How Patent Trolls Are A Tax On Innovation

I've written on the subjects of patents before on this blog and on the Union Square Ventures weblog. There have been good discussions around this issue, both in this post and in the sessions event that the USV weblog posts talks about. At this point, after 22 years in the venture capital business and countless hours discussing this issue, I come out on the side of less patent protection in information technology, no patent protection for software and business methods, and first and foremost the elimination of patent trolls.

This post is about patent trolls. On friday I wrote this twitter post.

Just in case you didn't know how I feel: patent trolls are a tax on innovation and are evil of the highest order

I received at least 50 replies, with almost everyone agreeing with me. But as anyone who knows him would suspect, Steve Kane did not completely agree with me. He wrote:

Swap the word "trolls" out and instead use "owners." Still evil?


how can IP protection be bad for innovation? One mans troll is another mans wronged IP owner

Steve makes the important and valid point that the small inventor who comes up with some novel idea and patents it is then entitled to enforce the patent and get economic value from it. If the inventor chooses to extract that value by selling it to a patent troll, well then that's his/her choice, isn't it?

Irwin Gross, a former IP lawyer and now a partner at the top VC firm Sequoia Capital, made this argument at our Union Square Sessions event on public policy issues facing the venture industry. Irwin said:

the notion that because patents are complex, we should abolish the
property right, which is sort of the argument against patents, has
always seemed to me to be both rational and wrong. Really the answer in
a very substantial way is to come up with and innovate, as the Creative
Commons folks have, come up with ways to lower the information costs.
Come up with valuation models that make sense. They need to be based on
first principle. Byron Scholls once told me that the Black Scholls
Model isn't widely used because it's right. It's right because it's
widely used.

This is the the "market is always right" argument. One that has been challenged in the past year for sure in the area of mortgage backed and deriviative securities and a lot more.

I'm a fan of allowing market forces to work in most cases, but not in the area of patents. And here's why. It's a huge tax on innovation.

At this very moment, I know of three lawsuits against our portfolio companies being brought by patent trolls. And one other portfolio company of ours spent $500,000 last year (10% of the venture round they raised) defending themselves from a totally baseless claim by another patent troll. That claim was thrown out and our company is now suing the patent troll to reclaim legal fees.

I am all for trying to protect the small inventor, but solo inventor who does not commercialize his/her technology does not bring nearly as much economic value (and jobs) to our society as the entrepreneur who actually takes the risk, starts the company, hires people, commercializes the technology, raises the necessary capital, and builds lasting sustainable value.

When that entrepreneur and the company he/she creates is hit with a baseless claim from a patent troll represented by lawyers working completely on contingency, it's a very big problem. As you can see, it can take a lot of time and money to fight and win.

The other option, and I see our companies do this all the time, is to pay a fraction of that $500k or more to settle the case and make the patent troll go away. That can be $25k to $100k in my experience. But that payment just funds the patent troll to go do it again and again. It's the expedient and rational thing to do for many entrepreneurs, but it's the wrong answer for the venture ecosystem and our society as a whole.

What we need to do is come together as a community of information technology companies, entrepreneurs, and investors to gang up on these trolls. I'm not going to suggest all the things we need to do in this regard. My partner Brad is doing a lot of work behind the scenes to figure out what we can do as an industry to fight the trolls and at the right time I'll write more about what needs to be done.

But there are two ideas I'd like to put forward as legislative reform that I think would be very helpful. The first is to force the plaintiff to pay the defendant's legal fees if a patent infringement case is lost. That would force the trolls to actually do some work and make sure they have a really strong case before bringing it. That is clearly not being done now because the trolls can sue anyone they want with relative impunity and no liability. Of course the defendant, like our company that spent $500k last year, can sue to reclaim legal fees, but that case is hard to win and costs more money that's not going to hiring people, building technology, and delivering new products and services. If the losing plaintiff has to pick up the defendant's legal fees, I think we'll get closer to Irwin's market forces. There will still be money to back a strong case, but there won't be any money to back a weak one.

The second idea, which is more controversial, was suggested by Nathan (who designed this blog for me) on twitter on friday:

Patents and copyright should have a "use it or lose it" clause like trademarks.

I like this idea as well. The small inventor who we are trying to protect can still get economic value from his/her patent, but it must be sold to an operating company that will use the patent to defend an operating business, not a financial investor who is just going to run around suing companies with impunity.

I have no idea whether the political environment is ready for this kind of reform. I would hope with a new adminstration that is tech friendly and desperately trying to find new sources of economic energy for this country, we'd have a more welcome ear in washington for this kind of thinking. Because we can't keep spending 10 cents of every dollar we raise in venture funding fighting patent trolls. That's just too expensive, for our companies and our society.

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Comments (Archived):

  1. Wille

    I’m a fan of allowing market forces to work in most cases, but not in the area of patents.—–Patents have nothing to do with market forces, they are a government intervention in the market: a patent is effectively a government granted monopoly on an idea or invention.I’m no GNU “everything must be free and open” guy, and I certainly think people should not be free to rip off other peoples ideas, BUT if two people come up with the same idea/solution independently, I see no reason why the person who didn’t send in a government form first should be stopped from pursuing their work.

    1. fredwilson

      Great point

    2. Daniel Tunkelang

      Willie, I’m pretty familiar with most aspects of software patents, and familiarity has not endeared me to them. But your suggestion is impractical, since it’s impossible to prove that you came up with an idea independently.For example, in college I independently rederived a bunch of the theory of games of pure strategy by John von Neumann and Oskar Morgenstern, but I later realized that I did it easily because their ideas were implicit in other things I’d learned. That should give you a sense of the impossibility of establishing independent invention.We do need to reform the patent system, but we need to do so in ways that are practical. Some ideas I’d love to see happen:- During patent prosecution, let anyone contribute prior art arguments (not just art itself) to the examiners. Basically, let examiners take advantage of the fact that a lot of people would happily volunteer free labor to prevent bogus patents from being granted. Today the process is not particularly hospitable to third-party participants.- Stay all patent infringement lawsuits while a patent is being re-examined. At least for now, a patent under re-examination should not be presumed valid. A case in point: RIM paid NTP $612.5M to settle a lawsuit over patents that were being re-examined and rejected (though the rejections are being appealed). But RIM had to settle of face a cease-and-desist (C&D): the patents were still considered valid despite the re-examination, and NTP would have used them to shut down RIM’s BlackBerry service. That isn’t justice, it’s extortion.- Narrow the scope of patentable processes to exclude much or all of software patents. This is the most controversial suggestion, and does have real costs, in that it may discourage either investment in software R&D or sharing of knowledge (i.e., more innovation will be protected as trade secrets). But I suspect that the benefits outweigh the costs.

