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Invention vs Commercialization

Posted on Wednesday, Apr 12th 2006

There has been a number of hot issues lately around patents, lawsuits, rights of inventors versus business builders. TVi vs Microsoft, Netflix vs Blockbuster, RIM vs NTP, eBay vs MercExchange.

Here are two articles from the Wall Street Journal on two divergent points of view:

Nathan Myhrvold, the first CTO of Microsoft, who now owns an IP company, writes: Inventors Have Rights, Too!

The counterpoint is provided by Bruce Sewell, Intel’s General Counsel, in : Troll Call

Some excerpts from Sewell’s piece:

RIM, the company that brings BlackBerry service to four million subscribers, finally caved in to the threat of losing its business. It paid NTP, a small patent holding company reputedly comprised of just one inventor and one patent lawyer, $615 million to settle a four-year patent dispute. For NTP it was like winning the lottery, but for the rest of us, and for business in particular, it stinks.

NTP doesn’t have a competitive product. It isn’t even in the business of making products. It’s one of a large number of companies known as patent trolls. Trolls acquire and use patents just to sue companies that actually make products and generate revenue. A patent without a product isn’t worth much, whereas a patent tied to a revenue stream, particularly someone else’s, is a whole different matter. RIM was the best thing that ever happened to NTP, because by last Friday the only question left was how much of RIM’s pie NTP could get.

The distressing part of this picture is that RIM’s contribution of complementary technologies, business acumen, product R&D and marketing is what “enabled” the NTP invention to achieve commercial relevance.

Myhrvold counters with:

The patent system exists to give economic incentive to create inventions — not products. After all, profit is the incentive to create and sell products. In order to have a level playing field, inventors must have a full set of rights, regardless of whether they are big or little, or whether they make products or just invent. Those rights are what give them the incentive to work long and hard on new ideas that may not work. A lot of big innovative companies agree with this — companies like DuPont, GE, Qualcomm and 3M, as well as the pharmaceutical and biotech industry, have filed amicus briefs in support of MercExchange and equal rights for all inventors.

The right question (as Bruce Sewell asks it) is: What would be a fair royalty for NTP, given its contribution of the patent and RIM’s contribution of everything else?

My own favorite is the Netflix vs Blockbuster case which I think Netflix should win. They did everything from invent to innovate to commercialize to popularize to educate the market. Why should Blockbuster just walk in, copy, and reap all the benefits, without Netflix having some protection, at least? Their stock suffered tremendously last year, as Blockbuster, Amazon and Walmart made announcements of competitive services.

On the others, I have to say, my bias is more along the lines of Bruce Sewell : to not unduly reward patent holders in the name of protecting inventor’s rights, to not overlook the contributions of those that invested the time, energy, and financial resources to create a market for inventions.

It is, however, also essential to protect inventors from being squashed by big business.

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WSJ Article on TIVO vs Echostar:TIVO wins this round.

Sramana Mitra Thursday, April 13, 2006 at 5:38 PM PT

eBAY wins against patent troll MercExchange.

Sramana Mitra Monday, May 15, 2006 at 5:48 PM PT