Yesterday we hosted a conversation between David Kappos, the Director of the US Patent and Trademark Office, and a bunch of founders/CEOs of our portfolio companies. It was a far reaching conversation that gave me optimism that our government does realize the issues with our patent system, particularly as it relates to software and business method patents.
There was one thing that we discussed that is very important and needs to be publicized broadly.
Section 18 of last year's America Invents Act provides for a "post-grant review proceeding for review of the validity of covered business method patents." Here's the provision. The USPTO has interpreted that provision and it is now fully implemented.
Here's what this means. If you are sued or threatened with a suit over a business method patent, you can submit the business method patent to the USPTO for a "post grant review." If the USPTO determines that patent is overly broad or should not have been issued, it will be thrown out in its entirety.
You can do this as part of your defense strategy and it will cost a fraction of a litigation defense. And the USPTO is required to complete the post grant review within one year of submittal, well ahead of any trial schedule.
So if you have been sued or if you are sued in the future over a business method patent, you should avail yourself of this post-grant review. It is faster, less expensive, and may well result in the elimination of bogus business method patents. And that's a good thing for everyone other than the troll who is suing you.
We've all had that reaction when seeing that a certain patent was issued – "how the hell did they get a patent on that?". Well now we can have fun outing those ridiculous patent applications before they get issued.
Ask Patents is a new Stack Exchange site launching today that allows anyone to participate in the patent examination process. It’s a collaborative effort, supported by Stack Exchange, the US Patent and Trademark Office, and the Google Patent Search team. It’s very exciting, because it is opening up a process that has been conducted behind closed doors for over 200 years.
I don't really need to discuss how badly our patent process is broken to here. We've discussed it ad naseum.
What we can and should discuss is how an open collaborative crowd based approach to patent examination can improve the process. I am hopeful that it will. And I am thrilled that the USPTO opted to partner with Stack Exchange to run this process. Stack's sites, rules, and processes take a bit of getting used to. They are geeky for sure. But they produce very high quality collaborative debates on questions with definitive answers that the community resolves and the quality of the results they get from this process is extremely high.
This is not like asking the Yahoo Answers community to do patent examination. That would be laughable. This is a much more serious effort, based on "prior art". Joel explains:
Ask Patents is a collaborative effort, neatly tagged by keywords and classification, and searchable by patent application number. It is inspired by a research project called Peer To Patent, run out of New York Law School. That pilot project, created by Professor Beth Noveck, proved very successful at identifying prior art that the USPTO wouldn’t otherwise have known about.
So instead of our regular fun friday routine, I'm asking everyone to go spend a few minutes on Ask Patents and see if you might enjoy becoming a part time patent examiner yourself. I am headed there now.
Specifically Twitter has said that they will only used these assigned patent rights defensively to protect themselves against hostile actions. And further that any company that acquires these patent rights from Twitter will need the inventor's consent to use them in an offensive action. Twitter has also provided the inventor with certain rights to license the patent to others for defensive purposes. You can read the entire set of provisions on GitHub.
The other day I talked about Insurgents vs Incumbents. This is the framework we use at USV to think about a lot of things. And in the world of patents, the advantage goes to the Incumbents who can hoard patents and use them to their advantage. The insurgent, three engineers in a walk up in Bushwick, can't even afford the lawyer or the time to file a patent. So it is very encouraging to see an emerging incumbent, Twitter, do something like this. They are saying to the world that they do not intend to compete on the basis of patents and instead they will compete on the basis of product, feature set, user experience, etc, etc.
USV is committed to support this initiative. We are instructing the startup lawyers we work with to insert the patent hack language in our standard forms. We are reaching out to our friends in the startup world including other VCs, accelerator programs, and the startup lawyer universe to suggest that they to insert the patent hack into their standard forms. And we will recommend to our existing portfolio companies that they adopt it as well. Of course, entrepreneurs and their companies will have to be the ultimate determinator of whether they want this provision in their inventions assignments agreement. If an entrepreneur we invest in does not want this provision, we will certainly support that decision. But we will want to have a conversation about why they would want to do that.
If Thinking Media had the patent hack in their documents, the story I just told would not have happened. And thanks to Twitter's leadership, I hope that all future USV portfolio companies will have the patent hack in their documents and stories like that one will be a thing of the past. I'd like to thank Twitter's leadership team, especially the legal and engineering teams, for coming up with such an elegant and simple solution to this thorny problem. The startup world is a better place today than it was yesterday as a result of their work.
The patents that Yahoo! is suing Facebook over are a crock of shit. None of them represent unique and new ideas at the time of the filing. I supect they all can be thrown out over prior art if Facebook takes the time and effort to do that.