      1. Wille

        But your suggestion is impractical, since it’s impossible to prove that you came up with an idea independently.Is Copyright impractical? What I had in mind is something more akin to copyright today, and a lot less like patents. In most areas, in particular software copyright is really all we need.As long as something is not a straight rip-off (which copyright would cover), software needs no further protection.I’d argue that patents on software and methods implemented by software are more harmful for progress and innovation than anything else.Patents where originally conceived to promote scientific progress, not hinder it (the logic was: you get a monopoly for a given period of time, as long as your invention is described/blueprinted and others can build on it once the period of monopoly is over by virtue of having the “blueprints” in the public domain). If patents have become exactly what they where supposed not to be, they need to be rethought all together.

        1. Daniel Tunkelang

          I believe that what what you are now suggesting amounts to eliminating software patents, which was my last suggestion. And I’m *agreeing* with you that software patents today cause more harm than good.My point was that what I understood to be your initial, narrower suggestion, to determine patent infringement based on whether someone came up with the same idea/solution independently, is impractical. You don’t seem to be defending that suggestion, so perhaps we simply agree now, or I misunderstood you in the first place.

          1. Wille

            I think where somewhere close to agreement. I work with software, so that is what I was primarily addressing.When it comes to areas such as medicine, I know far too little about the subject area to have an informed view on the pros and cons of patents.Software patents are just counterproductive – I’m a strong proponent of people having the right to the fruits of their work, but in software, copyright is quite enough.

          2. Daniel Tunkelang

            I work with software too–I’m a computer scientist, not a lawyer. I feel that my view on software patents is more informed than most, and I have the scars to prove it!I could be quite happy in a world without software patents. I do think there would be some negatives–as in medicine, the prospect of a limited monopoly protection is an incentive for R&D investment. Also, that same protection is an incentive for companies not to keep that R&D as trade secret. But, on balance, the harm outweighs the benefit. This is a case where I think it’s worth throwing out the baby along with the bathwater.

  2. Adam Ierymenko

    I really like the idea of coming together to gang up on patent trolls. It could be something like a neighborhood association or a small private insurance fund.You should also look into an effort called PubPat: would be worth getting in touch with them and working together. Maybe if entrepreneurs and VCs got involved a fund could be created to challenge problem patents and help small companies, early stage ventures, and independent entrepreneurs defend against patent trolls. It could be sort of like how the ACLU defends people as a foundation against civil liberties abuses. At first it might be expensive, but if entrepreneurs and VCs put some money toward going after patent trolls it might help to drive them away.Combine that with some lobbying and some publicity and you might get somewhere. I also think it would really help to start publicizing and making a stink about these trolls when they hit. A lot of really seriously silly trolling goes on that nobody hears about… people need to know just how broken the system is.

    1. fredwilson

      Thanks for the link. I forwarded it to my partner brad who is looking into all of this

      1. Dan Lewis

        Does anyone know if one can make an offer of judgment (FRCP 68) in a patent action? If so, a consortium like troll-targets could use it like a cudgel.

        1. fredwilson

          I don’t know

    2. andrewparker

      I also really like the idea of small private fund insurance to solve this solution… if a company is willing to spend ~10-25K to make a patent troll go away, I’d much rather see that money be put towards an insurance deductible to an agency that will go punish trolls.However, I can’t envision an insurance model that would actually work because how do you properly incentive people to not get patent infringement insurance and then go around infringing on everyone’s patents? Deductibles alone likely won’t work because malicious patent infringement can be lucrative. There’s no easy way to cover only trolling cases.But, again, I’d love to see this work.

  3. Ian Wilson

    I recently started building up an effort of this nature, along with a prestigious global research community that brings together the worlds leading experts in a specific technology field (emotion related technology). What we are creating is a “SIG” (special interest group) for the community of experts to review patents in our filed and amongst other things find “prior art”, if available, for spurious claims.We hope the effort will provide a measure of protection for those of us using the type of technology we all specialize in, help us avoid infringing others patents and perhaps frightening away patent trolls.Another small effort I have been doing is to make a “trade group” type group to get together those in my small industry so we at least know each other and are then more likely to work together, because we at least know each other, rather than suing each other, as strangers. This may only really be possible in a small new industry like the one I am in and it is not without its risks but so far it has been worthwhile.The current patent system is unworkable, patents are impossible to find, impossible to understand in many cases and if you take them at face value could bring the entire technology eco system to a grinding halt. You can almost guarantee that someone has a spurious patent for something you are doing.The idea of having a patent for something you are not, or in many cases have never built is, I think, against the original intentions of the patent law framers. That is not an invention, that is science fiction writing.A problem with the “use it or loose it” idea is the length of time it now takes to get a patent granted, I am seeing 7+ years now. Sometimes the pioneering companies that originally filed the patents (ahead of the curve) have long gone and all that is left is a troll, that cannot be good for innovation, the economy or entrepreneurs.Peer reviewed patents, crowd sourced to experts, is certainly one way out of this mess but requires everyone put in some effort.

    1. fredwilson

      Great thoughtsThanks for sharing them

  4. martinowen

    I am an inventor. I have taken time and effort to prototype my work. It is pre-revenue and was not an economic proposition when I started the idea in 2005. It is just becoming viable- both in component costs and market acceptance of a business model. I, and my partner have spent a lot of money, on regular guy incomes, protecting our IP. In the end it is all that I have to monetise that effort and investment.I want my product on the market and I would be pleased if some third party with more clout than I have would take the idea forward…. but I would have never have done the work I have already done if I wasn’t going to get a share of the reward. I am happy for A CC approach- but any commercial derivative- I want my piece of the actionThe deck is already stacked against the inventor in getting investment. I have no track record as an entrepreneur and building the dream team is not easy when you are a bootstraper.How many cents on the dollar is the investor getting? Should ownership of money be more significant than ownership of an idea?

