

The Direct Costs from NPE (Patent Troll) Disputes - fpp
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2091210

======
swombat
For me, the best summary of the fucked up nature of the patent system comes
from two nice soundbites...

First, just yesterday, I was at an event where a patent lawyer declared (I kid
you not):

"You should be careful how much you innovate on top of existing products,
because you might end up falling under someone else's patent."

Seriously. I couldn't believe my ears. Incentivising innovation fail.

The other soundbite came from an entrepreneur at a TechHub meeting in London,
about the Hargreaves Report on IP, last year. He said:

"I wish I hadn't come tonight. The more I learn about IP, the less I want to
start a business."

I think that pretty much sums up how well the patent system incentivises
innovation.

~~~
rayiner
I don't think the first comment is particularly controversial, though the
speaker was being diplomatic in his use of the term "innovate." It makes more
sense if you replace it with "rip off."

The fact of the matter is that a lot of people paint this idealized picture of
the morally virtuous techie, where the only people who own patents are big bad
patent trolls, and the only people who get sued are innocent innovators who
independently arrive at an invention.

That's not the actual story, or at least that's not the whole story. Like in
every other field, there is a gaussian distribution of business ethics at
various companies. Look at how many companies get nailed for using GPL-ed
software without releasing source. You think those same companies don't also
copy competitors' designs wholesale? When our company was doing business with
an American telecoms supplier, a manager there mentioned that a Chinese
telecoms supplier was ripping off their designs wholesale, down to the silk-
screening on the PCBs.

There is a difference between "let's innovate on top of this idea" and "oh
this idea is good, let's just copy it."

Now, NPE's in their current form are clearly just rent-seeking. However, I
think there is a role for NPE's that create value by serving to create a
market for patents. Not every innovator wants to get into the business of
making products. ARM wants to design microprocessors, they don't want to
design and manufacture iPads. Patents facilitate that division of labor, and
NPE's can make the whole system more efficient by creating markets for
patents.

~~~
btilly
I agree that wholesale copying is an issue. However patents are almost never
going to be the appropriate response to that for software companies. With
software you can always go for copyright violation and/or misappropriation of
trade secrets. By contrast, given that it can easily take the better part of a
decade to actually get your patent assigned to you, you are very unlikely to
have patents that cover the innovative parts of your technology.

Instead software patents seem to be mostly used to sue people who
independently invented the same thing. They enable rent-seeking and provide no
educational value to spread innovation. (Which naturally arises and spreads in
our industry on a time scale that is too short to get patents assigned.)

How do I know this? Because the one has happened based on my work, and the
other came close to happening. At one of my employers, a rogue employee cloned
the code base and then took it to some Eastern European programmers to
reimplement the website. It was litigated based on copyright and trade secrets
- no patents were available for that lawsuit.

However a different employer of mine took out two patents based something I
did when I was there. Since then a number of companies have infringed on those
patents, and could be sued for large sums. By luck the patents have wound up
owned by an organization that is unlikely to ever let them go to a patent
troll. But I've spent years fearing that that work will get used to stifle
independent innovation.

~~~
rayiner
> I agree that wholesale copying is an issue. However patents are almost never
> going to be the appropriate response to that for software companies. With
> software you can always go for copyright violation and/or misappropriation
> of trade secrets

Only if software is the product you're selling. I worked at two companies that
had patents on software algorithms, but our software was just a reference
implementation. Explain to me how a company like ARM would operate relying on
just copyright and trade secrets. I think ARM represents a great and valuable
business model, and patents enable that business model.

> Instead software patents seem to be mostly used to sue people who
> independently invented the same thing.

I don't think you can point to any statistic to back this up.

~~~
jhdevos
>> Instead software patents seem to be mostly used to sue people who
independently invented the same thing.

>I don't think you can point to any statistic to back this up.

I think that was already clear from the word 'seem'. To me, the same thing
seems to be true, actually. That /might/ be caused by the number of software-
patent cases I see that fall into this category, or are about trivial
inventions, while I simply don't see the cases that do have some merit.

