Tuesday, October 29, 2013

Professor Robin Feldman - Patent Demands & Startup Companies - A Comment

Professor Robin Feldman published an interesting article Patent Demands & Startup Companies: The View from the Venture Capital Community on October 28, 2013.

Some of Professor Feldman's findings, based on responses from Members of the National Venture Capital Association and CEOs of the VCs member companies, are as follows:
  • About 70% of VCs and 30% of startups report having received a patent demand.  
  • 80% of VCs think patent demands have increased over the last five years.
  • 70% of VC believe patent demands most impact the IT sector, 30% life sciences, and 10% clean tech.
  • VC report 60% of patent demands came from patent assertion entities whose core activity is licensing or litigating patents.
  • 60% of VCs estimate defense costs exceed $100,000, with some reporting costs in the millions.
  • 75% of VC and 60% of CEOs report patent demands had a highly or moderately significant impact on startups, since they distracted management, expended resources, or altered business plans.
  • 70% of VCs don't think patent demands are positive. Every VC said a patent demand against a prospect could influence an investment decision, and 50 percent said it would be a major deterrent.
Professor Feldman concludes "the economic and human toll of patent demands on startup companies is substantial." Yes, but in a selective way as 2/3 startups have never received a patent demand. I also wonder how many of the patent demands that the 30% received led to litigation, since I have seen many patent demand letters that didn't result in a lawsuit, because the patent is invalid or not infringed or the patent owner is not willing to risk losing the patent or incur the cost of litigation. The patent is reviewed and analyzed and a reply sent to the patent owner, if appropriate, why the company doesn't need a license, and the matter is quietly dropped. So if my experience as a patent attorney over the last two decades is representative, the finding that 1/3 of startups get a patent demand does not support 1/3 of startups are sued.

The article is well researched and written, but I am not sure it supports major patent reform is urgently needed to protect startups from patent demands. Like any potential lawsuit (e.g., contract dispute, founder or shareholder suit, product liability, domain name, or employment suit) patent demands are not a positive development, but something to manage so they don't have "a highly or moderately significant impact," "distract management," "expend resources," or "alter business plans."

Many VCs want patents filed to protect their startups inventions, but readily vote to sell them to the highest bidder (i.e., a patent monetizer) if the startup fails. Maybe we should determine how many patent demands are based on patents purchased from VC backed startups that failed in case we are unsure of VC's role in this problem.

Copyright © 2013 Robert Moll. All rights reserved.