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.

I woke up this morning to a great article by Nick Grossman at Union Square Ventures on The Patent Quality Improvement Act. Nick does a great job of describing the software patent problem, suggesting several solutions, and explaining how the Patent Quality Improvement Act helps the increasingly dismal situation around software patents.

Nick has a great paragraph from Mark Lemley of Stanford Law School that describes a powerful solution to part of the problem – that of eliminating “functional claiming.” Regarding functional claiming, Mark says:

“This is a problem that is unique to software. We wouldn’t permit in any other area of technology the sorts of claims that appear in thousands of different software patents. Pharmaceutical inventors don’t claim “an arrangement of atoms that cures cancer,” asserting their patent against any chemical, whatever its form, that achieves that purpose. Indeed, the whole idea seems ludicrous. Pharmaceutical patent owners invent a drug, and it is the drug that they are entitled to patent. But in software, as we will see, claims of just that form are everywhere.”

Mark has written a strong paper on this called Software Patents and the Return of Functional Claiming that describes the problem – and the solution – in detail.

Fred Wilson, Brad Burnham, Jason Mendelson, and I have been talking about the problem of software patents for a long time and Fred brought it up again today on his blog in a post titled Piecemeal Patent Reform. It’s nice to see Senator Chuck Schumer proposing a simple yet powerful solution to part of the software patent problem.

While we continue to struggle with patent trolls in the US – which used to be called “non-practicing entities” (NPEs) but now apparently prefer to be called ”patent assertion entities” (PAE) – the New Zealand government has announced that software will no longer be patented. Maybe someday we will be so bold.

I regularly get emails and have discussions with entrepreneurs who are on the receiving end of a software patent lawsuit. Many of these are young companies, often with little or no revenue. It’s total, completely madness. If you don’t believe me, read the latest rant from a young entrepreneur on the receiving end of a software patent lawsuit from a troll.

My startup, all five employees and $0 revenue, is being sued by a patent troll. It is madness.

Software patents are weapons of mass extortion. The trolls know that the cost of patent litigation is huge- millions of dollars for a thorough defense. The vast majority of companies do a simple cost benefit analysis and settle. It costs a pittance to file a lawsuit, a fortune to fight. A troll can sue many companies and live off the settlements. Trolling is a lucrative, legally sanctioned business model with virtually no risk. The longer this continues the worse it will get.

And getting a patent is not that hard. For less than the cost of a small friends and family round you make a series of claims that describe your “invention”. Sort of a technical concept document written by a lawyer. There is no code required, no detailed product spec. You don’t have to build anything. We are being sued for having a UI connected to a server connected to a mobile device.  And get this- data goes back and forth between the UI and the mobile device. Break through, right? Yes, according to the Patent Office.

And just like with illegal extortion, patent extortion causes real personal and economic pain:

• I wake up in the middle of the night with my hands clenched like lobster claws. I’ve actually cried from the injustice and worry;
• Every three hours of legal advice costs the same as an on-shore customer service representative with benefits for a week.
• A full legal defense could be my entire future Series A.  And who is going to invest in that round when use of funds says “litigation”?

It is romantic to fight but the trolls know that a startup’s number one job is to stay alive. Screw romance. Screw justice. One lawyer I consulted told me not to read the patents- they were irrelevant. And the troll agrees. He said he didn’t really understand my business and didn’t care. We just looked like other companies he has sued. If your startup hasn’t been sued yet, don’t worry. You will.

What we need is leadership. But where are our leaders? In court. It’s disgusting. The millions spent haggling over the curvature of an icon could fund a massive lobbying and social action effort. Is it possible we can send a million tweets about happy cats but not stop patent extortion?  We’re a community that believes in big dreams and blowing up obstacles. We can do this. We just have to try.

By now the blogosphere, twitterverse, and even mainstream media is abuzz with the absurd decision that Yahoo has made to sue Facebook over ten software patents with the assertion that Facebook’s entire business is based on Yahoo’s patented inventions. My partner Jason Mendelson called this on 2/28 when he wrote his post Goodbye Yahoo! It was nice knowing you and Fred Wilson weighed in this morning with his post Yahoo! Crosses The Line.

My personal view is well known – I don’t think any of these patents are actually valid. Take a look at the analysis on PaidContent of The 10 Patents Yahoo Is Using To Sue Facebook, read the plain English descriptions, and then look at the filing dates. Now, try to make the argument that these are novel, useful, and non-obvious inventions of the part of Yahoo. For a less nuanced view, now read TechDirt’s post Delusions Of Grandeur: Yahoo Officially Sues Facebook, Laughably Argues That Facebook’s Entire Model Is Based On Yahoo.

I’m hopeful this is the beginning of the endgame of massive patent reform around software. It’s time for the entire industry to recognize that we are quickly shifting from a cold war (patents are deterrents) to a nuclear war that – like the one in War Games - the only winning move is not to play.

I’ve decided to let a week pass while I think about what the right response to this is. Software patents have the same polarizing dynamic that SOPA/PIPA had . Our government is, through laws and regulations – many of which make no sense, has created a construct with the legal industry that is untenable. Once again, we see an incumbent (Yahoo – and yes, I recognize the irony of calling Yahoo an incumbent) attacking an innovator (Facebook) with irrational weapons that have huge collateral damage, all in the name of “enhancing shareholder value.”

This is not a winnable game for Yahoo, the Internet, innovation, or society. Like nuclear war, the only winning move is not to play. However, Yahoo has now played. The next few moves are critically important.

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:

• From 1990 – 2010 NPE lawsuits are associated with $500 billion dollars of lost wealth to defendants.
• In the past four years, NPE lawsuits are associated with an average of $80 billion per year of lost wealth to defendants.
• Very little of this loss wealth represents a transfer to inventors.

The litigation has distinctive characteristics:

• It is focused on software and related technologies.
• It targets firms that have already developed technology.
• Most of these lawsuits involve multiple large companies as defendants.

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.