The trouble with patent squatting

From...

April 12, 2000
Web posted at: 9:15 a.m. EDT (1315 GMT)

by J.S. Kelly

(IDG) -- As had been the case in the early days of domain name squatting, there are entire companies out there dedicated to patenting as many things as they can think of, as broadly as they can, whether or not they (or anyone else) has actually invented the particular technologies in question yet. Then they wait until someone starts using a technology they have patented, and they hit them up for royalties or licensing fees. If a company refuses to pay up, the result is a patent infringement suit.

The cost of defending yourself against a patent infringement lawsuit -- whether the legal action is warranted or frivolous, and whether or not the patent is even valid -- runs around $1 million. For many companies, it's easier to give in to extortion than to delay their business activities and fight the suit in court. That litigation can take as many as three years when you factor in the appeals process.

The threat of "pay up or I'll sue" can even be used by large companies to acquire interesting small companies in a hostile takeover -- the big companies accept stock in lieu of cash payments for the licensing of the patented technology. For many small companies, this is an offer they cannot refuse.

Manifest destiny

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It was to retain control over business decisions and to keep all of their profits that my friend and his partners had rejected the idea of seeking venture capital in the first place.

They had expected that they would have to be tough if they were to be successful. But they'd had no idea that, if they were successful, they might be targets of potential lawsuits which might not only seek to take their business or their profits away from them -- but which, with the right patent, would actually have a chance of standing up in court.

Since my friend and his partners don't have $1 million in petty cash, and don't have the know-how or contacts to fight this kind of suit successfully, they were worried. They even started to think that venture capital didn't look so bad after all.

In the end, they again rejected the idea of joining in the madding scramble to win the affections of the fickle venture capital crowd, and decided to try to go it alone as they had originally planned. But by the time we met for lunch again, my friend was a changed man, a shadow of his formerly cheerful self. He spoke in a low voice and frequently checked his back. He even told me that he and his partners had discussed the idea of scrapping their company altogether.

The workaround

I'm glad to say that they haven't given up.

Like all good hackers, my friend and his partners know that no system is so broken that it can't be fixed -- if only you can figure it all out.

They also realize that they are but patent novices, and that better minds than theirs have attacked the software patent problem before. But it still isn't fixed, and they thought they would try to find a way to protect themselves without deep pockets and connections.

This is what they have come up with so far: as most software innovators do, my friend and his partners are basically taking several well-understood programming principles and adding a few new ideas to create this secret software of theirs.

Since they know well that 99 percent of their software is based on the perspiration of others, and that only 1 percent is their own inspiration, they have decided not to apply for a patent at all.

In the case that they do get sued, they have decided to base their defense on the 99 percent of their ideas which are well known. Finding the oldest possible prior art for the 99 percent should prove easy.

To protect themselves in the case of an infringement suit, they have decided to take out litigation insurance, while at the same time doing everything in their power to avoid being sued -- so that their premiums don't go up.

They now think that the best way that they can hope to avoid being sued is to keep the 1 percent -- which they vehemently believe is innovative, useful, and nonobvious -- a secret. Because if they are right, and it is innovative and nonobvious, and they don't tell anyone how it's done -- then the corporations and the patent-holding "intellectual property companies" won't know which of their patents to use to sue them.

So now, instead of talking about how exciting their 1 percent of innovation is, they are researching the prior art to show how banal the other 99 percent of their work is. Perhaps worst of all, the decision to turn the 1 percent into a trade secret breaks their original idea of publishing the code under the GPL. Some people argue that publishing software as open source protects you from a lawsuit. But my friend and his partners are worried about broad, sweeping patents which may have been applied for or even issued years ago. Publishing code today will do nothing to protect them from those kinds of patents.

The American dream begets the American patent nightmare

My friend is real; his innovation might not be. Maybe the world will not lose anything from their decision to make their innovation a trade secret, instead of making it a part of the public record, as free software is, or as a patent application eventually becomes. But it doesn't matter if my friend and his partners really have the novel and innovative idea they think they have.

Someone, somewhere, does. Or will. And that someone will face exactly the same threat as my friend does, whether he or she knows it or not. And it doesn't really make any difference -- except to add a touch of irony to this particular tale -- that my friend is a believer in free software. Developers of proprietary software are just as much at risk -- on and off the Internet, developing alone or at any company which isn't large or deep pocketed or savvy enough to have dozens or hundreds of patents of its own, to use to counter these threats with cross-licensing. Even for large companies, cross-licensing is no protection from the "intellectual property companies," whose only products are patents and lawsuits, and who are not interested in licensing patents from others.

To say that knowing these risks is discouraging to innovation is an understatement.

With the current US patent system, the reward for innovation is the threat of losing your profits or even your business to someone you've never even heard of, and whose work you have not borrowed or adapted in your own. Readers in countries which are considering adopting practices which are similar to those currently in practice in the US should be scared. Real scared.

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