Tuesday, November 03, 2009

Software patents have tangible costs for innovation, and for you

I have a friend who's been working extremely hard on a small software startup for the past few years. He and his partner developed a genuinely innovative, original technology which solves a useful problem for end-users and probably has significant commercial value. The technology has been integrated into a website that is awesomely functional and and even fun to use. (I'd point you there, except that I'm going to discuss legal matters shortly and I think it's better not to identify the parties by name.)

His startup recently got sued for patent infringement by a company that independently developed a product that performs a vaguely similar function. This other company's product is much less sophisticated, and their user-facing site is an ugly, user-hostile pile of crap. The term "search arbitrage" would be a kind word to apply to this other company's product. And there is absolutely no sense in which my friend's work builds on any of this other company's technology.

Now, my friend and his partner have consulted multiple IP lawyers and they've said, "Yep, the law is probably on your side." They have also said, "You're still screwed." The trial would take forever, the legal fees would be ruinous, and in the meantime nobody will invest in a company which has a litigation cloud hanging over it.

So, this sucks for my friend and his partner. More importantly, this sucks for you, because, having seen the product, I am 100% convinced that you, or someone you know, would love to have this technology acquired and integrated into a major site that you use.

This sort of story is not at all uncommon in the software industry. I've been meaning to tell it for a couple of weeks now, because it made me think of this post by Tim Lee about "libertarian political philosopher" Richard Epstein's bold claim in an amicus brief* that:

The credible threat of a published patent’s right to exclude acts like a beacon in the dark, drawing to itself all those interested in the patented subject matter. This beacon effect motivates those diverse actors to interact with one another and with the patentee, starting conversations among the relevant parties.

In response, Tim writes:

There’s nothing beacon-like about software patents. Software companies do not use patents as a mechanism for finding technologies or business partners. Patents tend to be written in unintelligible legalese, they’re not well indexed, and they issue years after they’re filed. They’re completely irrelevant to the day-to-day process of product development in the software industry. I’ve never met a software developer who regards the patent database as a useful source of information about software inventions, nor can I think of an example of a software company (Intellectual Ventures doesn’t count) that uses patents as a central part of its product-development strategy.

Completely true, except that Tim does not go nearly far enough. At any software company with competent legal counsel, developers are instructed in the strongest possible terms never, ever to look at a patent, because the tiniest amount of documented influence could be used as ammunition in a lawsuit. The only time a sane software developer reads a patent is when your company's lawyers specifically ask you to help them prove you're not infringing on one. If you ever get wind that there's a patent even vaguely related to your work, you stick your fingers in your ears and run in the other direction. In short, software patents facilitate "conversation" about as well as poison gas bombs do.

One thing that I find extremely frustrating about many legal scholars' and economists' approach to patents is that they make two false assumptions. The first assumption is that transaction costs are acceptable, or can be made so with some modest reforms. The second assumption is that patent litigation is reasonably "precise"; i.e., if you don't infringe on something then you'll be able to build useful technology and bring it to market relatively unhindered. As my friend's story shows, both of these assumptions are laughably false. I mean, just black-is-white, up-is-down, slavery-is-freedom, we-have-always-been-at-war-with-Eastasia false.

The end result is that our patent system encourages "land grab" behavior which could practically serve as the dictionary definition of rent-seeking. The closest analogy is to a conquistador planting a flag on a random outcropping of rock at the tip of some peninsula, and then saying "I claim all this land for Spain", and then the entire Western hemisphere allegedly becomes the property of the Spanish crown. This is a theory of property that's light-years away from any Lockean notion of mixing your labor with the land or any Smithian notion of promoting economic efficiency. And yet it's the state of the law for software patents. Your business plan can literally be to build a half-assed implementation of some straightforward idea (or, in the case of Intellectual Ventures, don't build it at all), file a patent, and subsequently sue the pants off anybody who comes anywhere near the turf you've claimed. And if they do come near your turf, regardless of how much of their own sweat and blood they put into their independent invention, the legal system's going go off under them like a land mine.

It is hard to think of a more effective mechanism for discouraging innovation in software. I mean, I suppose you could plant a plastic explosive rigged to a random number generator under the seats of every software developer, and that would be slightly worse.

* To be fair, the amicus brief is not completely Epstein's work; it is the sworn work of one Dr. Ananda Chakrabarty and coauthored with lawyer F. Scott Kieff. I don't really know how these things work, but I assume that Epstein agrees with the argument laid out even if he's not the lone progenitor of it.



    It'd be smarter for the patentee to seek rents after the target company acquires actual money. Maybe they're looking for a license where they get a cut of any future profits.

    If the patents are truly weak, they might be good candidates for reexamination (wiki) at the PTO, which is still expensive but cheaper than full-blown litigation. While this would not prevent the patentee from suing your friend's company, in many districts you can request a stay of the litigation pending reexamination. Reexamination would also put a cloud on the patents, discouraging investment in the patentee. You can spread the gloom.

    You're probably also aware of this, but see also the EFF's patent busting project:

  2. @psp's notes

    The patent reexamination process is like putting a bandaid on the gaping hole where your arm used to reside. Ask RIM/NTP how well that process works.

  3. There is always the option to move the entire work and IP offshore, outside the remit of the alleged patents. Perhaps to a country that doesn't support patents on software?

    This would not solve allproblems, but would allow sufficient time to settle the product into the public's consciousness, and perhaps seek greater legal help to resolve the original issues.

  4. Derek, I think I see what you're saying, but my comment on the reexamination strategy was in the context of "truly weak" patents. I did not mean to suggest that reexamination was appropriate in every instance.

    When you file a reexamination request, you must submit all of the prior art publications you have that you think renders the claims unpatentable. If you can't find such art, or if your art really isn't that good, then this procedure is obviously not for you. The PTO will reject your request and the patents will emerge even stronger than before.

    But if I recall correctly, all of the claims NTP asserted against RIM were canceled by the PTO during reexamination. In that sense, the process worked (at least for RIM). I think that decision was subsequently appealed but I don't know the current status of the case.

    For whatever reason, RIM then decided to settle the co-pending lawsuit with NTP for some multiple millions of dollars. I don't know why they did that, but it shouldn't be taken as an indictment on the reexamination procedure.

    Finally, I understand that the patent system has flaws and I can see why many people think various aspects of it are bad policy. There may be more optimal IP regimes that have not yet been conceived or implemented. But nobody lives, works, or creates in those regimes. We are bound by the rules of the current imperfect system; I was trying to think of possible ways to apply them to some advantage. The playing field dictates your strategy even if it tilts against you.

  5. PSP,

    You're absolutely right, working within the constraints of the current system, a re-exam may be one of the best courses of action. My point is more of what you've implied, that the system overall is pretty poor, and I'd argue udderly absurd. With RIM/NTP specifically, the re-exams took so long as to render them meaningless, the lawyers still had to get paid in the mean time. If you don't have the deep pockets to cover that, what are your options?

    Now I'm clearly not a supporter of the patent system at all, and this specific case is one that's probably unfairly pointed towards my view, but I'd be happy to argue against a different example. I don't feel that the system ever really serves its real intended purpose (Hint: its not protecting some intangible concept of owning an idea, its a bit closer to promoting the progress of science and arts).