Independent Invention Defense?

Brad & Fred over at Union Square are hot about patent trolls and are proposing an Independent Invention Defense for patent infringement. I hope they don't mind me sharing their discussion for local review here (that would be ironic), but it's an important topic worth considering by entrepreneurs (and lawyers) from patent holder and infringer perspectives. Don't miss the terrific comment stream on Brad's post.

Almost a third of our portfolio is under attack by patent trolls. Is it possible that one third of the engineering teams in our portfolio unethically misappropriated technology from someone else and then made that the basis of their web services? No! That's not what is happening. Our companies are driven by imaginative and innovative engineering teams that are focused on creating social value by bringing innovative new services to market.

Our companies are being attacked by companies that were not even in the same market, very often by companies they did not even know existed.

The problem is that the patent system has fallen way behind the pace of innovation, especially in information technology. Originally designed to protect the brilliant independent inventor of a better mousetrap, the patent system has been stretched to be applied to software. Software is a language and like any language, it can be very abstract. Everyone applying for a patent pays a lawyer to take their invention and render it into the broadest, most abstract language they can slip through the patent office. A mouse trap is a mouse trap, but a method of allowing one piece of software to talk to another (the generalized language often used to describe a software system) can be almost anything, and can, if approved, impact markets the original inventor could never even have imagined.

Maybe there are some markets where you could make a credible argument that someone who creates a foundational piece of technology should be able to control all of the downstream innovation that follows. Perhaps this can be argued in the case of pharmaceuticals. I think it is a stretch even there, but in information technology, I have never seen a software invention that is foundational in that way. Much more often, I see cases where a naïve patent examiner is hoodwinked into approving a patent on the software equivalent of the word "the" and when the patent later falls into the hand of a troll, it becomes the platform to systematically extort as broad a segment of the market as they can.

Trolls go after the smaller companies first. They pick on startups because undercapitalized small companies cannot afford to be ideological. When faced with the prospect of extensive legal fees and a huge distraction, they do the pragmatic thing - they settle. The troll can accept less from a startup because the troll can later argue the startup has a small market share and a limited ability to pay. A smaller settlement does not preclude larger settlements with bigger players later. In a side note, one troll accepted services from our portfolio company in lieu of cash because the troll could not technically do the thing that our company was accused of copying so we are providing them with the capability. The irony there kills me. It feels a little like being forced to dig your own grave before being shot.

The trolls then use the money extorted from young startups to fund the more expensive and ambitious cases against larger more established companies with deeper pockets. These folks have more to lose but they also have more resources to defend themselves. I don't often think about the plight of large companies but this attack has a direct impact on young companies.

Established companied often grow by buying innovative young companies. Trolls like to attack a startup in the process of selling to an established company. By pouncing after the merger is announced, but before it closes, they hope to extort a quick cash settlement. Even if they are polite enough to wait, the problem is that innovation is under attack. Going after companies who have bought young technology companies will have a chilling effect. If that trend is allowed to continue, it will have an impact on startups ability to get funded. We will all lose a huge engine of innovation.

So what has this got to do with an independent invention defense? Simple, as I said up front, I know of no case where the engineers in one of our companies were aware of the patents that are now being used to attack them. The moral rightness of this screams at me. If, as an engineer focused on solving a problem, I happened to come up with an idea that is in some way similar to yours, then that in itself should suggest that it was obvious and not patentable. Unfortunately, that does not really help. There, the burden of proof is still on the startup and it is still smarter to settle than to burn precious capital on a defense.

If, on the other hand, the troll was required to show the startup had some prior knowledge of their technology, the burden would be shifted to the attacker, and this blatant abuse would come to a grinding halt. If you believe as I do that innovation is key to social progress, please support patent reform. It is a complicated issue, but an independent invention defense is an obvious place to start.