ACT - Protecting Small Business Innovation

One Step Closer to a Single European Patent System

After several rounds of negotiations, the Swedish Presidency announced last week that the EU Patent System was one step closer.

We are of course very pleased to see that the dossier is moving forward; and we have continuously praised the Swedish Presidency for their great efforts. A good patent protection is essential to achieving the levels of innovation that European SMEs deserve.  And it appears many agree:

 “The EU patent will make it much easier and cheaper to protect innovations in the EU. This will give European industry better opportunities to compete on the global market," said Minister for Trade Ewa Björling.

“Today's agreement cannot be overestimated. It comes at a moment when it is most needed," said the EU's industry commissioner, Gunter Verheugen, after the deal was struck. 

Creating an ideal environment for EU innovative SMEs, including a strong unified IP protection system, would help to improve the overall innovation performance of Europe, which still lags behind that of the US and Japan. But conversations about a one-stop shop for patent protection across Europe are almost as old as the European Union itself so we can’t help but wonder, are we really there? 

The Swedish Presidency and the European Commission considered Friday’s development a very positive breakthrough. And it is, but will the next EU Presidency to be led by Spain be willing to take to take over?  Will they leave language differences aside? What role will the European Court of Justice and the individual Member States play in shaping the agreement? 

Friday’s agreement was an important step, but there are still outstanding issues that shouldn’t be overlooked before we sing victory.

Thoughts on the CrunchPad Saga

Earlier this week, influential tech blogger and aspiring cool product entrepreneur Michael Arrington announced that the eagerly anticipated CrunchPad was stillborn.  Popular Mechanics prematurely heralded the planned low-cost tablet computer as one of the 10 Most Brilliant Products of 2009.  While we will have to wait for more information to know the real story behind the dispute behind Arrington's company TechCrunch and its partner in the venture, Fusion Garage, there are some interesting issues raised by what Arrington has so far revealed.  [Note: although Fusion Garage has removed much of the content from its website, for the time being, a cache of Fusion Garage's blog/PR announcements can be found here].

Arrington claims that because TechCrunch and Fusion Garage jointly own the intellectual property behind the CrunchPad, "it's legally impossible for [Fusion Garage] to simply build and sell the device without [TechCrunch's] agreement."  Now, we don't know what agreements there were between these two companies, but joint ownership of intellectual property would not by itself keep any joint owner from using that property.  The US Patent Office, for example says the following about joint ownership (emphasis added):

Patents may be owned jointly by two or more persons as in the case of a patent granted to joint inventors, or in the case of the assignment of a part interest in a patent. Any joint owner of a patent, no matter how small the part interest, may make, use, offer for sale and sell and import the invention for his or her own profit provided they do not infringe another’s patent rights, without regard to the other owners, and may sell the interest or any part of it, or grant licenses to others, without regard to the other joint owner, unless the joint owners have made a contract governing their relation to each other. It is accordingly dangerous to assign a part interest without a definite agreement between the parties as to the extent of their respective rights and their obligations to each other if the above result is to be avoided.

Under US Copyright law, the rights are a little different: a joint "copyright owner has the right to commercially exploit the copyright, provided that the other copyright owners get an equal share of the proceeds."  Stanford University Libraries, Copyright Ownership: Who Owns What?, Copyright FAQs. 

Therefore, unless there were some agreement between TechCrunch and Fusion Garage that requires both parties to agree on how their joint intellectual property is to be used or licensed, there is no restraint put on either party.  If Arrington sues Fusion Garage, as he has threatened, I will be interested to see the complaint - perhaps there was such an agreement.

Another issue raised is that by sending an email with the following message to Fusion Garage CEO Chandra Rathakrishnan, an unnamed investor may have provided some of the evidence needed to pierce the corporate veil to make the investor liable if a court ultimately finds Fusion Garage wronged Arrington or TechCrunch in this dispute:

"We still acknowledge that Arrington and TechCrunch bring some value to your business endeavor…If he agrees to our terms, we would have Arrington assume the role of visionary/evangelist/marketing head and Fusion Garage would acquire the rights to use the Crunchpad brand and name. Personally, I don’t think the name is all that important but you seem to be somewhat attached to the name."

