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Patently stupidPatently stupidPosted Oct 10, 2012 4:26 UTC (Wed) by price (subscriber, #59790)In reply to: Patently stupid by Nelson Parent article: The Patent, Used as a Sword (New York Times)
> if you're selling your startup and you've come up with a value
> and a price, add $1million per patent to that.
And subtract $10 million per patent held by large companies who have never actually delivered what the patent describes. Bear in mind too that such a patent need only arguably read on your startup's work, and it doesn't matter if there's prior art that ought in principle to invalidate the patent -- litigation is too expensive for you, it can be risky even for an acquirer, and for both reasons a potential acquirer will knock down what they offer you.
So by no means is the patent system uniformly pro-small-company either. Even if it ekes out a few bucks more for some startups at exit, it just as easily devastates the hard-won value of others. I think on balance it remains quite bad for software startups, just as it is for free software and even for big companies' efforts to innovate.
> the patent holders see patents as actual property, abolition would
Interesting analogy. Can this economy endure half patented and half free?
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Patently stupid Posted Oct 10, 2012 6:05 UTC (Wed) by khim (subscriber, #9252) [Link] Thanks for proving Nelson's point. > if you're selling your startup and you've come up with a value Sorry, but no. If you sell your startup at early enough stage for $1 million in capitalization to have significant meaning then it's obviously small enough not to trigger scrutiny of large players. So these mythical "$10 million per patent" will not materialize and thus patens are pure win for you. Sure, later, when startup will grow it'll inevitably hit the patent landmines, but this will happen later. Bear in mind too that such a patent need only arguably read on your startup's work, and it doesn't matter if there's prior art that ought in principle to invalidate the patent -- litigation is too expensive for you, it can be risky even for an acquirer, and for both reasons a potential acquirer will knock down what they offer you. Only if you'll be foolish enough to try to sell your startup to that some "large company". So by no means is the patent system uniformly pro-small-company either. This is not about pro-small-company or against-small-company. This is about local or global optimum. Sure, global optimum may be in a system where patents don't exist. But if they will be abandoned right now, today then many small companies (who already spent time and money getting patents) will be at disadvantage. So why should they support some change which will make their own life worse? Some abstract benefits in the future are not something you can put on your bread loaf today.
Patently stupid Posted Oct 10, 2012 6:34 UTC (Wed) by bronson (subscriber, #4806) [Link]
Any halfway competent due diligence will find those land mines and bake them into the purchase price. No investor wants to be on the hook for endless lawsuits or useless, patent-encrusted technology.
Patently stupid Posted Oct 10, 2012 7:12 UTC (Wed) by khim (subscriber, #9252) [Link] Sorry, but no. As someone who've seen the process from the inside (I never sold a startup but I participated as an expert in talks) I can attest that investors rarely conduct a patent search. It's just way, way, WAY too expensive.They know there are lots of patents out there and they consider the hypothetical possibility of these landmines, but they have no way to get an accurate measures. And if you have patents of your own for the technology you've developed then the risk is largely mitigated: if your technology is covered by both your patent and someone's else patent then it's very hard to prove that you have no right to use this technology even if that other patent was granted earlier. Patents may be a drag for the economy as whole but they sure are a win for each particular participant. Tragedy of commons and all that. And startups who are trying to do things for the common good first and for their own good second don't usually reach the sale stage at all.
Patently stupid Posted Oct 10, 2012 14:13 UTC (Wed) by price (subscriber, #59790) [Link]
It sounds like you, or anyway the startup(s) you've known, have been fortunate. All I can say is: it doesn't always work out that way. NB that the scrutiny of the large player or the large player being at all involved isn't required -- only the potential acquirers need to know about the patent.
I believe that *some* small-company shareholders come out modestly pleased with what the patent system did for their pocketbooks, but there are others who come out quite displeased. And I suspect that in net, if you're involved in an early-stage startup and don't yet know how those dice will fall, your expected value from the patent system is negative.
Patently stupid Posted Oct 10, 2012 14:00 UTC (Wed) by Nelson (subscriber, #21712) [Link] Has anyone ever legally attacked a patent holder to invalidate their patents? I don't even know if a court would hear it. Simply owning the patent doesn't put you in to legal fights, in fact it may keep you out of them.If you buy a batch that might be invalid or something, you're not on the hook for legal fights until you pick one. Unless someone can remember a case, I only remember the patent holder projecting their patent into a court room. Subsequently, I would bet money that you could take that batch of possibly bad patents and enter in to pretty far reaching and broad cross-licensing agreements with a lot of other patent holders. Which is very normal, very common and not nearly as news worthy as when Samsung and Apple battle. I'm not a pro-patent shill, I don't want to sound that way but there is a lot more at play. When you buy a company and there might be patents covering their technology but they have their own patents, it's a radically better deal than buying one without patents; you'll simply attempt to enter in to cross-licensing agreements with the other patent holders and continue doing your business. That's why they pay the premiums for the patents, even if they might be invalid.
Patently stupid Posted Oct 10, 2012 14:20 UTC (Wed) by price (subscriber, #59790) [Link]
I think you missed what bronson is referring to -- he means that a potential acquirer will find out about patents a large company holds and might use to attack them if they acquire you (or your own company if they don't.) khim had asserted that they would never find out, which unfortunately isn't true. In the event they do learn of such a patent, they are likely to pay substantially less for the company.
You're right that patents held by the company to be acquired are unlikely to reduce its purchase price, and can augment it.
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