* Posts by Steve Perlman

5 posts • joined 3 Oct 2007

Techies oppose US patent reform bill

Steve Perlman

IBM patent for exploiting a patent portfolio

In answer to your question, yes, there has been a patent filed for exploiting a patent portfolio: "System and Method for Extracting Value from a Portfolio of Assets", filed by IBM on April 3, 2007 with 89 claims. Claim 5 states "the intellectual property assets are patents." US patent serial #20070244837.

IBM very aggressively litigates IT-related patents. A notable case was against Amazon.com a year ago.

IBM is a prime example of a supporter of the Patent Reform Act: a high market-power IT industry company that, at least in my opinion, is not using the patent system to promote innovation.

Regarding IT patents, the current US patent system has a range of 15 factors that go into determining the size of damages awarded for patent infringement, and even then, the judge can decide if an award is inappropriate, and if it isn't, the award can be reversed. If an IT patent is not worth as much as, say, a solar energy patent, then it is entitled to smaller award.

This is not to say every court judgment is equitable. It's an imperfect system and sometimes the award is unfairly high and sometimes it is unfairly low (e.g. maybe a legitimate patent holder can't afford the legal fees to adequately prosecute the case). But the Patent Act is not about making awards more equitable, it just weakens ALL awards.

For example, if you really wanted to correct inequities in patent awards, then why not look at the last 1000 patent cases, evaluate which cases were equitable and which were inequitable, and then find patterns where certain factors were weighed inappropriately in determining the awards. THEN, pass a law that gives guidance to the courts to weigh certain factors differently in certain situations. Passing a law with armchair language that just weakens all patents is not making use of data that we have available to make an informed decision.

Remember, the people opposing the Patent "Reform" Act (don't be confused by its name) are not against Patent Reform. They are against the Act as written, not its name.

Steve Perlman

No one says the US patent system is perfect...

...and we'd all like to improve it. But the changes proposed in the patent bill aren't about reform. They're tailored to benefit a small group of mostly high market-power special interests at the cost of almost everyone else, including large and small business, across every manner of industry. That's what the opposition is about. Yes, let's reform the US patent system. But, to everyone's benefit, not just to a few high market power corporations with a powerful lobby.

Before you write off the letter, take a look at who signed it and how it came together (by an email chain of friends contacting friends, and even competitors contacting competitors). All of the companies listed in the letter are doing R&D and/or selling products, and rely upon patents to protect their businesses. (We did not include any companies who are only in the business of buying and licensing patents.)

I was blown away to see the wide range of industries who are reliant upon patents. It's not often you see a letter that aligns Caterpillar with Estee Lauder, CocaCola with Silicon Valley startups, a solar energy company in Virginia with a small space technology company in Alaska.

What's even more amazing is that several of the companies listed have LOST large patent suits against them. But, they are still opposed to the Patent Act because they recognize it is devastating to the US economy.

The only scary thing that came out of pulling together this opposition letter was that the response was so strong and widespread, it raises the question of what impact the Patent Reform Act would have on world markets if enacted. At the rate companies signed up in opposition, despite the informal process, it's clear that companies representing easily 5% (perhaps 10%) of US jobs would line up in opposition. Just today, the National Venture Capital Assn. had a press conference saying the Patent Act as currently drafted would have a huge negative effect on investment.

No matter where you stand on the Act, if such a large percentage of companies and investors feel that company valuations would be undermined if the Act passes, the concern is it could trigger a collapse of US and world markets. It has taken a lot less to trigger a collapse in the past.

By all means, let's reform the patent system. For everyone, not just for a few.

You can find the letter at innovationalliance.net.

Mr WebTV skewers US patent bill

Steve Perlman

Startups use patents, but not for litigation

While I have a lot of respect for Guy Kawasaki (our tenures at Apple overlapped), there is a bit of a disconnect between us regarding this particular item in his blog.

I agree that startups rarely sue with their patents, but for a more fundamental reason: Given how long it takes for a patent to issue in the US (3-7 years), startups rarely have any patents issued when they first seek funding. No issued patents, nothing to sue with.

