For the Good of Tech: Fix Our Broken Patent System Now!
Aug 9th 2011 7:38PM
Updated Aug 9th 2011 7:40PM
I have this long-held belief that our patent system is broken. Maybe even unfixable. These days, there's a growing Greek chorus pointing out the same problems.
Software code is often used as an offensive weapon (in every sense of "offensive"), or as a shield against patent attacks. But I don't think you should be able to patent an algorithm or a problem-solving idea, any more than you can patent the phrase "More tacos, please" or the idea of brushing your teeth exactly twice a day.
I'm not alone
With great pleasure, I just found a celebrity guru who sees these things almost exactly my way. Longtime Internet billionaire and outspoken media guru Mark Cuban is shouting this message from the rooftops: "If you want to see more jobs created -- change patent laws. ... One of the hidden job killers in our economy today is the explosion of patent litigation."
Cuban invokes the example of Google (NAS: GOOG) trying to spend $900 million on a defensive patent basket from the defunct Nortel, only to be outbid by a consortium that includes unlikely allies Apple (NAS: AAPL) and Microsoft (NAS: MSFT) , for the entirely unreasonable sum of $4.5 billion. "That is money that for could have gone to job creation," he says. Instead, it goes toward building "mutually assured destruction" systems of patent threats against anyone insolent enough to one another.
And that is just one small example of a huge and growing trend. Patent trolls have always been around, but a growing corpus of successful litigation campaigns based on random patent collections has only inflated the threat they pose.
It's easy money, you know? I think it's made worse by the fact that pure patent trolls can't be countersued because they don't actually make anything. So it's bulletproof little gunships versus the world's greatest innovators -- protected only by large handouts that make the accusers go away. And it's all based on our deficient patent system.
In Cuban's words: "These aren't operating companies that are trying to protect their business. These are companies that aggregate patents and raise capital for the sole purpose of suing companies and extorting money from them."
And that's what sets the trolls apart from real businesses trying to advance the art and science of modern technology for something other than lining the pockets of its backers. Some technologies go to work; others just lawyer up.
Examples of trolldom
I realize I'm walking a fine line together with Cuban here. Universal Display (NAS: PANL) , for example, builds its business on a collection of patents -- some developed in-house, others acquired, and a few relicensed from places like Princeton University. The company depends on royalties and license agreements from Samsung and LG Display for its livelihood. But the company is spending lots of money on further research, works hard to commercialize its OLED technologies, and rarely goes to the courtroom.
That crosses Universal Display off my troll list. The company isn't just collecting patents to go after lucrative licensing deals or settlements -- Universal Display is actively doing something with the technology.
Then there's the gray area. VirnetX Holding (ASE: VHC) claims to have essential patents for 4G wireless network security and is not shy about asserting that claim in court filings. The company can't seem to be awarded a fresh patent without throwing it into a new or existing lawsuit.
With about a dozen full-time employees (I'm not sure whether that headcount includes its eight named executive officers) and a research budget of about $2 million a year, VirnetX doesn't strike me as a likely factory of technology with real-world value. If that tech really is a vital part of every 4G network, then how come it received no domestic revenue before Microsoft was forced to license it?
Sure, the company gained a $200 million licensing deal with Microsoft last year, shooting the stock right into the stratosphere. But I can't be alone in doubting VirnetX's earnings power: What once was a six-bagger and more has collapsed this summer to a mere double and change after a 60% haircut.
Can we call VirnetX a troll? With minimal R&D efforts, ginormous legal efforts, and little evidence of license negotiations not involving a judge, I think that's fair.
Everyone's a target: Apple received a software lawsuit itself this week, based on booting its Mac OS X systems too quickly. Apparently, there's a patent covering boot-optimization techniques. Everyone is ganging up on Google, including not only Cupertino and Redmond but also enterprise-software giant Oracle (NAS: ORCL) . If Larry Ellison has his way, the Android operating system could be declared illegal for infringing on Java patents he bought (yep) along with Sun Microsystems.
Unlike its attackers, Google hasn't built up a large cache of counterstrike patents. Big G did buy about 1,000 patents off IBM last week, but that's hardly enough for a nuclear counter-attack. InterDigital (NAS: IDCC) now looks like a likely takeout target -- or should I say "human shield"?
Google calls this "a hostile, organized campaign against Android." And it's easy to do, because "a smartphone might involve as many as 250,000 (largely questionable) patent claims," says Google attorney David Drummond. I think Cuban would agree with the "questionable" part of that claim.
What can we do?
This can't be good for business, American or otherwise. Cuban says that legal worries and court costs are keeping him from creating jobs, and that the problem is probably worse in bigger companies.
As Cuban says, this is a big problem for small companies but "horrific" for big ones. Would a dramatic patent overhaul make a difference to the high-tech job market, as Cuban claims, or would Google and Apple just end up sitting on even bigger piles of dormant cash without these nuisance lawsuits? Discuss in the comments section below.
At the time this article was published Fool contributor Anders Bylund owns shares of Google but holds no other position in any of the companies discussed here. The Motley Fool owns shares of Google, Apple, Microsoft, IBM, and Oracle. Motley Fool newsletter services have recommended buying shares of Microsoft, Universal Display, InterDigital, Apple, and Google. We have also recommended creating a bull call spread position in Microsoft and a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. You can check out Anders' holdings and a concise bio, follow him on Twitter or Google+, or peruse our Foolish disclosure policy.
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