indian entrepreneurs, first as individuals, and then through TiE, became a force in entrepreneurship through the US and the world, is a great one. And it’s an excellent analogy for women (and other groups that feel discrimination in the entrepreneur ecosystem.)
Once again, the early comments were disappointing in their anger and hostility. However, given some of the stuff I’ve heard over the past five years through my involvement in NCWIT, they weren’t a surprise to me this time.
If there is one thing you read today, go read Brad Burnham at Union Square Ventures excellent essay titled Software patents are the problem not the answer.
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.
Innovation happens all over the place. While I typically write about innovation in software and the Internet (which are the two areas I invest in), it’s useful to occasionally step back and tell a story about innovation in a different area that I’ve been exposed to.
Peter Frykman was 15 years old when Muhammad Yunus proposed alleviating poverty through the innovation of the social-objective-driven entrepreneur, one who “competes in the marketplace with all other competitors but is inspired by a set of social objectives.” In 2008 Frykman founded Driptech, his for-profit social venture located in Palo Alto, CA, with a mission to create extremely affordable, water efficient irrigation solutions for small-plot farmers in developing nations.
By devising drip irrigation technology that eliminates the complexity of emitters, Frykman and his team reduced the number of parts for a drip system by over 85%, cut the costs typical of commercial drip irrigation by over 60%, and simultaneously improved reliability and ease of maintenance.
This innovation makes Driptech the first company to design and manufacture drip irrigation specifically for the world’s poorest farmers, allowing them to grow crops year-round while conserving water, labor, and time. Not only can these farmers now finally produce enough vegetables to meet their own families’ nutritional needs, they become micro-entrepreneurs by growing additional crops to sell in local markets, substantially raising their incomes.
But Driptech’s contribution to poverty eradication doesn’t end there. Frykman’s decentralized manufacturing model will deploy production facilities directly to where the product will be sold, allowing for local customization of the systems, additional cost reductions, and added benefit to rural economies through the generation of jobs. The for-profit nature of the venture is not only economically sustainable, but scalable as well, promising future positive social impacts that will grow along with the company.
Having proven his product through a pilot study in India and initial sales in China, Frykman recently raised angel funding to ramp up his manufacturing capabilities. While this isn’t an area that we invest in, I was turned on to Peter via a good friend, Scott Petry, who was the founder of Postini (and is now at Google). Scott pulled in another long time friend – George Northup – the President of Memeo (Foundry Group is an investor). I find it easy to be supportive of entrepreneurs in social ventures that are supported by good friends.
So, congratulations to Peter Frykman and Driptech. Don’t miss his panel on Social Entrepreneurship at Stanford University’s Graduate School of Business 2010 Conference on Entrepreneurship coming up February 26th from 1:30-2:45pm.
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”.
What Seems Like A Fundamental Flaw in Microsoft Outlook Social Connector
I’ve been obsessed with the notion of email as the ultimate social network for a while. I wrote a post in 2007 titled Social Networks In Obvious Places that catalyzed me to thing harder about this as an investor. I eventually decided that the email address is the ultimate reference id for one’s current online identity and that it was ludicrous to ignore this notion. This ultimately led to my investment in Gist in 2009.
Today, there are a number of folks approaching different parts of the problem. I believe the underlying data architecture and approach is critically important, as email resides in many different data stores and move through many different systems. In addition, there are numerous other applications that use email as the key reference id independent of username (LinkedIn, Twitter, and Facebook come immediately to mind, but there are thousands of others.) There is no question in my mind that the web (or the cloud if you like) is your friend in this scenario.
This morning, I noticed that Microsoft had released a beta of Microsoft Outlook Social Connector for Outlook 2010, 2007, and 2003. I’m running Outlook 2007 on my desktop at home so without thinking too hard I downloaded it, installed it, restarted Outlook, downloaded the LinkedIn connector (the only one available for 2007), restarted Outlook again, and started cranking through email. I liked the Email Connector window that appears at the bottom of my Inbox view, but I noticed that none of the LinkedIn data seemed to be appearing for my specific contacts. I didn’t think much of this and figured Outlook was doing something magical in the background (since various info from my Inbox and Calendar started appearing in this view.) I noticed a few things I didn’t like, such as the every calendar item taking up two lines in the display because the second line was an invite.ics file, but I figured that was just beta stuff. After an hour or so, I had to jump in my car and head to Denver for a board meeting.
Once I got into AT&T cell phone range (about ten minutes from my house) I swiped left on my iPhone and typed in the last name for a CEO of a company I’m on the board of. I noticed that I had two entries for him. This was strange because I’m meticulous about keeping my address book clean and deduped. The first entry didn’t have his phone number. That was really strange since I call him regularly. The second entry did and looked like the correct record. I called him, but something was bugging me.