But patents are rarely used by startups for lawsuits. The fact that patents are filed (even while pending) serves as a very strong deterrent for others from cloning the company’s work. A would-be cloner company knows that once a pending patent issues, the startup (which by then may be a good-sized company) may be able to remove the clone from the market, let alone collect damages. So, other companies interested in a patent-pending technology are far more likely to work out a deal with the startup (e.g. license, partnership, investment, acquisition). Or, if they can’t work out a deal, innovate around the patent (we’ve had to do this on occasion…and it really forces the team to think out of the box).

We’ve had situations where companies with whom we’ve disclosed our technology have tried to clone it, thinking we had not filed patents, and then upon discovering we had pending patents, concluded they could not copy the work, discontinued the projects, and instead struck deals with us and formed partnerships. Or, chose to pursue another path. But there is no question that patents have been a key factor in the survival, and prosperity, of my companies.

So, patents (pending or issued) primarily serve as protection for startups because of their future potential value. And although, when necessary, we politely make other companies aware of our pending patents (called “sabre rattling”), in my career that has never led to litigation, even once the startup has “grown up”.

This is actually one of the items that has come up in my discussions with Senators and their staff in connection with the Patent Reform Act. While there are plenty of statistics available for how patents are used in litigation, there is very little research available for how patents are really used primarily: as a deterrent for cloning inventions. I have over 100 issued and pending patents, I’ve done 8 startups and about a dozen multi-million dollar rounds of funding, I’ve put together perhaps 100 partnerships with companies large and small. Patents are major factor in negotiations, but I've never had the need to assert them in litigation.

Steve Perlman

re: ...letting others sort of the patenting end of things

amanfromMars:

Boy do i WISH I could let others sort of the patenting end of things! You are right, no inventor (myself included) wants to be bothered by patents or the laws that govern them. That was the path I started on in my career: just focused on developing the technology and never imagining I'd ever be involved on the business end of things. I firmly believed the adage "if you create a better mousetrap, the world will beat a path to your door".

But, I found out the hard way that it wasn't any near that simple. Believe it or not, the most difficult "challenge" with QuickTime wasn't the engineering (although it was really hard), it was convincing the executives at Apple that typical users were interested in using video on a computer screen. Back in the 80s, desktop publishing was the focus, and it took a lot to convince them that video could open up new markets. And, it was through that process that I saw superb engineering (and science) work discarded, simply because the work lacked a business case to support it.

So, I took the time to learn how to create business cases to justify new technologies. I'm motivated by the science, even more than the engineering, but I learned to work with the business side of the tech ecosystem so that the technologies can be funded. This makes the business people ("suits" if you will) happy as clams, me and my teams get to make cool stuff, and the world sees (hopefully) innovative new products. Even big tech companies benefit, since we frequently partner with them and sometimes they acquire not only innovative technology, but highly motivated teams.

The vast majority of tech work we do is not patented. Additionally, we have and continue to use open source and contribute back to the open source community. The only time we use patents is when (a) we see something as exceptionally novel, and (b) we plan to build products based on the technology that would be vulnerable to being cloned. For example, part of what we do is rethink prohibitively expensive technologies so that they are inexpensive enough to be sold to the mass market. Unfortunately, once we figure out how to make something inexpensive, it is very vulnerable to being cloned by companies with far more resources and market power. The only protection in that case are patents. And, if I can't justify to business people their investment in new technology will be protected, there will be no investment. No investment, no technology.

BTW, patents aren't necessary to build a business case for every type of innovation. For example, the business case for social networking technology is primarily drivien by the "network effect" of aggregating users. But, for many technologies, patents are all we have to enable their creation.

Steve Perlman

Comments from Steve Perlman

[Sorry to be late to this discussion (and likely missing the train). I'm on California time. This is a long response to many comments]

This article is essentially an interview, since there are no other views, either supportive or contrary to mine. But, I'm afraid the catchy headlines inserted by the author ended up sounding like he was either making light of my views or he thought negatively of them. I emailed him today and he said that was not his intention at all.

Patents DO need reform in the States, and some aspects of the Patent Reform Act I strongly advocate (like allowing a patent holder to choose a plaintiff-favorable court). So, let me clear up a couple of things up, and then offer comments.

- Only this article has referred to me as "Mr. WebTV". I'm better known for leading the Apple team that developed QuickTime, but WebTV was one of my startups, and when Microsoft acquired WebTV I became a Microsoft Division President and got a deep perspective of a big tech’s view of patents. (And…we never sought to patent Web on TV. Indeed, we were inspired by successful interactive TV systems like Teletext in the UK.)

