James Bessen, Jennifer Ford, and Michael Meurer of BU School of Law have written a phenomenal paper titled The Private and Social Costs of Patent Trolls. Rather than be politically correct and refer to NPE’s simply as “non-practicing entities”, they cut through all the noise, define what a patent troll is, and go through a detailed and rigorous analysis of the private and social costs of patent trolls. Some highlights from the paper follow:
Regarding money:
The litigation has distinctive characteristics:
The authors suggest that these lawsuits exploit weaknesses in the patent system. They conclude that the loss of billions of dollars of wealth associated with these lawsuits harm society and state “while the lawsuits increase incentives to acquire vague, over-reaching patents, they decrease incentives for real innovation overall.”
While I’ve just summarized the executive summary, the paper is extremely well written, the topic rigorously researched, and the conclusions follow from the actual data. The footnotes are a joy to read as they tackle a few previous papers that use completely contorted logic to make their points. My favorite is footnote 6:
“In effect, Shrestha is arguing: A) Valuable patents receive higher citations, and, B) NPE litigated patents receive higher citations, therefore, C) NPE litigated patents are valuable patents. This is a classic logical fallacy.”
It’s a special bonus that the header on each page says “page # – Troll – 9/11”.
My partner Jason and I were talking about exactly the problem the other day as we wondered why so many people have trouble with logic and deductive reasoning. Our world of software patents is rife with this category of problem. It’s awesome that serious academics like Bessen and his colleagues are going deep into this issue.
My friends at Standing Cloud have closed another $3 million financing from us (Foundry Group) and Avalon Ventures. They’ve also added a long time friend, co-investor, and amazing entrepreneur Will Herman to the board.
Standing Cloud is a great example how one of our funding strategies plays out. We are the seed investors and have been working closely with the company since inception. They’ve built an incredibly deep product around a very specific aspect of the broad Cloud computing ecosystem. When they started, much of Cloud computing was total noise and marketing baloney. While there’s still plenty of that in the system, many of the products and services are maturing and the particular segment Standing Cloud has gone after has suddenly become incredibly important to a large number of hosting, managed services, and cloud providers (often the same thing) not named Amazon. Specifically:
Standing Cloud provides a seamless application layer for cloud providers, making application deployment and management fast, simple and hassle-free for their customers. Standing Cloud’s standard application catalog includes 100 open-source and commercial applications; its Platform-as-as-Service (PaaS) capabilities support multiple programming languages, including Rails, PHP, Java and Python, and a wide range of cloud service providers and orchestration software systems.
If you are a hosting, managed service provider, or building a cloud service (public or private), you have three choices. The first is to ignore this stuff (dumb). The second is to try to build it all yourself and keep pace with Amazon (good luck). The third is to use Standing Cloud.
If you want an intro, just email me and ask.
I recently spent some time with a long time friend and entrepreneur who I’ve funded in the past. He’s working on a new company which I think is really neat and I’m already a user of. He called me for feedback on his fundraising strategy as well as to see if it’s something that we’d be interested in investing in.
It’s outside our themes and different than the type of business we invest in. Given our long relationship and the fact that he’s an awesome entrepreneur, I squinted hard at one of our themes, turned my head sideways, and decided to take a look. We spent a few days applying our process to it (each partner touches it and we give each other real time qualitative reactions) and quickly realized that it really wasn’t something for us as it was far outside anything that we felt like we could help much with beyond money and moral support (which my friend is going to get from me anyway.)
So – I sent my friend a note with my explanation for why we are passing. I offered to help with introductions because (a) he’s an awesome entrepreneur, (b) it’s a very fundable business – just not by us, and (c) I have a lot of confidence that he’ll build a successful business and there are several VCs who I know that I think would like what he’s working on.
His response was dynamite. It was
“No sweat. I knew it was a longshot, so I appreciate you even considering it. I know how many deals you have to pick from.
I’d like to take you up on your offer to help us get funded, but I have a better idea … help us avoid the need for funding (700 clients gets us to profitability).”
He then went on to detail a handful of things he’d like me to do assuming that I’m a happy user of his product. All of them are easy, low maintenance for me, and in several cases actually benefit me.
I love that my friend is much more focused on ramping up his customers than raising money. It’s easy to get lost in the soup of “X company raised $Y” and forget that it’s not about fundraising, but building a business. When I think of some of my favorite TechStars companies, such as Occipital, they bootstrapped for several years before raising any money (well documented in the book Do More Faster) and even then could have easily built their business without raising any money.
Don’t forget to bootstrap.
I’ll be interviewing Nancy Phillips on Monday, November 14th for our latest installment of Entrepreneurs Unplugged. I’ve worked with Nancy over the past few years on a couple of things, including the National Center for Women & Information Technology, and she’s awesome.
Nancy is the co-founder and COO of ViaWest, a leading co-location and managed services provider well known to many companies in Colorado. Her entrepreneurial experience includes RMI.net, ITC Worldwide (now Genesys Conferencing), and ConferTech International (now Global Crossing). She’s also been a big supporter of many technology related organizations in Colorado, including NCWIT and the Colorado Technology Association.
Come join me on Monday (11/14) from 6:15pm – 7:30pm to hear Nancy’s story. We’ll be at ATLAS Room 100 at the University of Colorado at Boulder. The event is free, but please register.
I entered Gmail hell yesterday morning. Whenever I sent an email from within a browser, I got a 707 error back and Gmail would go into an endless “Retry” loop. It was early Monday morning and I wasn’t ready to deal with this, so I grabbed my iPad and did a bunch of email on it. I didn’t connect that the client was working fine, but the browser version wasn’t until I got the office.
