IBM's patent play

IBM announced yesterday it was going to increase the transparency associated with its patent activity including publicizing patent filings, refraining from using dummy corporations to conceal the true patent filer and refraining from patenting generic “business methods” patents.

I was going to post a kudos to IBM for taking these steps but there were already so many positive comments I thought I wouldn’t be writing anything new. Today however blogging buddy Jason Wood takes a lashing from Jim Moore who informs us Jason has been “sucked in by corporate Amerika.” (why this goofy spelling of America!?!?)

Reacting to a post on patents from blog with a url of “law.harvard.edu” means I’m putting my head in the lion’s mouth, but here goes:

I think Jim Moore’s critique is pretty far off the mark in several areas:

1. Jim calls IBM’s move “conspiracy disguised as reform.”

First, Jim never clearly articulates what this supposed conspiracy is.

Second, it’s difficult to see how added transparency can ever be construed as a conspiracy.

Third, if this is some sinister trap on the part of IBM, other industry players can easily escape Mr. Palmisano’s clutches: don’t play. IBM is making this move unilaterally, with no obligation on the part of its competitors or collaborators.

2. Jim thinks our patent system is not broken.

I’d recommend Jim read “Innovation and Its Discontents” by Adam Jaffe and Josh Lerner. There are several real problems with our patent system, at least for the information technology industry:

- The resource imbalance between industry and the US Patent Office. Industry has a lot more money to spend on patent filing than our government has to review. Currently there are 500,000 patent filings in backlog and that backlog is growing at the rate of 100,000 per year.

- The issue of uniqueness. Today many patents get through the PTO that are of questionable uniqueness. The PTO should filter these out but they’re so heavily outgunned by industry both in staff count, time and domain specific pedigree that it’s difficult to catch many of them. Once a company gets a non-unique patent through the PTO, it takes millions of dollars of litigation to un-ring the bell.

3. Jim thinks patent trolls are a myth.

Most companies are not patent trolls. But if you:

- Hold a patent of questionable uniqueness and
- have not made any attempt to commercialize the patent ten years since you filed it and
- have no ongoing business activities and
- exist as a holding company that does nothing but sue other companies

Then yes, you are a patent troll…

Does anyone remember Rambus? Or Unisys and the GIF format? I just heard of a patent that was approved for a software technology to print information found on the web. Come now. How can we possibly say the patent system is on good shape with examples like these?

4. Jim casts IBM’s move as a “big guy vs. little guy” attack.

Believe me, under today’s patent system, the little guy has a lot more reason to be afraid of IBM than the other way around. IBM has over 40,000 patents today. If you’re starting a software, hardware or semiconductor company tomorrow, chances are IBM can find a way to call you out for violating one of their patents. Wouldn’t transparency into IBM’s patent portfolio help new companies avoid this?

Moreover, why not read the links Jason posted to his blog? You see that the entrepreneurs themselves are asking for this increased transparency, as are the investors.

The little guy seems to disagree with Jim. Let's allow him to speak for himself.

5. Jim notes that given the high rate of innovation in the US, the patent system must work really well.

I’m pretty happy with the rate of innovation in the US too. Does our current patent system necessarily deserve the credit? How about the university system? Or the venture capital community? Or the ease with which you can start a business in the US? Or the rewards of the public capital markets? Or the flexible labor laws? Or the (formerly) attractive US immigration policies? I’d like to find causation between US innovation and when I was born, but somehow I don’t think that’s the case…

6. Jim argues patents can’t be too big of an issue because corporations don’t spend more than 1% of revenues on IP litigation.

Lawyer’s fees are a small fraction of the true costs of distortions in the patent system. How many billions of dollars in valuation did RIM lose because of threat of a shutdown? How much damage can you do to a company when you file an injunction a few weeks before its IPO?

IBM’s decision was not just admirable because it’s a step in the right direction for the patent system, but because IBM demonstrated what leaders in the tech industry need to do: show leadership. Kudos are still deserved.