Will the patent system continue to fuel the fire of creative genius?

By Gene Quinn
May 20, 2015

Louis Foreman.

Louis Foreman (right) addresses the audience. Judge Michel (left).

“All of the businesses that I have started over the last 28 years have been based on intellectual property,” Louis Forman explained on Monday, May 11, 2015, at the Patent Reform 2.0 event I co-hosted with Bernie Knight at McDermott, Will & Emery. “I started my first business in my fraternity room in college. I have never been anyone’s employee. I have created jobs based on intellectual property. And that intellectual property is the incentive for me to take risks, to go out there and risk everything that I have.”

The purpose of the panel discussion was to have a frank discussion about patent reform by taking a look at the major pending bills currently working their way through Congress. Chief Judge Paul Michel (CAFC, ret.) explained that he thinks Congress is in a time warp, completely ignoring the significantly changed patent landscape, which has become increasingly inhospitable to entrepreneurial innovators like Foreman.

“It is disturbing to see what is happening right now around intellectual property,” Foreman continued during his opening remarks. “I am not sure there is anything wrong with the patent system except for the uncertainty that something is going to change, which has a chilling impact on business creation.”

John Whealan.

John Whealan holds up a smart phone to make his point about fast moving technology.

John Whealan is a former Solicitor at the United States Patent and Trademark Office (USPTO), and the current Dean for Intellectual Property Law Studies at George Washington University Law School. Whealan spent time discussing his concern with the new administrative proceedings taking place at the Patent Trial and Appeal Board (PTAB), which came into being as the result of the America Invents Act (AIA).

Whealan asked the audience: “How many owned a home?” Nearly every hand went up. I bet all of you did a title search when you bought your home. He then asked: “What if years later someone challenges the title and your ownership of you home, by initiating an administrative proceeding (or maybe two), which will cost you several hundred thousand dollars and you lose?” If you lose the first proceeding maybe you buy another house, but then it happens all over again, and you lose again. “What are you going to do the third time,” Whealan asked. “Are you going to buy a 3rd home? I don’t think so. Many of you are going to rent.”

The mortgage illustration Whealan provided is particularly insightful because it explains the plight of patent owners in a visceral way that is easy to understand by even those not deeply familiar with the patent industry. American’s have a love affair with owning a home. Owning a home has been part of the American Dream for generations.

We take the certainty of home ownership for granted, but what if someone could just start a proceeding against you to take your property? After paying whatever amount you paid to acquire the home you now have to spend a minimum of several hundred thousand dollars (likely much more) to keep it. That can’t be fair, but that is exactly what is happening at the Patent Office. The challenger doesn’t even need to be interested in taking a license, approached to take a license, or even have any reason to believe they will be sued. For a variety of reasons, including making money in the stock market based on negative news created by the uncertainty, someone who doesn’t want you to have that patent can suck you into an administrative proceeding at will.

At some point patent owners need to be able to rely on the patent the USPTO issued to them or the entire system will collapse. If there is a two-thirds (or greater) likelihood that the patent will be invalidated by administrative judges at the USPTO why would anyone continue to use the patent system? Indeed, it seems more now than ever that a U.S. patent is not a property right at all.

In a property rights based regime title to property quiets. Owners can have confidence that they own the property, and other interested parties also know. No property right regime can survive open-ended uncertainty. We know this to be true based on the long history of uncertain (at best) property rights in countries that refuse to adopt strong individual property rights regimes, such as in communist countries. Where is no certainty of ownership rights property is not maximized. Instead property wastes.

“One of the first questions that any VC or potentially investor asks of a start up is, ‘What is your intellectual Property? Do you have patents?,’” Foreman explained. “Patents are the foundation, they are the infrastructure on those investments. People invest in something stable, something solid and a patent is that property right that the owner of that business has that they can use to raise capital, to really incentivize and go out and start a business.”

