Startup Perspective Critical for Patent Reform

Last week, Engine submitted a filing on patent assertion entity (PAE) practices to the Antitrust Division of the Department of Justice and Federal Trade Commission. Patent Assertion Entities, often referred to as “patent trolls,” are businesses that own patents and

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make money by suing others for infringing on the patents – rather than developing products. Regulators in Washington are gathering information about these business practices to better understand the impact they can have on innovation, competition, and consumers.

While there is a host of excellent quantitative research on the cost of litigation to innovation, there is little discussion of the practical impact PAE litigation has on startups. In addition, many startups that have faced such demands and lawsuits are reticent to publicly discuss their experiences for fear of being targeted by further baseless infringement claims. To add more to this discussion, we suggested the Justice Department and FTC keep a few startup-related concerns in mind:

• PAE activity is increasingly affecting startups, the net job creators in the U.S. economy
• PAE claims appear to be following the startup financing cycle, acting as a tax on investment
• PAE litigation is a drag on startup productivity, increasing the incentive to settle false claims
• Uncertainty is driving the startup and innovation community to take defensive measures on patents, both at the company and community level

Let’s break this down.

First, we know from research conducted by Santa Clara University professor Colleen Chien that companies with less revenue are increasingly being targeted by patent trolls. Her extensive work on how the patent ecosystem impacts startups demonstrates how the “patent wars” affecting big companies like Apple and Samsung are very different than the often-overlooked struggles of startups against trolls.

Second, as mentioned above, too few entrepreneurs are comfortable discussing their experiences with patent litigation. Whether under nondisclosure agreements from settlements, or for fear of making themselves repeated targets or having what they say used against them in depositions, there is little incentive for innovators to speak out against what they agree with President Obama amounts to “extortion”.

Next, there appears to be increasing evidence that patent trolls are taking advantage of the startup investment and financing cycle. When a startup secures a round of funding, they often issue a press release, or find their company’s name in TechCrunch, VentureBeat or The Verge. Many founders, as well as internal and external legal staff, have noted that demand letters seem to follow such public announcements. If patent trolls are “following the money,” as it were, this is a very concerning development – predatory litigation will act as a tax on investment. Individuals with great ideas, actually building innovative products, should not be forced to hand over money as a result of their success.

In addition, startups are particularly sensitive to the productivity drag litigation imposes. As great engineering talent is more and more difficult to find, losing engineers for days or weeks at a time, to prepare and advise lawyers and provide deposition, presents a huge barrier to getting a product up and running and in the hands of users. Larger startups face these challenges, but the problem is more pronounced for small teams trying to fight baseless patent infringement claims.

Finally, uncertainty about the direction of the patent ecosystem is driving startups and innovators to take matters into their own hands. Securing patents takes a significant amount of time and money. While some startups need patents to protect their core technologies, many are pursuing applications to protect themselves from troll activities. Moreover, groups as diverse as Twitter and Berkeley Law are creating so-called defensive patent regimes, within which those who secure patents agree to pool their portfolios and only use them for defensive purposes.

Lawmakers need to take note of the effort, time and resources that startups are putting into protecting themselves from the threat of patent trolls.

As we’ve previously argued, startups need to lead the discussion on patent reform. Policymakers, the Patent and Trademark Office, and the Justice Department and Federal Trade Commission must keep startups and entrepreneurs in mind as PAE activity is discussed and scrutinized. We are encouraged by the opportunity to engage in dialogue with the federal government, but more must be done to protect the ventures of risk-taking entrepreneurs and ensure a more innovative future for the American economy.

Picture courtesy of Alan Kotok.

Entrepreneurs to Congress: Act on Patent Troll Suits

Engine and the Electronic Frontier Foundation join with more than 60 entrepreneurs, investors, and innovators to ask the House Judiciary Committee to take action on patent trolls. Our call to action supports the reintroduction of Congressman Peter Defazio’s SHIELD Act, a measure aimed at reducing costly litigation created by non-practicing entities. We’re encouraging Congress to consider legislation that helps protect startups from litigation that stifles economic growth.