  5. Guest

    I do not feel that patents surrounding information technology need 20 years of protection. Instead, 3 to 5 years is plenty of head start.It is obviously difficult for patent offices to know if patent claims are known prior art, so lets limit the amount of damage they can do, but yet provide utility to the small companies in their startup phase.

    1. martinowen

      in which case we need to speed up the 5 years it takes to get the patent!

    2. fredwilson

      That’s reform I could support

  6. Ben Fremer

    I have another idea that might help –Inventions could be reviewed by a panel to determine their duration, and depending on how many found it to be un-obvious would determine the duration for which the patent is granted, and patent durations could last from like 3-30 years instead.

  7. Hypocrisy finder

    This is a good idea. Let the patent holder take some risk too. If their job is inventing patents and suing for the, there is very little risk, only the cost of the patent. If there is more risk, there will be fewer of these problems.

  8. anon

    Idea number two please. Three years from date of initial submission to try to commercialize, or the patent goes to public domain. That should be 5-6 years to develop a product.The current situation is so ludicrous — but I guess that means it will be around for a while. Such sub-optimal market structures are a sure indication of lobbied gov’t intervention. I’m going to guess that with Paul Allen’s money now behind the institutionalization of patent trolling, the situation is going to get worse, not better. Small companies that cannot afford to “join the fund” of firms like IV will have little or no hope should they find a novel product that disrupts an established market with majority stakeholders.I am thankful, though, for your blog entry. Maybe something might happen.

  9. kidmercury

    i agree with your patent views boss. the good news is that as the economy continues to collapse, more and more entrepreneurs/inventors will need to really explore crowdsourcing as a way to innovate for cost-savings reasons (more so in some tech niches than others, though i think it will be valid as a broad trend as well). while patent trolls tend to be a crafty bunch, i think they will find it harder to sue the crowd.thanks for sharing some of the numbers on what this is costing you and your peeps. ya’ll are getting robbed, no doubt.

  10. knucklehead

    Ironic post coming from a tech VC. I think most founders would gladly delete the “Our Technology” slide from their deck if they knew that the lack of the slide wouldn’t cause them to be dismissed as a knucklehead by the VC community. Honestly, would you fund a techless Tech company? I would think that you are far more likely to share a good laugh with your partners at how naive the founders were for not including a description about how their soon-to-be patented technology assures their new company’s success, or, at the very least, would be a good boobie-prize for the investor. How much of the “Troll” activity do you think is coming from failed venture-backed companies? If it’s none, why have the slide? If it’s a lot, why this post?

    1. fredwilson

      I don’t know what percentage of troll patents come from failed VC companiesWe are happy to fund a company without any patents. In fact we have a bunch of companies that have none.But that doesn’t mean they don’t have sterong technology. The issue is whether technology should be protected via the patent system. I think not, particularly for software

      1. Andrew

        While there are good arguments against “business process” patents, which are unavoidably vague and broad, it is much, much more difficult to make a similar argument about algorithm patents; several unrelated kinds of subject matters are in the portmanteau of “software patent”. We cannot dispense with computer algorithm patents without dispensing with all patents, both theoretically and practically, because all good patents are algorithms and every argument against algorithm patents applies to *all* patents. This is the elephant in the room that everyone avoids noticing, but it needs to be dealt with in a consistent manner. Contrary to popular belief, it is eminently possible to get software patents (of the algorithm kind) in Europe by exploiting the impossibility of making a distinction that cannot exist even in theory, so we need to take a few steps back and revisit the entire concept, not just one small bit of subject matter.The issue of patent term length is more complex, because a “reasonable” term for a patent is often a function of industry regulation. In an unregulated industry like most (but not all) software design, you do not have the regulatory overhead of bringing it to market like, say, pharmaceuticals, and so a shorter term (say 5-7 years for computer algorithms) is reasonable. The problem is that there is no such rule that will not be badly broken in some cases, which is how we got the overly padded term length that we have today that is long enough to allow just about any patent to survive the regulatory process. Computer algorithm patents seem excessively long because you do not have several years of regulatory approval burning the useful patent term.One possible solution to this is to have patent terms exclude a defined regulatory overhead for bringing the product to market e.g. regulatory approval processes that are required to be completed before a product can be brought to market are automatically excluded from the patent term in some regular way. The primary downside to this is that it throws a monkey wrench in the international patent harmonization process.As an added note, the problem with patents these days is not so much the subject matter (except when vague) but the volume of frivolous patents. It is just as bad in other subject areas as it is with computer algorithms, you just do not see it talked about as much. Also, chemical process patents, which are identical in every meaningful way to computer algorithm patents, receive very little negative attention and are one of the oldest and most venerable uses of patents system, something that has never been reconciled by the proponents of eliminating algorithm patents, perhaps because most software geeks are not familiar with the practice of that area of patentable subject matter.Indeed, I often like to frame the software patent debate in terms of a chemical process patent debate since every argument maps one-to-one, and it is easier to have a rational discussion about subject matter that we are less passionate about and invested in (unless, of course, you are a chemical engineering geek).

        1. Steven Kane


  11. Andy Freeman

    > The small inventor who we are trying to protect can still get economic value from his/her patent, but it must be sold to an operating company that will use the patent to defend an operating business.This proposal means that the inventor has no recourse if the operating company doesn’t buy, so why would the operating company buy?> solo inventor who does not commercialize his/her technology does not bring nearly as much economic value (and jobs) to our society as the entrepreneur who actually takes the risk, starts the company, hires people, commercializes the technology, raises the necessary capital, and builds lasting sustainable value.That’s why the solo inventor doesn’t make as much money. However, there’s a big difference between “not as much” and “nothing”. (Should employees work for free too?)Every solo inventor that I know tries to commercialize. Some succeed, some don’t.It’s interesting how this changes “the pitch” from “we’ve got this plan to execute using this technology that we’ve invented” to “we’ve got this plan to execute using technology that we don’t have to pay for”.Are bogus infringement lawsuits filed? Yes. Would companies pay if they didn’t have to, no. It’s interesting that every solution to “bogus lawsuits” has the side effect “free IP for companies”.

