

Patent trolls have cost innovators half a trillion dollars - zeratul
http://arstechnica.com/tech-policy/news/2011/09/study-patent-trolls-have-cost-innovators-half-a-trillion-bucks.ars

======
rkalla
I imagine a lot of patent trolls (e.g. Intellectual Ventures) just read this
headline and interpreted it as:

    
    
      Patent sector profits rise to half a trillion.
    

The This American Life piece on patent trolls[1] (Which I am sure a lot of you
listened to) was certainly eye opening, but one take-away was the huge
investments that companies like IV have coming in from 3rd parties that expect
serious returns.

From what I would tell, IV operates a lot like an insurance company.

They hoard 10s of thousands of patents which they enforce through 1 of 1300
subsidiary companies and larger companies like Microsoft, Samsung, HTC, etc.
can pay a monthly or yearly membership fee to IV in order to "lessen the
chance of being sued by IV or one of the child companies".

Of course it is cheaper for all of them to pay their membership fees and IV
enforces this behavior by violently attacking anyone that decides they don't
want to pay up.

There is an implied threat[2] to not playing along.

(this isn't me postulating, the "When Patents Attack" piece covers this).

In turn, investors step in and invest billions into IV to get a cut of the
growing patent market, like I might invest in a fund.

I understand financial and legal systems are complex, but what IV has created
seems to me to be this dystopian-esque octopus of circular self-leveraging
that is designed to be impossible to untangle.

[1] [http://www.thisamericanlife.org/radio-
archives/episode/441/w...](http://www.thisamericanlife.org/radio-
archives/episode/441/when-patents-attack)

[2] <http://en.wikipedia.org/wiki/Extortion>

~~~
binarybits
If you read my article, you'll see that's not what the study finds. They
estimate that less than 10 percent of the wealth lost by defendants goes to
patent trolls. The rest is destroyed.

~~~
noonespecial
Some people are willing to steal money directly. A dollar lost is a dollar
gained. They make me mad.

There is quite another type, alive and well in our political and legal system,
that have no problem stealing or ruining thousands for a few dollars gain for
themselves. I well and truly wish these folks hadn't been born.

I feel as soon as humanity grows out of the stage where this kind of behavior
is tolerated, we'll be well on our way to the utopia that most of us hope for.
Once you nip this impulse in the bud, it won't matter if the systems are
socialist, capitalist or whatever, they'll probably work just dandy. _This is
why we can't have nice things_.

------
brlewis
_the patent system is actually becoming a net disincentive to innovation,
especially software. We hope Congress and the Supreme Court are paying
attention._

Don't blame the Supreme Court. They were paying attention 39 years ago with
Gottschalk v. Benson.

<http://supreme.justia.com/us/409/63/case.html>

They reluctantly outlawed patents on software for general-purpose digital
computers. I say reluctantly, because they really thought Congress should be
addressing the question.

"The technological problems tendered in the many briefs before us [Footnote 7]
indicate to us that considered action by the Congress is needed."

Confusingly, they were overruled by a lower court (Federal Circuit: In re.
Alappat, State Street Bank & Trust v. Signature Financial Group). More on this
at <http://ourdoings.com/ourdoings-startup/2011-07-28>

One interesting note in all this is that even in 1972 they knew that it was
impossible to expect the patent office to rigorously review software patents.
Gottschalk v. Benson quotes the President's Commission on the Patent System as
follows:

"The Patent Office now cannot examine applications for programs because of a
lack of a classification technique and the requisite search files. Even if
these were available, reliable searches would not be feasible or economic
because of the tremendous volume of prior art being generated. Without this
search, the patenting of programs would be tantamount to mere registration,
and the presumption of validity would be all but nonexistent."

------
zeratul
"... We hope Congress and the Supreme Court are paying attention ..."

Instead of hope just contact your representative:
<http://www.usa.gov/Contact/Elected.shtml>

We have enough people on HN to pull it off.

~~~
crizCraig
Also: <https://www.popvox.com/bills/us/112/s968>

and

<https://www.popvox.com/bills/us/112/s23>

------
thaumaturgy
I rarely do this any more, because I consciously assume that an expert knows
more about their field than I do, unless I am certain of specific facts. (And,
perversely, I _want_ this article to be true, because I loathe the patent
system in its current incarnation and I think it is a serious problem for our
society.) That aside, there were a few things from this that didn't make sense
to me:

> _The theory is simple: a company's stock price represents the stock market's
> best estimation of the company's value._

This is contrary to all of the very little bit that I understand of the stock
market. Investors attempt to find companies which are undervalued, and invest
in them; by definition, that would mean that the market is not accurately
estimating the company's value. A company's "real value", however you care to
measure that, might be some kind of attractor in the market graph, but that's
about the best I'd give it. Not that I know anything about this stuff.

> _If the company's stock drops by, say, two percent in the days after a
> lawsuit is filed, then the market thinks the lawsuit will cost the company
> two percent of its market capitalization._

I am more certain of four problems here. One, that companies can take a stock
hit for a variety of reasons, all, some, or none of which may be related to a
patent issue. Two, although I can't be arsed to find an example at the moment,
I'd wager a fair amount that there have been no shortage of data points where
a company's stock market value _rises_ , or stays level, in correlation with a
patent issue. Three, "the market" doesn't "think". The market is simply an
abstract construct composed of a huge number of individuals following
individual goals and algorithms. Anthropomorphisation of complex systems often
leads to faulty conclusions -- like using those systems to evaluate the value
of individual elements. And fourth, since we can't accurately tie the
company's value to its stock price in the first place, then concluding that a
two-percent loss of stock price represents a two-percent loss of the company's
fortunes is erroneous.

> _But with a large sample of companies, these random factors should mostly
> cancel each other out..._

And I am _very_ certain that this is an error. Why "should" these random
factors cancel out? Have there been any studies finding that they do, or are
there any lemmas in statistics that supports this? Aren't the accumulation of
errors in statistics usually represented as minima and maxima values, i.e.,
"we think the value could be here, but it could be as low as there or as high
as there..."?

I like the conclusions but I'm uncertain of the claims.

