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What OIN’s Purchase Of Linux Patents Really Says About Trolls

by Brian Prentice  |  September 13, 2009  |  8 Comments

Last week I had a chance to speak to Keith Bergelt, CEO of Open Invention Network (OIN), about their recent acquisition of 22 “Linux-focused patents.” The objective of this purchase, as stated in their press release, was to avert “the prospect of these patents being placed in the hands of non-practicing entities …whether or not the patents truly read on Linux.”

Now first off I like OIN. They featured in my “Cool Vendors In Intellectual Property, 2009” research report (Gartner subscription required). But there is some irony in them railing against “non-practicing entities (NPE).” They are, after all, a non-practicing entity themselves. They buy and hold patents with no intention of using them in a product they manufacture and sell. There is, of course, a big difference between NPEs. OIN’s objective is not to profit directly from the patents but to protect Linux from infringement actions. They’re kind of a patent knight in shining armor.

One of the things I asked Bergelt was the basis upon which OIN decided whether these patents were worth purchasing. The answer was sobering. These patents were assessed basically on their potential to result in an infringement action. In other words, the value of the patents are not based on the incremental benefit they could add to a product but rather in their potential to mitigate legal costs.

I’m not about to argue that arbitraging legal costs is a socially-productive economic activity. But we have to be philosophical here. Gaming a system is one of the oldest business strategies around. Just look at the use of ultrafast computerized stock trading systems that are at the heart of the Sergey Aleynikov case with Goldman Sachs. And when these games get identified, it’s perfectly reasonable for people to advocate systemic change in order to remove these unproductive and market distorting behaviours.

The problem with legal cost arbitrage is that the debate is being distorted by the IT vendor community. Many outspoken IT vendors are happy to seek and hold software patents. They’re happy to profit from these patents without actually using them in their own products. And they’re happy to apply a little legal cost arbitrage of their own when they need to defend their economic interests.

But what really rubs these vendors up the wrong way is that companies like Intellectual Ventures and Acacia Technologies – the ones they’re calling NPEs – game the system differently. They’ve devised a business model that renders themselves largely immune to counter-suits and cross-licensing arrangements that are so effective in allowing IT vendors with big patent portfolios to shut down infringement actions from other “practicing entities.”

In fact, the whole term “non practicing entity” is a ruse. The underlying activities of the patent system – seeking patents, buying patents, licensing patents and litigating patent infringement – are practiced by a range of organizations including vendors, universities, governments and patent commons organizations like OIN. “NPE” or “troll” are just convenient terms used by those want to skew a broken system rather than actually fix it.

So, by all means, let’s fix the system to remove the arbitrage of legal costs. We can do this by focusing on the quality of granted patents and on creating greater transparency and accessibility in the system. Doing these things will reduce the uncertainty which underpins the legal cost arbitrage model.

But the goal here is not to eliminate NPEs. It’s to switch their focus to something far more productive. Pooling patents has value. It can be done to facilitate the sharing of innovation (like when vendors cross-license). It can be done to provide open access to innovation (like what OIN does). Similarly, patent pooling from companies like Intellectual Ventures and Acacia Technologies can provide small inventors access to a defensible portfolio normally available to the largest organizations.


Thoughts on What OIN’s Purchase Of Linux Patents Really Says About Trolls

  1. Here’s a better way to reform patents on software: eliminate them! The proportion of patents on software that create a net gain in “socially-productive economic activity” are few, compared to the many that *discourage* the development and release of software.

    As you point out, the majority of software patents are held either by large organizations which sell software, or patent holding companies. Both of these discourage innovative newcomers.

  2. Frank Hardisty – thanks for your comments.

    You’re not the only one advocating that position! And I can certainly understand that the frustration with patent system can lead one to want to scrap the whole thing.

    But I still firmly believe that patents are critical to the future of the software industry. I also believe that the inefficient, complex and costly system does favor the large organizations that have the time, money and expertise to navigate through the mess. Scrapping patents, IMHO, would actually hurt the small innovator. What we need is to radically improve the patent system so that it is accessible to both big and small firms.

    Thanks again – I do appreciate you sharing your perspective.

  3. Alpheus says:

    I’m not just for eliminating software patents: I’m for eliminating patents completely!

    Patents *hurt* the small innovator. They are expensive to obtain, and *very* expensive to enforce; and while you are enforcing them, you are spending money that ought to be used in improving your products and providing services to customers.

    Patents also *prevent* sharing of innovations. Patents are typically so vague and legaleqse that they are meaningless, and by fostering monopoly behavior rather than competitive behavior, people who attempt to use patents only hamper progress. It is the industries that have no patent protection, or pretty much just ignore patents, that thrive the most!

    A good economic case against patents, and even copyright, has been made in a book called “Against Intellectual Monopoly”. I would encourage you to google it; you could read it on-line, or purchase a copy from Amazon.

  4. Brian Prentice says:

    Alpheus – sorry, the idea of eliminating patents completely is so far outside the realm of possibility that you might as well lump peace on Earth in with your wish list. This is my frustration with the no-patent crowd – it’s a non-solution. And by pursuing something that is politically unsustainable it reduces the ability of others to seek meaningful solutions to a clearly dysfunctional system.

