One of the frequent claims made by those in the anti-software patent community relates to Twitter and the clearly erroneous belief that patents are not important to the company. Indeed, recently when I wrote Fairy Tales and Other Irrational Beliefs About Patents the claim arose in the comments suggesting that Twitter is proof that patents are unnecessary to succeed. Quite to the contrary. If you actually concern yourself with facts, Twitter is a perfect case study to demonstrate just how important patents, particularly software patents, are to a start-up company that has aspirations of going public.
Doubt me? Perhaps you will believe Twitter themselves. In repeated filings with the Securities and Exchange Commission since October 2013, Twitter has explained over and over again just how important their patented technology is to the company. They have also repeatedly explained that unlike other companies and competitors, even with nearly 1,000 patents, their own patent portfolio is extremely small by comparison. This poses real concerns for Twitter, which is why they warn the SEC and investors of the ramifications of such a small patent portfolio with every new filing.
Let’s begin our tale at the start. Twitter, founded on March 21, 2006, was initially believed to be of the opinion that patents didn’t matter. Behind the scenes and unknown to many, Twitter was actively filing patents very early on in the development of the company. This is hardly shocking news given that Twitter’s initial round of funding dated back to 2007 and the near universal reality that high-tech investors not only love patents, but they demand patents. Investors love patents because if the company does not succeed at least some valuable patent assets will remain, which can be sold to recoup losses.
In any event, on March 18, 2013, Twitter was issued a patent on tweeting, U.S. Patent No. 8,401,009, but the patent application was filed on July 22, 2008. Twitter also obtained U.S. Patent No. 8,448,084, which issued on May 21, 2013, on an application filed April 8, 2010. Indeed, leading up to Twitter going public on November 7, 2013, the company made a filing with the Securities and Exchange Commission on October 24, 2013. This October 2013 filing explained: “[A]s of September 30, 2013, we had 9 issued U.S. patents and approximately 95 patent applications on file in the United States and abroad.” Thus, it is indisputable that before Twitter went public it had long since filed patent applications and obtained core patents that cover the very essence of the service provided.
Also noteworthy, in the October 2013 filing with the SEC Twitter explained that their patents and patent applications are a indeed very important to the company. In Twitter’s own words, the company wrote:
Our trade secrets, trademarks, copyrights, patents and other intellectual property rights are important assets for us. We rely on, and expect to continue to rely on, a combination of confidentiality and license agreements with our employees, consultants and third parties with whom we have relationships, as well as trademark, trade dress, domain name, copyright, trade secret and patent laws, to protect our brand and other intellectual property rights.
Even more telling, Twitter specifically explained in the October 2013 filing with the SEC that even with the patents and patent applications it had amassed the company had far fewer patent assets than is typical for a company in this space. With such few patents there was a real risk for the company. Twitter explained:
Companies in the Internet, technology and media industries own large numbers of patents, copyrights, trademarks and trade secrets, and frequently enter into litigation based on allegations of infringement, misappropriation or other violations of intellectual property or other rights. Many companies in these industries, including many of our competitors, have substantially larger patent and intellectual property portfolios than we do, which could make us a target for litigation as we may not be able to assert counterclaims against parties that sue us for patent, or other intellectual property infringement.
Such a statement is damning proof against those in the anti-software patent community who erroneously contend that it is rare for companies in this space to seek patent protection. Quite to the contrary, companies in the Internet/Technology space routinely have vast patent portfolios. While this admission from Twitter should burst that bubble it is hard to imagine how such obviously erroneous beliefs could have ever been held. A simple search of the public records from the USPTO would show that companies in the Internet, technology and media industries own large numbers of patents. Frankly, it is those companies who do not own patents that are the oddballs.
But let’s go further as we dispel the myth that patents have never been a concern. Shortly after going public, in December 2013 Twitter acquired 900 patents from IBM. Given that the acquisition occurred within weeks of going public it is certain that the acquisition was well underway prior to Twitter going public and that the institutional investors were apprised of that fact while doing due diligence.
In a 10-K filed with the Securities and Exchange Commission in March 2014, Twitter explained:
As of December 31, 2013, we had 956 issued patents and approximately 100 filed patent applications in the United States and foreign countries relating to message distribution, graphical user interfaces, security and related technologies. Our issued United States patents are expected to expire between 2016 and 2031.
The latest 10-K filed with the SEC by Twitter on August 11, 2014 explains that the company now has 962 patents as of June 30, 2014. Furthermore, even after nearing 1,000 issued patents Twitter continues to state to the SEC that the portfolio they have is much smaller than the portfolios owned by other companies, including Twitter competitors. In August 2014, Twitter explained:
Many companies in these industries, including many of our competitors, have substantially larger patent and intellectual property portfolios than we do, which could make us a target for litigation as we may not be able to assert counterclaims against parties that sue us for patent, or other intellectual property infringement.
Clearly Twitter knows what the anti-software patent crowd refuses to believe. Companies in this space frequently file for and obtain patents, with successful and growing companies amassing many thousands of patents.
Twitter also went on to explain:
There may be intellectual property or other rights held by others, including issued or pending patents, that cover significant aspects of our products and services, and we cannot be sure that we are not infringing or violating, and have not infringed or violated, any third-party intellectual property rights or that we will not be held to have done so or be accused of doing so in the future.
Instead of responsibly moving forward to innovate and seek patents they acknowledge that there very well may be patents owned by others that cover “significant aspects” of the products and services offered by Twitter. It seems overwhelmingly clear that to the extent that Twitter was slow to seek patent protection initially, which they were, such an anti-patent stance will come at a severe cost in the long term.
You really have to wonder where the anti-software patent community gets its information. Clearly, Twitter considers patents an important asset, they filed their first patent application as early as 2008, they are aggressively acquiring patents and they say that they have every intention to continue to seek patent protection on their innovations.
If patent protection is good for Twitter then why exactly isn’t it the right idea for your start-up company that has dreams of being the next Twitter? If Twitter being slow to amass patents causes them and their investors so much concern that they continually have to make ominous warnings in filings with the SEC why should you ignore the patent system yourself as a fledgling start-up?
Don’t make raising money any more difficult for yourself than it already is. Secure core innovations with patent applications as you responsibly move forward with building your business. It is the wise decision, which is why Twitter, Google, Apple, Facebook and Priceline, to name but a few, were all built with strong patent protection.