"We can build a full, robust IP strategy on a startup's budget and still have some of the same things we had at Apple," said Richard "Chip" Lutton, general counsel at startup Nest Labs and former chief patent counsel at Apple.
I don't quite understand how you can do that. Can you elaborate on this?
I take Lutton's point to be that companies such as RPX, Intellectual ventures and many others like them have created a virtual patent marketplace where a startup can go shopping for patents.
He is clear that a startup can't afford the same size portfolio as an established company such as Apple. However if it defines its landscape carefully it can have similar coverage in its limited markets as bigger companies that span broader markets.
The problem with the statement from Chip Lutton is the imagination that patent has value by its own right. No. If Apple owns a particular patent, the intrinsic value of that patent is higher than if a startup owns that patent. You look at the recoverables on infringement. More people will wish Apple infringes on them than a startup. That is why it is not just the technology, you look at the owner.
Also, you can also add that if a big company owns a patent, the value goes higher since they are not likely to sell for cheap. Rather, they may license if they want. The technology could be the same but the person that controls it adds mutiples to the valuation of a patent.
Every patent has value, as long as you can find a small to medium sized company you can sue who might be doing something vaguely similar to what is claimed in the patent. Clever practitioners of this business model don't go after the big guys -- the ones that have the financial means to defend themselves -- because that is risky. Far better to go after a smaller fish and price the royalties such that it is cheaper for him to settle with you then to defend himself in court.
Frank, That surprises me. I can understand why the trolls wouldn't want to sue the giant companies that have in-house legal staff to shoo-away nuisance lawsuits, but why go after the small fish, who have little money for lawyers or to pay off patent trolls. As the CEO of a small startup doing some extraordinary things, I simply couldn't afford $350 an hour for attorneys to fight, but neither could we afford to pay even thousands of dollars to buy off a troll. I think legislative changes are needed to block such nuisance suits and to protect innovation at startups.
I work a lot with SMEs and startups on tight patent budgets. The key to getting maximum protection at minimal cost is abandonment. Delay your costs as much as possible until the market is proven for your product. If the market fails, abandon the patent. Don't put another dime into it.
When I studied abandonment rates in different industries a few years ago, I discovered that Finance and Pharma were very good at it. If the product didn't work out, they dumped the patent and moved on, even after a notice of allowance. The electrical engineering arts were much more reluctant to abandon. I'm not sure why, but that does lead to excessive costs. Here is what the data looked like.
A derivative is an investment based on the value of an underlying instrument. In essence, what is emerging is a derivative market based on intellectual property, and it is exhibiting all the same ill traits that one sees with "swaptions" and the other exotic derivatives that have made the international trading world a house of cards, an emperor with no clothes.
This is not what patents were designed to do, and it must stop before it undermines the innovation needed to drive new companies forward, to bring new ideas to the marketplace, and to deliver value to those who build the better mousetrap.
I agree with Tom Murphy 100%. The easiest way to save the patent system is to pass a simple law that restricts the royalties when the patent holder does not design, build, manufacture or sell a product which competes with the product on which the lawsuit was brought on. I suggest a royalty cap of 0.01% of the sales. This cap should have no effect if the patent holder has a competing product in the market place. Then the existing patent laws would apply as usual.
Fundamentals: And I like your idea for a royalty cap of 0.01% for non-producing patent holders.
You know, I've been following this debate over technology patents for something like 20 years, when I first attended a USPTO public hearing in San Jose. Little new thinking has emerged in those two decades that would compare well with the good ideas that have surfaced on our message boards over the past two days.
What other ideas should we add to the patent laws to make them more equitable and reduce the trend of patent trolling?
You have captured exactly the same thoughts I had when I saw the headline of this story. IMO, this is the inevitable and foreseeable result of the last two "reform" initiatives re the US patent system. It wasn't broke, so why the attempt to "fix" it! A large portion of the "inventions" recently issued patents are trash pure and simple, issued because the Patent Office is completely overwhelmed now as indicated by the "hockey stick" curves in the story. What hath Congress wrought?
Mhrackin: Hmmmm....you're blaming Congress for creating this mess and oppose new laws (Quote: "It wasn't broke, so why attempt to fix it?"). I would tend to blame the trolls and others who are abusing the system. And I think Congress needs guidance from the true inventors of the world on what new laws are needed to thwart abuse.
And if the USPTO is overwhelmed by a flood of inventions, or ill-equipped to handle the sophistication of new devices, would you recommend expansion of the agency? And how would that be financed?
Two of the primary culprits: making both software and business practices eligible for patents. The traditional view (explicit in the previous patent laws) was that both of these were essentially algorithms that were intangible and thus not eligible for patents. They were considered to be equivalent to artistic expressions, and like those eligible for copyright protection, not patent protection. This change also broadened the category of "design patents" (as opposed to "utility patents"). A HUGE proportion of the deluge of applications fall into those categories: the typical smartphone app can have a separate "design patent" for each screen!
I see a doubled edged sword. The "patent trolls" benefit the small inventors by escalating the stakes for infringement and providing a marketplace for their intellectual property. On the flip side, "patent trolls" may force small companies to pay unjustified royalties because they cannot afford to litigate. The "patent exchanges" benefit the large corporations that can afford to buy into the consortium which the small companies cannot easily access. If the potential abuses of patent trolls are to be addressed, it seems only fair to address the potential abuses of the "monopoly" patent exchanges at the same time.
Dr. Quine: Good points on how inventors may benefit from the trolls. It kind of reminds me of personal injury lawyers -- there are great ones who do a good job for their clients, and there are ambulance chasers who give other lawyers a bad name. With patent trolls, we tend to hear more about the quick-money artists, than the the ones who may be helping otherwise powerless inventors.
I don't recall hearing a lot about stories in which patent trolls helped to defend an inventor's patent. Has the media been remiss in reporting on this? Can anyone cite a few good examples of those cases?
With new businesses and more opportunities for everyone, I don't know why experts are surprised by the increase in the value of a patent or the potential cost of litigation. Frankly, this should be expected. Many of the products on the market (some of them) are either a new idea or an idea someone steal from another party with simple modification. Once again, laws are not keeping up with technology.