If this dispute ends up in court, the email to Fusion Garage would probably have been disclosed in discovery anyway, but Rathakrishnan unnecessarily highlighted the investor's direct involvement with the dispute by forwarding it to Arrington.  The limited liability provided by the corporate form is not absolute - investors who have sufficient ownership and control a corporation to such an extent that a court finds the corporation is a "mere instrumentality" of the investors may be liable for the corporation's acts.  See, e.g., Institute of Veterinary Pathology, Inc. v. California Health Laboratories, Inc., 116 Cal.App.3d 111, 119 (1981); Standard Wire & Cable Co. v. AmeriTrust Corp., 697 F. Supp. 368, 374 (C. D. Cal. 1988).

Both issues should serve to remind entrepreneurs (and investors) to be careful about ownership of IP and to be careful about corporate control and the dangers of discussing sensitive issues over email.

In any event, I personally hope that TechCrunch and Fusion Garage resolve the situation, release an innovative product, and make scads of money. 

No Patent Troll Here -- Rewarding Innovation Down Under Through Patents

Slashdot's recent discussion of how an Australian research/tech transfer agency enforced its patent rights against 14 of the world's largest tech companies has what everybody should view as a happy ending: reinvestment.

Australia's CSIRO has "injected $150 million from the proceeds of its wi-fi technology to the once-defunct science and industry endowment fund, originally established by parliament in 1926" according to the Aussie news article. The article also has a great quote:

It's very important that when you have a success like this, you re-invest it back into the wellspring," CSIRO boss Megan Clark said.

Exactly! This is what the patent system is supposed to be all about. Rewarding innovation creation and providing incentives for new research. Here, it's a government agency that benefits. But it could be a small IT company that uses patents to also invest back into the "wellspring." 

Do You Mean to Say That We've Reached the Pinnacle of Human Success?

Our pals at Third Way had a nice event on Wednesday with Dean Kamen (inventor of the Segway) and Ralph Eckhardt and Mark Blaxill (authors of the new IP-centric book, “The Invisible Edge”). The focus of the event was innovation and American jobs; Kamen talked about his efforts to build future generations who are interested in math and science, and Eckhardt and Blaxill talked about how intellectual property is crucial to innovation and future job creation.

All three were great, but the most interesting exchange came during the Q&A portion. My colleague Morgan Reed pointed out that oftentimes IP, and patents specifically, is referred to as a “tax on innovation.”  Several times we’ve seen legislation on government funding of technology projects that specifically call for open source technologies, or say that technologies with IP will not have access to the funding. What, he asked, is the best way to address those lines of thought?

Kamen’s answer hit on several interesting points that policymakers should hear more often from true innovators and business leaders. He said taxes are essential, and that we tax lots of things in this country to fund other essential things. He went on to say that an appropriate response would be pointing out to policymakers that their plans are perfectly acceptable—if the goal is to eliminate the most powerful incentive to innovate, and simply let giant multinational corporations be the only players in a given space. Those same policymakers should be asked how they think giant multinational corporations got to be so big in the first place, and how they how they had ability to create technologies so good that they essentially became de facto standards. If those companies are supporting mandates that don’t allow IP-based solutions, everyone should ask it if those companies would suggest stopping incentives to innovate while they were NOT at the top of the market.  Kamen defines innovation as, essentially, productive destruction of what’s here today, and so supporting policy that will effectively put the brakes on other people’s innovation is a perfectly rational and intelligent business decision to make when you’re on top.  And he said that taking away incentives for innovation is just fine if you’re willing to say that we have reached the pinnacle of human success, and that we need nothing more than we have right now—that we never need a better drug, a safer car, a faster processor, etc.

To the specific question of removing intellectual property from the business and innovation equation, Kamen said that yes, companies might be able to pass along a 2-3% cost savings to the consumer but that model will have killed off incentive for innovation. He posed a great question: “How can we measure the cost of what will never be?” Incentive is the fundamental agent of economic growth, and the incentive for the little guy to engage in productive destruction of what we have today is the protection of intellectual property. 

A holder of more than 400 patents worldwide, a member of the Patent Public Advisory Committee (PPAC), and all-around smart guy, Kamen is clearly well-schooled in the patent reform issue and arguments about patent quality. To that end, he drew the analogy between dis-incentivizing innovation and how we dis-incentivize money counterfeiters—if there’s a problem with bad guys counterfeiting ten-dollar bills, the solution is not to crack down on the Department of the Treasury and stop the production of ten-dollar bills. The same is true in the innovation space; there are going to be bad actors, but the solution is not to get rid of IP rights. The solution in both cases is to penalize the bad actors.

Lastly, I dove in to Eckhardt and Blaxill’s great book this week, and will be writing more about it here and at the Innovators Network. It’s a great read so far and I agree with many of the big-shots who provided blurbs for the book jacket, but will add this: It’s an essential companion to “Little Blues: How to Build a Culture of Intellectual Property Within a Small Technology Company” by our friends Andre Carter and Ray Millien.

