In moments of political despair, Amy reminds me that we have three branches of government. Around issues that I care a lot about and have engaged in over the years, the Judicial Branch seems to be the most functional right now, at least from my perspective.
This was reinforced by two things this week. The first was a conversation Jason and I had with senior staffers of a non-Colorado senator. They wanted to meet with us, and the agenda was open-ended around issues that startups and investors were interested in, especially ones we have been visibly talking about such as patents, immigration, and net neutrality. Several times I asked a different version of “what can we do to engage constructively” with Congress and the answer was essentially “nothing right now.” While the conversation itself had some substance to it and I liked the people we spent time with, the message I took away was that Congress didn’t have the ability, based on the current political environment, to take any action on any of these issues.
That stood sharply against the backdrop of two decisions the Supreme Court made in the last few weeks on patents. While the first was more talked about than the second, they are both important.
The first was that the justices ruled 8-0 that patent suits can be filed only in courts located in the jurisdiction where the targeted company is incorporated. If you own real estate in Marshall, Texas, it’s time to harvest your investment. According to the article (and a Stanford Law School Journal study), “more than 40 percent of all patent lawsuits are filed in East Texas. Of those, 90 percent are brought by patent trolls.” I expect in the near term Delaware courts will be clogged with patent troll cases since so many tech companies and startups are incorporated in Delaware. Hopefully, the Delaware courts will take a much less “troll-friendly” approach to things.
The second was that the Supreme Court said companies give up their patent rights when they sell an item, in a ruling that puts new limits on businesses’ ability to prevent their products from being resold at a discount. While a little more subtle, it’s equally important since this was another classic move by a certain category of company to limit downstream competition. I love what Justice Roberts wrote.
“Extending the patent rights beyond the first sale would clog the channels of commerce, with little benefit from the extra control that the patentees retain,” Roberts wrote.
While in my ideal world Congress would proactively work to establish contemporary intellectual property rights that include patents but also extend to copyright and trademark, I have no expectation that this will happen. Besides, the amount of money spent by lobbyists for companies promoting a position that supports their business model, rather than a macro-level view of the long-term dynamics, will mean, at least in the current environment, that a thoughtful, balanced approach is unlikely.
Fortunately, we’ve got the Judicial System.
“The millstones of Justice turn exceedingly slow, but grind exceedingly fine.” – John Bannister Gibson (1780-1853)
And, for now, even though the wheels of justice turn slowly, they are turning.
Five years ago, in August 2010, I asked the question Have We Reached The Software Patent Tipping Point?
My favorite line from the whole thing was James Gosling’s (who was one of the authors of one of the original patents and a key creator of Java) when he wrote The shit finally hits the fan.
“The shit finally hits the fan…. Thursday August 12, 2010
Oracle finally filed a patent lawsuit against Google. Not a big surprise. During the integration meetings between Sun and Oracle where we were being grilled about the patent situation between Sun and Google, we could see the Oracle lawyer’s eyes sparkle. Filing patent suits was never in Sun’s genetic code. Alas….
I hope to avoid getting dragged into the fray: they only picked one of my patents (RE38,104) to sue over.”
Oracle also got copyrights to the Java APIs. Remember, Java was theoretically Open Source, but like so many things in our world when lawyers get involved “it’s complicated.” Stack Exchange regularly has commentary about this. See Is Java free/open source or not? and Is java an open source programming language?
It’s not as messy as the Greek debt crisis but directionally similar. And it’s far from over. I was hoping the Supreme Court would take this on and help put an important issue around copyright to bed. But the Supremes passed, deferring to the need for a lower court to rule on the appeal.
“The justices, without comment, declined to disturb a May 2014 appeals court ruling in Oracle’s favor that reinvigorated the company’s case against Google. The appeals court, overruling a trial judge, said 37 packages of prewritten Java programs, known as application programming interfaces, were entitled to copyright protection.
Oracle has sought more than $1 billion in damages. A jury originally held that Google infringed the Oracle copyrights, but it deadlocked on Google’s defense that its copying amounted to fair use. That issue will have to be retried in a lower court.”
Patents and copyrights are different. And the courts know that. Unfortunately, it’s getting even more tangled up, especially around the critical concept of fair use. This continues to be a very important case, especially as interoperability between software has become a fundamental tenant of how software systems function, and I’m glad Google is fighting it.
At least we got the right to marry anyone we want from the Supremes.
Fred Wilson beat me to it this morning with his post A Big Win For The Patent Reform Movement but he’s got a couple of hour time zone advantage over me. Regardless, I love Fred’s punch line:
So it was with incredible joy that I read these words by Elon Musk, founder and CEO of Tesla Motors and possibly the most innovative entrepreneur in the world right now. [Elon wrote in his post All Our Patent Are Belong To You] “Yesterday, there was a wall of Tesla patents in the lobby of our Palo Alto headquarters. That is no longer the case. They have been removed, in the spirit of the open source movement, for the advancement of electric vehicle technology.”
I’ll pile on with my accolades to Elon. While I don’t know him, I’m long time friends with his brother Kimbal who lives in Boulder so I always feel like I get a little taste of Elon whenever I talk to Kimbal. So – Elon – thank you for being a real leader here and taking action.
I’ve been asserting for a number of years that while software patents are completely fucked up, the general patent system stifles innovation. More and more research is appearing on software patent issues and patent trolls in general, including this recent piece by Catherine Tucker, an MIT Sloan professor of Marketing, titled The Eﬀect of Patent Litigation and Patent Assertion Entities on Entrepreneurial Activity. As Ars Technica summarizes in New study suggests patent trolls really are killing startups:
Turns out there is a very real, and very negative, correlation between patent troll lawsuits and the venture capital funding that startups rely on. A just-released study by Catherine Tucker, a professor of marketing at MIT’s Sloan School of Business, finds that over the last five years, VC investment “would have likely been $21.772 billion higher… but for litigation brought by frequent litigators.”
As my lawyer friends tell me, “the Supremes” are finally making some calls on this. The induced infringement theory, a particularly obnoxious patent litigation approach, is no longer valid. The main event, Alice Corp. v. CLS Bank, is still waiting to be ruled on. Let’s hope the Supremes take a real stand on when software claims are too abstract to be patented this time around, unlike the punt they made on Bilski.
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.