Letters

In defense of patents: Readers respond to Jason Schultz's "When Patents Go Bad."


Salon Staff
December 17, 2004 1:30AM (UTC)

[Read the story.]

As someone who has had the experience of being in several start-ups that failed to thrive, and had a nontrivial stake in one of them, I have a slightly different perspective.

First, it is quite depressing to work on something interesting, and then see it lost to the world because the investors still own it, yet cannot find a customer. Patenting portions of the technology at least publishes it, and may generate interest from other investors. Patents also give some chance of worst-outcome value to investors; they would like an insurance policy, so that their investment is not lost to the world, either. My main regret from my years at one start-up is that we did not patent enough things; if we had, we probably would have been able to license the bundle to get our investments back, and I'd be able to talk more freely about some of the neat things that we did.

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Second, "products" do not derive value from their mere existence. They may carry obligations (contracts for support and upgrades, patent cross-licensing) that a purchaser may not wish to take on. Or perhaps the purchaser already has a web services product, and sees no need to pay for a second one. If it maximizes value to sell a company in pieces, rather than as a single entity, then why wouldn't the investors do that? Unbundling a bankrupt company is no stranger than selling the songs on an album as singles, instead of as a collection.

Third, if the patents have value as legal threats, that is still value. The inventors and/or investors have every right to attempt to maximize their returns on their monetary and intellectual investments. If their inventions are useless, then they will also be useless as legal threats; if they are useful, then whoever is using them should license them. Anyone who wishes to insulate themselves from the legal threat can simply purchase the patents themselves, or form a consortium of like-minded at-risk parties to purchase the patents. It is customary for customers to complain about the price, but if they don't like it, they are free to take their chances with litigation, or to change their products so that they don't infringe. Are the patents a "threat"? Absolutely. The whole point of patents is to give inventors a legal weapon with which to attack unlicensed copycats; in return for that, valuable inventions and methods are published for eventual use by everyone. This is true whether the patent owner is IBM (a large company holding many patents, also selling many products and services) or CommerceOne.

And finally, none of this is novel, or new. Investors are typically only concerned about the bottom line, no matter whether the product is intellectual property [I.P.] or widgets. This "unbundling" of the company in bankruptcy has been discussed in other bankruptcies in the past; whenever the I.P. is more valuable than the products, it is likely that the two will either be sold separately, or the products will simply be retired to avoid their obligations (a company in bankruptcy is more able to abuse its clients than the purchaser), or sold off separately later by the I.P. purchaser.

-- David Chase

Small litigation-centric firms aren't the only ones engaging in this sort of high-tech legal arm twisting. I worked for a company that sells computer hardware, software and services through traditional channels as well as via the Web. One day we received a letter from AT&T informing us that through patents acquired when they purchased NCR (National Cash Register) we could either cease sales operations through the Web, pay them a licensing fee, or go to court. It seems that NCR patented practically any process that involves networks and transactions, not to mention product categorization and a host of other things that make up pretty much all of the core parts of e-commerce.

The reality is that should someone actually fight them in court, they would likely win. The problem is that it would take years and zillions of dollars. Which, of course, all e-commerce companies have in piles.

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-- James Smith

Jason Schultz's analysis of patent sales is rather facile.

My personal belief is that software patents are rarely in the public interest, and that the laws and regulations governing them are not effective. But the simple observation that patents can be worth more to a patent-portfolio firm than to a software company does not show this in any way.

If a software company bought the patents, it would have an incentive to exclude other companies from using those patents to prevent competition. The patent-portfolio firms, on the other hand, have the incentive to sell rights to as many firms as possible to maximize their licensing revenue.

Schultz would probably prefer that the patents were simply torn up, and I wouldn't disagree. But given their existence, their sale to a company that can most effectively manage their value is not necessarily bad for the public interest.

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-- Joshua Slive

While I understand the EFF's interest in "valueless" patents, this is in fact little different from the government's auctioning off of the spectrum to phone companies for massive amounts of money and who then turn around and do exactly nothing with them. The value of them, and, I suspect, of certain I.P. patents as well is not what they potentially can provide to a company, ostensibly in the form of vampire lawsuits as the writer alludes but also what they don't provide. It is very useful to take something out of the public domain as much as it is useful for a company to erect fences around property or own ports or airline rights and so on. It's about access to the patent and not always the patent itself.

-- Stephen Rifkin

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