The Hidden Agenda Behind Patent Reform

Tech sector giants have been crying and moaning about how the patent system has run amok and needs to be scaled back, and continually beg for patent reform that would gut the patent system and weaken patent rights. Immediately after successfully lobbying for the America Invents Act (AIA), they are back at it again supporting new legislation aimed at making it more difficult to enforce patent rights pending in Congress. If they prevail with the passage of the Innovation Act, they will be back at it again no doubt. The longer term goal is to strip the International Trade Commission of its patent jurisdiction, which would make it impossible to stop the importation of infringing goods prior to entering the country. See Will the ITC Lose Its Patent Jurisdiction and Are Some Patent Holders More Equal Than Others?

The grumbling of the tech giants is increasingly being picked up by patent abolitionists who say “see, even Microsoft thinks there should be no patents,” which only adds to the hysteria. Of course, Microsoft is one of the top patenting companies year after year and they aggressively pursue software patens themselves. So while some of Microsoft’s public statements suggest that they do not like software patents, they aggressively seek them and then aggressively pursue licensing strategies. So it seems that Microsoft may talk a good game about software patents being undesirable and a real scourge, but when push comes to shove they will get as many patents as they can. Quite curious if you ask me!

So why do the tech giants want to make it hard for small businesses and individuals to get patents? Do you remember when “Wang” was synonymous with “computer,” or at least “word processor”? Perhaps not, but once upon a time it was indeed. The story of Wang is the story of technology companies generally speaking. What has always been true is that technology companies that reach the top are only passing through on their way down; to be replaced by smaller, leaner companies that pursue appropriate strategies and have solid and expandable innovations in demand.

Even mighty Microsoft couldn’t maintain their monopoly, and only the foolish would anticipate Google, Facebook and other tech giants to be on top indefinitely. That isn’t how the tech sector works, or is intended to work. But if a vibrant, robust and strong patent system is not there for start-ups today they will never become the giant, innovation shifting, growth companies of the future. That would be terrible for the economy, lead to stagnant innovation and guarantee that slothful, giant companies that have lost the ability to innovate would remain dominant rather than going the way of the dinosaur.

Let’s start our story by asking a simple question: When exactly was the last time tech giant actually supported an agenda, policy or change that benefited small businesses or start-ups? Most of the tech giants from Silicon Valley don’t support policies that help small businesses because they are not small businesses. They do not have the same concerns as small businesses and start-ups that engage in ground breaking innovation because so many layers of bureaucracy have been layered throughout their corporate structure that it is virtually impossible to engage in meaningful innovation, which is often times speculative and risky. Shareholders and Board Members like steady, not risky. But ground breaking innovation requires a creative mind and the desire to ask why not, rather than ask why and require justification.

So why do so many think that those who say that patents, particularly software patents, must go are taking a position that would in any way, shape or form inure to the benefit of individuals and small businesses? There are a few very notable exceptions, like IBM, Qualcomm and a few others who are strongly pro innovation because their own business depends on protecting and licensing innovation. These pro innovation companies are more aligned with individuals and small businesses not out of altruism, but because a pro innovation policy is good for them and it also happens to be good for individuals and small businesses that want to challenge to become the next of the giant tech companies in Silicon Valley. The pro innovation giant companies are the exception, and they spend substantial effort continually cultivating a culture that promotes research, development, dreaming and thinking outside of the box. Few large companies operate this way, but that is the start-up reality and why paradigm shifting innovation comes from only a few large companies and is otherwise only found in start-ups.

Tech giants (minus those few pro innovation companies) are concerned with hanging onto their market domination in the face of losing the ability to innovate. Large companies do not innovate, there are simply too many layers between inventor and decision-maker, and a lot of complacency that leads to the belief that whatever they pursue will be a winner. The technology sector is fickle; a strange “what have you done for me lately” industry that typically has highly educated consumers who not only like gadgets but covet functionality. In this sector if you build a better mousetrap the masses will follow, assuming of course you have the business acumen to reach the marketplace in a relevant time frame and at an attractive price point. This being true the technology sector has been and always will be ripe for take-over by the have-nots — or in other words the small players who innovate. The key differentiator between those start-ups that can achieve massive success and those who fall prey to the large mega-giants and lose everything is an aggressive and sophisticated intellectual property strategy, and the 800 pound gorilla in the intellectual property rights room is the patent.

Make no mistake about it, patents provide a competitive advantage. The patent right grants to the owner the right to “exclude others,” which means that others cannot do what your patent covers. The increasing emergency of patent litigators that will accept cases on a contingency basis is leveling the playing field and affording independent inventors, small businesses and start-ups the ability to take on the big players and win. When you have a fight on your hand you don’t hire a patent attorney that plays nice, you hire a patent litigator that isn’t afraid, won’t back down and will fight to win. Everyone loves to hate lawyers, but when you have a dispute against a big company everyone wants the lawyer who doesn’t get paid unless they win.

