Numbers don't lie: Patent trolls are a
plague
By Simon Phipps
Created 2012-10-19
03:00AM
Jeff Bezos is not the
most obvious advocate for change to the patent system. The founder and driving
force behind Amazon, he has in the past encouraged his staff to file for
controversial Web patents on obvious ideas like "one click to buy."
Under his guidance, Amazon has wielded those patents as part of lawsuits
against competitors; the one-click patent was used against Barnes & Noble,
for example. At one point, the Free Software Foundation was even coordinating a boycott of Amazon [1] as a result.
Bezos is no
bleeding-heart patent liberal. Yet in London this week, he told local newspaper Metro [2]:
Patents are supposed to
encourage innovation and we're starting to be in a world where they might start
to stifle innovation. Governments may need to look at the patent system and see
if those laws need to be modified because I don't think some of these battles
are healthy for society.
[ Simon Phipps tells us how he really feels: Why software patents are evil [3]. | Track the latest trends in open source with InfoWorld's Technology: Open Source newsletter [4]. ]
Bezos is not alone in
this view -- even the New York Times [5] is now carrying stories about the threat from abuse of the
patent system. Recently, a wide range of academic research has begun to cast
light on the problems caused by the patent system, and a consensus -- that
there's a real problem -- is emerging. Panelists speaking at an event sponsored
by the Advisory Committee to the Congressional Internet Caucus explored the topic [6] and mostly found the patent system wanting. Technology
startups face huge challenges from companies seeking to do little more than tax
their innovation using binders full of patents; technology lawyer Marvin Ammori commented that the patent system as it stands is
very hard for innovative startups to navigate.
An academic paper from law professor
Colleen Chien [7] of Santa Clara University looks more closely at the challenges
patents pose for startups. She found 40 percent of the respondents to her
survey reported trolls causing significant operational impact on their young
businesses, including delays in hiring, undesirable changes of strategy, and
loss -- or elimination -- of value. She also found that patent trolls were
frequently used as a buyer for the patents of failed startups. Aaron Williamson
of the Software Freedom Law Center points out [8]:
The truth is that the
patents aren't a moat around the startup's product, but around the VC's
investment. As every VC knows, a huge proportion of startups fail -- as many as 90 percent [9]. Given this high failure rate, VCs don't see startups as
investments in themselves, but as pieces of an investment portfolio; they've
placed bets across the board, expecting most of them to lose.
I've written before
about the problems software patents pose, especially to open source projects.
Indeed, I believe software patents to be one of the top five drivers of change in the world of open source
today [10]. New research published as a consequence of the
America Invents Act supports the fears expressed by Bezos, Ammori,
and many others. It has revealed the extent to which the patent system is being
harnessed against technology innovators in ways that harm the economy.
Among the other measures
in the America Invents Act, passed by Congress about a year ago, section 34
requires the nonpartisan Government Accountability Office (GAO) to conduct a
study on the effects of patent trolls on the economy. The GAO in turn went to a
group of academics associated with the Stanford IP Clearinghouse (now called Lex Machina) to gather the data
required. Those academics have now supplied the data to the GAO andpublished their
own assessment
[11] of the research.
Covering a five-year period from 2007 to 2011, it rigorously identifies and
classifies patent activities across all industries and uses a statistically
significant sample to draw conclusions.
The findings should concern us all. Coining the useful term "patent
monetization entity" (as a replacement for "patent troll,"
"nonpracticing entity," and "patent
assertion entity" -- all terms with either social or technical issues),
the scholars have concluded that "lawsuits filed by patent monetizers have increased significantly over the five-year
period." Not only has the number of cases increased, but so has the
proportion of these non-product-related litigants, from 22 percent to 40
percent of cases filed. They found that four of the top five patent litigants
in America exist solely to file lawsuits.
This is the tip of the iceberg. Among their findings, the academics
analyzing the Lex Machina
data observed that many cases never reached court, and the main impact of
patent monetization entities was probably in the costs they impose way before
litigation commences. This is supported by a
paper from the Congressional Research Service [12], which observes
that the main goal of patent monetizers is to extract
money from their victims without ever going to court.