    I would also take direct issue with your comment that patents “‘prevent’ sharing of innovations.” That is the whole point of a patent. The invention is shared with society and is freely available to see. The goal is to allow others to improve upon it. What you’re confusing is the issue of exclusive property rights – and that’s the whole design of the patent system. As an inventor, you share you ideas with society to spur innovation in exchange for a limited exclusive right. I am failing to understand why this concept is not as pragmatic and morally sound as when it was first established.

    So, be careful what you wish for Alpheus. What will the world look like if inventors can’t secure the exclusive use of their invention for a period of time. If you think we’ll live in a world where everyone shares and shares alike I’m afraid you might be misjudging human nature. I would suggest we’ll be in world marked by tightly held secrets and a restricted flow of labor. That is infinitely more dangerous to innovation than a patent, IMHO.

  5. Alpheus says:

    “””I would also take direct issue with your comment that patents “‘prevent’ sharing of innovations.” That is the whole point of a patent. The invention is shared with society and is freely available to see.”””

    Yes, that is the whole point of a patent, but I’ve seen a lot of patents that don’t live up to this standard! But patents–especially vague ones–can be used just as readily to squish innovation as they can be to encourage it.

    “””What will the world look like if inventors can’t secure the exclusive use of their invention for a period of time.”””

    I would imagine that the world might look like Silicon Valley in California–where non-disclosure clauses and forbid-work-with-competition clauses are unenforceable–or Linux, which has repudiated copyright–or the mathematical community, where ideas are (so far) not patentable, and it’s relatively easy for a graduate student to get a copy of whatever papers are needed (I know, from experience)–or 19th century foreign authors, who were often paid greater royalties by American publishers than by local publishers, for the chance to be first in a market without foreign copyrights.

    “””I would suggest we’ll be in world marked by tightly held secrets and a restricted flow of labor.”””

    Since most innovations are the result of incremental advancements, made by entire communities, most innovations will not be trapped as “secrets”, because of competitive reverse-engineering, or because of parallel discovery; furthermore, we already live in a world of tightly-held secrets and restricted flow of labor, due to non-disclosure agreements and non-competition clauses.

  6. Alpheus says:

    Also: while I am completely for removing patents and copyright completely, I’m *not* for doing so overnight (although it would make life interesting!). These things would best be removed gradually, so that society could adjust to this new way of thought gracefully. I feel that the GPL and the Creative Common License will be helpful in going this direction.

    On second thought: I like chaos. Let’s just get rid of the entire structure completely, and watch what happens! ;-)

  7. Alpheus – nice conversation! Here’s a few more comments:

    “I’ve seen a lot of patents that don’t live up to this standard” – On this point we are in total agreement. But I maintain that the solution to this problem is not to scrap patents but to fix the system. This is the realistic solution that I prefer pursuing.

    “I would imagine that the world might look like Silicon Valley in California…” – But Silicon Valley is also a place full of patents! I don’t think you can divorce the valid point about unenforceable non-disclosure agreements and the existence of patents. If patents disappear I feel confident that the growing political lobbying power of the IT industry will be focused, like Sauron’s eye, on enforceable non-disclosure agreements. There’s simply too much money at stake.

    Again, I think what we should be doing here is imagining a world where the patent system functions properly – the patents granted are high quality, the cost and complexity is significantly reduced, the need for litigation plummets.

    And Alpheus, you must be young! The older you get the less attractive chaos becomes. :-)

  8. Alpheus says:

    “””And Alpheus, you must be young! The older you get the less attractive chaos becomes. :-)”””

    I’m just barely middle-aged, but over the years I’ve become rather Libertarian. The more I look into things, I become convinced that as long as there are ways to seek justice in cases of stealing, lying, cheating, and murder, we ought to be free to do as we see fit–so long as we are willing to accept the consequences for when things go wrong. (That, though, may sometimes be a harsher punishment than any government could devise!)

    One reason I’ve come to be so anti-patent, and even anti-copyright, is because of my desires to *create* things! As a mathematician, it’s rather tricky figuring out how to make a living, because in the process of getting my doctorate, I discovered that I don’t want to be a professor–but as a pure mathematician, I’m not sure what I could do in industry. Besides that, though, I’d like to write, to compose music, and to design software and even gadgets. Over the years, I’ve become convinced that patents and even copyright gets in the way of doing these things!

    The book I mentioned earlier–“Against Intellectual Monopoly”–cemented my convictions, as well as another book, called “The Discovery of Freedom” by Rose Wilder Lane, that I read about a month ago. The first book convinced me that you don’t need a “model” to make sure that we can profit from our innovations: it can happen by natural market forces, and has for centuries. The second book was a firm reminder that I am free, regardless of what any “Authority” may say.

    But I understand the fear of chaos: I’m in limbo right now, trying to figure out what to do. Being free gives me ulcers; overall, though, it’s the best tool we have for increasing *everyone’s* quality of life.

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