Once More unto the Breach

Patent Portfolios and Paying Patent Lawyers

The current issue (Jan 14-20, 2006) of the Economist has an article (sorry paid subscription required) called "Innovation and its enemies" covering the 2005 USPTO patent statistics, the problems in the patent space (at a high level), and references the GPLv3 work at the end of the article.  A couple of numbers caught my eye. 

Moreover, Microsoft (with around 750 patents) failed to break into the top ten—but with over 13,000 applications pending, it seems bound to get there soon. For now, the firm ranks 18th.

That's sort of staggering really.  The rule of thumb is a patent can cost US$15,000 by the time you've paid the patent attorneys and filed the paper work, and then you wait (for on the order of three years now according to the article).  Microsoft has filed as many as 3000 patents in previous years according to various public reports, and one might imagine they filed as many a couple of years ago, for these 750 to appear this year. 

So what I want to know is when do the patent attorneys get paid?  If it's upon filing, but the patent doesn't survive, does the filing company get money back from the attorneys because the attorneys didn't file a strong enough patent, or do their homework deeply enough?

As an ex-patriot Canadian, I was taught that the Canadian legal system differed from its U.S. counterpart in that (i.) a Canadian lawyer only gets their fee (no percent of the damages) so the pressure to drive up the damages doesn't come from the lawyers, and (ii.) in Canada the "loser" pays which tends to cut down on gratuitous litigation.  So the way lawyers are rewarded seems at first to have an effect on how the legal system gets backlogged (or not), or at least it removes the lawyer's bias from the system.   

With the patent system flooded (the number quoted in the article is that there are 500,000 patents in the backlog), the patent lawyers probably can't do their homework deeply enough.  But there's no economic disincentive to file differently to try to improve the system. 

It will be fascinating to see how many lawyers begin to get involved in the Open Patent Review initiative started by IBM. Will the aggressive participants become the better patent lawyers offering their clients demonstrably better patent filings?  The right sort of competition from lawyers could have a fascinating impact on the improving quality of patents. 

Here's the top ten list for the year (from the USPTO website):

Top 10 Private Sector Patent Recipients for the 2005 Calendar Year.

Preliminary Rank in 2005	Preliminary # Patents in 2005	Organization	(Final Rank in 2004)	(Final Number of Patents in 2004)
1	2,941	International Business Machines Corporation	(1)	(3,248)
2	1,828	Canon Kabushiki Kaisha	(3)	(1,805)
3	1,797 *	Hewlett-Packard Development Company, L.P. *	(4)	(1,775)
4	1,688	Matsushita Electric Industrial Co., Ltd.	(2)	(1,934)
5	1,641	Samsung Electronics Co., Ltd.	(6)	(1,604)
6	1,561	Micron Technology, Inc	(5)	(1,601)
7	1,549	Intel Corporation	(7)	(1,513)
8	1,271	Hitachi, Ltd	(8)	(1,893)
9	1,258	Toshiba Corporation	(9)	(1,311)
10	1,154	Fujitsu Limited	(11)	(1,296)

* Calendar year counts for 2005 for Hewlett-Packard Development Company,  L.P. include seven patents issued to Hewlett-Packard Company.

IBM, Patents, and Open Source Software

There is something wonderful about watching IBM execute.  Terrifying perhaps if you're the competition, but wonderful nonetheless.   Last week they announced several initiatives around the U.S. patent system and open source software.  Bob Sutor covers the three initiatives in his blog entry. 

The Open Patent Review initiative sounds brilliant.  Let the public participate in patent review.  By registering an interest in particular domains (presumably via RSS feeds), people that have experience in an area can contribute and keep track of what's happening that might impact them.  It wouldn't take much imagination to see reputation systems wrapped around this such that different "community examiners" begin to stand out based on the ratings of their peers and the usefulness of their contributions.  (Likewise cranks can be weeded out.)  Beth Novak is running a series of workshops on the initiative.  You can find out more information at her website: http://dotank.nyls.edu/communitypatent.

Then there's the Open Source as Prior Art initiative.  This work is being done in conjunction with the Open Source Development Lab, Novell, Red Hat, Eclipse, and SourceForge.net.  Obviously this has a bit of a Linux-centric view of the world, but by adding SourceForge they can test the environment well beyond the Linux world and it presumably wouldn't be too difficult for the Apache Software Foundation, or the Gnome Foundation to get involved.  Hopefully Google gets involved before Yahoo or Microsoft wake up and smell the coffee here.  You can find more information at this website: http://developer.osdl.org/dev/priorart/information.html.

The Patent Quality Index sounds intriguing.  I'm a little more skeptical here perhaps, but look forward to seeing where it goes. 

While the initiatives are each interesting in their own right, it is the business execution on IBM's side that remains brilliant.  It is how IBM is attacking the problems of a congested system, when they clearly continue to patent intellectual assets to manage vendor-to-vendor competitive situations.  Consider:

• HP, Sun, Oracle and Microsoft don't appear to have been invited to the table.  This means they aren't paying attention.  HP is a primary patent filing company like IBM on the hardware side.  (Hmmm -- so is Intel on chip technology.)  And then of course one might imagine Oracle and Microsoft care just a little about software patents.  Any move any of them make now (i.) looks like playing catch-up, (ii.) has to co-ordinate with the existing first public moves of IBM else they look divisive in the teeth of IBM's community and academically focused initiatives, (iii.) is already less influential.
• Last Spring (2005), Microsoft and Oracle announced their desire to see patent reform in the U.S. except they're trying to do it via the U.S. Congress, in the teeth of a system designed to protect the bigger interests of industries like the pharmaceutical industry.  Here, instead, IBM is avoiding the entire expensive (lobbying), time-consuming, messy legislative route and plugging straight into the USPTO to help improve the tools they can use and dealing (potentially) directly with the human bandwidth and expertise problem the USPTO has regardless of what legislative changes may be enacted at some future time.