    1. fredwilson

      If the IP is that good, there are plenty of companies that would bid against each other for itThe sad truth is, at least in IT, that ideas are a dime a dozen. I often see as many as five companies doing the same thing at the same time and they don’t know about each other (yet)

      1. Andy Freeman

        > If the IP is that good, there are plenty of companies that would bid against each other for itWhy would they bid when they can use for free?> The sad truth is, at least in IT, that ideas are a dime a dozen.Then there’s no problem with using a different one. If my idea (for some definition of “my idea”) is useless, it’s no big deal for a company to do without.Then again, I’ve actually done a patent, for branch prediction. I think that it’s worth 10-20% in program run time. There’s no practical way for me to start a microprocessor company (if only because of IP held by other companies).

  12. IanWilson

    This is a link to a USPTO initiative for peer reviewed patents:…Your industry, as knuckehead points out, needs to be in on this effort and sharing those numbers might bring out others who see the balance going against them in the patent conflict.In my current location (a tech hub centered around a top 10 university) the VC, angel and government support community are obsessed with “IP”, in the sense that it seems to mean more than the business. Check the requirements of many an investor and they will state something like “protected IP”. That is a barrier to be overcome.I would like to hear from VCs how much of their investment money goes towards litigating to death unfunded or lesser funded competition, as a competitive strategy.

    1. fredwilson

      We would not recommend spending one dime litigating patents against competitors

      1. Dan T

        Fred. I would definitely support the use it or lose it concept, but I am curious about “would not recommend spending one dime” comment.Have you done this in the past and learned something from the experience? I was in a situation where someone from our largest strategic partner started a “copycat” company on a fairly novel idea when the patent was still pending. I’ve always preached patents for defense, not for offense – but when there “seems” to be a blatant rip-off, I’m finding it hard to turn the other cheek.

        1. fredwilson

          I think I said ‘don’t spend a dime suing companies for infringement’. If so, I do feel that way. But I do believe in spending the time and money to file for patents as long as this silly system is in place

      2. Andy Freeman

        The “major players” in many industries have “we don’t sue each other over IP” agreements (either formal or informal).If the law said that only operating companies could sue for infringement, none of those players will buy. They won’t buy to bring infringement actions themselves, because they’ve agreed not to. They won’t buy to avoid infringement actions because IP that they don’t own isn’t owned by someone with standing to sue (under the proposed rule).

  13. D. C. Toedt

    Fred, for me the money quote from your piece is this: “I am all for trying to protect the small inventor, but [the] solo inventor who does not commercialize his/her technology does not bring nearly as much economic value (and jobs) to our society as the entrepreneur who actually takes the risk, starts the company, hires people, commercializes the technology, raises the necessary capital, and builds lasting sustainable value.”A big part of the problem lies in the jurisprudence. Patent law expressly presupposes that inventors of patentable inventions are entitled to be rewarded merely for having publicly disclosed their ideas in their patent filings. The rationale is that the government’s collection of patents is available as a research tool for others, and that exclusionary rights are supposedly a necessary incentive to get inventors to disclose their inventions. That might well have been true 200 years ago; whether it’s still true should be open to discussion and debate.Another part of the problem is that of vested interests (surprise). Many small inventors — the proverbial “little man from Little Rock,” to use a saying known to most patent lawyers — heartily agree that disclosure of their patentable ideas, by itself, should be sufficient to entitle them to rewards. They’re supported by a large number of patent lawyers, many of whom tend to represent and identify with small inventors. As a result, they’re also supported at least to some extent by patent-bar organizations, which regularly lobby Congress, file amicus briefs in court, etc. And of course don’t forget that there are a lot of small inventors around the country, which doesn’t entirely escape the notice of their various congressional representatives.

    1. Andy Freeman

      > The rationale is that the government’s collection of patents is available as a research tool for others, and that exclusionary rights are supposedly a necessary incentive to get inventors to disclose their inventions. That might well have been true 200 years ago; whether it’s still true should be open to discussion and debate.Actually, the disclosure argument doesn’t depend on whether the govt’s patent collection is a useful research tool.Suppose that you came up with a way to speed up processors by 10-20% but were not in a situation where building processors was practical. Why would you go to the trouble of publishing said idea if you’re not currently in academia or industry? (No, it’s not going to get you a job.)Note that the processor industry is one of many where the major players don’t sue one another over IP.

  14. Chris

    One of the biggest issues with patents as they stand today is we protect the outcome rather than the method used to create the outcome.In software there is an infinite number of ways to get to the same outcome so if we must have software patents let’s protect the underlying algorithm not the outcome of the algorithm.

    1. Andrew

      Christopher, that is a very succinct summary. Patenting a computer algorithm is “patenting math” in the same way that patenting a mechanical process is “patenting physics” or a chemical process patent is “patenting chemistry”. If computer algorithm patents were actually patenting the use of math generally, alternative algorithms would not exist. You cannot patent the abstract definition of “sorting”, but you can patent any one of the infinite number of sorting algorithms that are possible to design. Even better, there is no one “perfect” algorithm either, just a set of engineering tradeoffs that create a diverse ecosystem of algorithms that all nominally solve the same problem but do it in different ways to optimize for certain characteristics.It is not possible to prohibit people from achieving identical results by other means using a genuine computer algorithm patent because there is always an unlimited number of alternative methods of achieving the same result. Those alternative methods might not be as efficient, but that is the whole point of the research.In many ways genuine computer algorithm R&D has a much higher bar than many other types of engineering R&D. For a chemical process, a 1% improvement in efficiency is a big win and worth patenting. For computer algorithms, there is usually no real value to patenting them unless they represent a qualitative improvement in the state of the art. The reason the vast majority of new algorithms in computer science are not patented is that it is very rare that one substantially improves the state of the art such that it would confer any type of competitive advantage in the market.

  15. petewarden

    Do you keep up with @walterolson ‘s coverage on Overlawyered?…A lot of the discussions on this topic descend into abstractions, it really helps to see some of his concrete examples of the current system in action.As an engineer and an entrepreneur I’ve seen my products stripped of features due to indefensible patents, and small firms shaken down by trolls years after they’ve released. I avoid patenting my own work on principle, and because in practice I’d rather use the massive amount of time and effort needed to ‘defend’ a software patent in actually getting something productive done.