~~~
URSpider94
_> > The theory is simple: a company's stock price represents the stock
market's best estimation of the company's value.

>This is contrary to all of the very little bit that I understand of the stock
market. Investors attempt to find companies which are undervalued, and invest
in them; by definition, that would mean that the market is not accurately
estimating the company's value. A company's "real value", however you care to
measure that, might be some kind of attractor in the market graph, but that's
about the best I'd give it. Not that I know anything about this stuff._

It's a tautology that the value of something is defined by what people are
willing to pay for it. When the markets are open, shares of a large company
are changing hands hundreds to thousands of times per minute. It sounds like
you are suggesting that a company has some kind of "real value" that's
divorced from its current selling price -- if so, how would one determine what
that is?

The efficient market hypothesis (which most pros believe is accurate, at least
in its weakest form) tells us that it's not possible to pick stocks that are
"undervalued." The EMH dictates that all information relevant to the value of
a company is incorporated in the price, so it's not possible for any one
investor to rationally discern that a particular stock is undervalued.

------
Hyena
It doesn't look like they attempted to figure out how many firms were simply
never started, so the costs may be much higher.

------
RexRollman
And there is the cost to the public itself, for the courts and such, which the
article did not mention.

Maybe the Government should change the law and require all patent disputes
settled via mediation before anything can even go to court.

------
wisty
There's a linked article ([http://arstechnica.com/old/content/2008/07/book-
review-7-08....](http://arstechnica.com/old/content/2008/07/book-
review-7-08.ars/4)) and at one point it asks why Bill Gates appears to support
patents, given how bad they seem to be for large non-pharma / chemical firms.
My guess is, big companies don't want to argue against patents, because that
would create an even worse PR storm when they sue their competitors for patent
infringements, and could possibly give competitors some kind of protection
through Estoppel (I don't know, and I'm not a lawyer, but I'd imagine there
might be some kind of legal risk to talking down patents then trying to
enforce them).

~~~
orangecat
That's probably true, and it's also not clear that patents are a net loss for
large established companies. Sure they have to pay off or fight the trolls,
but they can use questionable patents themselves to shut down competitors, as
we're seeing now with Apple and Microsoft trying to kill Android. It's the
same principle as Walmart supporting minimum wage increases or Mattel
supporting more extensive product testing regulations.

~~~
ohyes
"they can use questionable patents themselves to shut down competitors"

Particularly small competitors, who cannot afford to go into a legal battle
with a large multinational. Android is kind of a special case in that Google
has a warchest of patents and a lot of money. Most companies would be forced
to simply roll over because of the expense of five years of legal proceedings.

~~~
tyree732
Google did not have a warchest of patents until they purchased Motorola's
mobile division.

~~~
nkassis
Which is interesting because until then they managed without. When they needed
to create a warchest they had the cash to do it and it didn't think long. It
probably wasn't a bad strategy to wait until the last minute to start buying
patents. Sure they might have overpaid compared to what they would have paid
years ago, yet back then they needed the money to grow, now they have enough
for patents.

------
Vivtek
I like the way $500 billion in losses to others translates to $7.6 billion in
revenue to the trolls and far less than that to the hapless inventors they
claim to represent.

Similarly, five hundred dollars in losses to the power company translates into
fifty bucks at the recycling center for stolen wire. I see no moral
difference.

------
coreyo
Patent trolls are not new and have been around for as long as capitalism has.
They are an essential and useful function of the market. The only reason
they've come to light is that the industry moves so quickly now and the legal
system around patents does not.

------
Triumvark
Trolls? Still?

There are a million definitions for 'patent troll,' and all of them stink,
capturing some good activity along with the bad.

The problem is the number of junk patents out there (obvious, prior art,
etc.).

~~~
drcube
The article defines them: "patent trolls ("non-practicing entity" is the
clinical term)".

~~~
Triumvark
If NPEs are trolls, that implies 'lacking starting capital' is trollish. Small
company locked out of an industry? Troll.

Robert Kearns pitched his wiper system to Ford and Chevy, but they preferred
to build it without paying him. "NPE = troll" means he was the villain. (He
should have, what, kept his invention secret until he built a rival car
company?)

There are several other definitions of 'troll.' Lawyers who own patents.
Groups who buy patents from others. All of these catch some sheep with the
goats. (I'm leaving these as an exercise for the reader.)

It's far more direct to attack patents rather than people. Attack the patents
which are obvious or prior art.

As a bonus to this approach, it smacks less of a sort of blind bigotry against
the poor, lawyers, or investors. (Even if you do hate one of those groups,
attacking the problematic patents directly affords a way of being discrete
about it.)

------
zentechen
Our patent system is FUBAR.