On the other hand, I've never yet seen a software patent related case where I
could actually relate to the suing party.

------
JimWestergren
I am a non-US person. I was very close to set up and transfer my startup to a
new C Corp in the US in order to get better payment APIs and make the startup
more attractive to VCs. The patent trolls in the US is one of the biggest
reasons why I choose not to move my startup to the US, at least not until I
get funded. I guess many others also choose to stay away of the US for this
reason. The total loss of business in the US must be great.

~~~
kintamanimatt
I wonder if there's a legally creative way to keep the IP outside the US, but
license it to a US company that acts as a reseller.

~~~
dlitz
I doubt it. Look at what happened to RIM.

~~~
kintamanimatt
Why, what happened to RIM?

------
SagelyGuru
As the ancients used to say, 'those that the gods want to destroy, they first
make mad'. Accordingly, I see a lot of things going down the pan in an ever
accelerating spiral.

There are too many unscrupulous, unethical people about, out to make lots of
money for zero real creativity, value, and effort. They are forever inventing
new artifices towards this end, be it indulgences (sin forgiveness chits),
fractional banking (credit out of thin air), software patents, CO2
indulgences, etc. and then getting fat on trading them.

We are so far gone that many people can no longer even discriminate between
real value and these things; sinking as we all are in this sea of BS.

~~~
SkyMarshal
There's also a glut of lawyers in the US, enabled by cheap student loans, law
schools' statistics inflation, etc., all scrambling to put food on the table.
It's not surprising that some new legal strategies and domains that arise from
this demographic trend may be good for lawyers in the short term, but not for
the country in the long term.

------
devinmontgomery
Alternate title: "Patent trolls give $29B boost to struggling legal
profession"

~~~
luriel
This should be a textbook example of the Broken Window Fallacy.

------
Produce
You bunch of commie terrorists, stop trying to break the one mechanism
fostering innovation that we have!

------
wissler
It costs far more than that. What's missing is the lost wealth due to things
that weren't created but would have been, not only because people were afraid
or unmotivated to create them but because of the money the trolls took.

------
its_so_on
I just wanted to say thank you for the title change - this is far more clear
and informative and makes my earlier comment moot.

Actually it also made me click through to the paper, which also has this
title. This is much better.

------
its_so_on
This is ycombinator's hackernews, the title should read "Patent trolls created
$29B of value." I don't condone it but let's be consistent.

~~~
Paul_S
Come now, you can't get away with a statement like that without explaining
your argument.

~~~
its_so_on
all right, I'll explain it. One guy's cost is another guy's value (almost by
definition - of course there are exceptions such as losing something to nature
through accident instead of losing money to persons or companies [of any kind]
by making an expenditure of any kind to them) - so the patent trolls "create"
whatever value we add up to get to the number quoted.

I am not saying anyone supports patents. I'm saying hackernews should be more
consistent - or otherwise admit that "creating value" isn't an end in itself.
It's the wrong question.

Edit: I think the current title is fine. ("Patent trolls created $29B extra
cost in the U.S. last year") I just want us to be clear that one guy's cost is
another guy's "value".

I would love to see more cooperative-optimistic-tit-for-tat solutions to the
prisoner's dilemma, so that instead of just saying "creating value" we are
more specific about the whole system.

This is what (an unnamed restaurant review site) gets wrong and Google gets
right, in my opinion. Google adds value whereas (unnamed) removes it.

Of course in a naive sense (unnamed) is also "creating value". Just as these
patent trolls are.

We don't condone it, but let's be consistent.

~~~
reitzensteinm
You're free to argue that patents are a net positive to society, but to argue
a priori that $29B of wealth transfer = $29B of wealth creation, almost by
definition, is completely broken thinking.

By your standard, Bernie Madoff created $18B in value.

