A growing number of technology startups are being threatened with lawsuits over broad patents they allegedly, and inadvertently, infringed. The founders of three small startups came to Washington this week and spent Wednesday lobbying members of Congress to change the patent system.
"This is the single worst thing to happen to me since I started the company," says one of the CEOs, the founder of a five-person e-commerce startup that was targeted by a firm he calls a patent troll. He is so concerned about retaliation from that firm that he asked that his name not be used for this story.
When the Supreme Court ruled that you couldn't patent human genes, Ambry Genetics began offering women a test for the BRCA genes, which are linked to breast cancer. But last week, Myriad Genetics, the firm that has enjoyed a de facto monopoly on BRCA tests in recent years, sued. It argues that despite the Supreme Court's ruling, it still has patents covering Ambry's product.
Critics of human gene patents rejoiced last month when the nation's highest court ruled that human genes can't be patented. A company called Myriad Genetics claimed to own genes called BRCA1 and BRCA2 whose mutations are associated with an elevated risk of breast cancer. But the Supreme Court ruled that no one could own humanity's genetic code.
Forget patenting an invention. These days, companies patent conceptual categories for future inventions.
During the first dot-com boom, Amazon famously patented the concept of buying things online with one click. More recently, companies have patented concepts such as scanning documents to an e-mail account, clearing checks electronically and sending e-mail over a wireless network.
Patent trolling has gone mainstream.
Last year, small companies began receiving threatening letters from firms with inscrutable names, such as AdzPro LLC, AllLed LLC and GosNel LLC. The senders claimed to own a patent that covered the concept of scanning a document and then sending it by e-mail —something almost every firm does. Recipients of the letters were encouraged to license the patent, and forestall a patent infringement suit, for a fee of $1,000 per employee. Otherwise, the businesses were warned, "there can be serious consequences for infringement."
The International Trade Commission ruled Tuesday that several older Apple products, including the iPhone 4 and the iPad 2, had infringed a patent belonging to Samsung. As a result, sales of those products are now banned in the United States. The news raises an obvious question: Why does a trade court get to decide patent infringement cases?
The Wall Street Journal reports that the Obama administration will soon unveil a package of reforms designed to deal with "patent trolls," the ambulance-chasers of the high-tech world. Trolls employ no engineers and produce no useful products. Instead, they use the threat of patent lawsuits to extract payments from those who do. Troll litigation costs the economy tens of billions of dollars per year.
Why has the software industry seen an explosion of litigation lately? The courts played a big role, by making it easier to get patents in the 1980s and 1990s. But as this chart shows, the pendulum started to swing back in the opposite direction a few years ago:
The chart comes courtesy of Dennis Crouch, a law professor at the University of Missouri. He originally posted it in October. Above is an updated version that accounts for all of 2012.
Farmer Vernon Bowman thought he'd found a legal way to get proprietary soybeans at cheap, generic prices. But the Supreme Court disagreed, ruling Monday that he was guilty of patent infringement.
Monsanto makes "Roundup Ready" soybeans, which are genetically engineered to be impervious to the Roundup line of herbicides. Because Monsanto controls an estimated 90 percent of the soybean market, most of the soybeans on the market have the "Roundup Ready" trait. So Bowman went to a grain elevator and bought commodity soybeans that would normally be used for eating, not planting. He planted the seeds and sprayed the crop with Roundup, killing off plants not descended from Monsanto's beans. He then replanted and harvested the seeds for eight generations, getting the Roundup Ready feature without the conventional Roundup Ready premium.
Over the past year, it has sometimes seemed like tech companies spend more time on battles over patents than on inventing new products. Apple sues Samsung. Samsung sues Apple. Google sues Apple. Microsoft sues Google. The endless frenzy has prompted a number of onlookers to argue that our patent system is broken.
You’ve probably heard of “the Laffer curve,” the tax chart that Arthur Laffer sketched on the back of a napkin for Ronald Reagan, and that supposedly heavily influenced Reagan’s thinking on tax cuts. Well, here’s the Tabarrok curve:
I agree with Alex Tabarrok’s napkin curve, by the way. So who will be the first president to take it up as a cause?
Call it the Tabarrok Curve
So it turns out that Yahoo actually invented Facebook. At least, that’s what Yahoo is claiming in a patent infringement lawsuit filed in California on Monday. “Facebook’s entire social network model,” the lawsuit says, “is based on Yahoo!’s patented social networking technology.”
Here’s a list of 10 patents that Yahoo says Facebook ripped off. One thing to note here is that many of the patents are remarkably vague. This patent describes a technique for “managing a view of a social network user’s personal information.” Even the guy who helped develop some of this technology for Yahoo, Andy Baio, thinks his former company is going too far. In a piece for Wired, he notes of another patent Yahoo owns, “[this patent] is so abstract, it could not only cover Facebook’s News Feed, but virtually any activity feed.”
Disputes over patent policy often revolve around moral principles. Take software patents. Many programmers think software ideas should flow freely, untrammeled by the threat of lawsuits. Others, like Nathan Myhrvold, argue that infringement is just plain wrong.
But what if we left morality out of it entirely? As a new paper by Cato’s Timothy B. Lee and Yale’s Christina Mulligan details, there are far more severe practical problems with our current approach to software patents. Say you’re developing some software, and you want to make sure you’re not infringing on anyone else’s work. How would you even go about doing this? There’s no easily searchable database for software ideas — it’s not like cross-checking chemical formulas, which are easily “indexable.” In fact, Lee and Mulligan argue that there’s no good way to create a convenient database for software patents. Which means that trying to check for infringement is all but impossible for developers.
Innovation seems to be on the wane lately: “The quality of new patents around the world has fallen dramatically over the past two decades,” concludes a new OECD report on science and technology trends.
In nearly every country, patent offices are getting flooded with more and more patents for dubious or low-quality inventions. And that, the OECD report notes, leaves everyone worse off: “The rush to protect even minor improvements in products or services is overburdening patent offices. This slows the time to market for true innovations and reduces the potential for breakthrough inventions.”
Not everyone is suffering from these developments, though. Consider “patent trolls,” the derisive term for small companies that exist solely to stockpile patents — often vague patents on basic business methods — and then hurl infringement suits at firms trying to market new products. A new study by three researchers from the University of Boston finds that lawsuits from patent trolls (or, more politely, “non-practicing entities”) have surged in the United States since 1990, costing the economy a whopping half a trillion dollars all told. No, that’s not a typo.