The answer was a simple one once I figured it out. I disabled all the Google Labs and it magically started working again. I then re-enabled Labs until I found the one that was causing the 707 error – the “Background Send” Labs. Apparently something broke over the weekend with Background Send and the newest browser version of Gmail.
If you are getting a 707 error, just turn off Background Send. That should fix it.
Consider this a public service announcement as of 11/8/11. When I searched Gmail 707 Error in Google, I didn’t find anything that referred to this. I found a few “clear your browser cache” suggestions, which didn’t help. I also found plenty of “I’ve got this problem” with no answers.
We did contact Google tech support via email and got a response back later in the day to turn off Google Labs to see if that fixed the problem. I also got a similar response from my special magic wormhole tech support line to Google engineering.
This was on the heals of a weekend of Gmail / iOS hell. My email clients on my iPad and my iPhone unexpectedly stopped working on Friday – constantly asking me to login to my Exchange account (I’m using the Exchange connector to access Gmail.) I didn’t figure out what the issue was until Sunday afternoon when I realized that the Gmail iOS app was interfering with the iOS mail app. I’d downloaded the Gmail app on both devices when it came out. It was crappy, but when Google pulled it from the app store, I thought it was novel enough to leave on my iOS devices for a while. Error! Once deleted it, email went back to normal.
Google, I love you, but please amp up the QA!
For some time Jason and I have felt that VC’s have had an unfair advantage when it comes to understanding term sheets. So a few years back we wrote a whole series of blog posts (the Term Sheet series) which became the basis for the book Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist. Our goal with all of this was to help put entrepreneurs on a more even footing in negotiating a deal with a VC.
In some ways, I’ve always seen writing (both books and this blog) as a form of personalized teaching. It let’s me efficiently share whatever knowledge I have. But a few months back while I was visiting TechStars NYC, I had the chance to meet the guys over at Veri and pretty quickly realized they have a really interesting format for teaching things like how a term sheet works in an even more personalized way.
The result is Veri’s Understanding Term Sheets. The experience works like it would if we were learning it together one on one, namely that I ask you a series of question to figure out what you do and don’t know. When you know the material you get to quickly prove you’re a champ. When you don’t know something, I help bring you to the exact snippet of information you need to know. In other words, we figure out what you know, and help you learn only what you don’t. And hopefully have some fun in the process.
Let me know you think about Understanding Term Sheets, especially if there are ways to improve it.
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.
I love America.
I ran the Zeitgeist half marathon yesterday in Boise, Idaho with my friends Pam Solon and Mark Solon (Pam kicked our asses). It was a cold and icy morning with a beautiful blue sky. The course is hilly – a long two mile hile at mile 2 and then a one mile hile at mile 8. But following each hill was a corresponding downhill so that evened things out.
The most awesome thing about a half marathon is at 13 miles you only have 0.1 mile left, not 13.2 miles. While I knew this, I didn’t really appreciate it until I hit the 13 mile marker and could see the finish line. Even though I finished in 2:21:03, I did the last three miles all sub 9:00 (8:44, 8:38, 8:56).
Boise was a blast. I’ve been here once before and stayed with the Solon’s that time as well. They’ve become great friends – I’ve done a few investments with Mark, but I just love hanging out with them. Their kids are turning into interesting little people, they are awesome hosts, and they are great people.
On Friday night I did a Beers with Brad event at The Watercooler. About 75 local entrepreneurs showed up and we spent two hours talking about entrepreneurship, Boise, and how to create long term, sustainable entrepreneurial communities. We also had pizza and beer, which was a good warmup for a great pre-run Italian meal at Asiago’s.
A good night sleep, followed by coffee, a quart of Mark’s amazing blueberry peanut butter smoothie, followed by a dump, or two, and then a half marathon. Note to self, don’t drink a quart of smoothie before a race unless you want to have to stop twice on the course to pee.
The race was beautiful. A half marathon is a long training run for me at this point, but there’s always a notch of additional energy around a race. I ran naked (no music) – just enjoyed Boise, the scenery, the people, and the funny conversions I heard at the back of the pack (e.g. “don’t tell Jim and Scott I’m also sleeping with Mike – he’s really good in bed, but I don’t want them to know.”)
We did the normal post race “eat a bunch of food” thing at Smokey Mountain Pizza. We eschewed naps and watched a Will Ferrell movie instead. Our goal was hilarity – we had a total fail as Mark picked Everything Must Go. Not bad, not good, but not funny.
A quick hangout followed at friends house and then dinner at Highlands Hollow Brewhouse. Yes – the fries were awesome and they even had a bunch of veggie things.
The line of the weekend was when Pam, who has just started using Twitter and Facebook again after a hiatus, said “I need more friends.” Feel free to help her out.
The only thing missing was Amy.
My twitter stream this morning had a conversation between Kara Swisher and Chris Sacca about a TED video from Jill Bolte Taylor. Kara recently had a TIA (minor stroke) and wrote about it. The conversation between them prompted me to watch the TED Talk by Jill Bolte Taylor about a massive stroke that she’d had. Taylor is a brain scientist, which makes the whole discussion even more incredible as she had a chance to study and think about her own experience of having a stroke.
I strongly encourage you to invest 18 minutes of your life in this. It’ll change how you think about your brain, as well as possibly a few other things.
I’m off to run the Zeitgesit Half Marathon in Boise, Idaho with my friends Mark and Pam Solon. It’s another beautiful day on planet earth.