Alexis Ohanian, co-founder of reddit; Dallas Mavericks owner Mark Cuban; Brad Feld and Jason Mendelson of Foundry Group; Brad Burnham of Union Square Ventures, and David Cohen, founder and CEO of TechStars are among the individuals who signed on to the letter.

Today’s letter demonstrates agreement in the innovation and investment communities on the harmful nature of litigation to companies across the country. Find the full text of the letter below.

Dear Chairman Goodlatte and Ranking Member Conyers,

We, the undersigned, write today as entrepreneurs, investors, and innovators in support of the Saving High-tech Innovators from Egregious Legal Disputes (SHIELD) Act and other legislative measures aimed at reducing costly litigation created by non-practicing entities, often referred to as patent trolls. Congress should consider measures that shift incentives away from those who game the system and toward an innovative economy and competitive market.

As President Obama acknowledged earlier this month, patent trolls, “essentially leverage and hijack” patents originally issued to others in an effort to “extort” money through litigation. Young, innovative companies are increasingly targets of these lawsuits. While big companies paid much of the $29 billion in direct costs resulting from activities by patent trolls in 2011, the costs made up a larger share of small companies’ revenue. In fact, the majority of companies targeted by patent trolls have less than $10 million in revenue.

Without startups, there would have been no net job growth in the United States over the last two decades. Congress needs to make measures like the SHIELD Act a priority in 2013 so that innovative companies and entrepreneurs can continue to grow without the threats posed by non-practicing entities. Congress must take action and fix the patent troll problem. We urge the committee to call hearings on patent troll litigation and to solicit information from the innovation community at-large.

Sincerely,

Nathan Allen
Four First Names

Luis Arbulu
Hattery

Joen Asmussen
Automattic Inc.

Seth Bannon
Amicus

James R Bazet
Cobra Electronics Corporation

Matthew Bellows
Yesware, Inc

Paul Berberian
Orbotix, Inc.

Aaron N. Block
BayRu LLC

Matthew Y. Blumberg
Return Path, Inc.

Brad Burnham
Union Square Ventures

David Cohen
TechStars

Jessica Cole
Roammeo, Inc.

Dave Copps
PureDiscovery

Mark Cuban
Dallas Mavericks

Rutul Davè
Bright Funds, Inc.

Pete Davies
Automattic Inc

Christian Dawson
Internet Infrastructure Coalition

Derek Dukes
Dipity

Mat Ellis
Cloudability

Edward Engler
Pittsburgh Equity Partners

Tim Enwall
Mobiplug Networks, Inc

Brad Feld
Foundry Group

Rand Fishkin
SEOmoz

Chris Franks
Moblify

William Randolph Fry
Fry’s Electronics, Inc.

Nick Hamze
Automattic Inc.

Erick Hitter
Automattic Inc

Trenidad Hubbard
Game Face Sports International, LLC

Terry Floyd Johnson
Showdown Royal

Jeevan Kalanithi
Sifteo

Seth Levine
Foundary Group

John Levisay
Sympoz Inc.

Benjamin Lewis
The MadCelt Studios

David Mandell
PivotDesk

Michael Masnick
Floor64, Inc.

Ryan McIntyre
Foundry Group

Josh Mendelsohn
Hattery

Jason Mendelson
Foundry Group

David Merrill
Sifteo

Jesse Miller
Attachments.me

Christopher Neumann
Datahero, Inc.

George Northup
Memeo Inc.

Ethan Rishon Oberman
SpiderOak, Inc.

Alexis Ohanian
reddit

Scott Petry
Authentic8

Daniel Pidgeon
Starpower

Lamar Porter
CIKI, Inc.

Ian C Rogers
Daisy, A Beats by Dre Company

Toni Schneider
Automattic Inc.

Paul Sieminski
Automattic Inc

Keith Lloyd Smith
BigDoor

Jesse Suchmann
DIGITAS

Steven Tiffen
The Tiffen Company

Joshua To
Hattery

Max Uhlenhuth
SilviaTerra

Elizabeth Urello
Automattic Inc

Alexander Shalek White
Next Big Sound

Victor Wong
PaperG

Skylar Woodward
Trumo, Inc.