Microsoft v. TomTom - First thoughts

Today, Microsoft announced that it had filed a legal action with the International Trade Commission (ITC) against automotive navigation systems maker, TomTom for infringement of several different Microsoft patents. 

Given the size and notoriety of the two companies, it’s clear that this will get a lot more attention the hundreds of other patent suits that happen every year. From the news reports and information on Microsoft PressPass it appears that Microsoft has already licensed the patents to Alpine, Pioneer, 123Map and Kenwood, and been discussing these patents with TomTom for months before launching the suit. TomTom has a patent portfolio of its own and has used it to sue Garmin and Toyota for infringing its patents in the past. And while battles between patent holders are commonplace, this one includes a dispute over some pretty significant Microsoft-held patents that may have broader implications.

As regular readers know, ACT believes that IP licensing agreements will play an increasingly important role in our industry as everyone focuses on delivering interoperability across devices and platforms, while still protecting investments in research and development. 

As many SMEs have found, attempts to negotiate license deals sometimes fail and leave the IP holder with little other choice but to bring legal action. While it is unclear where this litigation will lead, it does seem to be a good opportunity to focus on the importance of patents to software innovators of all sizes. 

Based on what the articles I have read and a quick skim of the complaint, Microsoft seems to be in the position so many entrepreneurs with patents find themselves in: another firm is infringing on its core innovations and is unwilling to discuss licensing terms. While this is an “issue” for a company like Microsoft that has thousands of patents, it is “critical” for startup that has three. 

When we've done focus groups and member polls, the vast majority tell us that a predictable and accessible intellectual property system is critical in creating the incentives necessary to drive innovation and entrepreneurism.  In simplest terms, IP helps to get them paid for innovating.

And Innovation, after all, is one of the fundamental components of progress and growth in the IT industry. It serves as an essential foundation for the delivery of great new products, spurring economic growth and furthering R&D. As we wrote about in our National Policies as Platforms for Innovation paper, IP is a key ingredient to enable innovation to flourish. Businesses large and small need to know their patents, copyrights and trade secrets are protected in order to enable returns on their investments.

UPDATE:

We are seeing a lot of discussion on the web about what this suit means for companies that distribute linux.  So we here at ACT are going to keep a close eye on this lawsuit, and post as we know more.

Pilot Program to Improve Patent Litigation

Tech policy aficionados should by now be familiar with efforts to reform the patent system. Issues range from fixing the poor quality of granted patents to instituting post-grant review procedural reforms.  What you don't hear much about are efforts to educate judges on patents. Because no matter how much patent law is reformed to increase patent quality on the front-end, we're still going to see patents being litigated in court.

That's why I'm happy to see today's reintroduction of Rep. Adam Schiff's and Rep. Darrell Issa's bill, HR 628. The bill creates a pilot program to educate participating judges on patent law and the technical matters underlying patent claims in Federal District Courts. (HR 628 is the same as last session's bill HR 5418). Here's my  analysis of the bill from when it was introduced last session.

Judges have considerable power to affect a trial. They make procedural and evidentiary decisions, and often a judge's decision at trial can only be overturned on appeal if there was an abuse of discretion (a high burden for an appellant to meet).

HR 5418 is a targeted pilot program and its effect could be substantial, if not immediate. Better informed judges can weed out frivolous claims more quickly while focusing on cases with legitimate claims. As a result, anticipated and actual costs of enforcing and defending lawsuits decrease, reducing the burden on all parties but particularly the budgets of small firms. Less money for lawyers means more money for innovating, so firms can increase their research budgets and returns on investment.

TADC Conference - 'Other people's stuff should be Free, not mine'

Today at the Carnagie Institution the Trans Atlantic Consumer Dialogue held a conference called “Patents, Copyrights, and Knowledge Governance: The Next Four Years”. Here’s the top blurb about the event: 

As a new Administration will take office in Washington, and the European Union renews its institutions, what should the political agenda be for intellectual property? 

The globalisation of the challenges faced by consumers and rights holders have made intellectual property policy one of the main features of global trade policy, and stimulated both international and domestic debates about how best to promote innovation and access to knowledge, including "knowledge embedded" goods such as medicine, software, agriculture, inventions that address climate change, scholarly research, databases, films or recorded music. 

