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23rd April 2012 (0 Comments)

The Twitter Troll Defense Unilateral Disarmament           4/22/ 2012

 It seems that Twitter has adopted a corporate policy to limit use of all patents assigned to Twitter or to be granted to Twitter employees and assigned to Twitter in the future, to only defensive purposes.  Twitter will never use their patent rights “offensively” without the permission of the original inventors.  The leading IP Lights at Twitter seem to think this will be a step toward ending the Patent Wars, and to help defend themselves from the evil patent Trolls who seem to be lurking under every bridge.

One wonders if the Twitter BOD availed themselves of any opinion from their professional patent counsel (if any).  Twitter seems to believe that this policy will help to lure more professional and conscientious engineers and other technical professionals into their sphere.  Actually, it might do that for a while, because those folks are historically at least as misinformed about patent law and processes as the BOD at Twitter.  And there seems to also be at least a small chorus of approval from the investment community, such as some VC mavens.

But let’s take a closer look:

Let’s begin by understanding that Innovation is NOT an automatic process, like inhaling.  Innovation needs motivation.  In fact the bedrock foundation of patent law in all jurisdictions is that patent rights promote innovation.  If you cannot get around a patent you have to invent something.  Inventors invent because there is a need or a promised reward.  Most high tech companies reward their employees who invent something that initially seems patentable with a check for, say $2000, and a plaque or other recognition. Management is willing to do so because the patent portfolio that results may have value, perhaps both offensive and defensive.  That is, management may use it to defend itself against patent trolls or other attacks, or may “monetize” it.

There is no single path in monetization, such as suing everyone who may seem to infringe.  Actually, the greater non-defensive value is licensing, or in certain circumstances, selling part or the entire patent portfolio to people or firms who typically see usually only offensive value in the patents.  Further, the path upward for new ventures almost always involves merger and acquisition, and when potential suitors or partners look at a company you can be sure they are looking at offensive as well as defensive value of the patent portfolio.  So if that rule about inventor control and no offensive use is designed to carry over in a merger or a sale of either the company or its patents, there will be no suitors.

Now consider further that the process of producing patents from within an enterprise is a rather complicated, time-consuming and expensive process.  This involves motivating the guys and gals to spend some time dreaming up new ideas, putting them down in a legible format, considering, by other employees for management, the ideas against prior art and business strategy, and if an idea is found to have sufficient merit, preparing and filing a patent application.  People who draw salaries and benefits have to do the work of evaluation.  Let’s assume a low figure, say $1000 per patent idea for the cost of this filtering.  Then preparation and filing process requires legal professionals to the average tune, for most Silicon Valley IP law firms, of about $15,000 per new case.  Then the application, once filed, lies dormant in the US Patent Office for about three years (they cannot keep up with the influx, nor do they really want to, because it is their job security).  Once the application comes up for examination the Patent Office does a search, examines the claims against the prior art found, and prepares a formal document called an “action” rejecting all of the claims under various and sundry articles of Title 35 of the United States Code and other rules and regulations in Title 37 of the Code of Federal Regulations.  About ninety percent of all applications are rejected on the first examination, for reasons that justify a separate paper.

Now the process requires more attention by legal professionals for dealing with the adversarial process in examination, which on average goes three to four rounds, often more, at an additional cost of $3000 or more per round (add $12,000).  This process also requires internal tracking, consideration, review and dealing with and instructing the law firm, for perhaps an additional $2000 in cost over the prosecution for each case. Then, if the legal professionals are successful (no guarantee), a patent is allowed, and you get to pay the issue fees (about $2000 for a large entity, less for a small).

So let’s see, for a single patent the total costs are going to be about $34,000 if I added right, and guess what – this is a conservative estimate.

Cut back to management.  That investment for a single patent was made against expectation of value defensively and offensively (licensing, sale, merger, partnering, etc.).  Now you are going to gut the potential downstream value by at least three-fourths?  How many patents are you going to motivate, file, prosecute and issue, considering the cost is NOT lowered by three-fourths or at all, just because the value has been?

Right!  You are NOT going to go through the painful, expensive process to build the same patent portfolio, since the value of patents for defense is next to impossible to quantify.  So you are not going to have patents for defense, because you threw away the value of patents for offense.

And I can tell you that those you call trolls are slobbering under their bridges waiting for the twittering, now completely defenseless goats to prance across.

This bold move by Twitter is ill-considered and destructive to their value, and will be equally destructive to any company that adopts it.  And the VCs who advocate it need to reconsider their own value, which, after all, is the value of their stable of companies, if they push this ill-considered notion.

 

Donald Boys               4/22/2012

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