The Noisy Channel

 

Software Patents: A Personal Story

October 3rd, 2009 · 60 Comments · General

Given the radioactive nature of this post’s subject matter, I feel the need to remind readers that this is not a corporate blog, and that the opinions expressed within are my personal opinions, not those of my employer. Also, please understand that I cannot comment on any intellectual property issues specifically related to my employer.

With that preamble out of the way, let me tell you a true story. The other day, I received a phone call from a friend who has been building a kick-ass startup. That friend had been contacted by a much larger competitor with what amounted to an ultimatum: shut down and come work for us, or we’ll crush you with a patent infringement suit. My friend’s startup didn’t cave in–in fact, my friend even went through the trouble of sharing a pile of incontrovertible prior art with the competitor. The competitor was unimpressed, and my friend’s startup is now facing a potentially ruinous lawsuit.

If you know any of the characters in this story, I beg you to keep that information to yourself–at least for now. I’d like my friend to have a chance of getting his company out of this predicament, and premature publicity might hurt his case.

But back to the case: let me give you an idea of how a story like this can play out. At a high level, the startup can choose to fight or not fight.

Not fighting means the entrepreneurs writing off their startup, but it allows them to move on and try something new. It might be the best career move for the entrepreneurs, but it means that the world loses a promising startup, and the surrender rewards bad behavior, reinforcing a regime where innovators can’t afford to compete with more established players.

Fighting means  mounting a non-infringement defense, an invalidation defense, or both.

A non-infringement argument asserts that, regardless of the validity of the patent, its claims don’t cover what the startup is doing. Since patents carry a presumption of validity, the non-infringement route is appealing–there’s no need to slog through the much longer invalidation process. Leaving a bad patent alive may be a worse outcome for the rest of the world, but entrepreneurs don’t have the luxury of taking the weight of the world onto their own shoulders.

Unfortunately, the very characteristics of a bad patent make it hard for an accused infringer to succeed in a non-infringement argument. If a patent is overly broad, then it’s more likely that the infringement argument will be valid (but not sound, since the patent itself is–or should be–invalid). Vaguely worded claims are also a problem–while a patent examiner may have granted a patent based on one interpretation of the claim language, the patent holder may now be asserting infringement under a different (and typically broader) interpretation of that same language.

As a result, a non-infringement argument often depends almost entirely on the result of a Markman hearing, more formally known as a claim construction hearing. In such a hearing, a judge decides how to interpret any language in the claim whose meaning is contested by the opposing parties in the suit. Such a hearing is often a crap shoot for the accused infringer. An unfavorable result which supports the infringement accusation may ultimately help invalidate the patent, but the results are likely to come too late–justice delayed for a startup is often an extreme case of justice denied.

Which brings us to the invalidation route. In theory, invalidation is the right approach to take when confronted with an invalid patent. Ideally, the accused infringer presents prior art to the patent office to reexamine the patent, resulting in the patent either being invalidated or rewritten to have a much narrower scope. In practice, however, this approach requires significant effort, time,  money–especially if you depend on lawyers to do the heavy lifting–and luck. The best hope is to rapidly request and obtain a reexamination, and then to request and obtain a stay of the infringement suit pending reexamination. Needless to say, the patent holder will fight tooth and nail to avoid this outcome.

I don’t know how my friend’s story will end. But, as the above analysis should make clear, he’s between a rock and a hard place. Whether or not you believe that there should be software patents–and there is room for reasonable people to debate this question–I hope you agree that the situation my friend is facing amounts to legalized extortion. I understand that no system is perfect, and that our legal system requires compromises that have inevitable casualties.

Nonetheless, my friend’s story does not feel like an isolated incident, but rather evidence of a systemic problem. There are a lot of software patents floating around right now of dubious validity, many of them granted to companies that have since folded and have unloaded their assets in fire sales. It would be sad for this supply of ersatz intellectual property to impede the real innovation that the patent system was intended to protect.

Update: this post has been picked up by Y Combinator’s Hacker News.

60 responses so far ↓

  • 1 Chen Sun // Oct 11, 2009 at 5:19 pm

    Another example, when Microsoft lost a billion dollar lawsuit against University of California, what did it do?

    Appeal, of course. The next thing it did was to reprogram to work around the patent. Then, somehow it had to distribute the update to hundreds of millions of users, so that penalties don’t keep continuing.

    In case of your friend, he should be actively working to work around the patent, such that in the unlikely event if he loses, the penalties will be small. As a startup, the alleged invention infringement probably hasn’t earned much revenue yet–work around it.

  • 2 Chen Sun // Oct 11, 2009 at 5:27 pm

    Also, your friend can counterthreat. He should figure out how, or he can pay an advisor.

  • 3 Rebecca // Oct 11, 2009 at 6:43 pm

    Hi Daniel, I said I’d go away, 😉 , but I had a thought to share.

