How did you get into this space, and why are you interested in patents after having worked on Priceline?
I think the old phrase that "necessity is the mother of invention" applies here. As you probably know, I have quite a few inventions to my name and quite a few patents to my name.
How many patents?
I have about 700 or so U.S. patents to my name. I think I'm about the 11th most-patented living inventor. So I know a few things about patents, shall we say. I have an expensive education, I think that might be the best way to say it. As an inventor, the vast majority of my patented inventions have not been commercialized, in large part because the licensing system in the United States is badly broken. It's almost non-functional in the United States if you're a small or mid-sized company or an independent inventor. It's just barely working for giant corporations.
Let's back up a little bit. Tell me about what kinds of patents are involved in Priceline, and how does it hook into this system here?
In putting together an R&D laboratory [called Walker Digital], one of the problems we worked on was, how do you see the demand curve below the price of a product? All sellers of products in the modern economy sell by posting a retail price, or they negotiate a price on a market basis. Most prices are set by the seller. When the seller sets the price, there's a problem: They can't see how much demand there is below the dollar price they've set. We said, "You know what? Could there be solutions in the new, modern age that would allow sellers to see the demand below the price line?" Hence the name of the company.
So the idea of a demand collection system was invented in that lab whereby people could make an offer, secured by a credit card, for a unit of supply. And so their demand would become visible for a brief period of time, and sellers could choose to either harvest that demand and fill it or let the demand expire unfilled. And that mechanism, that solution, is what led to a set of patents we applied for and were granted. Those patents ultimately became part of the start-up of Priceline and gave Priceline its competitive advantage — that it couldn't just be copied by other companies.
That's how Priceline came about. It was invented on a whiteboard in a laboratory as a solution to a problem, and it's a perfect example of what happens when you provide intellectual property protection that allows for the raising of capital around unique solutions to problems.
What alerted you to the licensing problem, and how is that connected to your work on Priceline?
I've been trying for the past 10-15 years to license [my patents] to other companies that could use them or were already using them in some cases. I learned very quickly that nobody wanted to license my solutions unless I threatened to sue them — and in most cases, when I actually sued them — because the nature of the licensing system in the United States is such that companies do not want to license patents because they're not particularly clear what that patent covers or doesn't cover, and they're not particularly willing to find out whether that patent might or might not cover something they're already doing.
If I'm a company that is working on a technology, I'm deterred from licensing a patent either because I don't know it exists or I'm uncertain about what the patent covers or doesn't cover —
That's not why you're deterred. You're deterred because if you license the patent and your direct competitor doesn't, you have a cost he doesn't. So why would you license? Why would you pay somebody?
Right. So I put that question to you. What makes you think people will suddenly start licensing patents again?
Well actually, I don't think they're going to suddenly start licensing patents. I'm not there. We're clearly going to need to fix the system of licensing in a much more fundamental way. But in the meantime, what we can do is create a third-party technology strategy. In many cases what companies need today is a technology strategy on how it's going to reach out and find other companies that have solutions to problems they are working on that will allow them to get to market faster or cheaper.
So we're going to need to create some kind of mechanism where small and medium sized companies especially — because big companies are doing this, they're just spending a fortune to do it — can find other companies, other partners, other markets, other inventors they can work with. And whether they license a patent or form a joint venture or suddenly realize, "Hey, I'm using this technology over in this industry but you're doing it over in the medical world. We could share these technologies and work together — what a great idea," whether you ultimately license the 206 patent or the 494 patent — that may not be the question. The real question is, how do we get this stuff off the sidelines and into the economy. And that's what we're working to invent.
Can you describe the problem you're trying to solve more specifically from the perspective of companies looking for third-party R&D?
I myself have companies where we are looking in many cases to license other people's R&D and that's often very hard to find. The patent database is millions and millions of claims and tens of millions of pages of spec. It's especially difficult the way the patents are written by lawyers to understand what the claims cover or don't cover. We have been on both sides of this equation.
Everybody's busy talking about the problem with patents in America, but there is a way bigger problem when it comes to licensing and getting these inventions into the economy. We have spent trillions of dollars inventing things and 95 to 98 percent of all patents have yet to make their first dollar of licensing revenue, and it's not because 95 percent of patents aren't useful or valuable, it's simply because the licensing system is driven by the lawyers as opposed to driven by the business people.
I want to unpack this question about patent quality for a second. If patents are often written to be as vague or broad as they can be, how does that figure into both the problem and the solution that's required here?
They're not terribly important. They're a sideshow in the larger issue here, in my opinion. I'm not the best person to speak about how to reform how claim language should be written, or how plain English might be better served than legalese in claim structures or in spec. I think that's just arguing over table scraps in the much bigger issue here, which is we need to figure out how to get the millions of inventions that are sitting on the sidelines, frozen out, into the U.S. economy. That's not a patent quality question.
Explain to me in more detail how your system would work.
So here's how it's going to work. We're going to form a utility, which works as a neutral party for both inventors of technology and users of technology. And what we're going to say to people who have patents of their own: You can list those patents for free in a catalog, like ASCAP, and you still own them, it's not a pool. You're saying, "I have patents I would be willing to license for a relatively small amount of money without having a fight or lawsuit about it." So you would be listing your patents as available for use.
Without having a licensing negotiation, you would agree, "I would make certain of my patents available for no-fault licensing." So the first thing we're going to do is get rid of the idea that we have to figure out if you're infringing or not infringing, and we're gonna have to get rid of this thought that it takes a lawsuit in order to make a license.
Then the next thing we're going to do is, we're going to say to people who are small to medium sized companies, get on the phone with us and talk to us for about 10 or 15, 20 minutes and tell us about your products and services. Send us PDFs of your sales manuals, your technical literature we can ingest, and we'll build a model of the technologies and products you use. If you're a shoe manufacturer, we can take all your specifications, all your sales materials, and we can read it all into the system. And then what we do is use a set of Big Data algorithms to take your specifications of all your products and services and run it up against the entire U.S. database of patents, which is about 2-plus million active patents. We run it against all the inactive patents, all the expired patents. Think of it as a natural-language kind of way. You don't need to be a programmer any more for it to run up against the entire database.
What we look for is statistical relevance between the products and services you make and the things that are in the patent database, and we provide a set of ongoing reports to you to help you better understand what companies, what inventors, what markets might be relevant to you in ways that you don't need to be a patent attorney to understand.
That's how businesses grow. They grow by finding adjacencies, opportunities, inventors and solutions. They don't grow in a courtroom when you have to get into a fight about who should be licensing and who's infringing whom.
Have you talked to anyone at the patent office or in Congress? What do they make of this idea and what kind of feedback are you hearing from them?
We've talked to quite a few people at the patent office, and in fact several former PTO people are on our board of advisers. This is a pretty sophisticated effort. Generally speaking, there's not a lot to talk to people in Congress unless you're looking for legal changes, and since we're not looking for any legal or regulatory change of any kind, this is a completely private sector approach, I don't see that talking to Congress is going to be particularly useful. We're not lobbying for changes; we don't doubt that the patent system could be improved, but the licensing system is the private sector side of the world and so we're very focused on the private sector approach here.
Companies have billions and billions of dollars in solutions to problems and they have no way of getting those solutions into the marketplace. There are no mechanisms. No one's calling on them, they're not calling on anybody — the level of dysfunction here from an economic standpoint — I'm not talking about a policy standpoint, I'm not talking about a regulatory problem, I'm not talking about a court problem, I'm talking about a simple business problem.