    1. fredwilson

      I hadn’t seen overlawyered yet, but thanks for the linkIt’s great

  16. ryan

    Thanks from one of those little guys striving with all in me to bring economic value! Im 100% confident we will!Now we’ll just keep striving to show this to those who can further facilitate this mission of ours!

  17. Dank

    Use it or lose it is a winner for troll type problem.What about the pharma types patenting a naturally occurring plant?I think the whole patent concept needs a good working over.

  18. ErikSchwartz

    There are so many problems it’s hard to know where to start…One thing that USPTO allows is 3rd party submissions of information about applications. If you can squash stupid patents before they’re granted it saves everyone a lot of heartache and expense. The process is simple and cheap. They only take data, not interpretation of data (ie you can give them existing patents or other examples of prior art, you are not allowed to explain to them why they are relevant). We did this a few months back when one of our competitors had an absolutely ridiculous application published.The problem is you only have 60 days after the first publication of the application to do this.What would be great is if each industry could crowd source this in order to help the examiners understand the landscape of what is existing and obvious.

  19. MikieSimon

    I have a patent in bank technology. Major banks have told me that while I’m a nice guy and we ran a cute li’l company with great products for a few years, they would never hire us because they couldn’t take the risk. If something went wrong, they would get fired for hiring a small company, whereas if a big company screwed up, they could shrug and say, well, we hired a reliable outfit, who coulda known?I gave up and had to rely on the patent to save the million bucks or so I wasted trying to build lasting sustainable value. Now you want to take even this from me? I really did want a productive job–it was the market that forced me to troll status. I hate it, but it’s better than nothing.What if the market won’t let you use your invention? Suppose you invent something in a very capital-intensive business, or in say defense, where no one hires a startup? Suppose the inventor hates to pay bribes but works in that sort of industry? Suppose the inventor doesn’t play golf at the right country club?Fortunately, I had enough money at the end to hire my own lawyer. We negotiated a nice license without a suit. But if it did come to a suit, should I pay a huge bank’s legal staff? They would cheerfully spend millions to beat even a good claim, and how could I take the risk of losing so much?I understand you’re suffering from a bunch of lawyers taking advantage of the system, and I sympathize, but even in trip and fall cases brought by ambulance chasers, occasionally the little guy really is protected by our legal system. I find most of the outraged anti-patent rhetoric in fact advocates going back to the guild system, where a large corporation could sit on good technologies in order to keep their tired products in the money. You really want this environment for your startups? Be careful what you ask for, you may get it.

    1. David Semeria

      Great points.Unfortunately the law is not subtle enough to distinguish between the entrepreneur/inventor who gave it his best shot, and the guy who just went straight for the paycheck.

    2. D. C. Toedt

      MikieSimon, the Supreme Court has ruled more than once that patent rights are not ‘natural’ rights of inventors, but a creature of law. The overriding constitutional purpose of the patent system, the Court has said, is to foster innovation; we give inventors a 20-year exclusionary right merely as a means to that end, to benefit society as a whole, not inventors. Selfish of us, perhaps, but that’s the way it’s been for 200-plus years.So the answer to your question, “What if the market won’t let you use your invention?”, is that it may not matter. Sure we have personal sympathy for you, but we have to balance that against the societal cost of letting you force others out of a business that they would otherwise have just as much ‘right’ to be in as you do.The world has changed a lot since the first U.S. patent law was enacted in 1790. A serious question is, to what extent do we still need to give inventors a 20-year exclusionary right to encourage them to come forward with their inventions? Or do other incentives provide comparable benefits at lower societal cost?

      1. aneet4880

        D.C. <<<the world=”” has=”” changed=”” a=”” lot=”” since=”” the=”” first=”” u.s.=”” patent=”” law=”” was=”” enacted=”” in=”” 1790.=”” a=”” serious=”” question=”” is,=”” to=”” what=”” extent=”” do=”” we=”” still=”” need=”” to=”” give=”” inventors=”” a=”” 20-year=”” exclusionary=”” right=”” to=”” encourage=”” them=”” to=”” come=”” forward=”” with=”” their=”” inventions?=”” or=”” do=”” other=”” incentives=”” provide=”” comparable=”” benefits=”” at=”” lower=”” societal=”” cost?=””>>>You just made his case D.C.! You talk about societal costs and either ignore or am so calloused that you are beyond compassion. Warren Buffet has the right idea but he is ignored or misunderstood too. Warren admits that without the little guy – he is nothing! This law of 20 years you refer too, when a giant has the resources and every reason to wait out the 20 years (as we are seeing now concerning the stifling of innovative automotive progression) why should the giant do a thing for the little guy? It is called sustenance and I’d sure appreciate your intelligence but this time it is a waste of my time. Understand yet? I doubt it, too simple. Skip the 20 years, let it flow like the tundra. Better yet, in a computer age and converging economies – hit delete. How’s that for other incentives? Hard yes, but hey, that’s the ball game, right?

    3. S

      Mikie, your situation is fairly unique. The majority of patent trolls never tried to create a real product or anything of value. They just own an idea and sue anyone who uses it.

    4. aneet4880

      Mikie SimonYou said it…thanks…I posted earlier and then read further…this is complicated… and to add to my simple input previously, it’s all about greed and the results are ominous, we are witnessing this looming over my homeland, America.You take care Mike.

  20. hypermark

    In many respects, patent trolls have the ultimate weapon in that there is no deterrence for specious litigation.Unlike companies building real products/services for which a strong disincentive for me suing you for patent infringement is that you may have patents in your portfolio for which I am infringing, with patent trolls, there is nothing to sue them back for, save for a baseless claim, which is harder to prove.It’s almost like in nuclear proliferation, where mutual assured destruction is the deterrent. In case of trolls, there is nothing to destroy.In the real world that’s why you see big companies like Intel force cross-licensing agreements and covenants not to sue as a baseline for negotiating partnerships. The quid pro quo for being a partner does not exist with the trolls.

