PublishedFebruary 28, 2013

Five Employees, Six Lawyers: The Problem with Software Patents

It’s the tech startup dream: coming up with a great idea, raising funding to make it a reality, gaining users, hiring a first, second, and third employee. Hiring just as many lawyers.

When a startup has more attorneys than staff, something is wrong. But one startup founder, who chooses to remain anonymous, just hired his sixth lawyer when he has only five employees.

His story is like many tech startup founders struggling to make ends meet as they turn their ideas into businesses. The startup receives a letter from a Patent Assertion Entity, or patent troll, claiming that his app is infringing a patent and asking him to pay a licensing fee. The letter identifies the patent, but it covers extremely broad functions, which could relate to any website or software. The patent holder isn’t currently making anything with the patent – in fact, the patent may be too vague to even recreate the “invention.”

The startup founder is then faced with a choice: pay the modest but burdensome licensing fee demanded by the patent troll or hire a lawyer and get ready for a financially devastating and time consuming legal battle.

Sound like extortion? Yes, but it’s currently legal.

Unfortunately, there is little a tech startup can do to protect itself. Whatever software the small business creates, there is likely a software patent vague enough that a predatory troll can claim the software is infringing.

On the other hand, if a startup wishes to patent its own technology, it risks giving away its trade secrets before it has the funds to defend its patent in court. So defensively, the system doesn’t work for startups, either.

The startup founder I mentioned earlier estimates that for what he is paying his six lawyers, he could have hired two employees with good salaries, health care, and dental insurance. Instead, he has even given up his salary to cover legal fees, leaving his family struggling to pay for daycare.

This is a deeply personal issue for many members of the Application Developers Alliance and for innovators in general. While there are some legitimate uses for non-practicing entities that help inventors monetize legitimate inventions, more needs to be done to prevent abusive patent litigation. For even successful tech startups, a letter from a troll could mean the beginning of a drawn-out legal battle ending in bankruptcy.

The U.S. Patent and Trademark Office should improve the quality of new software patents issued by ensuring software experts, with access to continuing education, are reviewing them. Innovators, and startups in particular, also need an alternative to expensive litigation so that vague and overbroad patents can be quickly challenged.

America’s software developers are among our nation’s best innovators and business builders. Currently, they cannot trust the system that has protected American job creators for centuries. It’s time to reward entrepreneurs by protecting the people who actually innovate, not the trolls that prey off their success.

Tim Sparapani is the VP of Policy, Law, and Government Relations at the Application Developers Alliance. Tim is an expert in privacy, technology and constitutional law and was most recently the first Director of Public Policy at Facebook. Prior to joining Facebook, Tim was senior legislative counsel at the American Civil Liberties Union, where he helped advance the constitutional principle of the right to privacy, representing the ACLU before Congress, the Executive Branch and before the media.

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Tim Sparapani

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