Innovation: In Defense of Patents

Innovation: In Defense of Patents

Tesla, lawmakers and technology leaders around the U.S. are rallying in a movement against patents and patent trolls. But for many innovators, patent enforcement is still the only way to stay viable in today's quick-changing industry.

"Yesterday, there was a wall of Tesla patents in the lobby of our Palo Alto headquarters. That is no longer the case. They have been removed in the spirit of the open source movement, for the advancement of electronic vehicle technology."

With that blog post back in June of this year, Tesla (IW 500/384) CEO Elon Musk became the latest (and boldest) tech leader to join what is quickly becoming an anti-patent movement in the U.S. It comes with a volley of calls for anti-trolling legal action, open-source revivals and a general popular sentiment that patents -- and those who defend them -- are standing in the way of progress.

In his post, Musk hit all of the bullet points for the movement. Patents, he wrote, are "intellectual property landmines." They stifle innovation, entrench the position of giant corporations and serve only to make lawyers rich rather than to reward actual inventors.

The world, the market and the tech innovators, he and the rest of the movement seem to say, are better off without them.

But that sentiment is far from mainstream in the industry.

The fact is, there are still many small and midsized technology companies -- everyone from startups to multimillion-dollar software providers -- that depend solely on their patents and the vigilant defense of them to stand a chance in the market.

"It's a fallacy to assume that intellectual property licensing is a detriment," explains Phil Hartstein, president of Finjan, an Internet security firm.

"On the business side of IP, patents have real value," he says. "They have value because they protect real inventions -- real inventions that are transformative in the industry."

Finjan v. the Technology Trolls

Finjan is no stranger to the patent fight. Backed by venture capitalist money and a few very good ideas about Internet security, Finjan brought to market a suite of in-server virus protection software and hardware back in 1996. By 2007, the company had grown into a 150-employee, $65 million company with facilities around the world producing real technologies and proprietary software code.

In the course of that growth, Finjan sold off certain assets and operating subsidiaries to M86 Security in 2009, reducing its headcount to 11 employees working in two U.S. locations. Though that has loosened the company's control over some of its physical products and inventions, it has maintained full rights to its software and, most importantly, the licensing of it.

At some point, some CEO sat in front of some venture capitalist and explained the technology and borrowed money. The only way that ecosystem works is if that money somehow gets back to those venture capitalists so they can do it again.
Phil Hartstein, President, Finjan

That puts Finjan in a precarious place. In order to maintain its business, to pay its employees and provide the dividends owed to its early investors, the company has to fight to protect its code.

Even as Hartstein devotes considerable time and energy helping his company grow and develop new technologies, he has to wage intense and constant court battles to defend against anyone trying to steal that work. Even if that means venturing into troll territory.

"When the mainstream hears anyone talk about patent licensing, they immediately imagine a guy with a big club hiding under a bridge," he says. "They think it's extortion. But that's just not the case."

To be fair, he says, that impression is understandable in today's world.

Trolling is a real issue in his industry. According to the U.S. Patent and Trademark Office's 2013 Performance and Accountability Report, about two thirds of the patent infringement cases in 2013 were brought to court by "non-practicing entities" -- patent trolls who have made extortion their full-time business.

But from Finjan's perspective, and that of other software providers like it, court battles are simply a way to stay alive in the industry.

"Our view is, the money has to come from somewhere," Hartstein says. "At some point, some CEO sat in front of some venture capitalist and explained the technology and borrowed money. The only way that ecosystem works is if that money somehow gets back to those venture capitalists so they can do it again."

Ensuring that happens in today's market, he says, requires a vigilant defense of intellectual property.

"As much as there is a discussion about patent trolling, there should also be a discussion about technology trolling," Hartstein says. "We're not just adapting code for e‑commerce widgets here. We can point to products, we can point to code that we've developed."

"I have boxes upon boxes of our products sitting here in my office right now," he says. "We have a constitutional right to defend it."

 

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