  21. David Semeria

    As someone who has spent a long time, self-funded, working on software technology, I have no problem admitting I sought patent protection for my inventions.My primary reason for patenting was defensive, but I can’t deny that if things don’t work out commercially, the patent offers something to fall back on.And if, God forbid, it came down to having to feed the troll to feed my kids, then I’d do so without a second’s thought.Perhaps the bottom line is that it’s just a lot easier to get the attention of a patent troll than a potential commercial acquirer. eBay for patents anyone?

  22. g2sb

    “It’s a huge tax on innovation.”The routine and excessive granting of patent monopolies by our government is also a frustrating affront to human freedom.”I thought of it first so you can’t do it unless I say so, and regardless of whether you thought of it independently” is a kindergarten perspective that should be highly suspect in a free society.Patents should be rarely granted and of very short duration. 20 years is way too long in the modern world, with the possible exception of developments in medical and pharma that currently involve lengthy testing and government approval. Our Apples, MIcrosofts, and Googles would not stop innovating if there were no patents. Small developers would, in the net, be empowered.

    1. aneet4880

      Right g2sbPatents should be rarely granted and of very short duration. 20 years is way too long in the modern world, with the possible exception of developments in medical and pharma that currently involve lengthy testing and government approval. Our Apples, MIcrosofts, and Googles would not stop innovating if there were no patents. Small developers would, in the net, be empowered.Small developers would, in the net, be empowered.

  23. S

    Great article. I completely support the idea of a patent to protect your IP, but the system is so abused by these trolls that something definitely needs to change. I totally agree with the “use it or lose it” clause you mention. This is the real problem with the system in my opinion. Companies come up with ideas or buy ideas from others and then patent them, but don’t build any product or technology that uses those patents – they wait for someone else to do all of that hard work, then they sue them for infringement.Fuck that. These people are amongst the lowest of the low lifeforms on this planet. I hope they all rot in hell.

  24. rickwebb

    Let me offer a third potential solution I would love for you to seriously consider: that of Compulsory Licensing, such as in radio.The failure in most defenses of patent trolls is the intentional blurring between the issues of compensation and licensing. No one seriously disputes that the inventor of something great has a right to be compensated, and no one disputes that right should be transferable.Where the whole thing breaks down is that owners of patents get to decide to apply or withhold the right for others to use their technology, and they get to decide how much to charge for that right. It is not clear to me that this ability is something that is morally important for patent owners to own.On the radio, this was solved. An artist needed to be compensated when their song was played, but it was ridiculous to think that a DJ had to go get permission before they played a song, and unworkable to assume that the band could set the price for the play. So a system of rules and prices was set up, and the problem was solved. (Well, until the internet came along, but that’s a digression).I don’t see any moral or logistical reason why the same can’t be applied to patents: you own the rights, people have to pay you, but the fees are set by a third party and you cannot deny the use of the technology by other parties, provided they pay the rates.Ownership rights are preserved, inventors are compensated, and innovation is allowed to thrive.I’d love to hear your opinion on this.

    1. Andrew

      The problem with compulsory licensing would be setting a reasonable, fair, and consistent rate. With compulsory licensing for music, to use your example, you have a straightforward metric for the relative value of the product so that the compensation is a reasonable proxy of the value of the license given. With music, there is an obvious unit of measure. I cannot think of any useful general metric for patent licensing that would produce reasonable results in the majority of cases without imposing elaborate and subjective overhead that would probably be even worse than the current situation.For a copyright, the compulsory license is really just permission to produce your own copies of someone else’s product at a standard royalty rate. A patent is not a product in most cases, and does not automatically reflect anything that remotely resembles the value of that patent to the party that is licensing it. A single implementation instance of a patent could be simultaneously worth almost nothing and worth hundreds of millions of dollars depending on context that is almost impossible to account for in a standardized way. It is difficult to imagine even a Byzantine compulsory licensing scheme that would correctly capture the entire set of dynamics that go into run-of-the-mill patent licensing agreements that both parties agree are fair and reasonable.Also, compulsory licensing would not eliminate patent trolls, it would just cause them to change their approach to match the economics of it, tactics selected depending on whether the compulsory license is too high or too low for the given subject matter. To make it not worthwhile to patent trolls you would necessarily have to make it onerous for everyone else or effectively eliminate the economic incentive for everyone else.

      1. rickwebb

        Let’s not confuse compulsory with set rate, though. You are definitely correct that it would be a challenge to find a fair rate, but i don’t think it would be impossible, for a few reasons. First, we don’t have to exactly, perfectly do it: we just have to make sure we’re close enough that morally everything’s covered.That inventors or their designees reap a fair reward. We don’t have to exactly, perfectly mimic the current system. I think some broad principles and some sort of governing board or court could probably do the trick with not perfect results, but far more efficient and fair ones than we have now. I’m trying to think of a good analog here. Some process where you submit the facts and get a rate, or dollar amount back.And it’s definitely true the system would still be gamed, no doubt. But that gaming would no longer inhibit innovation, or act as a tax. It would just be a set appeals process and in the end the final rate might go up or down a smidge, but everyone could still use the tech, and there wouldn’t be any massive show-stoppers.

  25. roykaller

    I attended the 2009 Santa Clara Computer & High Technology Law Journal Symposium on Shifting Strategies in Patent Law. I highly recommed watching the panel sessions on Non-Practicing Entities, in particular, Scott Kieff’s presentation. Enjoy.

  26. cwischhusen

    The “use it or lose it idea” probably wouldn’t work too well, because the patent trolls can set up (sham) companies to start “practicing the invention.” They are already doing this sort of thing, since the Supreme Court ruled that you have to be practicing the invention to get a preliminary injunction (….twitter: @cwischhusen

    1. Facebook User

      You also need to think about the practical implications of establishing the ideal length of time by which to measure abandonment of a patent right. If four years is the limit, does that work for software AND biotechnology?

  27. asdfadsf

    They are worse than a tax on innovation. They restrain growth and provide an unfair advantage to countries who don’t honor IP. Classic tragedy of the commons problem, where the only solution for many is not to play.