But worse, Yahoo! has broken ranks and crossed the unspoken line which is that web companies don't sue each other over their bogus patent portfolios. I don't think there's a unique idea out there in the web space and hasn't been for well over a decade. Pretty much everything useful is based on prior art going back before the commercial web existed.
Yahoo! thinks they can bully Internet newcomers with their bogus patents. And that's a line they should not have crossed. Because other companies have bogus patents too. And they've opened themselves up to be sued back. Frankly I'd like to see it happen just to show them how stupid they are.
I am not writing this in defense of Facebook. They can and will defend themselves. I am wrting this in outrage at Yahoo! I used to care about that company for some reason. No more. They are dead to me. Dead and gone. I hate them now.
I believe that software patents should not exist. They are a tax on innovation. And software is closer to media than it is to hardware. Patenting software is like patenting music.
The mess around the Lodsys patents should be a wake up call to everyone involved in the patent business (government bureaucrats, legislators, lawyers, investors, entrepreneurs, etc) that the system is totally broken and we can't continue to go on like this.
First of all, the idea of a transaction in an application isn't novel. That idea has been resident in software for many years. The fact that the PTO issued a patent on the idea of "in app transactions" is ridiculous and an embarrassment.
Second, Lodsys didn't even "invent" the idea. They purchased the patent and are now using it like a cluster bomb on the entire mobile app developer community. They are the iconic patent troll, taxing innovation and innovators for their own selfish gain. They are evil and deserve all the ill will they are getting.
Third Apple and Google, the developers of the iOS and Android app ecosystems (and in app transaction systems), did license the Lodsys patents but that is not good enough for Lodsys. They are now going after mobile developers who use the iOS and Android systems. The whole point of these app ecosystems is that a "developer in a garage" can get into business with these platforms. But these "developers in a garage" can't afford lawyers to represent themselves in a fight with a patent troll.
The whole thing is nuts. I can't understand why our goverment allows this shit to go on. It's wrong and its bad for society to have this cancer growing inside our economy. Every time I get a meeting with a legislator or goverment employee working in and around the innovation sector, I bring up the patent system and in particular software patents. We need to change the laws. We need to eliminate software patents. This ridiculous Lodsys situation is the perfect example of why. We need to say "enough is enough."
In the post, Brad talks about the power of "permissionless innovation" and says:
The real reason the independent software industry emerged is that operating systems and APIs made it possible for independent software vendors to develop applications independently. They no longer had to ask permission of the hardware vendors. This same characteristic of permissionless innovation led to the explosion of independently created services on the internet. The rampant abuse of the patent system has created the opposite condition for the creators of software and web services today.
Brad ends the post with the following observation:
We have all benefited from the extraordinary innovation delivered first by the independent software industry and more recently by the web services industry. In both cases, this innovation was a direct result of the ability to innovate without permission. Nathan proposes to replace this world of decentralized innovation on open platforms with one dominated by a new gatekeeper, "intellectual property market makers". In this world, young companies, may not need to ask permission of Dell, Microsoft, or Verizon, before they launch a new web service, but they will have to negotiate with Nathan's firm to as he puts it "get all the patents they need to roll out an innovative product faster and at the same time reduce the risk that they'll miss a necessary license and get blindsided by an infringement suit"
I agree 100% with Brad that software and business method patents are a major inhibitor of innovation. If you'd like to engage in a discussion this topic, I'd encourage you to do so on Brad's post on the USV blog.
Almost a third of our portfolio is under attack by patent trolls. Is it possible that one third of the engineering teams in our portfolio unethically misappropriated technology from someone else and then made that the basis of their web services? No! That's not what is happening. Our companies are driven by imaginative and innovative engineering teams that are focused on creating social value by bringing innovative new services to market. Our portfolio companies are being attacked by companies that were not even in the same market, very often by companies they did not even know existed.
We can argue about software patents or patents in general. I'm not a fan. I don't think they encourage innovation in many sectors, maybe most sectors. But I recognize that they play a role in protecting inventors from others blatantly stealing their innovations.
But anyone who has spent a significant time in technology based businesses will understand that two groups working completely independently from each other will often solve a problem similarly. One group is not copying or ripping off the other group. They are simply coming to similar conclusions about how to get something done.
In these cases, it makes no sense to protect one group from the other. Nobody has taken anyone's "intellectual property." Both groups should own their inventions outright without having to license technology from the other.
That's not how it works today and as a result, our portfolio companies and entrepreneurs and startups all over this country are paying a very high tax on innovation. Read Brad's post for more details on the costs of bad patent policy and what we should do about it.