Big trolls vs. small trolls: The real battle behind patent reform

This week has been full of news related to software industry patents. Among the biggest stories, Rep. Bob Goodlatte’s patent reform bill cleared a crucial vote, Microsoft and Acacia crossed swords again, and Apple convinced a court to squeeze more cash out of Samsung despite itself having been recipients of presidential grace on the same topic.

Now more than ever in the technology industry, patents are the focus of much energy and attention. Some of us no longer find pride in being patent holders. As a result, there’s also been a lot of focus on all the patent reform bills circling Congress and hoping to be cleared for landing. Many of these initiatives target patent trolls, trying to nudge them to oblivion by making small adjustments to the existing rules. The demise of patent trolls would be good news for open source software, which despite better defenses than much of the software industry faces serious challenges from software patents.

Two types of trolls

It would be easy in the midst of all these change to take a simplistic view of patent trolls. These amoral gamers of the patent system are clearly more of a menace to innovative business in the 21st century than their predecessors in other technology bubbles were. But you may be surprised to learn that there’s more than one breed. Obviously, there are companies with no products, called “patent assertion entities” (PAEs — or “patent aggression entities,” if you prefer). But there’s another dimension, too, one that wants the patent reform sculpted much more carefully.

As the Washington Post notes, Rep. Goodlatte’s bill was trimmed as a result of intense corporate lobbying pressure. The changes mean that the bill’s expedited process for the Patent Office to get rid of low-quality software patents has been neutered. This change to the “covered business method” program was an important weapon against trolls. Trouble is, the change also affected large corporate players using their extensive patent portfolios to extract money for innovators.

The dirty secret IBM, Microsoft, and other self-proclaimed advocates of patent reform don’t want you to know is that they are trolls, too. They have large and highly profitable business units using exactly the same tactics as the patent trolls they hate. The reason they hate the trolls is not because of what they do — after all, IBM and Microsoft were the pioneers of treating patent portfolios as profit centers rather than cost centers. No, the reason they hate the trolls is because the trolls attack them with the weapons they themselves perfected.

Advanced violation detection

Turns out patent trolling is not the invention of PAEs; they have just taken it out of its birth context. In 2006, an executive who had worked in the “IP Law” function at both IBM and Microsoft was admitted into the IP Hall of Fame (yes, it’s real). As a vice president at both companies, Marshall Phelps was a pioneer in the monetization of patent portfolios. His Hall of Fame bio explains:

Marshall Phelps put IP on the corporate map. He forced senior managements (and Wall Street) to regard IP not as a legal overhead, but as a profit center. He took IBM from a few million dollars in IP-related annual revenues in the late 1980s to over a billion dollars in a little over a decade. He helped to popularize the notion that everything a company owns can be licensed at the right price and time.

The tactic he perfected was use of teams of patent analysts to take apart competing products and look for ways their inventors had unwittingly used the same techniques IBM had patented. They would then approach the company in question and invite them to purchase licenses — especially royalty-based licenses — for IBM’s patents. It was easy money because anyone independently inventing technology in the markets IBM had helped create was almost certain to have solved the problems in similar ways.

No copying or “idea theft” was necessarily involved; there are just a limited number of ways of solving many problems, especially at the fine-grained level at which patents today are obtained. Some may imagine patent violators are copying whole products, but many patent infringements are for small, seemingly obvious ideas that arise from the problem-solving process.

As a result, Phelps’ approach was wildly successful and much emulated by giant patent holders. As his bio goes on to say:

At the urging of Bill Gates, he came out of retirement to head Microsoft’s IP strategy and help establish the company as an emerging patent leader, and to expand upon its copyright and trademark successes.

There are huge profits available. IBM makes $1 billion each year from its patents, while Microsoft is making $2 billion per year just from Android. Yet both companies also complain of increased attacks from NPEs. This graph says it all:

Now you know the reason for the apparent inconsistency of IBM and Microsoft seeking patent reform to eliminate trolls while simultaneously opposing a full solution to the problem. It’s not that they hate patent trolls; it’s that they are giant, profitable patent trolls seeking to neutralize the irritating small trolls whose mosquito-like bloodsucking reduces their profits. In their support for changes, we’re not seeing a call for reform to neutralize all patent abuse. Instead, we’re seeing an attempt to neutralize the pipsqueak competition.

This article, “Big trolls vs. small trolls: The real battle behind patent reform,” was originally published at InfoWorld.com. Read more of the Open Sources blog and follow the latest developments in open source at InfoWorld.com. For the latest business technology news, follow InfoWorld.com on Twitter.