  28. Keenan

    I’m living the pain of Patent Trolls right now. Not only do Patent Trolls effect innovation, they drive up the cost of business and add inefficiencies. I’m currently in negotiations, and have been for almost 18 months, because of two sticking points; IP Infringement and IP Indemnification. Why 18 months, why stuck? Because our partner is petrified of the Patent Troll Ronald Katz. The level of anxiety and inefficiency that has gone into this negotiation all in an effort to be protected from a patent troll is unbelievable. It’s cost us $100,000s in travel, salary and opportunity costs working to finalize this negotiation.At my last venture, we spent hours debating and arguing, and emptied a lot of emotional bank accounts on the very issue of IP. Do we get a patent and spend scarce capital on lawyers, etc? If so will it protect us, will it have any value, etc. etc? IP is becoming a more and more nebulous thing in today’s non physical world. It’s a little different than the days of bell and the telegraph or Edison and the light bulb. I agree change is needed.I like your ideas, especially the “use it or lose it”. Let’s put the ideas to work. An idea not at work is no idea at all.

  29. Leon Liebman

    Your suggestion is similar to the English system where loser pays. The problem with this in the UK is that the individual with a valid claim against a large organization can not afford to run the risk of not prevailing because of the high cost of litigation and as a result losing all he/she owns. What your proposal hints at is that there are selective areas where loser pays provides a balance between the parties that leads to greater overall equity. Perhaps what we need is this first step and then to consider other litigation areas where loser pays should be adopted. Then we can see how contingency fee driven suits evolve.

  30. David Semeria

    The following link is interesting:http://thepriorart.typepad….The author points out that most companies who face with-merit patent infringement cases did not actually copy the patented work – they merely came up with the same idea independently.I think this is an important addition to the debate.

  31. jimmya67

    In order for something to be considered “property”, it has to be scarce. Air is not scarce, thus protecting air with an IP seems absurd. Thus, the key question for me is: “Are ideas scarce?”I would argue that ideas are NOT scarce and should not be considered property. Therefore, IP laws are yet another example of government meddling in the markets where they don’t belong. IP laws are unconstitutional.

  32. saulgoode

    QUOTE: “Just in case you didn’t know how I feel: patent trolls are a tax on innovation and are evil of the highest order”If doing “A” is bad, doing “A+B” does not magically transform doing “A” into a good thing.Just in case you didn’t know how I feel: PATENTS are a tax on innovation. Whether done as a business or as part of doing business is irrelevant.

  33. Brian

    I never realized taxes and regulation cause a cost on businesses. Are you saying if you raise the cost of doing business you will stifle innovation, productivity, and job creation? I am not seeing it.I thought we needed more regulation and red tape. Isn’t that why our economy is performing so poorly?There seems to be a disconnect between the microeconomic view and the macroeconomic view.

  34. josex

    Have people gone insane (or been so for years now)?Every idea, from the most trivial to the modest, to the sophisticated, to the genius, to the eureka moment of a lifetime for a genius… happens a first time.. and frequently a second, a thousandth, and a millionth+ time.All of these “firsts” are thrown into a pot with the patent writer aiming for the widest scope possible (to catch not just that idea, but anything else that gets caught in the wide net)..and 20 years are given of *monopoly*.Worst, you need not be the first with an idea. You can be the thirtieth, for example. You just need to get to the patent office quickly and then get wide protection limited mainly by whatever had been published ahead of your filing date.Are people insane?Do you know where “science” would be if these monopolies were enforced on scientific works? Do you know where entertainment would be if people were taking patents out in those areas as well? Do you know how impossible it would be to win even a simple case if lawyers exercised monopoly control over methods of the court and argumentation?People are insane, and IP lawyers need a taste of their own medicine.

  35. Matt Blumberg

    Well said, Fred. I just responded with my own post at…. For those reading this, we were the company Fred referred to in his post.

    1. fredwilson

      Matt, I reblogged your post today on avc

  36. IanWilson

    Here is a different proposition, make it easier, much easier, and therfore much cheaper to file patent applications. At the same time reduce the monopoly to 10 years. Hopefully this would result in a tsunami of applications that would clog up the system for long enough that by the time patents were granted they would already be out of time.

    1. fredwilson

      Very funny!

  37. ozymandias

    I work Venture Debt and I have to disagree with you on this. Our businesses has achieved some remarkable successes. Plus, it is their choice to take on the debt model, we are not holding them at gunpoint.

  38. Michael F. Martin

    The simple fact of the matter is that the economics of consumer Internet startups are quite different from the economics of more capital intensive markets, including biotech, pharmaceutical, and even semiconductor equipment. So long as everybody is yoked together, nobody is likely to be happy.But thanks for taking a slightly more nuanced look at the issue than most consumer internet VCs.

  39. Steven Kane

    Fred, do your portfolio companies have employees sign “assignment of inventions” employments agreements?How about non-disclosure agreements?If so, I think you should at least withhold or retract funding from any company that uses these employment agreement stipulations — as they obviously are directly incompatible with your views on the ownership of software and other technology innovations. If patenting is a detriment to progress, how can banning employees access to ownership of IP be useful or appropriate?For the record, a company I founded and was CEO of at the time was sued for patent infringement – a complaint that we felt was frivolous and ridiculous etc. and I hated every minute of it and wanted to kill them and the suit was baseless and accomplished nothing. So I feel your pain.But I hate the argument that its OK to throw the baby out with the bathwater — and thats the best I can say of the arguments here against IP protection and litigation rights for patent owners.(And calling them trolls may satisfy the high-school emotional side of our brains but name-calling is the crutch of those who can not win arguments by reason and persuasion. Call them patent owners if you really believe your position. Or do we still call African-Americans n—-rs in certain settings?)Any case, Fred, your argument seems to me to boil down to — patent litigation is always expensive and often distracting and can slow down companies who are well funded and busy working but apparantly have not done enough prior art due diligence or whose claims are not so clear that litigation is not a scary threat. Well, I am wildly in favor of reforming the patent system and better resourcing the patent office! But I am always extremely anxious to hear the people who control capital or have access to it spitting bile and name calling while explaining that intellectual property protection — particularly awarded to those with less control or access to capital — is a nuisance.It is not a nuisance or a distraction — it is the bedrock foundation on which our modern western-style democracy and capitalism exists.Hell, why should every single citizen have the same rights? Why don’t we sell rights to whoever can afford to pay? All those poor people — they’re just cluttering up the courts and the legislature with their obviously frivolous claims and needs. Yes, let’s charge for rights — we can get rid of the economic crisis and cut down on the lines at the DMV!

