Audio/Video, Business, Hardware

Patent Wars Explained

The recent court cases between Apple and Samsung have brought the use patents in a way many find strange to the attention of a wider press. Most people think of patents as a way to protect inventions. Indeed, this was the idea when they were first introduced to the world in England in the form of ?letters patent?. They were issued by the King or Queen to inventors who petitioned and were approved: a grant of 1331 to John Kempe and his Company is the earliest authenticated instance of a royal grant made with the avowed purpose of instructing the English in a new industry.

Since the introduction of the patent, it was used to protect people and companies from having their inventions ripped off. However, sometime in the early 1990’s various nefarious people began to see that patents could be used as a form of legal demand against large corporations. Their technique was as follows:
1. Observe the direction the technology of a large firm is going in.
2. Work out any number of rough ideas which even remotely look like something that the large corporation might be considering and patent the ideas in any form possible.
3. Sue the corporation for infringement whether you think there is an infringement or not.
4. They realize it is cheaper for them to pay you off than go to court.
5. You get hundreds of thousands of dollars if not more in settlement money. The how much you get will depend on how well you guessed the direction of the intended technology and the quality of your patent filing.

This practice became known as ‘patent trolling’. The metaphor was popularized in 2001 by Peter Detkin, former assistant general counsel of Intel after he had to deal with a number of such cases. These early instances were often crude but also successful. However, they had yet to inspire an entirely new way of doing business. That is considered to have begun in 2000 when Nathan Myhrvold formed Intellectual Ventures, and the business world has never been the same since.

Nathan Myhrvold is a genius ex-CTO of Microsoft. He made hundreds of millions of dollars from MS stock and along the way he has discovered dinosaur fossils and also bizarrely wrote some cookbooks. More importantly, Myhrvold has more than 100 patents to his name, and he has positioned himself as a ‘defender of inventors’. While that is one way of looking at it, another is that he turned patent trolling into a professional business.

In an article on NPR with Nathan, when challenged about patent trolling he replied; ?That’s a term that has been used by people to mean someone they don’t like who owns patents,? he says. ?I think you’d find almost anyone who stands up to their patent rights has been called a patent troll.?

Intellectual Ventures, says Myhrvold, is just the opposite. He says it is on the side of the inventors; it pays inventors for patents, it gathers patents together into a huge warehouse of inventions that companies can use if they want. It is sort of like a department store for patents: Whatever technology one is looking for, IV has it.

IV pays inventors for inventions, so far it has bought 30,000 of them. It also has its own lab that has come up with tons of patents of its own. However, nothing that has come out of this lab has made it into commercial use. This is where the use of patents in business has become its own industry. Because IV can use its giant patent portfolio to seek settlements from any company looking in any direction it believes it owns patents in, IV actively seeks out such opportunities.

Imagine the following scenario: Someone wants to create a new business. They have some ideas and they and their team are excited about getting to work and doing some good old-fashioned inventing. They do not want to use their seed capital to file patents because they are extremely expensive (approx. $100k to internationally cover for a filing, but less for one year provisional cover) and they want to save their cash for payroll and equipment, etc. So they work hard and have excellent ideas. They go to market, sales take off and they are already having fantasies about an IPO and a house in Malibu. Lets call this company Alpha.

Then suddenly a horrible letter with an embossed letterhead from a lawyer turns up informing Alpha that their client believes the company has infringed on their patents numbered 10,001 to 24,002 lettered A, D, F and G. They are seeking immediate reparations of $1 Bazillion.

What can Alpha do? Absolutely nothing. Their investors put their money in to build your business, not to fight a 2 year court case with $1M+ in fees. What usually happens is that the owners of Alpha end up selling the company to the aggressor (presuming they are interested), or they settle or get out of the business.

What can be done to prevent this? For big businesses the answer is simple; they build up a war chest of patents so when the aggressor turns up, they can fight back with their own counter claims. However, this rarely happens because of ‘patent checkers’. Specialist legal firms actively check who has what patents and their strengths / weaknesses. Just like Sun Tzu, big tech firms do not attack unless they can win. To know the possibility of success they employ ‘checking’ firms to research their chances.

This is why we have seen Microsoft spend so much for the AOL/Netscape patents. This in turn saw Facebook buy the rights from Microsoft. It is also why Google paid so much for Motorola.

This is why today almost any business interaction in Silicon Valley begins with an analysis of what patents are owned by other companies.

For smaller business the message is clear. Even before they finish drawing the designs, or at the moment they cry ‘Eureka!’, they have reach for the phone and call their patent attorney. The idea is not
just worth money, it needs protection from being a just another casualty of the patent wars.

Good luck. See you all in court over this piece of paper: