Bubbles and their subsequent bursts are part of the landscape of our economy, our culture; our lives. Silicon Valley is no stranger to this cycle — first the dot com, now the much-talked-of second tech bubble. But the bubble we’re in right now is undeniably focussed around patents.
Let me start off by stating baldly that I believe patent litigation — like the “patent wars” that have been exploding over the tech news recently — is absolutely horrible for innovation. Perversely, the standard counter-argument of those accused of trollery is that patents, and protecting them with litigation, are good for innovation.
That may have been the original aim of patents, but it seems pretty clear that the spirit of the law has been severely compromised when companies exist exclusively to license patents and on taking a cut of the damages awarded in patent lawsuits. The patent wars have been in the news a lot recently (Yahoo’s litigation against Facebook, Facebook licensing AOL patents from Microsoft who bought from AOL, Google buying Motorola as a defensive bulwark), and I recently sat on an entreprenuership panel at Stanford with a representative from Intellectual Ventures and a partner at Morrison Forrester’s patent litigation group, in which they stated that startups would need to spend $300 thousand in legal expenses in their first two years in order to protect their intellectual property. If that video is ever made public, you’ll see two things: what my poorly contained (for the sake of decorum) frustration looks like, and an example of the insidious scare tactics used by patent trolls.
Startups don’t need to be worrying about spending $300K on lawyers in their first two years; they need to worry about building a great product. That money would be much better spent on hiring 3 or 4 developers. Unfortunately, the current system — which Intellectual Ventures profits from — leaves startups (and potential entrepreneurs) in fear of legal battles and thus deterred from building great products and services. That’s not to say legal counsel isn’t important for startups. I believe firmly that good attorneys can be one of a startups greatest assets — but I would be extremely hesitant to trust counsel that advocated for spending that much money on what amounts to patent warfare at such an early stage in a company’s growth.
Intellectual Ventures is happy enough to accept the status quo, but it doesn’t make sense for the vast majority of companies to follow their lead. The (justified) anger that has been mounting from the startup community toward patent trolls indicates that the system is unsustainable — this bubble is set to burst. The cracks are already beginning to appear — Twitter’s commitment to use patents only for defensive purposes may well turn out to be practically meaningless, unless other large patent holders follow suit. But the stand was taken nonetheless, and a step taken in the process of getting real, useful patent reform.
We need to explore better ways to protect intellectual property reasonably, but not so much that we can’t improve on and innovate basic frameworks. Patent reform should end the current system in which patents are assets. One way to do this is to revoke patents from owners who do not actively use it after a period of time, to ensure that patents are actually available for use and to cut down on patents granted that are not useful. We need to have a clear system of transferability of patents. We need to build an international framework for filing patents, so that patent holders don’t have to file for a patent in every country. We need a system that encourages innovation, not stagnation and cumbersome litigation.
The best way for tech companies to innovate is to continue to build great products and remain ahead of any competition by continuing to innovate. There’s a famous Samuel Sass quote — actually a misquote — that says “everything that can be invented has been invented”. I don’t believe this is true. But it might be if we don’t change the framework for patents.
I’ve been working on a longer-form piece on what I believe is the new bubble in the tech community: patents. Hopefully I’ll find time to finish and post that this week. But in the interim, the news of Facebook licensing AOL patents from Microsoft is just so ironic and dismaying at the same time, it can’t be ignored. A smart move by Facebook, but demonstrates how far down a bad path we are getting. Those of us that are actively building companies know this is a dangerous and sad road.