    1. fredwilson

      You’ve got my argument wrong Steve. I think it’s impossible to identify trueinvention. Here’s a piece from Gladwell:As Gladwell points out — rarely is it about “genius,” but about the factthat all of the previous work in the field naturally leads to this endresult — and if it wasn’t one person discovering it, someone else would.The article lists out big name invention after invention that all have”multiples” — multiple entirely independent individuals who came up withthe same thing at the same time. Not only that, but almost always the personwho gets credit for the discovery isn’t actually the person who discoveredit. In fact, someone even coined a term for it: Stigler’s Law: “Noscientific discovery is named after its original discoverer.”

      1. Steven Kane

        Yes, I read that Gladwell piece and (as always) thought it was terrific. But his point has little to do with whether or not IP protection plays a useful role (regardless of the inevtable abuses and pitfalls). The Gladwell piece is about debunking the “great man” (or genius, as you say) theory of history — that history is made by uniquely talented or insightful or visionary individuals having “eureka” moments.But just because a trillion monkeys typing may eventually write Hamlet is no argument to kill the rights of authors. And just because some patents are silly or harmful and some patent owners are shallow (imagine — working with innovation and technology to try to make big bucks! who would ever do such a thing!) is no reason to destroy the legitimate and absolutely necessary legal right to IP protetction and theft prosecutionAs I’ve said, I am willy in favor of reforming the system. But Fred, I’d argue that your position favors to a fault those who have existing access to capital and prejudices against the independent inventor, where my poistion favors to a fault the inventor and prejudices against the powers that be. Given that no system is ever 100% correct or fair or inarguable, I always prefer to default to a position that err on the side of individual rights, and social mobility, and egalitarianism, and equal protection under law……(Btw, I still think if you really really believed your position in your heart of hearts then 1) you would not use silly inflammatory words like “trolls”, and 2) you would tell the world you recommend your portfolio companies never use “assignment of invention” employment restrictions on employees.)

  40. Marcus

    Interesting Post and tweet, have followed silently for some days and now decided to take a stance (and will write a related blogpost, this inspired me to). I just wanted to reply with my view to some (perhaps unwillingly missing or duplicating someones answer) questions/suggestions in your post and in the comments.* regarding “alliances against troll” I would recommend you to visit Allied Secured Trust (http://www.alliedsecuritytr… and RPX (… one alliance and one “insurance”.* regarding “use it or lose it”. I am not a fan of this. There are many practical reasons, where patent portfolios could be the most clear. I.e. which patents protecting a portfolio are actually in use. Secondly, what would happen in licensing issues, if the licensor does not use it but merely licenses the technology á la Qualcomm? Is licensing = use? And for how long would this use or lose thing be in place? I’m also guessing it would kill all new and rising IP savvy companies who, especially in this financial climate, are trying to generate revenue from dormant patents, which they have been paying annuities for, and thus in the extension impede some of the fastest ways of innovating and transfering tech which is out there and being used at this point.* regarding shorter patent lifetimes.I am slightly against these sorts of categorzations – and who would be the judge to say what a technology really is. Take the example of Health IT – such patient monitoring and diagnosting aid tools take years to come up with, but might in the end “only” churn out a couple of algorithms and some speech recognition or sensory threshhold calculations. But wouldn’t these “software” technologies be qualified as medical? This could be yeat another strain on the PTO.* regarding trolls as a tax on innovationThis is a hard nut to crack (and one I will elaborate more on in my blogpost). I think Mike Masnick makes a good point on Matt Blumberg’s blog regarding validity of patents in general. My stance is that many settlements are ridiculously high – no doubt and many lawsuits are regarding “shady” patents. One action in this field is by MAPP (http://www.mfgpatentpolicy…. who wrote a letter to president Obama on the subject, signed by many Fortune 100 companies. I still do believe that there is space in the marketplace for some actors (be they trolls or NPE’s or licensing companies or whatever) which take the fight for small inventors trying to reach the market, but also which help companies turn dormant patents into dollars, as well as (serendipidously) serving as a cleaning mechanism for prior art and hopefully reaching a new market equilibrium where less intentional infringement takes place, courts are more savvy and damages are at a reasonable level.

    1. fredwilson

      Did you write a blog post? Clearly you’ve thought a lot about this issue and I’d love to read more

  41. Dan Lewis

    You may want to read this:http://www.marginalrevoluti…Here’s the lead:”Long ago Jack Hirshleifer pointed out that markets can reward innovative activity even in the absence of patents (H.’s point was actually that markets could over-reward such activity but the point was clear). If an inventor discovers a new source of energy that requires the use of palladium, for example, he can buy palladium futures, announce his discovery and wait for the price of palladium to increase.”

    1. fredwilson

      That’s an interesting argumentI think its going to take a long time to eliminate patents entirely and highcapex/high regulatory industries probably even need patent protectionBut not software and probably not IT in its entirety

  42. aneet4880

    you said <<<<<patents and=”” copyright=”” should=”” have=”” a=”” “use=”” it=”” or=”” lose=”” it”=”” clause=”” like=”” trademarks=””>>>>> that is a great idea to stave off trollers but it doesn’t close the legal loopholes corporations use to monopolize on a previous concept and or a patent that they’ve spent $$$ and has come to fruition…I don’t buy into the legal explanation from companies who stifle innovation by purchasing a portfolio? If we stipulate a “use it or lose it” then it should apply to everyone, yes, including business’s who buy patents with the premises of a portfolio when in fact they buy them to stave off competition and the end result is stifling innovation. Please read this article if you’re serious and truly fair and want an end to the madness that has taken America to the lower ebbs of living the good life.

  43. fredwilson

    Marcus ­ great post. I tried to leave this comment on your blog but thecaptcha was hanging. So here it is:this is what I would like to unleash on the trolls:”using the legal and technical arena to put them entirely out of business orif challanged ending up in multi million dollar lawsuits with a very fierceand savvy (based on all crowsourcing) competitor”thanks for the inspiration. i think if we get the entire VC/startupcommunity to get together and crowdsource our opposition to these nasty andunsavory characters, we can indeed put them out of business