Foreman is, of course, correct. Those who are familiar with the popular television show Shark Tank know that a common, recurring question asked by the investors is: “Do you have a patent?” It is true that there is this popular myth on the Internet, and in some real world circles, that investors don’t like patents, but that is really nothing more than urban legend. Investors love patents. To the extent investors don’t care about patents it is because the company they are contemplating investing in is one that can’t be expected to have patents. But make no mistake – if investors are going to invest in a true technology company they are going to demand patents. Just ask Twitter.

Foreman went on to explain that there is a growing resentment of patent owners as if the people who invent are somehow not important for the innovation ecosystem. “I have a couple of companies where we design and we engineer and we invent and license intellectual property that we create to companies that are actually good at making things, companies that have established brands and infrastructure and distribution in place,” Foreman explained. “What we do is we invent the products that they ultimately go and sell. So in many respects we are a non-practicing entity by definition and therefore a patent troll. But we do not litigate. We do not try to extort. What we do is we play a roll in this ecosystem of invention.”

Most of the recent changes that have been made to the patent system have been as a result of so called litigation abuses by people who couldn’t care less about the patent system. These bad actors have unfortunately tarred all innovators and made those who invent Public Enemy No. 1. But Whealan says we need to be careful.

“Let’s be careful about changing the entire patent system based on the abuses that happen on either side,” Whealan explained. “Let’s keep our eye on the ball; there have been many great inventions and improvements to technology in the last few decades – just look at the computer (i.e., smart phone) you now carry in your pocket, which did not exist 8 years ago. I think we want to protect the technology.”

Indeed. It would be wise to take a holistic view of the innovation ecosystem, the role patents play and ask whether patent reform is wise. If patent reform is appropriate it would be wise to ask what reforms are necessary to lead to a better system, and how can reforms be narrowly tailored to focus on the problems identified. Taking out an elephant gun to kill a mosquito is just plain stupid. Yes, you kill the mosquito, but you are going to do a lot more harm than good.

Phil Hartstein

Phil Hartstein

Sadly, at hearing after hearing Congress has heard from witnesses that represent those who are demanding patent reform, but the voices of those who require patents to move forward with their business have been largely absent in the debate. “What I see in a lot of the current bills is… large corporations advocating on behalf of smaller entrepreneurs and innovators,” explained Phil Harstein, who is CEO of Finjan. “As an inventor I am not sure I would look to a large tech company to represent my interest in reform initiatives.”

If a better system is what we want Congress needs to consider the proposed changes from the vantage point of innovators, not just those who take or use the patented technology of others.

“When you take away incentive to an entrepreneur or inventor by weakening the patents, the ability to enforce those patents, what you are really doing is you are robbing society of those innovations,” Foreman explained. “You are taking away the creativity, the ingenuity and really the catalyst that creates all of the products and the services that we take for granted today.”

Sadly, what seemed so evident to Abraham Lincoln is now all but lost on many elected officials. For over 200 years the U.S. patent system stoked the fire of creative genius by enticing creative persons to innovate by giving them incentive to do so in the form of a patent. Increasingly over the last 10 years the U.S. patent system has chipped away at that incentive. How far rights can be eroded without completely compromising the entire system is a question we shouldn’t have to ponder, but these are not ordinary times.

“You have 225 years of history with the US Patent Office,” Hartstein explained. “ To think that you can make some tweaks around the edges to a system with so much history and legacy – I just do not think it works.”

The Author

Gene Quinn

Gene Quinn is a Patent Attorney and Editor and founder of IPWatchdog.com. Gene is also a principal lecturer in the PLI Patent Bar Review Course and an attorney with Widerman Malek. Gene’s specialty is in the area of strategic patent consulting, patent application drafting and patent prosecution. He consults with attorneys facing peculiar procedural issues at the Patent Office, advises investors and executives on patent law changes and pending litigation matters, and works with start-up businesses throughout the United States and around the world, primarily dealing with software and computer related innovations. is admitted to practice law in New Hampshire, is a Registered Patent Attorney and is also admitted to practice before the United States Court of Appeals for the Federal Circuit. CLICK HERE to send Gene a message.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 8 Comments comments.