Both the United States and the European Union are facing demands to modify policies on patents, copyrights and other forms of intellectual property protection, coming from different perspectives. There are high profile right-owner lobbying efforts directed at higher standards and tougher enforcement of intellectual property rights, and growing interest among consumer groups, academics and many innovative businesses to protect the public domain and retain or even expand user rights. There is also much interest in exploring newer approaches to the support of creative and inventive communities, that do not rely on notions of exclusive rights. 

With the organisation of this event, the TransAtlantic Consumer Dialogue calls for two days of discussion on the assessment and on the prospective of the American and European political and policy Agenda on intellectual property practices and policies. 

The whole event is set up with a very strong anti-IP bent, and I am used to hearing that at NGO sponsored events.  But I was dismayed by the comments of Guilherme de Aguiar Patriota, the UN representative for the Government of Brazil.  Guilhereme gave a presentation very similar to one he gave back in 2002 where he said: 

“The intellectual property rights (IPRs) system, enhanced by the WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), is actually hampering development of research and development (R&D) in developing countries; and industrialized countries, while heavily subsidizing science and technology (S&T) and R&D in their own countries, are placing all sorts of restrictions on attempts of developing countries to cooperate in market-oriented and commercially charged sectors of applied sciences“.

 But at today’s event he went so far as to suggest that copyright holders that expect Brazil’s schools to pay for books or software are actually hurting the children of Brazil, because it is taking money away from the kids. 

wow. 

I guess I just don’t know how to think about that in a rational way. Part of me ”gets“ what Guilherme is saying, but part of me looks at Brazil’s economic standing in a very different way than I might look at Kenya. Moreover, the fact that Brazil has the second most advanced industrial sector in the Americas means that Brazil might have to shoulder their part of the burden for education, including paying full freight for the tools developed outside their borders (if the tools are useful to them). 

But really, this issue of who pays and how much is kind of window dressing for the exchange he and I had on the fundamental concept of IP-Value. One little known reality about Brazil is that they are a leader in deep sea oil extraction and green energy. In fact, the State owned company ”Petrobras” is a major player in the field of new energy tech. But don’t trust me, here’s what Petrobras says about their own research and development laboratories: 

The technologies that are developed at the Cenpes turn Petrobras into the company that generates the most patents in Brazil and abroad. The number of patent request submissions in 2007 show the Cenpes is one of the world’s biggest applied research centers. In 2007 alone, in Brazil, 22 patents were granted and requests submitted for 59 more. Abroad, 129 requests were submitted and 29 granted. 

Given Petrobras’ success, and the vital import of green technology to the entire globe, I asked Gilhereme if, given the spirit of Access to Knowledge, Brazil should freely give up all patent rights and royalties from their energy tech. 

He did not seem to think it was a good idea. 

However, there was an interesting thread in his answer. He pointed out, with justified pride, that Petrobras was a company built in spite of all of the naysayers in the developed world who said it couldn’t be done. Gilhereme went on to point out ‘that Petrobras had poured millions into R&D to develop the technology and build it all on their own’. (I think he missed the parallelism there). 

Brazil is not alone in their call for others to give up what they themselves wouldn’t, but they are in a lead position to recognize and rethink a position that ultimately harms domestic innovation within developing countries. I’d hope that events like the one today at Carnegie would provide a more diverse and nuanced worldview that respects the fact that there are no simple answers when it comes to judging the value of the products created by others.

Are Those Frozen Flying Swine Circling Brussels?

It's a miracle of miracles, but it appears that we agree on something with Thomas Vinje, legal counsel to the Microsoft Hater's Caucus, and anti-software patent campaigner, Peter Hintjens. On Friday, Alison Brimelow, president of the European Patent Office, referred how to assess the patentability of software-related inventions to the enlarged board of appeal (EBoA). It is expected to bring some clarity about what is patentable at the EPO. An IDG story on the decision, quoted ACT President Jonathan Zuck, Vinje, and Hintjens all agreeing that this was a good move. They couldn't disagree more about what decisions the EBoA should arrive at, but all agreed that we need clarity at this point. From the article:

"The lack of clarity has frustrated the system in Europe," he said. Zuck is a software engineer by trade. Hintjens and Vinje both argue that software is a special case when it comes to innovation. Unlike other fields such as pharmaceuticals where patents are a vital tool for fostering innovation by ensuring a financial return for the inventors, software patents actually hinder innovation. "Innovation in software rarely, if ever, sees a single major breakthrough; it comes about thanks to a string of small inventive steps made by many people all over the world. Everyone is building on what has gone before," Vinje said. Zuck argues the exact opposite: "Software-related inventions are no different to any other kinds of inventions and should be treated exactly the same when it comes to granting patents," he said. He hopes the EBoA will come to the same conclusion. Both he and Vinje said they hope the outcome of the referral will provide clearer definitions of what merits technical effect, inventiveness and what should be considered obvious. But while Vinje wants the bar to be set higher, Zuck wants that clarity applied across the board to all types of invention, keeping software in the same bag as all other inventions.

