VC Warns of Tech Businesses’ Lack of Patent Ethics: “Many lives will be lost”

A veteran venture capitalist and technology investor is calling for Congress to revise the patent laws and for companies to step up and embrace their moral responsibility to acknowledge the IP rights of others.  

“Society at large is losing out on discoveries that have not been founded, funded or grown because of a weakened patent system,” Gary Lauder, Silicon Valley venture capitalist and technology investor told an audience of IP experts recently.

“The destruction of the patent system brought about by big [technology] companies and their trade associations is the single most destructive thing they have done,” Lauder explained. “The current ‘techlash’ is misplaced on issues of lesser importance. Many lives will be lost.”

Lauder was keynote at the third Intellectual Property Awareness Summit (IPAS 2020) held by the Center for Intellectual Property Understanding (CIPU) in conjunction with UC Berkeley Haas School of Business and the Tusher Center for the Management of Intellectual Capital.

Tricking Congress

“Not all PAE’s [patent assertion entities] are the same but they are tarred with the same pejorative – patent ‘troll,'” he said. “Trolls, are the necessary boogeyman designed to trick Congress into believing that the patent system needed fixing.”

Lauder is responsible for investing more than $500 million in over 125 companies and 100 VC funds over the past 35 years. His name is on 17 patents. “I’m not a lawyer,” he told the audience of IP owners, advisors and investors, “but I have kept many of them well-fed.”

Lauder has no interest in any troll, PAE or patent-owning entity behaving in an aggressive manner. In fact, two companies of which he was Chairman were sued a total of three times by PAE’s.  Despite that experience he believes that additional anti-troll legislation would be more harmful than helpful to legitimate patent holders.

In his speech, he dissects an example of the role that that patent rights and non-practicing entities (NPEs) play in inducing VC investors to invest and operating companies to benefit.

Misleading meme: A ‘troll’ stamping on innovation

Lauder cautions that some industries are net defendants of patents. “They may have many patents but they don’t use them to achieve their market power” in the same way that small businesses do. Examples he gave included software, internet and consumer electronics companies, and some financial institutions, like banks.

To bolster his argument of the negative troll meme, Lauder pointed out that people in Shrek costumes were hired to hand out flyers outside of Union Station in Washington, DC, and there were posters on the walls of National Airport. “You can be sure that these were not paid for by the small, innocent victims of trolls they are claiming to be defending,” he said. “The troll impact has been willfully blown out of proportion.”

“Most directors who sit on boards – many of whom are friends of mine – are unaware what is happening to the patent system. It’s not that they defend their company’s actions – they don’t even know they exist.”

As the rate of technology intensity rises, so too, should the rate of litigation, explained Lauder. Such litigation is how parties negotiate their respective positions as new industries rationalize. However, the rate of litigation has, in fact, gone down, even as the the number of patents in force have gone up and the need for many companies to take a license has gone down (see graph above). Patent licensing is much more litigious today, even as the overall amount of litigation has dropped.

Suing to enforce patents is less likely to result in justice, so, fewer patent holders bother. This results in a dangerously narrow view of what is considered innovative and of value.

Lauder said the proper patent legislation will not be enacted unless:

  • Congress becomes aware of the misleading narrative
  • Corporate opposition (esp. certain large technology businesses) grows a conscience

Rounding Error

The VC believes that the cost of settling most patent claims is effectively a “rounding” error for many large companies, so they can readily afford to take licenses based on reasonable market values and avoid stifling inventive businesses whose technology they are using.

It takes over 20 years for the effect of weakening patent rights to play out. “By then you are likely to have been in a hospital room for you or a loved one, wishing someone had invented a cure for his or her affliction.”

For the full audio and slides of Gary Lauder’s keynote, “The Roll (sic) of Patents in Corporate America,” go here.

Audio files for all speaker and panelist presentations at the IPAS 2020 can be found here.

Lauder said that he had strived to make his talk novel, useful and non-obvious.

Image source: Gary Lauder; Wesaam Al-Badry

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