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

Patents on Bitcoins

One of the questions that comes up often for IP attorneys is  "who owns Bitcoin'? 

In a sense, no one owns Bitcoin.  It is a distributed peer-to-peer unit of exchange. However this answer rarely satifies people who have come to you for your indepth legal opinion.

It should be noted that the concept of a network wide, anonymous, crypto-currency was only really implemented in 2009 by an individual known as Satoshi Nakamoto. Mr. Nakamoto (we have no way of knowing if that individual was/is a he/she/cybernetic construct from the future) published a paper describing the basic elements of the bitcoin system and released the software that underpins the peer-to-peer networking aspect. This software was released open source, without restriction. As such, no one legally has the right to prevent others from modifying or using the software for their own purposes. Thus while the Nakamoto Hivemind owns the software that bitcoin are mined with, it does not own the underlying conceptual framework.

There is some speculation that a Neil King, et al, listed inventors on US 2010-0042841 A1 (now abandoned for failure to respond to an office action) are the true inventors of bitcoins. Even if true, the patent office found several prior art references. Thus, the attempt to patent the concept appears to have been abandoned.  However, there is a thriving trade in bitcoin patent applications. People can, and do, attempt to file patent applications on the use of bitcoins for all manner of transaction. However, these patents do not reach back to the underlying concept of the Bitcoin and its use as a digital currency.

The actual software implementation of bitcoin generation is somewhat complex, but involves scanning for a value that when hashed twice with SHA-256, begins with a number of zero bits (you don't want me to explain this in more detail that that but ... a hash is an algorithm which takes a arbitrary amount of data and generates a fixed length of data. This is useful when attempting to use encode something for privacy. It is easy to hash something, and it is easy to verify that the data matches the hash, but hard to fake the data if you were up to no good. I am not a cryptanalysis guru and this was all distilled from 3 or 4 really good Wikipedia articles).

This is all a long winded way of saying that the process of generating bitcoins is technically complex and rests on the security and usibility of the SHA-256 Hash Function. However, in one of those ironic twists of fate that only happens in America, the NSA, bane of anonymous privacy advocates everywhere, actually owns the patent on the SHA-256 Hash function.

US Patent 6,829,355 to Lilly, and assigned to the NSA, covers the technical details employed in using the SHA-256 function to authenticate data (e.g. bitcoin transactions). All is not lost, the US has granted the world a royalty-free license to the patent.

However, the terms and conditions of this royalty agreement are murky. The royalty-free notice was filed in 2004. However, there is no easily available record of the exact terms of the grant of a royalty free (i.e. is it irrevocable?).

Thus, the long answer to the question of "who owns anonymous peer to peer government agnostic pro-privacy transaction crypto-currency" might, in fact, be the United States Government.  It is their world, we are just trading digital currency in it.

Jordan Garner
jgarner@leasonellis.com
(c)2013