After we talked, I did this again to call another person. Same issue. This time I noticed a picture with the little LinkedIn logo on the first entry, but again no phone number. The second entry didn’t have the LinkedIn picture, but had the correct phone number (and full entry). By this point I’d figured out what had happened. I called Amy, told her to shut down my computer at home (I usually leave it on during the day) just in case my new friend the Outlook Social Connector could be stopped before it imported my entire LinkedIn file as new contact records.
I was annoyed throughout the day that I’d munged up my address book. Tonight, when I got home, I hopped on another board call. I fired up my computer, uninstalled the Outlook Social Connector, and then spent a few minutes poking around in Outlook contacts trying to find an easy way to delete all the new records. I fought my way through a few different Outlook contact views and couldn’t figure out how to get the records to consistently appear. If I searched by name, all the dupes came up. But if I went into a list view, no such luck – only the correct record appeared and the new LinkedIn ones were no where to be found. I manually started scrolling through my address book on my iPhone while on the call but by the time I got through the B’s I realized this was an idiotic way to do this and there must be a better way.
A few minutes later it occurred to me that Outlook might have created a new “subfolder” in the contacts view and put all the LinkedIn ones there. Lo and behold it did and all I needed to do to get rid of the 1800 new contact records was to delete the LinkedIn folder. Done. After some happy iPhone syncing they are all gone from my iPhone also.
The decision to take this approach at a data level is beyond comprehension to me. Almost 100% of the duplicate LinkedIn contacts shared the same email address as my Outlook address records. I didn’t want a NEW contact record for each LinkedIn one, I wanted them to be “magically attached” to my existing contact record. So – when I look up Brad Feld, I don’t get the “Brad Feld” Outlook contact record and the “Brad Feld” LinkedIn contact record. They are both brad@feld.com – that’s all I want.
So – be forewarned – unless you want to gunk up your address book with duplicates, don’t install the current beta of Microsoft Outlook Social Connector. Maybe I did something wrong, or have a weird configuration of Outlook 2007, but I simply did a straight install. Maybe Microsoft will fix this in the next version, but it definitely doesn’t seem ready for prime time, especially on live data.
If you are a long time reader of this blog, you know that I’m a huge believer that the way we interact with computers in 20 years will be radically different than how we interact with them today. I’ve put my money where my mouth is as Foundry Group has invested in a number of companies around human computer interaction, including Oblong.
For the past few years, every time someone talks about next generation user interfaces, a reference to the movie Minority Report pops up. Sometimes the writer gets this right and links it back to John Underkoffler, the co-founder of Oblong, but many times they don’t. Today the NY Times got it right in their article You, Too, Can Soon Be Like Tom Cruise in ‘Minority Report’.
That’s a picture of John Underkoffler at Ted on Friday giving one of his jaw dropping demos of Oblong’s g-speak spatial operating environment. Lest you think this is science fiction, I can assure you that Oblong has several major customers, is generating meaningful revenue, and is poised to enter several mainstream markets with g-speak derived products.
The company has been steadily building momentum over the past few years since we invested. The TechCrunch article The iPad Is Step 1 In The Future Of Computing. This Is Step 2 (Or 3) gives you a little of the history. More of the history is at Oblong’s post origins: arriving here that go back to 1994. I personally have stories going back to 1984 when I first met John, but we’ll save those for another day.
While there is an amazing amount of interesting stuff suddenly going on around HCI (and we have invested in a few other companies around this), Oblong is shipping step 2 and about to ship step 3 while most are working on step 1. As John likes to say, “the old model of one human, one machine, one mouse, one screen is passe.”
Over the years my partner Jason Mendelson and I have heard from numerous people that they’ve been exposed to our Venture Capital Term Sheet Series as reference material in a college course. We are delighted by this and whenever we’ve been asked, we’ve always said (and will continue to always say) “with our blessing.” However, we haven’t kept track of any of this over the year and have a few ideas for things we can do to update the material now that five years have passed.
So – I’m writing with a simple request. If you’ve used, or encountered, our Term Sheet series in a college (undergraduate or graduate) course or any other teaching / seminar environment, can you leave a comment below with the information (school / program / year / professor) or email me the information?
For those of you concerned about nefarious plots on our part, I assure you that we are delighted this material is out there in the public and are happy to have it freely used and passed around for all eternity. I promise we won’t send Jack Bauer your way.
Megan Sweeney, the awesome person who put together the TechStars Founders video series, put up a beautiful video of her golden retriever Owen explaining his Rules of Love.
Owen’s rules of love are (1) Don’t limit your love, (2) Let yourself be loved, and (3) Never give up. Good lessons for all human beings.
Now, while I know it’s Valentine’s Day (and I’ll behave appropriately), I am very much looking forward to Valentine’s Day for Guys which happens in a month. In the mean time, remember that all you need is love.