Blog on the Run: Reloaded

Wednesday, August 10, 2011 8:29 pm

The trolls under the intellectual-property bridge

I have said many times in private communications during the past 15 years or so — since the Telecommunications Act, basically, although that’s not the only thing I’m talking about — that intellectual-property law is where American ingenuity goes to die.

Now I’m saying it publicly because the wonderful people at NPR’s “Planet Money”  have found an example so clear that even I can understand it.

You can either read the text or listen to the audio; it’s good either way. And what it says, in short, is what I’ve been saying for years: A lot of stuff is patented that shouldn’t be, including many kinds of software, and some of the most vociferous critics of those patents are the people who own them.

… we talked to a half dozen different software engineers. All of them hated the patent system, and half of them had patents in their names that they felt shouldn’t have been granted. In polls, as many as 80 percent of software engineers say the patent system actually hinders innovation. It doesn’t encourage them to come up with new ideas and create new products. It actually gets in their way.

Many patents are so broad, engineers say, that everyone’s guilty of infringement. This causes huge problems for almost anyone trying to start or grow a business on the Internet.

“We’re at a point in the state of intellectual property where existing patents probably cover every behavior that’s happening on the Internet or our mobile phones today,” says Chris Sacca, the venture capitalist. “[T]he average Silicon Valley start-up or even medium sized company, no matter how truly innovative they are, I have no doubt that aspects of what they’re doing violate patents right now. And that’s what’s fundamentally broken about this system right now.”

This brings us back to Chris Crawford’s patent, the patent Intellectual Ventures cited as an example of how they encourage innovation by ensuring that inventors get paid. As we’ve said, this patent also seems to cover a big chunk of what happens on the Internet: upgrading software, buying stuff online, and what’s called cloud storage. If you have a patent on all that, you could sue a lot of people.

And, in fact, that’s what’s happening with Chris Crawford’s patent. Intellectual Venures sold it to a company called Oasis research in June of 2010. Less than a month later, Oasis Research used the patent to sue over a dozen different tech companies, including Rackspace, GoDaddy, and AT&T.

We called Oasis several times, but no one ever answered the phone. For a while, the company’s voice mail message directed all questions to John Desmarais , a lawyer in New York.

He didn’t return our phone calls, but we did track him down at an intellectual property conference in San Francisco.

He cited attorney-client privilege, and wouldn’t tell us anything — not even who owns Oasis Research. (He did say he’s a big fan of NPR.) …

All the big tech companies have started amassing troves of software patents — not to build anything, but to defend themselves. If a company’s patent horde is big enough, it can essentially say to the world, “If you try to sue me with your patents, I’ll sue you with mine.”

It’s mutually assured destruction. But instead of arsenals of nuclear weapons, it’s arsenals of patents. And this was a problem Intellectual Ventures founder Nathan Myhrvold said he was trying to solve when he first started the company. A problem that he and others from his company talked about at investor meetings around Silicon Valley. Chris Sacca attended one of those meetings a few years back.

The pitch he heard was, basically, Intellectual Ventures helps defend against lawsuits. Intellectual Ventures has this horde of 35,000 patents — patents that, for a price, companies can use to defend themselves.

Technology companies pay Intellectual Ventures fees ranging “from tens of thousands to the millions and millions of dollars … to buy themselves insurance that protects them from being sued by any harmful, malevolent outsiders,” Sacca says.

There’s an implication in IV’s pitch, Sacca says: If you don’t join us, who knows what’ll happen?

He says it reminds him of “a mafia-style shakedown, where someone comes in the front door of your building and says, ‘It would be a shame if this place burnt down. I know the neighborhood really well and I can make sure that doesn’t happen.’ ” …

And companies like Intellectual Ventures and their shadowy partners that do nothing but control and litigate over patents are growing more numerous every day, with untold costs for American industry. Here’s a particularly good example, which caught my eye because my friend Tony used to work for Nortel:

In early July, the bankrupt tech company Nortel put its 6,000 patents up for auction as part of a liquidation. A bidding war broke out among Silicon Valley powerhouses. Google said it wanted the patents purely to defend against lawsuits and it was willing to spend over $3 billion to get them. That wasn’t enough, though.

The portfolio eventually sold to Apple and a consortium of other tech companies including Microsoft and Ericsson. The price tag: $4.5 billion dollars. Five times the opening bid. More than double what most people involved were expecting. The largest patent auction in history.

That’s $4.5 billion on patents that these companies almost certainly don’t want for their technical secrets. That $4.5 billion won’t build anything new, won’t bring new products to the shelves, won’t open up new factories that can hire people who need jobs. That’s $4.5 billion dollars that adds to the price of every product these companies sell you. That’s $4.5 billion dollars buying arms for an ongoing patent war.

The big companies — Google, Apple, Microsoft — will probably survive. The likely casualties are the companies out there now that no one’s ever heard of that could one day take their place.

The current system stifles innovation, and when you stifle innovation, history shows, you stifle long-term prosperity.

Fun fact: My current rep, Howard Coble, is one of the most senior members of the House subcommittee with jurisdiction over IP law, although not having researched the question I have no idea to what extent, if any, he’s responsible for any of this mess.

UPDATE: In catching up on my RSS feed, I see that Kevin Drum at MoJo also has linked to the “Planet Money” piece and come up with another example, this one involving Spotify, a streaming music service that arrived in the U.S. market this summer. I got a membership so recently I haven’t even tried it out yet. And even before I did, Spotify got sued over the (pun intended) patently ridiculous notion that the plaintiff, a company called PacketVideo, could actually own a patent on the simple idea of streaming audio over the Internet.

Kevin checks out the patent that PacketVideo holds and then comments:

There are no specific algorithms involved and no specific implementations proposed. Basically, it appears to be a claim that covers any system in which music is compressed and encrypted by a server, shipped out over a network, and then decrypted and decompressed at a client. The patent claims seem to include pretty much any kind of server, any kind of storage device, any kind of compression, an extremely broad set of communications protocols, and pretty much any kind of remote device. If you’re streaming music this way — and honestly, there’s really no other way to do it — then PacketVideo says you’re infringing their patent.

At least, that’s how it reads to me. Neither the news stories nor the legal filing go into much detail about the precise nature of the infringement PacketVideo is claiming, and they don’t appear to have sued all the other streaming music vendors in the world, so it’s possible their claim is more specific. But my amateur reading suggests they really are claiming patent rights to the whole idea of streaming music from a server. And the fact that they waited to file suit until Spotify had entered the U.S. market suggests that their claim isn’t valid anywhere else. Only in the U.S. do we allow a patent claim this broad.

Commenter Jon F. asks, “How do we fix it?” I haven’t had a lot of time to think about it, but I honestly don’t know, and here’s why: A big chunk of the source of this problem isn’t statutes (although they certainly contribute), but Supreme Court decisions. Given the makeup of the Supreme Court and the difficulty that even Democratic presidents can have in getting appointees confirmed who aren’t more or less allied with big business interests, this pooch might not be unscrewable for at least a generation. Meanwhile, other countries are going to be eating our lunch.

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