HN as a group may have many contradictions and blind spots in its general
wisdom, but you haven't identified one of them.

~~~
bigiain
There is a previous transaction though - the patent trolls acquire their
patent portfolios from, in the long run, inventors. They "bought" and "own"
them, and are now asserting those rights, to the expense of $29B to other
companies who should be licensing the rights.

Nobody blames landlords of costing businesses billions of dollars a year -
they own property and businesses pay rent. Nobody builds a business using a
landlords property without paying rent, then plausibly claims their legal
costs defending themselves against landlords asserting their rights are
somehow an unexpected and unfair imposition. (Well, actually food carts
probably do exactly that, but nobody writes academic papers claiming billions
of dollars worth of cost for them…)

I haven't read the whole paper, but I wonder about two other numbers - 1) how
much money did the NPE's pay to the inventors of the patents they're defending
(who under the current system have every right to choose "selling their
patents/IP" as their means of monetizing their inventingwork)? and 2) how much
would licensing the existing patents (instead of running up legal bill later)
have been, compared to the $29B losses described here?

I'm not saying the current system is "right", but it is reasonably well
understood. I can only assume the $29B cost is accepted as a "cost of doing
business" by companies who know (or even just suspect) they may be infringing
patents? (or perhaps it's not an assumed "cost", and many businesses choose to
gamble that they'll never be held accountable?)

~~~
reitzensteinm
If wealth creation happens at any step, it's when an invention that is
beneficial to society is created, and the patent system exists to account for
that.

If the invention is junk (like the Lodsys patents), it doesn't matter how
wealth has been transferred around; no value has been created. Any rent sought
on those patents is an economic distortion and (in my opinion) immoral.

I didn't even start this off to take a side (though I guess I have by now) - I
was just pointing out a fallacy in GP's thinking.

~~~
colinshark
Trademarks require proof of use in commerce to be valid.

Perhaps patents should require proof of use- If not by the inventor, then by
the patent owner within a probation period of 3 years or so.

------
mik4el
I totally agree with the common belief that patents are the wrong way for
protecting most startups... But, an interesting thought about patent trolling,
I believe, is that if patents are useless then why can the trolls make
$29B/year on trolling? I'm confused!

~~~
Pkeod
Patents are intended to incentivize people to reveal their secrets in exchange
for a temporary monopoly on the secrets. They are not meant as vehicles purely
for making profit, but that is how they are being abused - by people who buy
up patents and then sue anyone who infringes, or by people who patent as
broadly as possible and then sue anyone who infringes. Useful for making
money, not useful for the intended purpose of contributing work for the
greater good of all people.

The patent system is too broken. Anyone who writes software should hate
patents. Anything you write will infringe on some patent out there. If all you
want is money then writing software isn't the best way to go about getting it.

A better system would be one where patents do not give protection to ideas,
but do give minor tax incentives to the people who own and use a related
patent in their business. Then their ideas are shared, but not using the
patents gives them nothing, and they cannot block others from using the all
too often obvious ideas.

~~~
rayiner
> The patent system is too broken. Anyone who writes software should hate
> patents. Anything you write will infringe on some patent out there. If all
> you want is money then writing software isn't the best way to go about
> getting it.

I write software (open source on GitHub) and don't hate patents. I hate bad
patents, the kind you can infringe upon just by writing software, but lots of
patents aren't bad patents. E.g. IBM has a number of patents on compiler
optimizations. Am I going to stumble upon Steensgard's pointer analysis by
accident? No, the only reason I know about it is that IBM let him publish a
paper based on the research they paid him to do at Watson.

~~~
colinshark
>Am I going to stumble upon Steensgard's pointer analysis by accident?

Yes! Yes, you could stumble on Steensgard's algorithm. Like convergent
evolution in nature, it's easy for requirements to shape implementation, and
for multiple implementations to naturally overlap. There are so many software
patents out there- it is a minefield.

Additionally, engineers at large companies are _discouraged_ from doing their
own patent research, because of the risk of losing a "sorry, we created this
organically in good faith" defense in litigation.

Publication of patents does not offset the chilling effect and legal overhead
on our industry.

