September 16, 2009

Software Patent Research in Boulder

Filed under: innovation, law, markets, patent — wseltzer @ 4:34 pm

I’ve moved to Boulder, Colorado, for a year with the Silicon Flatirons Center for Law, Technology, and Entrepreneurship at the University of Colorado. I’m here to research software patents and user innovation (and no, innovative methods of trolling aren’t quite what I think the Founders meant by “promote the progress of science and the useful arts.”)

Boulder at sunrise Boulder’s a particularly good place for this study, because along with its beautiful mountains and open spaces, it has an intense entrepreneurial community, with frequent New Tech Meetups, Ignites, and informal gatherings. Plenty of innovation, how much fueled or swamped by patent?

I’m particularly interested in the cases of strategic behavior, where a patent is used not to secure limited-time exclusivity for the developer bringing a product to market, but instead as a bargaining lever, to spread FUD, or to extract value by threat. Are these indirectly promoting progress, such as by providing a market for research investment, or do they just get in the way? If you’re in the area and thinking about these issues, please let me know!

7 Comments »

  1. Wendy, the purpose of a patent from a business point of view is to create a barrier to entry. This barrier is most likely not absolute – very few barriers to entry are absolute. Just being able to say patent pending will force your competitors to spend time determining researching your patent position. This will increase your competitors’ costs and slow down their entrance into the market.

    The economic purpose of filing for a patent is to be able to capitalize a company’s research and development costs. Without a patent the company’s R&D is just an expense and adds nothing to the valuation.

    Some of the practical reasons that companies file for patents are: 1) to create a barrier to entry, 2) to increase then company’s valuation, 3) to use as a bargaining chip if they are sued for patent infringement, and 4) to ensure that key technical people do not run off with the company’s technology.

    You are incorrect that so-called patent trolls do not promote science and the useful arts. trolls are really the beginning of a secondary market in patents. Most of these companies got their start in the failed companies of the dot.com bust. These patent investment companies bought the patens of failed dot.com companies. This reduces the cost and the risk associated with R&D. The VC’s I knew were going to let these patents expire, resulting in zero return to the investors. Patent investing companies like Intellectual Ventures should not be vilified, but appreciated for the valuable secondary market they are creating. Like all new markets, the pioneers took enormous risks but also paid very little for the assets they acquired. Their success will encourage other entrepreneurs driving up the costs of buying patents (excess R&D). This will reduce the cost and risk associated with R&D, which will result in more investment in high technology start-up companies.

    Vilifying patent investment companies is like vilifying investors in the physical assets of failed enterprises. These investors recycle assets and make them part of the productive economy again. While it is sad to see a business fail, failure is part of the innovation process. Putting the assets of a failed enterprise back to work as soon as possible would be considered a humanitarian effort if performed by a non-profit. However it is really just as valuable or more valuable to the economy when do by a for-profit enterprise.

    Comment by Dale B. Halling — September 17, 2009 @ 10:16 am

  2. Thanks Dale, this is part of the ecosystem I’m trying to understand better. I understand that non-practicing patent-holders and patent holding companies help create secondary markets for patents, I just wonder whether that market is helpful to the underlying purpose of promoting technical innovation.

    If patents embody real research advances that would not have happened but for the patent system, and make the research usable (albeit at a higher cost) after they’ve been acquired by a licensing firm, they might still be beneficial on balance. If, on the other hand, the secondary market encourages patenting for its own sake, of developments that would have occurred for business reasons even without patent promises, then patents seem just to impose transaction costs on ordinary business activities. I’d like to get a better handle on which of these scenarios plays out more often.

    Comment by wseltzer — September 17, 2009 @ 11:20 am

  3. Dear Wendy Seltzer:

    Welcome to Boulder! I’m excited about how many interesting, smart people have started congregating in this little town.

    A company that I used to work for, and which uses open source software that I maintain, was recently sued for patent infringement on a patent that seems overly broad, not novel, and also not applicable to my software (after a cursory examination). The patent holder seems to be a corporation set up expressly to sue other companies with this patent.

    Also, it seems like that patent should be expired! Here is my blog entry on the subject:

    http://testgrid.allmydata.org:3567/uri/URI:DIR2-RO:j74uhg25nwdpjpacl6rkat2yhm:kav7ijeft5h7r7rxdp5bgtlt3viv32yabqajkrdykozia5544jqa/wiki.html#%5B%5BI%20aint%20afraid%20of%20no%20patents%5D%5D

    So far, this story is an anecdote in favor of the hypothesis that patents and the secondary market for them impedes instead of accelerates the progress of science and the useful arts.

    But, the plural of “anecdote” is not “data”. What’s your strategy for combing the truth out of complex data lensed through your, and everyone else’s, biases?

    Regards,

    Zooko

    Comment by Zooko — September 17, 2009 @ 3:38 pm

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    Pingback by Zooko Wilcox-O'Hearn (zooko) 's status on Friday, 25-Sep-09 20:00:20 UTC - Identi.ca — September 25, 2009 @ 3:00 pm

  5. Thanks Zooko, you’re right about anecdotes, so I’m looking for places where I can collect actual data, such as comparisons between companies in similar circumstances that do and do not use software patents. I’m also going to try to measure the costs and benefits attributed to software patents — following the work of others such as Dan Burk and Mark Lemley. Even the anecdotes are helpful, though, as a pointer to the spots to dig for hard data.

    Comment by wseltzer — September 25, 2009 @ 3:22 pm

  6. Hi Wendy!

    Here’s another anecdote for you; very light on data, but I bet you could get something useful by polling about this.

    Common advice for developers in the software industry is to avoid looking at any patents, or reading any industry literature which might even mention references to patents. I was once told not to even read slashdot, because I might become aware of patents.

    Of course, the superficial reasoning here is that knowingly infringing a patent increases the penalties for infringement. But there is also an obvious underlying assumption: that the patent database contains nothing of value, and all patents are inherently overpriced. More importantly, all software patents are so obvious that you will think of them anyway if you’re tasked with writing a particular piece of software, so you should avoid inadvertently discovering them before that.

    After all, if software patents were doing their job properly, there would be a mix of approaches in the marketplace, with some software companies actively seeking out patents and trying to license them in order to increase the value of their products.

    This is also reflected in the marketing literature. Sometimes you will see a company describe a particular application as “patented” or “patent pending”, but you will almost never see a mention of the use of *another* company’s patented software. Whereas in other industries (for example, robotics) it’s common to see patented devices aggregated into larger products or bundles.

    Comment by Glyph Lefkowitz — October 2, 2009 @ 3:06 pm

  7. [...] putting real intellectual energy into this issue, such as the End Software Patents initiative and Wendy Seltzer, a well known researcher who is currently spending a year at Silicon Flatirons researc… (disclosure: I’m providing some of the funding for this initiative at Silicon [...]

    Pingback by Proposal: An Independent Inventor Defense Against Software Patents — January 12, 2010 @ 8:18 am

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