VC Panel Describes Intellectual Property Law As A Knob That Needs To Be Turned Down
On November 30, 2006, the VC Task Force (www.vctaskforce.com) presented a seminar for entrepreneurs in Silicon Valley on the myths and realities of intellectual property law. The panel consisted of two venture capitalists, Bill Reichert of Garage Technologies and Hank Barry of Hummer Winblad, and serial entrepreneur Bob Saul of Polymorphic DNA Technologies. The panel was moderated by David Tollen, an intellectual property lawyer at Tollen Legal. In a two hour presentation, the panel discussed intellectual property law, particularly patents, and the effect on start-up companies and investment in those companies. The general sense of the panel was expressed by Barry when he said that more intellectual property law is not always better, and that intellectual property law is a two way knob that can and should be turned down.
Barry noted two major factors that turned up the dial on intellectual property. The first was the Bayh-Dole Act which provided that universities can own and license their own intellectual property. The second factor was creation of the Federal Circuit which Barry characterized as a pro-patent court. Barry argued that in light of these developments, patents have become a net inhibitor of invention. According to Barry, the attention on patents has created an "economically uninteresting dance of intellectual property, mostly danced in the Eastern District of Texas."
Reichert told a story about a networking company that he had worked with that had spiraled out of control due to a patent dispute. He said that the company had innovative technology using open source technologies in networking. One day, a letter accusing the company of patent infringement was received. This started a chain of competing claims and counter-claims that wasted millions of dollars and froze development of the technology for years.
Saul discussed his experiences in navigating multiple overlapping patents in the area of bio-technology. Saul said that over the years, he has often spent up to 10% to 20% of his time navigating intellectual property rights. He suggested trying to identify the key patents in an area and then trying to negotiate licenses directly with the patent holders. In his experience, the patent holders are often reasonable and may not be interested in blocking the entry of a newcomer in a different niche in the industry.
The panel emphasized the need for start-ups to correctly prioritize intellectual property and to avoid spending too much time on it. A start-up should think early about potential patent rights, but the company must focus on the market and beating competitors in the market rather than in court. The panel noted that few start ups will have the ability to pursue established companies for infringement of their patents.
The panel agreed that in almost any interesting field of technology, it is impossible to get a clearance opinion that a company's technology will not infringe anyone else's patent rights. Even if such a clearance opinion were received, it would need to be updated every three months to take into account new patents. The panel noted that even if there are patents in an area, a company may wish to go forward and continue innovating and trying to patent its own innovations. Then, if a patent suit does arise down the line, there is the possibility of having a cross-licensing deal where the start up company's patents can be leveraged to allow a settlement and allow the business to proceed.
The panel observed that success in the market place will ultimately trump everything. They cited Google as an example of a company that successfully grew despite multiple patents on related technology. A company needs to keep moving and negotiating its way through conflicting patent rights as best as possible without becoming paralyzed by the existence of others’ patents.
Barry noted two major factors that turned up the dial on intellectual property. The first was the Bayh-Dole Act which provided that universities can own and license their own intellectual property. The second factor was creation of the Federal Circuit which Barry characterized as a pro-patent court. Barry argued that in light of these developments, patents have become a net inhibitor of invention. According to Barry, the attention on patents has created an "economically uninteresting dance of intellectual property, mostly danced in the Eastern District of Texas."
Reichert told a story about a networking company that he had worked with that had spiraled out of control due to a patent dispute. He said that the company had innovative technology using open source technologies in networking. One day, a letter accusing the company of patent infringement was received. This started a chain of competing claims and counter-claims that wasted millions of dollars and froze development of the technology for years.
Saul discussed his experiences in navigating multiple overlapping patents in the area of bio-technology. Saul said that over the years, he has often spent up to 10% to 20% of his time navigating intellectual property rights. He suggested trying to identify the key patents in an area and then trying to negotiate licenses directly with the patent holders. In his experience, the patent holders are often reasonable and may not be interested in blocking the entry of a newcomer in a different niche in the industry.
The panel emphasized the need for start-ups to correctly prioritize intellectual property and to avoid spending too much time on it. A start-up should think early about potential patent rights, but the company must focus on the market and beating competitors in the market rather than in court. The panel noted that few start ups will have the ability to pursue established companies for infringement of their patents.
The panel agreed that in almost any interesting field of technology, it is impossible to get a clearance opinion that a company's technology will not infringe anyone else's patent rights. Even if such a clearance opinion were received, it would need to be updated every three months to take into account new patents. The panel noted that even if there are patents in an area, a company may wish to go forward and continue innovating and trying to patent its own innovations. Then, if a patent suit does arise down the line, there is the possibility of having a cross-licensing deal where the start up company's patents can be leveraged to allow a settlement and allow the business to proceed.
The panel observed that success in the market place will ultimately trump everything. They cited Google as an example of a company that successfully grew despite multiple patents on related technology. A company needs to keep moving and negotiating its way through conflicting patent rights as best as possible without becoming paralyzed by the existence of others’ patents.
posted by at 12/01/2006 05:07:00 PM
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