    If the threatening company is in another state, travel expenses could add up as well. There is a strategic move your friend could make here. There is something he can file with HIS local court (federal is it crosses state lines) to claim jurisdiction in his state. Off the top of my head, I do not know what the filing is called, but it might be something for your friend to look into. It could send a message to the larger company that he intends to hold his ground – and add to their litigation costs if they have to travel to his state to fight. Just a thought…

  • 4 Daniel Tunkelang // Oct 11, 2009 at 9:08 pm

    Chen, you are right that the practice of law is skewed toward those who can afford the best lawyers, and it’s a fair point that, at least in theory, patent law is less skewed in this regard than law in general. I’m not sure that is the case for software patents in particular. But I concede your point that I might be overattributing my friend’s problem to the practice of software patent law, when the problem is much broader.

    In defense of my friend, he has clear invalidating art for the patent–that the patent was granted reflects the well-documented failure of the patent office to prosecute software patents competently. He also feels that he’s not actually infringing on the patent, but anything can happen at a Markman hearing, and he can’t assume a narrow reading of claims that, as written, cover all possible approaches to the problem space (as opposed to a particular class of solutions). In my experience, this is a common problem with software patents. But consider that treating invalid patents as barrier would prevent anyone from starting a company. Software companies that don’t think there are infringing on overly broad patents probably haven’t taken the time to look for them.

    And yes, there are lots of business problems on the road to success, so perhaps it’s good for a startup to run into bullies early on. But litigation at this early a stage is unusual and much harder to fight than the usual rough and tumble of capitalism. Moreover, there’s something very uncapitalist about using the state this way–it reminds me of the recent issues involving use of eminent domain. The state isn’t supposed to make it easier for the big guy to abuse the little guy. But that does go back to your earlier point.

    In any case, my friend isn’t giving up quietly. He is getting legal and business advice, and I hope that leads to an approach that lets him move forward–and that causes the bully some pain. I’ll share more details when I’m at liberty to do so. I do hope this story has a happy ending.

    Rebecca, thanks for the advice. The lawsuit is actually in the same state (both companies are in California), but your advice is very relevant for other situations. Others have noted that East Texas is a popular venue for patent trolls, and counter-suing is a good way to at least level the playing field geographically.

  • 5 Dan Weinreb // Oct 14, 2009 at 9:41 am

    Daniel, I’d like to understand exactly what it is about this story that you interpret as “extortion”. Suppose Alice invents something useful, patents it, and go into business selling it, and then Bob appears, selling an essentially equivalent thing, and Alice notifies Bob of the patent and threatens a lawsuit. Does that, in and of itself, constitute extortion, or is there something more specific about this particular circumstance that makes it extortion?

    Please don’t assume that I’m implying anything here; I’m just asking a narrow question about what you meant.

  • 6 Daniel Tunkelang // Oct 14, 2009 at 11:05 am

    Dan, no implications assumed. And your example is not extortion. If Alice believes in good faith that the patent is valid, then she has every right to enforce her patent–that’s what patents are for. Moreover, if Bob believes in good faith that the patent is valid, then he is at least negligent for not having done his homework. And, if he deliberately copied what Alice is doing, he certainly should have looked to see if she held any patents on it. If he knowingly infringed on a patent he believed to be valid, then I have no sympathy for him.

    But in this case Alice’s patent–or at least the claim interpretation she is asserting–is much broader than anything she’s invented. Bob has pointed this out, and indeed believes in good faith that what he’s built is a very different approach to address the problem Alice is addressing. He has sought out independent corroboration of his analysis and has shared all this with Alice. Alice knows, however, that the threat of litigation is deadly serious to Bob, while being an affordable business expense to Alice–even if Bob would ultimately win if he could afford to bankroll his side of the suit. Moreover, Alice offered Bob “protection” in the form of an offer to have Bob abandon the company (or sell it to Alice for nothing) and come work for Alice.

    I doubt that fits the legal definition of extortion–any more than bullying is (at least until recently) considered a criminal offense. Hence my saying that Alice’s strategy “amounts to legalized extortion.”

  • 7 Lorindal Hempen Carrville // Mar 5, 2010 at 3:35 pm

    Wow! I clicked through on Chen’s links on how much money inventors make and was blown away by the statistics. The numbers become even more of a head shaker when you look at what has happened to the patent office. See http://www.inventorinsights.com/Patent_Office_Problems.html A question I have is what is the opportunity cost of a one- or two- or three-year delay in approving a patent for the next transformational technology breakthrough? Say for a carbon sequestration technology to mitigate global warming? Has anyone seen any calculations on this?
    Carrville
    http://www.t3-line-cost.com/

  • 8 Daniel Tunkelang // Mar 5, 2010 at 3:45 pm

    One to three years? Try five or six, at least based on my own experience and what I’ve heard from others. Go to the USPTO site and look at recently granted patents–you’ll find that few were filed after 2005. In software, that’s practically a lifetime, even assuming everything else about the process is perfect.

    I haven’t ever known someone to wait on launching a product until their patents are granted. Folks who do pursue patents will file first, of course, but will then launch with pending applications. Given that inventors can pursue back-date royalties based on published applications, the delay doesn’t strike me as such a big deal. The bigger problem in my view, is that the current system incents the wrong behavior, such as in the story I describe here (which has an unhappy ending) .

  • 9 K9 Ventures » The investment that didn’t happen // Apr 27, 2011 at 11:58 pm

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