The emergence of contingency patent litigation, as well as patent monetizing companies, such as Acacia Research which partners with innovators, is what has giant tech corporations spending many millions lobbying Congress. The elite companies have their patents and they don’t want to have to respect the patent rights of others. This is extremely telling given so many tech giants received many more patents year after year after year. Interestingly, and quite telling the independent Government Accountability Office (GAO) recently published a report explaining that most patent litigations are brought by and between manufacturing companies.

So if patents are good for manufacturing companies and they seek to enforce them against competitors why in the world would a start-up company not want to get patents of their own. I always tell clients they should learn from and emulate successful companies. Why would you ever want to emulate the business model of companies that fail? In the tech sector those that fail are overwhelmingly those without a strong intellectual property portfolio, and the main asset in strong tech IP portfolios is the patent. Likely many patents.

Apple, for example, innovates and then patents every last little angle on a successful commercial product.  See The Apple Way. That is the model to follow. Beware those who listen to the tech giants say that patents are not necessary. If they are so unnecessary why are they spending so many millions of dollars to acquire them every year? Why do they spend billions of dollars to acquire patent portfolios if patents don’t matter? Google spent over $12 billion to acquire the patent portfolio of Motorola Mobility. And individual inventors, small businesses and start-ups are supposed to believe that patents aren’t worth it? Wow! They must think inventors, small businesses and start-ups are among the most naive people on the planet.

There is obviously a disconnect somewhere, and it seems pretty obvious to me that this “do as we say, not as we do” approach to patents is self-serving. Anyone who stands down from obtaining patents based on the belief that  tech giants are leading some altruistic fight to make a better, fairer patent system is in for the shock of their life. Trusting is one thing, but being naive to the point of ruining your business and losing everything is quite another.

What is clear is that the tech giants are stocking up on patents at a time they are moaning about how awful the US patent system is and how much we need more patent reform.  What they want, plain and simple, is it to be harder for YOU to get patents.  They would be happy to have the patent system gutted because they already enjoy market dominance, and they don’t want to have to innovate or compete against small businesses and individuals who innovate more and create inventions that push the envelope.  They urge positions that are friendly to themselves, not positions that would lead to robust competition and paradigm shifting innovation evolution. And let’s not forget, most of the big tech companies don’t innovate any more. They acquire portfolios and incrementally improve what they already have. For the most part, those companies that are innovators, like IBM and Qualcomm, want a strong patent system. Without a strong patent system that provides return on investment do you think IBM would spend $6 billion every year on research and development? Would they engage in speculative research like the Watson project? And for the record Watson is going to fundamentally change medical diagnosis, which will be a huge benefit to everyone. See, for example, Wired and The Economist.

It is clear that the tech giants have sold everyone a bill of goods, and those who bought in should feel used.  The truth is that if you want to raise money you need to have patents and that is an industry truth that only the patent abolitionists ignore.  The abolitionists claim that copyrights provide the same protection, which is laughably wrong although they say it with such vigor.  Small businesses are the ones who grow jobs in the US and when they cannot get patents they cannot move forward.  Investors either cannot be found or move on when patents cannot be obtained.

Kamen, perhaps the most famous and one of the most decorated living U.S. inventors says over and over again in slightly different contexts is that the first thing investors ask is whether you have a patent.  See, for example, David Kappos — Yes He Can? So while brilliant person A claims they can raise millions of dollars without patents and relying only on copyrights, and while brilliant person B claims patents are unnecessary or even evil, this is not the industry experience of, well, everyone who works with small businesses and independent inventors.  Those who choose to believe that patents are not necessary and not a good idea are being lead astray.  You may feel good about believing patents are not necessary, the realization will ultimately come that you listened to the wrong people. The trouble will it will then be to late to do anything about protecting your innovation. This is even more problematic now that the U.S. is first to file, which means filing sooner rather than later is absolutely required. See A Brave New Patent World.

The truth, simply put, is this… if you have an invention that can be protected via patent then you absolutely should obtain a patent.  Patent rights are exceptionally strong, investors love patents and with the growth of contingency patent litigation if others are infringing recourse may be had.  Of course, no one is guaranteed a contingency representation deal, but there are patent strategies during prosecution that can and do lead to contingency lawyers being more interested.

A patent is not the end all be all answer, and the Supreme Court has done their level best to make patents less valuable in recent years, but without a patent others can and will simply take your invention and make it, use it and sell it without ever paying you a dime.  Without a patent you have no asset to license, and without a patent you are a target for being sued by those who do have patents.  If you have a patent you have protection, depending on the scope and integrity of the claims, and those who might otherwise sue you think twice because if they do you will sue them, which typically doesn’t fit into their broader business plans for domination.

If patents are good for Microsoft and the tech giants, patents are right for Red Hat and others in the open source community and patents are demanded by investors when small businesses seek funds, why would they be bad for independent inventors, small businesses and start-ups?  When you start out in business you don’t model yourself after those who fail, but rather after those who succeed, and the one thing successful businesses with proprietary and open source business models agree on is that patents are important enough to obtain.  That is where they put their money, and the old saying about watching the money seems particularly appropriate here.