Adam Wooley
Brute Labs

Gary Yacoubian
Specialty Technologies, LLC dba SVS

Jun Zhang
Vercury Inc.

Bringing More to the Patent Discussion

Innovators may have the opportunity to work more closely with patent regulators as they expand their operations to the West coast. On behalf of Engine, I headed to Stanford University on Tuesday to speak alongside individuals from the Electronic Frontier Foundation, App Developers Alliance, and CodeX as well as two independent developers about the need for greater innovation in the patent regime.

The United States Patent and Trademark Office kicked off its “Software Partnership Roundtable” series seeking input on how to better handle overbroad software patents. Many of us highlighted the opportunity to use new technology to help patent examiners avoid issuing overbroad or unclear patents.

These problem patents are largely to blame for the increase in suits filed by non-practicing entities, often referred to as “patent trolls.” New research from Santa Clara University professor Colleen Chien shows that 82 percent of those facing patent troll suits have been sued on the basis of a software patent. The PTO sought input specifically on overbroad software patents making functional claims that may encompass any number of technologies. Think of Lodsys’ alleged patent on in-app purchases or the disputed “pull to refresh” patents.

Entrepreneurs, investors, and software developers are growing increasingly wary of the patent system both because of potential litigation and due to limited resources to file for and license patents. In a startup’s first year, the company will likely run on little more than the savings of the founders, a few credit cards, and the company’s ideas and innovations. Angel and seed-stage investment don’t provide much financial breathing room, making the fees and time associated with filing for a patent a luxury at best.

Trust in the patent system has eroded. Companies and organizations including Twitter are creating defensive patent systems to help innovators avoid the negative externalities associated with patent litigation. The relationship between developers and the patent system is not so much broken as it is nonexistent in many cases. As two Washington University economists noted in a recent Journal of Economic Perspectives article, engineers are actively told by companies to not “search, view, or speculate” on patents. As one Microsoft engineer testified, “Ignorance is bliss and strongly recommended when it comes to patents.” Big companies often encourage their engineers to avoid patents in an effort to minimize damages should they be found to have infringed an existing patent.

One potential opportunity I dicussed was drawn from Harvard Law professor Yochai Benkler’s book The Wealth of Networks. In 2002, another resource-constrained government agency -- NASA -- successfully launched a clickworkers project to map the surface of Mars. After 6 months and over 1.9 million entries, the survey work was almost indistinguishable from that of a professional geographer. It’s not a perfect case study, but an example of how technology has been used to bring the insight of ordinary citizens into problem solving at a massively complex level.

Communities ranging from Quora to Wikipedia have demonstrated the internet’s capacity to harness collective intelligence, cut through the noise, and provide reasonable guidance on any number of issues. Civic startup groups like Code for America are also demonstrating what a teams of engineers with access to government data can contribute to benefit citizens and businesses around the country. I don’t know if these models would necessarily work for the patent office, but I think the idea warrants discussion, especially as the demand for more rigorous patent review increases.

The confusion created by overbroad patents comes as platforms like GitHub make it easier and easier for software developers to engage in a flexible, responsive, and accessible way. The patent system was built around similar principles, but has become a confusing thicket for most people. To make this partnership successful, the patent office needs to mend the break with innovators while increasing transparency, rigor, and accessibility. I think the startup community can help and Engine will continue to look for opportunities to contribute.

Picture courtesy of Alan Kotok.

After CES: One More Thing About Patents

Startups are taking the lead in the debate on patent reform, but the nature of litigation is keeping too many victims silent. Settlements agreed to by startups often prevent information from coming out about the hardships faced by entrepreneurs.

On Tuesday, I had the opportunity to sit on a panel at the Consumer Electronics Show with patent experts from groups including Google, EFF, and Newegg. A lot of ground was covered (find great roundups in Ars Technica and Forbes), but we ran out of time before addressing one of the most critical issues facing startups: the inability of many companies to discuss cases after settling.

