Don't Fear the Patent Trolls

One of the concerns revised by start-ups is fear that their small company will be sued by a Patent Troll (Non-practicing entity). Generally this concern is premised that the software (it is almost always a software start-up which fears patent trolls ) used by the start-up is covered by some obscure software patent.

Much like the Satanic Moral Panic scares of the '80s and 90's, the fear of patent trolls outstrips the actual reality.

Generally, the goal of a NPE is to obtain a lump sum payment for past infringement. Suing a start-up which has not demonstrated any revenue, or even a viable business plan to generate revenue, wouldn't gain any meaningful recovery. In order to recover for patent infringement, you have to show lost profits, reasonable royalty or willfulness. Since NPE's (by definition) do not practice the patent, they have a hard time showing lost profits. Thus, they rely heavily on a reasonable royalty of the Companies' profits.

If your start-up has barely received a series A funding round, the profit motive for litigation is not there. That doesn't mean that a NPE won't send you a letter alleging infringement, thus trying to rattle the tree a bit in the hopes that you have deep pockets. However, if you are a start-up without a lot of revenue, or a famous or wealthy founder, odds are you are not going to find yourself in Court.

However, if you do receive a nasty gram from a lawyer claiming patent infringement, ask the sender to identify the patent and the particular claims alleged as infringed. Wait to hear back from them. If they get back to you in a manner that does not answer those two questions, then it is time to contact a professional IP attorney.

The point is that NPEs suing start-ups are not a wide spread issue. A quick google search shows about half a dozen high profile instances, but that is contrasted against the list of start-ups supported by every major venture firm out there.

Not every start-up is being sued into oblivion on the basis of specious patents. For instance, the Government Accountability Office found that Patent Troll Litigation only counted for 20% of patent litigation cases in the US. The rest were simply run of the mill patent disputes. Of that 20%, most NPEs directed their fire to major multi-national corporations, not 3 man start-ups.

Code, innovate, and create. Don't spend your time thinking that their are monsters under the bed.

Jordan Garner

BitCoin and Licensing Fees

This post assumes you are aware of what BitCoin is and why someone might think it is a good idea to ask for payment of license agreements revenue in it. 

For those who don't know, Bitcoin is a peer-to-peer, anonymous digital currency.

Huh?

Exactly, the concept of Bitcons, how they are made, who has them, and what they are doing with them, are all beyond the scope of this post. I direct you to the Wikipedia site.

For the purposes of this discussion, all you need to know is that Bitcoins are a digital exchange medium. Think of it like an electronic commodity, cyber-gold, if you will. The goal is to have (by whom
?, why? Again, complicated) anonymous commercial transactions over the internet. This would free people from the prying eyes of repressive regimes, allow greater freedom of commerce internationally, and allow people to skip out on paying taxes.

You read (ha! all 2 of you) this blog for IP information, not Libertarian Economic Theory; so what's the point? Well, the point is that we are rapidly converging on a world in which small entities (single person firms, small skill based collectives) are all global companies. Each App creator, Web designer, even self-published author, has the ability to distribute and obtain revenue from a global audience.

One way in which small businesses can gain revenue is by licensing or otherwise monetizing their IP. The most common way this is done is by signing a contract that specifies a certain amount of money, either up front or on per - purchase - basis in exchange for access to the IP. While licensing your tech out for BitCoins in a up-front paid up license, is... a position; licensing your IP for a set number of Bit Coins in the future, or sales in made in Bit Coins, is not advisable.

"Why?", you howl, "I was about to license my tech, for anonymous tax-free Cyber-Space money!"
Well, the problem with anonymous tax free Cyber-Space Money is the chart below.

This chart shows the exchange rate of Bitcoin to US Dollar over a 1 week span. I think the reason not to use Bitcoin as the unit of value in your agreements is pretty obvious. If you had licensed your tech, for 1 BitCoin = 149.00 USD for use in certain Apps, and those apps went on sale on the 6th of April, then you would have made a bad call. (*note, Bitcoin has recovered some market value from the lows put forward, but the volatility remains.)

While initially each sale of your tech was netting you 150USD, by April 10th each sale was netting you 250.00. Huzzah. Then, April 11th rolls around. Devastation!  You are now netting 75USD per tech sale. This is a 50% reduction of your originally agreed upon license fee. Did you lose a war? Zombie Plague? Nope, just the random volatility of the commodities market.

The reason why you don't do this is the same reason why you don't license your IP for the "sale price value" of a Condo in Dubai in 2034. While there are arguments to be made for the upside, there are clearly reasons why such as speculative agreement is not the best way to maximize your IP value.

The way to maximize your IP value through licensing is to license your tech (or art, or published works) in the currency of a regime that places a strong value on IP rights, and a stable currency. Secondly, your agreements should be constructed to provide you with a fair market value of the IP, not speculative upside seeking. A stable license agreement for the duration of a copyright (Life + 75 years, i.e. see Jackson, Michael) is a great way to provide multi-generational economic stability.  Gambling that on an electronic currency is not the best use of your assets.

Jordan Garner