  1. EG May 20, 2015 10:40 am

    “Investors love patents.”

    Hey Gene,

    Especially VC investors. Tell a VC that your business/technology has no IP protection and especially patent protection, and they’re more than likely to walk away from (quickly).

  2. Night Writer May 22, 2015 11:07 am

    >>>not important for the innovation ecosystem

    Inventors aren’t important to big corporations if there is no IP. I worked at a big corp as a product manager. You see, the thing is that the corp needs a good product, but it doesn’t have to be innovative if the other products aren’t.

    Patents force corporations to innovate. Jimmy Carter knew that and set up the Fed. Cir. to end the malaise. Incredibly his work paid off, but Reagon got the credit.

  3. SoftwareForTheWin May 31, 2015 6:02 pm

    In the past, patents are crucial to funding innovation. However, it is 2015 and the reality of today’s patent climate is that software patents play a greatly diminished role from past innovations.

    I’d like to point out the following paragraph from the article:

    >>> “When you take away incentive to an entrepreneur or inventor by weakening the patents, the ability to enforce those patents, what you are really doing is you are robbing society of those innovations,” Foreman explained. “You are taking away the creativity, the ingenuity and really the catalyst that creates all of the products and the services that we take for granted today.”

    Look at all the examples of innovations happening in software and explain how:
    1) “society is being robbed of those innovations”
    2) “the creativity, ingenuity catalyze the creation of all the products today” are not exclusively (arguably not significantly) done without patent protection.

    The reality is, other forms of IP have emerged and play *A* role. Otherwise investors would not be funding many companies.

    I’m not arguing that patents are not or cannot play a vital role in innovation – but rather that the software industry has shown that patents are not crucial to funding innovation.

  4. Eric Berend June 9, 2015 2:38 am

    Excuse me: but you software-centric types have no business trying your damnedest to try to destroy the U.S. Patent system originally established to protect inventors of PHYSICAL devices and apparatus.

    What part of supporting and encouraging deep-pocketed infringers against genuine inventors, do you not understand?

    Your comments “…software patents play a greatly diminished role from past innovations” and “software industry has shown that patents are not crucial to funding innovation”, are exactly the sort of narrow-minded conceit that is wholly partisan and ignorant of U.S. jurisprudence.

    Pray tell: are you an ‘FOSS’ advocate? That would explain much about your unprincipled stance. Most are Richard Stallman wannabees who presume genius should be given away for free for others to gain benefit, credibility and power from.

  5. Eric Berend June 9, 2015 2:51 am

    Please note: my comment above is directed to the obnoxious comment posted by “SoftwareForTheWin”.

    BTW, “SFTW”: is your moniker selected so as to crow your presumed superiority of moral position on a blog dedicated to the interests of genuine inventors? The sheer effrontery! I am calling you out on hypocrisy and asserting that therefore, you and your opinions have no legitimate place here.

    Furthermore, I have developed software and managed software engineering projects in a de facto PM role, so I certainly understand well enough about the software industry? Shall we discuss the merry-go-round of VAR’s and “channel” nonsense practiced by major IT co’s? How about the intricacies of BGP in a router running a modified version of IOS? Or, how Sun Microsystems managed to morph James Gosling and Bill Joy’s interprocess language designed primarily for embedded devices into an incredibly inefficient incremental “improvement” to C++, called “Java”?

    Don’t think I share your prejudice against software developers, that you obviously display towards inventors. I grok separation of concerns. Do you?

  6. Gene Quinn June 9, 2015 7:14 pm

    Eric-

    You say: “software-centric types have no business trying your damnedest to try to destroy the U.S. Patent system originally established to protect inventors of PHYSICAL devices and apparatus.”

    You need a history lesson. Patents have been awarded on methods, which are neither physical devices or an apparatus, since 1790.

    Simply stated, there is no intellectually honest rationale for software being patent ineligible. If you disagree I recommend that you remove all the software from your vehicle and see how far you get in the morning.

