September 7th, 2016

Patent Trolls

Fred Wilson, in his respected and widely read blog, devoted to venture capital comments that Patent Trolls are “a tax on Innovation” He says:

There have been good discussions around this issue, both in this post and in the sessions event that the USV weblog posts talks about. At this point, after 22 years in the venture capital business and countless hours discussing this issue, I come out on the side of less patent protection in information technology, no patent protection for software and business methods, and first and foremost the elimination of patent trolls.

Seriously, it’s hard not to hate anything called a “Troll”! I’ve never met a Troll I’ve liked.

“Patent trolls” are people or companies who obtain unused patents and sue companies for the only sue patent holders that do not make products but only threaten other companies with patent infringement lawsuits in order to extract money. They are criticized, probably justly, for gaming the system, collecting money without adding value.

But Fred Wilson takes a swipe at individual inventors:

I am all for trying to protect the small inventor, but a solo inventor who does not commercialize his/her technology does not bring nearly as much economic value (and jobs) to our society as the entrepreneur who actually takes the risk, starts the company, hires people, commercializes the technology, raises the necessary capital, and builds lasting sustainable value.

I’ve never met a solo inventor who doesn’t intend to commercialize their idea. This passage discounts all the obstacles and challenges that a solo inventor faces when commercializing their products. It can take many years to get something out on the market, and timing is always a crucial issue for the individual inventor. The market may not be right for the product until five years after the patent issues.

This attitude also discounts the numerous times small inventors disclose their inventions to large institutions with the resources to commercialize them, only to have their ideas stolen directly, or modified so slightly as to be obvious from the inventors contribution. A patent is the inventor’s only hope.

I recently spoke with an individual inventor that approached a large consumer products company with a software solution for improving a manufacturing process. The inventor gave the company a solution to a problem that the company had been unable to solve on its own. Unfortunately the inventor had not filed a patent application on his idea. After filling out multiple forms describing the idea in detail, and assuming the company would hire him for the implementation, the company offered a ridiculously low price contract with the inventor for providing the service, and then told the inventor that they could outsource the service to another provider in India at a much lower cost. As a patent attorney I hear these stories monthly.

So how did the inventor not create economic value? The inventor solved the problem that created value for the company. That idea was eventually implemented and saved the company many dollars in production costs. If the inventor had had a patent, then the inventor had a better shot at sharing the economic benefit with the company. All his time and effort, and nothing to show for it. He won’t be innovating for this company any time soon. Definitely a “lose-lose” outcome.

In most cases where an independent inventor holds a patent covering technology utilized by a larger company, the inventor really doesn’t have much interest in obtaining an injunction.

The inventor only wants to share reasonably in the value created by the idea. If the inventor commercializes herself, then she takes more risks but typically gains more if successful, which is significantly more than if she just pursues a license.

Engineers at large companies often review the patent literature for ideas to help solve problems. It’s also not unheard of that some corporations often ignore patents owned by small inventors and rely on their superior resources to overcome patents held by small inventors whether they conclude they are invalid or not. Maybe those ugly Patent Tolls just level the playing field a bit….


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