The cost of patent trolls

By Felix Salmon
July 25, 2011
This American Life's investigation into patent troll Nathan Myhrvold and his company Intellectual Ventures.

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I love This American Life’s investigation into patent troll Nathan Myhrvold and his company Intellectual Ventures. You should go read — or listen to — the whole thing, but in a nutshell, they explored what happened if they took Intellectual Ventures at its word.

IV pointed TAL to an inventor called Chris Crawford — a man with a patent which he sold to IV. Inventors! Getting paid! For inventing! Except when TAL tried to talk to Crawford, he wouldn’t answer their calls. And it turns out that IV had sold his patent to Oasis Research, a Texas company with a nameplate address and no employees, for some up-front consideration and a percentage of all litigation proceeds.

TAL goes into clear detail about the idiocies of the patent system — how even software engineers with patents don’t believe that software processes should be patentable; how patents are regularly awarded for ideas which have been around for years; how multiple patents are often awarded for much the same idea; how IV is essentially running an intellectual-property protection racket; and how big companies are amassing patent portfolios not so that they own the intellectual property behind their products, but rather so that they can threaten to sue any company which sues them.

The end result is a highly dysfunctional situation where virtually any startup is at risk of being shut down by a patent suit; and where nameplate companies with no business and no revenues, like Oasis Research, are the perfect vehicles to launch patent suits, since they’re not susceptible to countersuits. Essentially, if you’re small, you have to hope to fly below the radar; if you’re big, you have to pay billions of dollars on patents you have no particular interest in. Here’s how TAL describes the $4.5 billion that Apple, Microsoft, Nokia and others paid for Nortel’s patent portfolio:

That’s $4.5 billion on patents that these companies almost certainly don’t want for their technical secrets. That $4.5 billion won’t build anything new, won’t bring new products to the shelves, won’t open up new factories that can hire people who need jobs. That’s $4.5 billion dollars that adds to the price of every product these companies sell you. That’s $4.5 billion dollars buying arms for an ongoing patent war.

The big companies — Google, Apple, Microsoft — will probably survive. The likely casualties are the companies out there now that no one’s ever heard of that could one day take their place.

The US is in desperate need of patent overhaul. We need to make it easier and quicker to get good patents, and much harder or impossible to get bad patents. We need to abolish the abomination that is the business-method patent entirely. And most crucially we need to allow defendants in patent suits to argue that the patent is invalid because it was awarded in error, with lots of prior art at the time the patent was awarded. Right now, patents can be appealed — but not in the court where they’re being enforced, with the result that trolls with invalid patents can still get paid out to the tune of billions of dollars.

Chuck Schumer’s bill taking aim at business-method patents in the financial industry is a good start; if the sun continues to rise in the east after it passes, that might embolden legislators to start taking aim at business-method patents more generally.

But this is a Congress which is clearly incapable of doing the most obviously right things: given the choice, they’ll always and predictably pick demagoguery coupled with devastation over simple common sense every time. The incoherent and anachronistic patent system is, sadly, with us for the foreseeable future. And the cost of that will be huge, in terms of seven-figure lawyers’ fees, rents extracted by trolls, and, most importantly, lost innovation and entrepreneurialism.

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Comments
14 comments so far

I’d rather we just abolish patents altogether, and compensate for any loss in R&D research with added government funding for research. Let everything be open, and remove the stifling impact of patents.

Posted by JasonDick | Report as abusive

When laws prove difficult to pass – perhaps a simple law can be passed that limits lawyer fees. And to encourage democrats to support the bill, perhaps it should include language that excludes cases in which the plaintiff is a single person, not a business.

For example, lawyers fee for patent suits could be limited to 5% of the award.

For example, in a class action, lawyer fees can be limited to 1000x the payment to a single member of the class. There are just too many BS class action suits.

Regards

Posted by MarkWolfinger | Report as abusive

When the authority to grant patents was written into the Constitution, engineering was arguably a different kind of discipline. Less innovation and more the application of well-worn practices. Today, the job of many if not most engineers is fundamentally to create novelty, i.e. new solutions, and on many levels.

And the fact that these solutions take work to develop means they are not obvious. Yet, ‘novel’ and ‘non-obvious’ do not mean ‘unique’.

Innovation is routine. It does not seem to have any meaningful distinction from ‘invention’. This explains why most patents I deal with look like day-to-day engineering, the kinds of solutions any competent engineer might arrive at. And many probably do. So it’s hard not to conclude that if every patent owner could wave a wand and magically shut down all infringement, technology industries would simply screech to a halt.

It raises fundamental questions. Does innovation truly need the encouragement of monopoly anymore? Are courts and government agencies competent to draw a line between innovation and invention? Does such a line actually exist?

But don’t expect these questions to be asked within the halls of power.

Posted by TheCageNovel | Report as abusive

“We need to make it easier and quicker to get good patents, and much harder or impossible to get bad patents.”