    -Gene

  7. Eric Berend June 9, 2015 10:33 pm

    Hello Gene,

    Thank you very much for your response and the historical reference. If you are referring to the Hopkins Patent, then I would certainly agree that process itself is a distinct and separable thing. Most of this potential has historically applied to chemical processes, where I observe that there is a particular and often unique physical substance produced as an outcome and the utility of the process involved is inseparable from the chemical product.

    Unfortunately, this issue is not just about the legitimacy of software patents, nor those disclosing business methods. The influence being exerted here reflects aspects of a cultural war in IT between the “FOSS” advocates and the proprietary developers (some like to call this engineering). Certain zealots have literally called proprietary software illicit and have waged a concerted effort to transform its cyberscape with ideological fervor.

    Please note, I did not specify that I think software patents are illegitimate. On the contrary, having programmed in significant applications and overseen software development projects, I am well aware of the genuine potential for distinctive innovation that we usually call “invention” in conceiving and crafting software code. My dispute is with the inappropriate coercion of process-based considerations alone upon physical manifestations of invention. And, I will stand by the statement that, some 153 years or so prior to ENIAC, the general understanding of U.S. Patent law originally forged by Pres. Washington and several other of the Founding Fathers was intrinsically bound to physical manifestations.

    But software is not exactly the same as physical devices or apparatus that depend more directly upon physical laws for their operation. A program, once established in whatever release form, can readily be reproduced apart from its underlying computational system, commonly with little or virtually no fabrication nor distribution cost. A physical device or apparatus, on the other hand, nearly always requires a far greater physical resource investment to replicate.

    As a professional photographer in the 1990’s who practiced commercially in order to afford the tools to express photography as art, I saw this disparity, or something quite analogous, in the attitude of ‘fine art’ Curators and Directors towards artists working in my chosen medium.

    In both of these areas, there are aspects of intellectual property in which copyright notions and laws have often seemed more readily applicable or appropriate, with the computer rendered analogous to a blank book or unexposed photographic material (e.g., film or paper). Yet, a computer operates dynamically in ways not conceivable with a book or photograph; and that are intrinsically well suited to process as software program; indeed, this facility is its primary ‘raison d’etre’.

    Therefore, my own view is that secular and legal basis of copyright and conversely, secular and legal basis of patents, when applied solely in an exclusionary fashion, are each insufficient to completely encompass the nature of directions, functions and operations of process-controlled mechanisms and computational devices or apparatus. As, in a typical “johnny come lately” manner, it is certainly ‘en vogue’ to advocate for superiority of computer system based power of software, the politics of which, seeks to alter the existing or precedent establishments according to the ‘Weltanschauung’ of its practitioners.

  8. SoftwareForTheWin July 8, 2015 1:13 pm

    Eric Berend,

    You lept to the conclusion that I am a FOSS advocate. Not at all true. I specifically said that patents were crucial to innovation. [Actually I mistakenly typed “are” instead of “were”.] By the past I meant the plethora of examples where inventors and small companies pointed out exactly how important patents were to them. However, you may have missed my next sentence:

    “However, it is 2015 and the reality of today’s patent climate is that software patents play a greatly diminished role from past innovations.”

    Meaning that it’s 2015 – post-Ebay, post-AIA, IPR’s, and likely more changes on the way. Contrast that with the costs of obtaining a patent ($20k+) but yet that is only a fraction of the costs to come if you want to enforce that patent – AND in great likelihood fail miserably. What sane individual or small startup would bother with chasing a patent (or really the 3 or 4 or 5 patents needed to get anywhere)?

    Once you’ve digested that, contrast it with the reality that an individual or small startup can get a product out the door and get paying customers quite quickly (if not lined up before). Now, given the 2 choices (to patent, or to implement the software) – which choice do you think many should make?

    Once you’ve digested that, there are tons of examples of small startups that have chosen the software road and become quite successful no matter how you define the word success.