Fire Alarms Systems

It 'sa standard refrain we hear all the time of start-ups in Silicon Valley that have some form of "I hate patents and think they 're anti-innovation ... but I still have a few registers, only for defensive purposes." A variant of this is "for investors show I 'm serious." These are entrepreneurs that their patents are never used offensively, but they can' t really expect. In fact, such patents can actually Damage Kind of society that they got. One way is pretty obvious: just take patents (precious) time, money and resources to put to much better could be somewhere else. However, that 's probably a smaller problem than the fact that patents make a company in the towel too early, as it should throw .

To explain why let me past a couple of news articles, which explain together hopefully, to consider the question. Tim Carmody at Wired highlights how, when startups fail to draw investors sometimes some of their money through the sale of patents. He gets that from an interview with PEHub Silicon Valley tech start-liquidator extraordinaire, Marty Pitchinson, whose reputation as the dot com cleanup guy, we 've chronicled for almost a decade (if his business is good, the rest of Silicon Valley 's business isn' t).

There are two important points he makes. The first is that ten years ago, patents weren 'ta big part of his business. Today, they 're a massive part of his company:

Things have definitely changed. I remember 1999, 2000, I would sell a used server for $ 35,000, and I had a number of people to want it. Today, a server is $ 5,000 and you can get an order server for less than $ 2,000. [Meanwhile], we have probably one of the largest sellers of [intellectual property] in the country. We sell tons of IP, and how do you know the IP wars have begun, so we play with the big guys, small guys, and the in-between guys. During the last bubble, there was not that many patents. There were more ideas and URLs. Then the business has matured.

Back in the Wired article Carmody refers to a case study on Pitchinson 's website, in which it stated that it sell the patents of a company that had $ 65 million in venture capital helped. In this case, the Board (that is, above all the investors in the company), the "it would be better off selling their IP as a search for another round of financing."

Now combine this with the story that we had recently of Law Professor Colleen Chien about patent trolls, where she makes a point that many have discussed before increased: in fact, the system promotes the formation of non-practicing people (trolls) , hold patents, but as a company that actually do stuff:

Successful trolls have ways to remove these traditional barriers to suit found. Most obviously, not make them immune to all counter allegations of infringement . A liability in any other context, with nothing to sell an asset to trolls. Therefore, Patents are often worth more when a company is dead and has nothing to lose from patent protection against lawsuits, as if he is alive and functioning .

Now pull it all together and you have a situation in which patents may actually be a ticking bomb for startups. With patents in hand, also will receive if they are for defensive purposes, could choose a board (as in the above case happens) is that a better way to get some return received for their investment just to shut down the company and sell the patents - again to note that the patents are more valuable if it 's not practicing to handle unit.

Thus provide risk startups with patents, these patents that a higher value than the company itself, so it is too easy a target for a board (mostly investors) simply liquidate the company, looking to the immediate cash payment of patents for use by trolling operations. It 's the worst of all world' s. The company is available to be closed early because of the cost / benefit tilts too strongly towards the sale of patents. The patent, which was purchased solely for defensive purposes, then lands in the hands of an NPE, wants to sue many companies.

While this certainly does not apply in any case, it should be a real problem with some companies by a shorter period of time to build a business and be successful before the VCs \ decide 's best to sell only the patents and see what they can get.

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