Patent reform and venture capital
The National Venture Capital Association, in conjunction with IBF Conferences, held a webcast briefing (archived, available with fee registration) yesterday about what VC's have at stake in the patent reform process that is underway. The webcast featured remarks by Hank Barry, Josh Lerner, and Tom Walker, as well as background on the patent reform movement and a roundtable moderated by Karl Renner.
Karl Renner, of Fish & Richardson, cited a crisis at the PTO in terms of backlog and patent quality, as well as a crisis in the courts in terms of abusive patent practices, so-called patent “trolls” and skyrocketing litigation costs. With respect to patent reform, he predicts that nothing will be passed this year, and that curbing of injunctive relief will be the biggest issue. Other issues with scope of patent rights include an epidemic of business method patents, as well as case law holding that all relevant conduct to prove infringement need not occur in the US.
Hank Barry, of Hummer Winblad Venture Partners, discussed the growth in patent and copyright protection, and the concomitant increase in litigation. He also distinguished between theory and reality in terms of the importance of IP to early stage companies. The theory is that IP can clear the market and contribute strongly to company value. The reality is that it varies by industry, it can be a large money and resource sink, and IP can add value in an acquisition context, but in general is a big factor in a company's success only occasionally.
Harvard Business School professor Josh Learner, who is co-author with Adam Jaffe of Innovation and its Discontents: How Our Broken Patent System is Endangering Innovation and Progress, and What to Do about It, provided analysis about the sharp increase in patent protection and litigation. From 1900 to 2000, the level of US patent applications have increased from around 50,000 to over 350,000. Litigation has increased five-fold, and verdicts in favor of the patent holder have gone from the 30-40% range now to the 50-60% range. Notably, jury trials have gone from around 5% in 1950 to around 70% today.
Tom Walker, of Cardinal Development Capital Fund, talked about how investors desire increased certainty in connection with IP -- in terms of assessing the value of an IP investment, and of obtaining and maintaining IP protection. He noted the increasing importance of IP to VC investors, that on the upside IP can be a barrier to entry and on the downside can provide a means to recover value.
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