The vast majority of defendants
settle because patent litigation is risky, disruptive, and expensive,
regardless of the merits; and many PAEs set royalty demands strategically well
below litigation costs to make the business decision to settle an obvious one.
What's going on here? One clue comes
from the Lex Machina
research. They found that technology industry cases constitute 50 percent of
all patent suits; in the software industry, Internet-related patents were
litigated 7.5 to 9.5 times more frequently than non-Internet patents. When
cases actually go to court, they are often unsuccessful, but most lawsuits from
patent assertion entities are settled out of court.
Combine that with the evidence that
the unseen menace, when threats lead to payments under nondisclosure terms so
as to avoid expensive litigation, and the implication grows that this is an
abuse of an out-of-date system manifesting itself. It will then come as no
surprise that 1
in 6 patents today covers smartphones [13]. Guess what those
patent monetization entities want to monetize?
Software patents are far too easy to obtain; they are poor quality, with
prior art invalidating them if one is able to check. But the cost of
self-defense is so high that most victims, instead of fighting, simply settle
and stay silent. Given the profits to be made and the low costs of failed
attacks, the intellectual vultures are gathering, darkening the skies above
Silicon Valley looking for victims.
The papers cited above have many proposals for dealing with the problem,
but there's no common pattern among them. Perhaps Lemley's
simple and elegant proposal [14] will bear
fruit in the area of software patents. But more will be needed. The cost of
litigation for patent parasites must go up; there need to be penalties for
failed attempts to monetize the innovation of others. Most important, the mafiosi-grade shakedowns costing America's economy so much
money -- and with it the success of innovative startups and the creation of
much-needed jobs -- has to end.
Doing
that will definitely require changes to the law beyond the claimed benefits of
the proposed SHIELD Act. It seems the researchers -- including those working
directly for Congress -- are finally on the case to fuel the shift.
This article,
"Numbers
don't lie: Patent trolls are a plague [15]," was
originally published at InfoWorld.com [16].
Source URL (retrieved on 2012-10-19
10:54AM): http://www.infoworld.com/d/open-source-software/numbers-dont-lie-patent-trolls-are-plague-205192
Links:
[1] http://www.gnu.org/philosophy/amazon.html
[2]
http://www.metro.co.uk/tech/915096-jeff-bezos-kindle-e-readers-will-soon-become-part-of-our-everyday-lives
[3]
http://www.infoworld.com/d/open-source-software/why-software-patents-are-evil-188738?source=fssr
[4]
http://www.infoworld.com/newsletters/subscribe?showlist=infoworld_open_source&source=ifwelg_fssr
[5]
http://www.nytimes.com/2012/10/08/technology/patent-wars-among-tech-giants-can-stifle-competition.html?pagewanted=all&_r=0
[6] http://www.computerworlduk.com/news/mobile-wireless/3405473/mobile-patent-wars-hurting-innovation-experts-say/
[7] http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2146251
[8]
http://www.softwarefreedom.org/blog/2012/oct/16/always-ask-about-the-business-model/
[9] http://techcrunch.com/2012/10/14/90-of-incubators-and-accelerators-will-fail-and-why-thats-just-fine-for-america-and-the-world/
[10]
http://www.infoworld.com/d/open-source-software/5-key-forces-driving-open-source-today-204429
[11] https://lexmachina.com/2012/10/10/lex-machina-releases-the-america-invents-act-500/
[12] http://www.fas.org/sgp/crs/misc/R42668.pdf
[13]
https://www.techdirt.com/blog/innovation/articles/20121017/10480520734/there-are-250000-active-patents-that-impact-smartphones-representing-one-six-active-patents-today.shtml
[14]
https://www.infoworld.com/d/open-source-software/the-software-patent-solution-has-been-right-here-all-along-202299
[15]
http://www.infoworld.com/d/open-source-software/numbers-dont-lie-patent-trolls-are-plague-205192?source=footer
[16] http://www.infoworld.com/?source=footer
[17] http://www.infoworld.com/blogs/open-sources?source=footer
[18] http://www.infoworld.com/d/open-source-software?source=footer
[19] http://twitter.com/infoworld