I like it! Let’s have more good patents, and less bad patents!

All we need are some common sense reforms! I bet if the president sat down with his neighborhood engineer and a couple of bratwursts, he could fix this over dinner.

Oh wait. :)

Posted by dtc | Report as abusive

Felix, Microsoft is one of the worst offenders when it comes to patent applications, especially when it comes to prior art, processes, and overly broad language; don’t feel sorry for them.

Timothy Lee over at his Forbes blog (http://goo.gl/ZG2Jy) points out that the 700 patents awarded to Google in their 13 years of existence, was equal to the number of patents Microsoft received in just the last four months.

Microsoft is no longer in the business of innovation for the sake of competition, but in the business of documentation of processes in vague language, in order to profit from. (http://goo.gl/1CQE8)

And the Nortel IP would mark the SECOND time in less than a year, that Microsoft tried to buy up IP assets. This is not about defense: considering Microsoft joined RIM and Apple to buy up Nortel’s IP after Google made a stalking horse bid, it’s clear that these firms colluded to exclude Google from winning.

Posted by GRRR | Report as abusive

Litigation seems to be the derivatives market of the patent industry. There seems to be more money in patent litigation options than actually using you patent, especially since many of these patents themselves are obvious derivatives of existing patents.

Posted by BottyGuy | Report as abusive

In the late 1990s I worked for a small software company that developed and patented a concept, because we thought it was innovative and worth protecting.

Fast forward a few years. We were acquired by a large software company, and discovered another company selling a product with substantially the same concept. In subsequent research, I discovered that 42 (yes, 42) patents existed for this concept. It wasn’t at all clear if we were the first to invent. We didn’t sue.

These are the sort of things that make patent lawsuits the nuclear option. You can blow up a lot, with not predictability as to whether you’re damaging yourself or your competition. Litagation happens much less frequently than you might imagine.

Posted by Curmudgeon | Report as abusive

Curmudgeon, in my experience that is typical of how companies that actually build and sell products use patents today. If litigation comes you start pulling out your own patents to show that the court fight will go on for a long time, and if necessary there can be some licensing of patents between bigger companies. Hence Google’s interest in the Nortel patents.

The new proliferation of patent trolling companies who have no intention of actually building and selling something gives the patent trolls extreme leverage. They don’t have to protect a product of their own so they can start litigation on everyone who may have infringed on their claim without worrying that they will be counter-sued for infringement. Just spray out patent suits and see what sticks.

I see that as a very powerful position to be in, it definitely increases the value of the patent derivatives.

Posted by BottyGuy | Report as abusive

@JasonDick

Yes, how long must we suffer under the stifling impact of patents which have kept us from making any meaningful advances in IP since the 1700s? Damn those stifling patents.

Any system will eventually be co-opted by rent-seekers. The US patent system does need to be torn down and remade, simply to set the rent-seekers back a few steps. And then we need to plan to do it again in two decades when the rent seekers catch up again.

Posted by timothyogden | Report as abusive

“But this is a Congress which is clearly incapable of doing the most obviously right things…”

This would be the same Congress that is pushing the Schumer bill on request of the NY banks, right? The bill that seeks not to redefine the playing field, but to put a hex on anybody who comes up with an otherwise-legitimate patent that happens to be in the way of powerful interests with friends in Congress?

There’s a long and VERY ugly history of the powerful being in favor of patents when it suits their interests but running roughshod over individuals who patents were meant to protect. Please make sure that when you propose “reforms,” that they minimize the very real risk to innovators and innovations from the very changes you might call for.

Posted by WaltFrench | Report as abusive

I agree Walt. As an individual or small company how do protect your IP against the 800lb gorila infringer? Nowadays, you can’t even suggest a license without the possibility of counter suit. Perfect Gorilla strategy; issue a press release patent has no merit-keeping Wall St and shareholders happy – and then bury small innovator with burdensome costs. Never thought much of the value of trolls but currently, not too many options for little guy to protect his/her legitimate right to own and protect.

Posted by showtime | Report as abusive

Wouldn’t a very simple step be to limit standing to sue to those involved in the production of the infringing device. In essence, you only get usable authority if you take steps to create adn/or develop the idea into something practical.

That would be the start of a very important return to normalcy: intellectual property is different, and we really need to shift to a treatment that makes sense of that.

Posted by Brennan | Report as abusive

This is a joke isn’t it? A patent trolls clients aren’t Microsoft, Google or Exxon. They’re the little guys and girls who discover something only to watch a big company use it with impunity. Do something to level the playing field for the inventors.

1) There are very few patent attorneys who litigate on a contingency basis. Change the rules.

2) The patent trolls should be bound by contract law perhaps licensed as attorneys. They often screw the inventor by corrupting his/her patent attorney with promises of riches. Make some rules.

Don’t feel sorry for the Fortune 500. Their business practices too often resemble a mugging.

Posted by bobguz | Report as abusive
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