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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 The induced infringement theory, a particularly obnoxious patent litigation approach, is no longer valid.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.
Join the Application Developers Alliance at a Boulder Developer Patent Summit August 28 at 6 PM at FUSE Coworking. The event is a chance to share stories of demand letters and lawsuits from trolls, discuss legal strategies and litigation costs, and share ideas for software patent reform.
DATE: August 28th | FREE | 6pm
LOCATION: The Riverside (FUSE Coworking) | 1724 Broadway | Boulder, CO 80302
6:00pm Welcome (registration, drinks, food, and mingling)
6:30-8:00pm Brief Presentation, Panel Discussion, and Q&A
8:00pm Enjoy food and drinks, meet the panel, and network
I’ve been asserting for at least six years that patent system is completely broken for the software industry. I’ve given numerous examples, dealt with the issue first hand as patent trolls have tried to extort many of the companies I’m an investor in, and I’ve had many public discussions about the topic.
On my run on Sunday, I listed to This American Life - When Patents Attack… Part Two! It is easily the best and most detailed expose I’ve ever heard on this issue. If you care to really understand how patent trolls work, spend an hour of your life and listen to it.
The issue has finally gone mainstream. Here’s a great quote on patent trolls from an article in Time Magazine (how much more mainstream can you get than that.)
“In 2011, Apple and Google spent more money on patent litigation and defensive patent acquisitions than on research and development. That’s not a good sign for the U.S. economy; in fact, it’s a stark indication that our intellectual-property system is broken. Rampant patent litigation is impeding innovation and ultimately increasing the costs of gadgets for consumers, according to legal experts and industry observers. Now President Obama says he wants to reform the system.”
There was an outcry of support last week when President Obama issued a set of executive orders and suggested legislative actions to fix the broken patent system. While the press release from the White House had a bland title, the substance was solid and the articles about it got to the point.
- Obama Plans to Take Action Against Patent-Holding Firms
- 3 Silly Abuses Obama’s Patent Troll Executive Order Could Stop
- Obama Orders Regulators to Root Out ‘Patent Trolls’
- President Obama to take aim at patent trolls with executive actions on Tuesday
As expected, plenty of people suggest all of this is misguided or overblown. I read John Sununu’s (former New Hampshire Senator) Boston Globe OpEd Who is a patent troll? Obama calls nation’s techies to arms, but enemy is difficult to define and grimaced as he mostly missed the point, while at the same time blaming it on the government and lawyers.
All of this is shining a bright light on a deeply rooted problem that has spiraled completely out of control and has become an enormous tax on innovation in the United States. While I don’t believe Obama’s executive orders go nearly far enough, they are a start in something that has been ignored by the White House and our government for far too long.
Two of the public policy things I care about are patent reform and immigration reform. I believe our patent system – especially with regard to software and business method patents – is completely and totally broken. And our immigration system – especially concerning immigrant entrepreneurs – is an embarrassment.
There is suddenly a lot of focus and attention on both of these issues. That’s good, and I’m hopeful that it will result in some meaningful positive changes. It pains me to see other countries – such as Canada, the UK, and New Zealand – be more progressive, open, and forward thinking around entrepreneurship and innovation than the US. There are days when I’m discouraged by our political system, but as I’ve gotten older and spent more time with it the past few years, I’m getting to a zen state of not being discouraged, but rather accepting the reality of the process and just being consistent and clear about what I think is important and how to fix it.
On the patent front, Twitter recently finalized a powerful approach – the Innovator’s Patent Agreement (the IPA). With this, they’ve agreed – as a company – to only use their patents defensively. I think this is extraordinary leadership on Twitter’s part. Our government and the USPTO is not moving aggressively to fix a problem that is now stifling innovation in the software industry, so leaders in the software industry can, and should, take matters into the own hands. As Fred Wilson describes in his post today, the IPA is an incredibly clever and forward looking approach. I’m proud of my friends at Twitter for providing this leadership and I encourage entrepreneurs and investors to understand the IPA and consider applying it to their patent approached.
On the immigration reform front, today is the second to last day of the March for Innovation. Go to the March for Innovation page to tell your Senators how important this issue is and read what a bunch of tech leaders are saying on the Mashable March for Innovation page. If you want just my thoughts, you can go read them at Broken Innovation Shutters Innovation.