- Although it is correct that the two cases cited in the article (NTP v. RIM and MercExchange v. eBay) were cases that created momentum for the Patent Reform Act, while Congress was debating the Act, eBay defeated MercExchange in the Supreme Court and in doing so set a landmark precedent that took away a patent troll’s strongest weapon: the threat of injunction. Before this ruling, RIM (Blackberry maker) was forced to settle with NTP for >$600 million because of fear that an injunction would shut down Blackberry phones. After the "eBay" precedent, this threat no longer is significant, and RIM would not have paid NTP anything, because the NTP patents were subsequently invalidated.

- There have been a series of cases in the last several months (including one yesterday that limited so-called “business model” patents). Also, patent rules are changing as of Nov. 1 to limit the number of claims and continuations (extensions) to patents. While all of these decisions have done a lot to curtail abuses of the patent system such as those that prompted the Patent Reform Act, unfortunately, they also weaken legitimate uses for patents. We won’t know for a least a couple of years what the impact will be of dropping these huge rocks into the patent pond, and much of my argument is we should let the ripples settle out before dropping a boulder as big as the Patent Reform Act. There is little risk in waiting, particularly given that recent changes mitigate the worst troll behaviors. But there is a huge risk in acting quickly before we understand the consequences of these changes. The wrong decision will have repercussions globally. Bear in mind that the US is one of the largest markets for patent-protected products worldwide. If this Act passes, EU patents filed in the US will be weakened as well.

- I agree that we need to look at what should or should not be patentable in the information age, including software patents. There are no simple answers, but these are important issues and we need to take the time (and hear many voices) to find workable solutions. But, by that same token, I don’t agree that we should wholesale eliminate or weaken ALL patents. Having raised hundreds of millions of venture funding, and having developed products that have produced thousands of millions (“billions” in US English) of dollars of revenue, I know quite well the funding would not have been possible and the products would not have come into being without patents. I’ve never had to litigate a patent against anyone, but with every one of my companies, investors, partners and in some cases, acquirers, all have looked into whether we have a strong patent portfolio. And, from the other side, in senior roles at both Apple and Microsoft, I’ve seen how a large company may only consider a tiny, but innovative, startup (in a business the relies upon patents) to be credible (as an investment, as a potential acquisition, as a partner, or as a competitor to spur on innovation) because of their patents. Large companies and startups are part of a thriving ecosystem, and patents are part of the balance. Like any ecosystem, there are parasites (e.g. trolls) that need to be mitigated. But not at the cost of the entire patent ecosystem (at least until we can think up and transition to an alternative approach to patents that still creates incentives and enables funding of innovation).

- I don’t feel strongly about first-to-invent over first-to-file, but I prefer a first-to-invent system because of the nature of the work we do in startups. The example in the article of 25 approaches I gave was for a recent system we developed and all 25 approaches were indeed practical and patentable, but we narrowed them down to the ones that were the best. There are only about 200-250 “interference” cases (where there is a dispute about who invented first) out of about 300,000 patents filed each year in the US, so it’s not a big deal. I could live with first-to-file, but I’d want the change to happen gradually, with several years warning, consistent with the examination period of the patent office (2 patents I got last year took 7 years to issue. I have a patent filed 5 years ago that has not yet been examined.)

- The most important reform needed with the US patent system is much more funding for the US patent office. It is the best way to weed out weak patents, and it’s absurd to wait 7 years to wait for a patent or 5 years for a response on a patent. Notably, the Patent Reform Act had a provision for eliminating the diversion of funds from the patent office which I wholeheartedly support. That provision was deleted before the Act was voted upon.

- The “Screw the rest of the world” headline is unfortunate, and most certainly does not reflect my views. I’ve spoken throughout the US and the world, including the UK, on how states and countries can foster environments to encourage startups and innovation, which is something certain regions in the US do exceptionally well. Startups are great for an economy. They mint new industries, create jobs and stimulate new ways of looking at things (including new ideas about what intellectual property means). Ironically, almost every company against the Patent Reform Act was once a startup, and several of them, notably Intel, got to be the powerhouses they are today because of aggressively defending their patents when they were smaller. Now, the shoe is on the other foot.

Steve Perlman, President & CEO, Rearden Companies, www.rearden.com

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