I once heard a story (probably apocryphal) of how IBM convinced the USPTO to consider the IBM Systems Journal to be one of the sources of prior art that was searched.  This is breathtaking in its brilliance.  They could mainline directly into USPTO:  And it's genuinely helpful.  The question becomes: What would they want to publish or patent in the teeth of their competitors this issue?

While apocryphal, it's believable because there is a maturity to the intellectual asset strategy in it that goes well beyond more-patents-faster, and speaks to the same level of brilliance of their new initiatives.  This will be a fascinating set of initiatives to watch. 

Shai Agassi, SAP, and Open Source Software

In mid-November, Shai Agassi, (SAP, President of the Product and Technology Group) caused a bit of a stir with comments about "IP socialism" and open source in a public presentation.  The original news article is here, Shai's blog commentary defending and clarifying his statements is here, the vnunet follow-ups are here and here.  Mårten Mickos, MySQL CEO, follows up with an excellent response (here) being ever pragmatic and observing that actions speak stronger than words and pointing out some of the positive actions SAP has done around open source software.  This is where I want to go in this post. One of these actions demonstrates that as poor as Mr. Agassi's rhetoric is (and we'll tackle that in a moment), SAP actually "gets" open source business tactics as well as Sun and IBM. 

In September 2002, at the SAP developer's event, SAP announced the release of SAPDB.  SAPDB was free software in every sense of the word, including the General Public License (GPL).  Essentially, they acquired the assets of Adabase (yet another relational database that tanked against the Oracle juggernaut) from Software AG.  They then spent 100 people times two years modernizing the old code base, adding objects and XML to the engine, and so forth.  A conservative back-of-the-envelop estimate would put the engineering cost at about US$20M.  And then they released binaries (for Solaris, AIX, HP/UX, Windows2000 server, and Linux) and source under the GPL. The history of sapdb.org is captured here (courtesy of the Wayback machine). 

Certainly the German government must have loved this move.  A preeminent German software company paying its taxes and hiring lots of other tax payers also does free software, something the German government certainly seemed interested in at the time.   This was a great PR play.  (Indeed, I wonder what the research and development tax implications of this move were in Germany at the time?)

Initially, they even played the game very well as a large conservative corporation around patent/copyright taint issues.  While SAPDB was free software, and they built a support and user community around it, they weren't accepting changes back from the community.  They claimed at the time they were still "figuring out how community development worked" (and indeed their lawyers were probably sending loud fear signals around potential litigation as all large firm conservative lawyers are culturally and genetically required to do.) 

The following Spring, SAP passed the entire community problem off in a partnership with MySQL AB, a company with deep experience in managing community development and with a different legal risk profile.  SAPDB was rebranded MaxDB.  The timing was probably perfect for MySQL AB as well, because it would have been just prior to their venture funding round and I'm sure a partnership with SAP worked well in the valuation discussion.  Everyone wins — SAP, MySQL AB, and most importantly for both companies, customers win. 

Geoff Moore pointed out in the original Crossing the Chasm (1991) that companies win that put forward the best "whole product" image to customers, i.e. a core product and all its complements.  SAP presumably already dominates the Fortune 1000.  How would they grow their R3 business?  Well, they could go after the middle-tier businesses, but those customers may not want to pay the Oracle/Microsoft/IBM tax for the relational database to run R3.  So SAP gave them one for free.  R3 is core.  A database is a complement.  Of course, SAP didn't want to go into the database business (free binary only product with a large margin-eating support business), nor did they want to simply give away a 20 million dollar investment by publishing the source in such a way their competitors might be able to use it.  So they put it out under the most business conservative free and open source software license available, and made a good PR statement at the same time. 

MySQL was the perfect company to pick up the community development issues as they would be able to (hopefully) turn those MaxDB users into paying customers of MySQL over time as MySQL evolved in functionality, and they themselves were comfortable building a business around free software and the GPL.  Indeed, this would be introducing them to a whole new class of small enterprise customers. 

Neither is this IP hostile in the sense of the (mistaken) Microsoft FUD or Agassi's own naive statements in November.  This appears to be the mature IP strategy of a large IP savvy organization similar to publishing ahead or setting up patent pickets around one's competitors.  This is a company that can clearly see that it will spend its IP strategy dollars on assets it wishes to turn into "legal property" in their core business areas, and not in the complement spaces.  This is a strategy worthy of IBM in its moves around standards and open source, understanding that not every asset need be turned into legal property (with those attendant costs, timing, and risks) when they can be used as complements to drive core business revenue streams with customers.

Which is probably why Agassi's current IP-related comments smack of bad sophistry, or at least demonstrate the need of a mature PR policy to handle the growing problems SAP will face as open source alternatives begin to mature in some of their core business areas.  (They first need to learn it's a network and not a stack, and open source isn't eating it's way up the stack.)  SAP certainly has challenges to face.    But SAP would appear to be presently behaving as Microsoft and Oracle did three and four years ago, using tired naive rhetoric trying to frame a discussion around "property" and "innovation" rather than appreciating that all free and open source software licensing depends first and foremost on strong copyright laws, and innovation happens where you encourage it with little regard for how you license it.  Agassi's "we're open source because we share the source" sounds as awkward as early Microsoft Shared Source messaging before Jason Matusow evolved the message over time to the "move to the middle" language. 

Maybe that's what SAP needs at this juncture — either an Open Source Officer similar to Simon Phipps (if they're serious about an open source strategy) or at the very least a consummate diplomat similar to Jason Matusow (while they figure out what their strategy needs to be).  The current rhetoric seems at odds with the past behaviour.