Why is this big deal for startups? As moderator Marvin Ammori pointed out at the end of the session, his call for questions on Twitter was answered by a host of direct messages from entrepreneurs unable to discuss the terms of settlements made. This opacity prevents a truly comprehensive understanding of the damage wrought by entities abusing bad patents.

Not much can be done to combat the silence imposed by gag orders and NDAs, but
Congressman Peter DeFazio, an Oregon Democrat, highlighted legislation during the panel that will help start the conversation on litigation reform in Congress. By decreasing the incentives to litigate, it is hoped that some of the thousands of annual patents suits may be prevented.

Startups can’t afford to be silent about the pain caused by the patent system. Engine is working to gather the stories of entrepreneurs to share with lawmakers. If you have a story to tell about the patent system, please reach out to me at edwardg@engine.is. Together we can change the way the patent system works.

Startups Set the Stage for Patents at the FTC

The Federal Trade Commission held a workshop on patents on Monday, December 12, bringing together lawyers, academics, and industry experts to discuss issues surrounding patent litigation in the United States. Concern about startups drove the conversation at the workshop as the biggest losers in the increasingly litigious patent ecosystem, especially in presentations by Colleen Chien and Carl Shapiro.

Lawsuits filed by patent assertion entities (PAEs) -- companies that focus on buying patents for the purpose of litigation -- have increased 61 percent in 2011, according to Chien. Shapiro noted that large companies absorb the costs created by patent litigation, but that high costs for startups are emblematic of the potential harm to innovation created by PAE litigation.

As we’ve pointed out before, startups face steep costs when confronted with patent suits, especially compared to larger companies. Despite this fact, the discussion about patent litigation has centered on the battle over smartphone patents between companies like Apple, HTC, and Motorola.

We’re working to move startups to the center of the debate over patent litigation and patent reform. Reforms enacted last year in the America Invents Act provide some short-term fixes that can protect startups that have been sued. More steps are needed to protect entrepreneurs and innovation in the longer-term. At Engine, we encourage more discussions like the one the FTC held this week, bringing together stakeholders from across the ecosystem to learn from their expertise and experience.

Photo courtesy of Priya Deonarain. 

Startups Can’t ‘Give It A Rest’ on Software Patents

David Kappos, head of the United States Patent and Trademark Office, gave a presentation yesterday morning telling those claiming the patent system is broken to “give it a rest.”

Kappos approached the debate over software patents in context of smartphone lawsuits between large corporations like Apple and Samsung. He admonished detractors of the patent system to “get the facts.” Here at Engine, we’ve been following developments in the patent system closely; the fact is startups can’t afford to give it a rest under the current patent regime.

The economics are clear: startups fuel net job growth in the U.S. economy. Small, technology-focused businesses are developing innovative products and promoting competition. Software patents are a real challenge to young firms that don’t have the legal resources to defend themselves against non-practicing entities -- often called trolls -- that use patents for litigation instead of innovation.

A June paper from Boston University showed that patent trolls cost companies $29 billion in 2011 in direct costs from litigation. While large companies pay more of the overall settlement and legal costs, the expenses make up a greater share of smaller companies’ revenue, according to the research.

Last Friday, we attended a conference aimed at finding solutions to the software patent problem. Hosted by the High Tech Law Institute at Santa Clara University Law School, lawyers, software engineers, and activists came together to discuss possible solutions. Legal, procedural, and economic ideas were floated, but investor Brad Burnham of Union Square Ventures made a critical point, saying that 25 percent of USV’s startups had been sued and that half had received demand letters. Suits like these don’t just cost companies revenue; they threaten the survival of startups and destroy jobs.

Policymakers like Kappos must recognize the existential threat bad patents pose to young companies. While he emphasized new review procedures available to PTO after passage of the America Invents Act, the fact is that the measures in place insufficiently protect small companies facing predatory patent suits. The last thing the startup community needs to do is to give software patents a rest. At Engine, our community aims to lead the discussion on how to move forward.

Picture courtesy of Alan Kotok.

Colleen Chien Patent Research: Startups Paying the Price

Patent lawsuits create big problems for small companies and startups which pay a larger share of their revenue and resources fighting them than larger companies, according to research published by Santa Clara University Professor Colleen Chien.

