The Patent Mafia and What You Can Do To Break It Up

Stopping the hidden tax that stifles innovation

Young man, I hear you and your friends are stealing goods. But you don't even send a dress to my house. No respect! You know I've got three daughters. This is my neighborhood. You and your friends should show me some respect. You should let me wet my beak a little. I hear you and your friends cleared $600 each. Give me $200 each, for your own protection. And I'll forget the insult. You young punks have to learn to respect a man like me! Otherwise the cops will come to your house. And your family will be ruined. Of course, if I'm wrong about how much you stole, I'll take a little less. And by less, I only mean - a hundred bucks less. Now don't refuse me. Understand, paisan? Understand, paisan?... Tell your friends I don't want a lot. Just enough to wet my beak. Don't be afraid to tell them!  ~ Don Fanucci, The Godfather, Part II

Just like the organization of which Don Fanucci was part of in the Godfather, there is another "organization" today seeking to "wet their beak" every time some company comes up with a new or better way to use technology. This "Patent Mafia" is building patent stockpiles like the US and USSR stockpiled nuclear missiles at the height of the cold war. A difference between the real Mafia and the Patent Mafia is that the Patent Mafia actually uses the government and the courts to strong arm and enforce their will.

The lawsuits are raging all across the tech world. Oracle sues Google, Yahoo sues Facebook, they counter-sue. Others threaten, others buy more patents and the circle goes round and round. 

Don't be fooled by the lawsuits between these tech titans though. The real cost that the patent mafia extracts from the tech world is on the smaller companies who can't afford to battle the Apples and Microsofts of the world. Their choices are far simpler. They can abandon their innovations or they can choose to pay and allow the Mafiosos to wet their beaks. Also, don't be fooled about who the real losers are here. The the real losers are you and me. We lose out on being able to leverage innovative new ideas and technologies that come to market or have to pay more for them so that the the mafia can wet its beak.

This system of software patents has been called out by many. While companies are certainly entitled to the fruits of their inventions, many of these patent rackets are based on patents improperly issued, improperly enforced or improperly applied.

Vivek Wadwha in the Washington Post has a story that sheds some light on exactly how big the patent game has become, as well as some interesting facts that may show how to defeat this new mafia. My friend Brad Feld of the Foundry Group and a long-time critic of software patents is quoted in Wadwha's article, where he says "that software patents represent a destructive force in the startup world. Companies have to worry about being sued the moment they have achieved first success. Instead of focusing on building their startup, they worry about hiring lawyers."

I exchanged emails with Brad on this subject this morning, in which Brad told me to "Recognize that my issues with the patent system are focused on software and business method patents. I don't believe either are valid constructs and as such should be abolished." However, Brad also feels that ultimately the U.S. Courts and even the Supreme Court will have to make these decisions. 

To give you an idea about how big the game we are talking about here is, Wadwha points out that in the mobile market alone we have seen about 15 to 20 billion dollars spent on building up patents portfolio's over the last few months. But lets face it, the companies buying up these patent pools are the very same people who will use them as well. It is a 1% game. Apple, Microsoft, Oracle, Google are paying big dollars for patents owned by companies either already dead or companies that are dead men walking. But the little guy, the startup, can't afford to pay those kinds of dollars to buy patent muscle.

So what chance does the little guy have? What can we do to bust up this Patent Mafia? There is hope. Here are some more facts in Wadwha's article that come from a study titled Patent Quality and Settlement Among Repeat Patent Litigants, Lemley, John Allison of University of Texas, and Joshua Walker of Stanford Law School. From the study and Wadwha's article:

They found that repeat patent plaintiffs — “those who sue eight or more times on the same patents…are responsible for a sizeable fraction of all patent lawsuits.” Indeed, 106 out of roughly 1 million patents (or .0001 percent) in force were responsible for more than 10 percent of all patent assertions. This isn’t based on the strengths of the patents; many of these are among the weakest and least defensible. When the most-litigated patents go to trial, slightly fewer than 11 percent of patent holders win their cases, compared with 47 percent of those that were litigated just once. And most-litigated patents aren’t also filed by the original inventors: nearly 64 percent are by what academics call “non-practicing entities” — in other words, patent trolls. These win an even lower percentage of their cases, coming in at 8 percent.

Think about that. In the most litigated patents, if they go to a verdict at trial, fewer than 11% win. Isn't that absurd? Even more absurd is that true patent trolls (defined as being owned by "non-practicing entities") win only about 8% of the time. So why are we letting patents freeze innovation? Why do so many companies roll over when faced with threats of patent claims? The answer is simple. Who has the time, money or wants to put forth the effort to defend these? Even knowing that you may have something like a 90% chance of winning is not enough to make you want to defend your position. Something is very wrong.

In my mind there may be a simple solution that can help, but more on that later. First let me again turn to the Washington Post article again:

Boston University School of Law professors James Bessen, Michael Meurer, and Jennifer Ford analyzed stock market data and patent lawsuits. They determined between 1990 and 2010, the victims of these lawsuits, which were mostly technology companies, lost half a trillion dollars in wealth, forcing companies to divert substantial resources from production to litigation support. They found that software patents, including those on “business methods and financial processes,” were the most litigated because they have “fuzzy boundaries.” They are written in vague language and their scope is not clear. So technology companies can’t easily find them or understand what they claim. This gives the trolls an opportunity to extort money.

A half a trillion dollars sunk into litigation around patents! If you don't recognize it, that is the strong arm of the mafia right there. Who can afford to play that game? Some companies and organizations are fighting back though.

Twitter announced on April 17th of this year its "innovators patent agreement." While many ridiculed Twitter for its idealistic stand, it is actually joining a well established group of companies and organizations establishing patent defensive pools. They are pooling patents to protect open source, Linux and other technologies. By pledging that these patents would only be used defensively, the specter of using the patents as blunt force instruments are greatly reduced.

The problem is most inventors don't get to choose if their patents are put into a defensive pool. Most employees work which is patentable is owned by the company they are working for. As such it is left to the ideals and beliefs of those companies as to whether the make it into a pool or not. That is leaving too much to the "good nature" of corporations who are seeking to make profits.

So what do do? Here is my opinion. I would make it just as expensive for the offensive patent prosecutors. Just as the government put in the RICO act to combat organized crime, I would put a similar law in place on patents. RICO calls for treble damages. I would have treble awards of costs and legal fees.  

If a patent holder sues another entity for patent violation and that suit fails, the plaintiff who brought the suit should pay treble damages to the defendant. Three times what the defendant paid to defend. I would go one better too, if the patent troll declared bankruptcy to avoid paying the treble damages, I would like to sue the individuals behind the troll. Shift the burden of expense to the winning side. If you know that only 10% of these suits are successful and that an unsuccessful suit is going to cost you money, you are going to think twice and even three times before bringing that suit. 

In terms of defending those suits, knowing that if you prevail you are going to triple any money you laid out, you are less likely to cower in fear from being shaken down by the patent mafia.  

I think giving the patent trolls something to think about before bringing suit is the easiest way to stop this mafia dead in their tracks. Otherwise as Wadwha says, "It’s time to go back to the old idea that patentees have rights over things they build, not over solving problems by any means — before the patent trolls turn Silicon Valley into a rendition of 1930s Chicago."

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Copyright © 2012 IDG Communications, Inc.