Jul 232011

I love “This American Life” by Ira Glass. Yesterday’s program featured a story on “patent trolls.” First, some captivating and tug-at-the-heartstrings stories, making you feel sorry for people who are being manipulated by the patent system. Next, a story about the notorious Intellectual Ventures. A virtually unknown company, Oasis, was enforcing its patent rights without practicing the invention. Then after a series of riveting and suspenseful sequences, you find out that IV actually gets paid a royalty from Oasis. Connection! They then interviewed a guy from IV and he seemed caught and contradicted. You then feel good to yourself because the bad guy was unearthed in the end.

But just as the program was wrapping up, it started discussing the Nortel auction. I knew where they were going. Google wanted to buy these patents “purely” to defend itself against lawsuits, but then the Apple consortium snatched it up for an unprecedented amount. Then Alex Blumberg started his conclusion.

Think of that. $4.5 billion on patents that these companies almost certainly don’t want for their technical secrets. That $4.5 billion won’t build anything new, won’t bring new products to the shelves, won’t open up new factories that can hire people who need jobs. That’s 4.5 that adds to the price that adds to the price of every product that these companies sell you. 4.5 billion dollars essentially wasted. Buying arms for an ongoing patent war. (Emphasis mine)

I don’t even know where to start with this segment. I guess I could say a lot. Most importantly, I don’t understand how because Google said that they wanted this portfolio purely to defend itself (a claim I am skeptical on), does that mean that all members of the winning consortium also had such plans? So the 6000 patents are junk? I’ve heard the argument before that patents are worthless. I recently ran into a statistic in the blogosphere that I found interesting:

90 percent of all patents are worthless. And of the remaining 10%, most are worth very little. Then only 1% are very worthwhile.

I think I know what this statistic is trying to get at, but recent patent acquisitions have made me question this proposition. True, a patent by itself and taken out of context of what the business does will rarely monopolize an area and prevent others from making work-arounds. Very rarely will a company be able to leverage an invention solely on the language of a patent. But does that mean that the patent is worthless if it is not one of these blockbuster patents?

The ability to raise venture capital shows that a patent brings non-intuitive value. My experience is that having a patent portfolio increases your credibility as a business. This is not only referring to the quality of patent portfolio, but the quantity of patents in the portfolio. Whether you are in a competitive area or more of a niche area, if you’re a small business and you want to go out and raise money, one factor that will come up is your patent portfolio. Otherwise, what is preventing the goliath corporations from snatching up your idea and making it their own?

The next value of a patent is the certain peace of mind that comes when your invention is patented. Not only do you have to worry less about getting sued, you don’t have to worry about as many license offers from those who might sue you.

Finally, patents give you additional muscles to flex. Taking a look at the recent Nortel auction, if 90% of those patents were junk, why did the winners of the auction not fragment the patents into those that they deemed were worthwhile? Either Nortel was the exception to the rule of obtaining junky patents, or there is some value in flexing your patent muscles (especially to NPEs).

Oh yeah, then there’s the value of the actual patent itself–allowing the owner to exclude others using the technology. But apparently, that has become just an afterthought!

 Posted by at 7:55 am