In July, Chien testified before the House Judiciary Subcommittee on Intellectual Property about the need to change a patent system that harms entrepreneurs and innovators more than it helps. Afterward, Engine sent out a call for startups who had been affected by patent litigation to share your stories with Chien to assist with a study into the impacts of patent litigation on startups. Chien listened to your stories, tabulated the survey results, and used them concurrently with her comprehensive analysis of patent litigations from 2005 to present. The findings:

• Small companies are more likely to experience “significant operational impact” due to patent demands.
• Monetization of software patents is an iffy investment. Few software patents are actually valuable, and the patent market is a risky lottery type situation rather than something investors or companies can rely on. 
• Most startups don’t patent anyway because of the expense.
• Startups are often targeted because they are users of technology -- like retail or hospitality outlets that have WiFi.

Startups and small companies are among the most negatively impacted by patent litigation. The need to protect America’s startups, and to create an environment that isn’t chilling to new firm establishments, is vital to our continued economic growth and job recovery.

Chien notes that existing proposals, like the SHIELD Act, may work differently for startups than they do for larger and more established companies, who are more constrained by time and resources and thus cannot bear even the lessened drain on resources that these reforms provide. The SHIELD Act functions on a “loser pays” system in which the costs of invalid suits or non-infringed cases are paid by the bringer of the case. However, in the case of a small startup, the resources and time drained in order to prove that the suit is invalid or prove non-infringement may still be too high.

Policymakers need to be aware of the high costs patent litigation imposes on startups under the current system and under proposed reforms. The entrepreneur community should guide policies that lessen potential negative effects on startups and young businesses. Startups are the key to economic growth and global competitiveness in this country, and government regulation needs to reflect this.

Kent Walker: Embrace the Future, Fix a Broken Patent System

The future of America’s economy depends on policymakers embracing and fostering technology, according to Google’s Chief Counsel Kent Walker, who spoke at an open forum about the intersection of technology and policy earlier this week. Around 200 attendees gathered in Aspen, Colorado for an annual gathering of the Technology Policy Institute -- a Washington, DC-based policy think tank -- to discuss the most pressing policy issues the innovation economy currently faces.

Near the top of that list is how we think about software patents. As many startups have discovered in the course of building innovative products, our current system is largely broken. Walker, who has a long history of serving with some of the leading names in American innovation, from Netscape to AOL, identified three areas of policy development that would better serve the innovation community.

First, we should re-engineer the patent system to support, rather than attack innovation. Google made some news on that front last week by unveiling its Prior Art Finder database, a tool that examiners and applicants alike can use to search earlier patent applications and avoid duplicative applications. Walker asserted that further steps would be necessary, including re-thinking the utility and viability of the software patent overall, but resetting the system to be one of support is a good first step.

Walker also suggests extending a provision in The America Invents Act that weeds out counterproductive financial business model patents, to include software patents. This measure, along with working directly with the Patent and Trademark Office to discontinue issuing these types of patents in the first place, could ease the burden on examiners and applicants alike.

Finally, Walker warned that innovators must work against the expansion of the current system of litigation that is driving much of the conversation on patents. As a community that has been besieged by a broken patent system, we can and should fight to make serious public policy inroads to better serve the needs of our industry. As Walker says, we must embrace the future, and heed the Samuel Morse telegraph case of the 1800s, by seeking not to define and codify law according to what we know today, but to take care not to impede progress in areas which we haven’t yet explored and discovered.

Walker’s full remarks are available here. Engine will continue to explore opportunities to influence public policy around patents and will continue to update. If you have a patent story to share, let us know about it. info@engine.is

Innovation Should Drive IP Enforcement Strategy

On June 25, the United States Intellectual Property Enforcement Coordinator, Victoria Espinel, reached out for public comment on their Joint Strategic Plan on Intellectual Property Enforcement. Today, Engine, alongside many other groups from the startup and open internet communities, submitted its public comment.

We advocate for an “innovation first” policy, advising that the administration focus on protecting entrepreneurs building enterprises rather than seeking a new, more aggressive approach. It’s a shift in strategy that we believe could fundamentally change the conversation on IP. We ask that the administration consider the high costs of enforcement to startups and other disruptive businesses.

