Intellectual Property Directions

“Dave Grannan was leading an afternoon product development meeting last Wednesday at the Harvard Square offices of Vlingo Inc. when he was rudely interrupted by a process server bearing a lawsuit. His 35-person speech recognition start-up was being sued for patent infringement by the biggest company in its business, Burlington-based Nuance Communications Inc.” Scott Kirsner, Boston Sunday Globe, June 22, 2008 

 Kirsner’s article continues, describing how Vlingo was started by two former Nuance employees, one of whom [Mike Phillips] had been CTO and who said that “part of his job also involved helping the company craft patent suits against competitors.” Being intimately involved with Nuance’s technology and IP, Phillips “says he was assiduous in avoiding Nuance’s patents when he started Vlingo.”

Kirsner is clearly on the side of David when he bluntly suggests that Nuance is nothing more than a bully who has filed “a string of lawsuits … none of which it has won in court.” He references “executives” of Voice Signal Technologies who said a Nuance patent suit was just an “intimidation tactic.” (This before Voice Signal was bought by Nuance for nearly $300 million.)

Further Kirsner suggests that Nuance is nothing more than a leach on the backs of innovators, claiming a Nuance spokesperson  “acknowledges that while the company has never given birth to a new speech-recognition product of its own, it is dedicated to continually improving the products it acquires. Earlier this month, it showed off some new speech software that works with Apple’s iPhone that duplicates some of Vlingo’s features.”

Finally he quotes “industry observer” Walt Tetschner as saying “They’re a monopolist, and who loves a monopolist?” “They don’t want any competition, and that leaves you with a pretty crummy market, with no progress happening.”

Whew, them Nuance folks are plenty bad! And poor David? “… for small companies like Vlingo, lawsuits have no upside. Though the company has raised $26.5 million in venture capital funding, … Vlingo doesn’t have a single attorney on staff. Its outside counsel charges $500 an hour (and up) for a partner’s time.”

This, of course, is the crux of the problem. Large companies have large assets, small companies don’t. And since there’s no penalty to a losing patent holder (assuming the suit was not frivolous), large companies have an inherent advantage in a patent suit against a small company.

So, what’s your perspective. Is Nuance simply a bully, using the asymmetric nature of patent litigation to hammer smaller competitors into submission (either drive them out of business or absorb them)? Or is Nuance simply policing the boundaries of its intellectual property, trying to keep intruders from poaching in their game preserve?

Last week, Medical Device Daily National Editor Don Long presented his idea of an improved patent system in The Age of Entrepreneurship vs. the entrenched patent ‘windmill”. From his perspective, the basic concept of the patent system - the ability to exclude others from practicing your invention - is outmoded and prevents important [medical devices] from reaching the patients who could benefit from their innovation. While I agree with his basic tenet, I think his cure would be worse than the affliction. His suggestion for changing the patent system is intriguing, but as with most fundamental changes it comes along with its own set of issues.

Boiling down the idea to its core, the suggestion is to enforce mandatory licensing of patents with the license fee intentionally kept low. I believe this is the system used in music copyrights; if you want to record a cover of someone’s hit you know up front that all you have to do is pay a predetermined license fee. This works in the music space because people don’t buy CDs based on the lyrics/notes per se but rather because they like the specific performance - thus the copyright owner is not really licensing his or her competitors.

I see the patent system  as contract between inventors and society, with each side giving something in exchange for getting a benefit. Mr. Long’s basic argument is that the scales have tipped too far toward the inventor - having monopoly control for 17 years or so is just too long in this fast moving world. The expected benefit to society - that the inventor has taught us all about his invention and stimulates other inventors - doesn’t happen fast enough. And surely his idea would solve that problem.

But as with any idea, there is a down side. One problem is what happens to the small company. A large medical device company, for example, has all the marketing, manufacturing and engineering resources to crush the small company in the marketplace so the suggestion of mandatory patent licensing turns the small company into a (poorly paid, involuntary) R&D department for the large company. Generally the small company will not be able to survive (or if they can survive they probably can’t grow) on the(intentionally low) license fees alone, so they’re toast.

Also, contrary to Mr. Long’s claim that investors would flock to the inventors, I have yet to meet a VC who would invest in a (small and/or startup) company that cannot use IP to protect its market or at least garner >large< license fees for letting others exploit the market.