* Thanks for Incurable_Hippie for providing the perfect picture for this post.

Tivo vs. EchoStar - Why We Need Patents More Than Ever

The patent system has gotten a (sometimes deservedly) bad rap in recent years, but yesterday's Supreme Court decision in the Tivo v. Echostar case is a great reminder of what patents are SUPPOSED to do: reward real innovators and keep larger competitors from stealing their work. 

By all accounts, Tivo is a revolutionary product built by a company that is dedicated to out innovating its competitors. Back in January of 2005, USA Today ran a story entitled "TiVo CEO Insists Innovation Can Win Loyal USers Willing to Pay Top Dollar."  Writing about Tivo CEO Ramsay, Kevin Maney said:

Ramsay believes that innovation and killer products can win the day over price wars and the clout of big cable companies — a stand that some say could kill the company.

Ramsay brought to market a beloved device that has had the greatest impact on the way people use TV since Zenith introduced the Space Command 400 remote control in 1956.

Users adore TiVo in a way that rarely happens in technology. Federal Communications Commission Chairman Michael Powell, a devoted user, has called TiVo "God's machine."

Tivo created an entirely new category of technology - one that proved incredibly popular.  It was only a matter of time before the big boys (cable companies, satellite companies, Microsoft) and former partners (DirecTV) tried to jump in, 'borrow' some of Tivo's innovations, and nudge the little startup out of the market.  Rather than simply give up or sell out, Tivo focused on trying to "out innovate" its competitors.  Anyone who has ever used a Tivo can appreciate the incredible attention to detail and the investment in the kind of innovation that inspires its users to become unpaid, yet devoted sales people. 

The "out innovate" strategy is neither cheap nor easy.  Based on some back of the napkin calculations, Tivo is spending about 25% of its revenues on R&D. To put that in perspective, the world's most respected innovator, Apple, is currently spending only about 3.3% of its revenues on R&D.   Yet, one of the commentards over at CNET story argued that "They [Tivo] are loosing [sic] popularity quickly and their only business model is to sue anything similar."

We Agree with Mike Masnick on a Patent Issue!!

While we don't always see eye-to-eye with TechDirt's Mike Masnick on issue of intellectual property, he has a great post today entitled, "Why Shouldn't Competitors Be Able To Weigh In On Patent Applications?"

In the article, Masnick suggests that:

Another way to test obviousness to those skilled in the art would be to actually let the patent examiner get opinions from others skilled in the space as to the obviousness of the idea. Unfortunately, current law actually forbids letting those skilled in the art from providing their opinions on patent applications -- which is why some are now calling for the law to be changed to allow those who work in the space to provide their opinions (or even to protest) new patent applications before they are granted. Given the purpose of the patent system, and the requirement that patents be non-obvious to those who actually know the area in question, this seems only reasonable.

We couldn't agree more!  There is nothing more important to ensuring patent quality than improving pre-grant procedures and allowing for more input into this system.

The problem, however, is a little more complicated than it sounds. 

To begin, let me clarify that Masnick is not quite right when he says that "current law actually forbids letting those skilled in the art from providing their opinions on patent applications."  Rule 99 does allow for submission of this prior art, but it effectively neuters the option for three reasons.  First, the submission is made without comment, so the submitter cannot tell the examiner why it is relevant.  Second, the window for submission is only 2 months long.  And third, and most importantly, is the fear of being stopped from using that prior art in the future.  Essentially, if you submit prior art during this period it can be used against you in the future. If the patent is approved, then it becomes part of the body of prior art that SUPPORTS the patent. It has effectively been "asked and answered" despite the fact that the submitter wasn't able to effectively argue their case before the examiner. No sane company is willing to entrust their defense completely to a patent examiner with a meager 20 hours of time to devote, so this option is almost never used.

Where things get really tricky, however, is creating a solution that effectively navigates the Estoppel provision, the dangers of prior art flooding, managing inequitable conduct, and the internal incentive systems for patent examiners. 

Essentially it ain't easy, But as my Mom used to say, "Anything worth doing in life takes hard work."