You can read our full comment here and please add your own thoughts here on how you think the U.S. government should approach IP enforcement.

Congress is Asking: Tell Your Patent Story

Members of Congress are seeking comment from the tech entrepreneurial community about how the current patent system impacts their businesses, a promising sign that policymakers are paying attention to the harmful effects patent litigation has on emerging growth companies.

Earlier this month, Santa Clara University Assistant Professor of Law Colleen Chien testified before the House Judiciary’s Subcommittee on Intellectual Property about the desperate need many startup founders and entrepreneurs face for reform of the patent system. Resulting from that discussion in Washington was a sense that members of Congress need input from our community with regard to what’s working and what isn’t with patents.

Professor Chien has put together a brief survey for those of you at startups who spend your time working on patent demands, to share your experiences with the current system. The survey responses will form the basis of opening a dialogue with members of Congress about what’s happening in our community, and what some of the solutions are to improving the system.

So, if you or your company is dealing with these issues, take a few minutes (Colleen promises it won’t take more than 15, and don’t worry, your answers will be kept confidential) to tell your story so we can start down the road of making changes in the patent system that work for startups.

Patent Lawsuits May Cost Startups Billions

Patent litigation is becoming an expensive hurdle for startups, and people outside the startup community are taking note. “It’s not clear that we really need patents in most industries” Judge Richard Posner told Reuters in an interview July 5 following his decision to end a patent suit between Apple and Google’s Motorola Mobility unit. The jurist and professor characterized the proliferation of patents in the technology industry and other high innovation markets as “a problem.”

Posner, a judge on the 7th U.S. Circuit Court of Appeals and professor at the University of Chicago, is a prolific author on law and economics, including the book The Economic Structure of Intellectual Property Law.

His comments follow a recent Boston University study that estimated companies were subjected to $29 billion in direct costs from 2011 patent infringement claims filed by “non-practicing entities” -- companies that operate by collecting fees on patent licenses as opposed to making products. While large companies pay more of the overall settlement and legal costs, the expenses make up a greater share of smaller companies’ revenue, according to the estimates.

Lawsuits brought by entites like Lodsys, a company that has sued app developers for the use of in-app purchases and other fundamental technologies, demonstrate the vulnerability of startups to the high costs of patent litigation and settlement.

A June 25 article by Bloomberg’s Susan Decker highlighted the study co-author James Bessen’s impression of the effect of litigation on entreprenuers and innovation:

“I was surprised at the magnitude and how much of it is really hitting small companies,” said Bessen. “It’s having a bigger effect on innovation than we had thought.”

Startups need a patent system that fuels innovation and incentivizes invention. Money seeped away by lawsuits robs young, dynamic firms of the opportunity to create jobs, enhance their products, and reach new customers. Reforms in the America Invents Act, signed into law in September 2011, didn’t go far enough to protect entrepreneurs. We need new, well-considered legislation to address predatory lawsuits and the billions observed by researchers to be lost to settlements and legal fees.

June 13 Midweek Policy Update

This week in Washington: Cybersecurity legislation may move forward in the Senate, ICANN releases a list of proposed generic top-level domains, the United States Patent Office promotes clean energy partnerships.

Cybersecurity

Senate Majority Leader Harry Reid put his colleagues “on notice” June 10, calling on democrats and republicans to work together to pass cybersecurity legislation that has stalled in previous Senate sessions. The bill faces stern resistance from many technology-focused groups concerned about its impact on privacy.

Open Data

Representative Darrell Issa announced on June 10 the OpenGov Foundation at the Personal Democracy Forum in New York City. OpenGov would allow citizens to actively engage in the policy-writing process through open, web-based technology. Issa is looking for developers to build the tool.

Patent

The USPTO held a meeting of clean technology stakeholders in an effort to improve and expand its clean technology program. Issues discussed included the importance of regional accelerators and an update on cleantech patents.

Spectrum

The FCC holds an open meeting June 13 in which the commissioners will consider moves to make more efficient use of high frequency spectrum for a nationwide interoperable public safety network.

