SmoothSpan Blog

For Executives, Entrepreneurs, and other Digerati who need to know about SaaS and Web 2.0.

Big Guys Are Buying Up the Patents as Allied Security Trust

Posted by Bob Warfield on June 30, 2008

Larry Dignan writes that a consortium of large companies have banded together to purchase patents so that they don’t fall into the hands of patent trolls.  The latter are companies that make their entire income by suing others over patents they hold.  Often (but not always) these patents are amazingly broad and obvious, and never should have been granted in the first place. 

Allied Security Trust works by having each member pay $250K up front and then put $5M in escrow to buy patents with.  It’s not a bad idea, but is it merely creating another form of troll?  If they planned to put the patents into the public domain with free licensing, I’d say no, but they’re not.  What remains to be seen is what they’ll be doing with them.

Dignan suggests patent reform is a better answer to the trolls and I quite agree.  I’ve seen the work of the patent trolls up close and personal, and it is truly a mess.  Patent reform would be much preferred over having some large entity buying up the patents.  The patent system is already fiercely in favor of the patent holders.  It is a system where the patent “Haves” ruthlessly exploit the patent “Have nots”.

If you’re sued by a troll, it will cost you $1m just to get to court, let alone try the case.  If you can manage to proove what you’re doing doesn’t infringe, that’s the cheapest way out from there.  However, given the number of “bad” patents that have been granted, chances are the trolls have something you can’t prove you don’t infringe (whatever happened to innocent until proven guilty?). 

When you first see their patent, you’re likely to be completely floored by how broad and unreasonable it is.  You’ll quickly realize that of course you infringe on it and there’s no way to argue otherwise.  If you’re a technical person as I am, you’ll argue endlessly that there is prior art and the patent should be invalidated. 

That means you are trying to proove the patent shouldn’t have been granted in the first place.  It’s overly broad, there was prior art, or the patent was too obvious.  Unfortunately, this is the most expensive route and costs $3-4M according to attorneys I’ve talked to.  So the trolls have a lot of room to get you to settle the case for significant money before you can lay a glove on them.

There are actually some patent trolls that are public companies because this kind of work is so lucrative.  And, because they don’t manufacture anything but litigation, the old defense of getting your own patents to cross license doesn’t work.  Like the shareholder lawsuit debacle, this area started out with pious objectives but quickly turned to avarice.  Just as the money players in Silicon Valley eventually banded together to try to reform the shareholder side, they ought to be doing the same about patents.  One good $500K settlement, the minimum to slake the troll’s thirst, would severely cripple a young startup.

The system is badly broken and is not in any way favoring innovation in its present form.  Quite the opposite as the most vulnerable to the patent tax are precisely the little innovators the law is supposed to protect.

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