DNS

Also on June 13, the International Corporation for Assigned Names and Numbers (ICANN) holds a press conference unveiling the generic top-level domains applied for in the organization’s expansion program. The application window for the new domains -- which could include .lol and .nyc -- closed May 30. A release from the organization reports that more than 1,900 applications were received.

Twitter's Innovative Patent Agreement

Twitter posted this morning to announce a new arrangement the company has with its developers regarding the patents they have received for their work. It's called the Innovators Patent Agreement and it is an effort to reward their talented people for creating industry-leading products. This also -- in theory -- helps stem the tide of attacks from patent trolls by leaving control of the ultimate use of the patent in the hands of the creator.

Techdirt's Mike Masnick summarizes it:

"The method by which this works is pretty creative. Basically, if the actual patent holder tries to use the patent offensively without first obtaining the permission of the inventor, the agreement allows the inventor to issue a license to the entity being sued."

Read more from Mike at Techdirt, read the full agreement posted by Twitter on Github here. It's great to see Twitter doing something like this, but how about other patent holders? We think it's an innovative idea that could change the wider landscape with increased adoption and we're curious to see how it rolls out. Would it be a good strategy for your company? Let us know what you think over in the comments.

Honeywell, Nest, and the Next Wave of IP Protection

Intellectual property is vitally important to innovation, but there comes a point where patents are so broad that they stifle new products and technologies.  So seems the case when large, long running companies can quash younger innovators with costly, time-consuming patent lawsuits.

There’s been quite a little buzz over startup company Nest’s Learning Thermostat. Designed by former Apple engineers, it features sleek, minimalist styling with a track wheel control, like the original iPod. It operates a self-programming system based on an interview-style interface, and learns your habits in order to predict when to change the temperature and save you up to 30% on your energy bill. It can also be remotely controlled from your computer or smartphone. It’s been receiving accolades as a nifty, attractive and innovative design and has been sold out since early November.

Thermostat giant Honeywell has taken a rather sour grapes attitude to all of this and has filed a patent infringement lawsuit accusing Nest of seven separate instances of infringement.  

These alleged infringements cover the sleek, minimalist styling, or at least the rotatable ring control. The interview style interface. The energy saving features. And the feature to control remotely via the Internet. Honeywell claims that the core design and functionality of Nest’s thermostat are the direct result of years of research and development carried out by Honeywell. The 2008 Honeywell thermostat, the Prestige, does appear to offer many of the features Nest’s does.

But can you really patent the shape of a device?  Or something as ubiquitous as WiFi connectivity now is?  And if you can, should you?

Honeywell’s crusade to “protect its intellectual property” is, for the moment at least, exclusively targeted towards Nest (and Best Buy, who is selling Nest’s products) -- which seems to suggest Honeywell is more interested in keeping innovative startup competitors from entering the market than IP.  But Nest’s thermostat is not the only competitive device on the market right now.  General Electric also offers the ability to manage a “GE smart thermostat” via the internet.  When asked to comment on GE’s system, Honeywell told  All Things D: “I don’t know. I’m not familiar with that product.” Honeywell also told GigaOm last week that it had shelved plans for a “learning” thermostat 20 years ago because they “found that consumers prefer to control the thermostat, rather than being controlled by the thermostat”, and decided to focus on other innovations.

So Honeywell doesn’t (or didn’t) want to pursue this particular innovation. But it doesn’t want a slick little startup like Nest to have it either. The problem is, an industry behemoth like Honeywell has a lot more financial clout and could sink Nest with a lengthy and costly litigation process -- even if it doesn’t win the patent lawsuit, it could at least deliver a critical hit. Which is discouraging for innovation all around.  Because lets face it: Nest’s thermostat is a hot-ticket item because it fuses design with functionality in a way that’s innovative, much like Apple’s recent products have -- not just for its WiFi capability or interview-style interface.

Protection of intellectual property is important, and we must take active steps as a community to find the best solutions to issues which arise out of our new technologies with regard to those protections. But we should not stifle innovation and improvement through overly broad restrictions on the creation of products and ideas.