The Patents++™ Blog

Patents and the Origins of Silicon Valley

[NOTE: I originally posted this in early 2009 elsewhere, but I think it's still relevant and I'd like to make it available to readers on this blog.]

Whenever I visit Silicon Valley, I always make it a point to visit the Stanford University Bookstore to buy a book (or usually several). I do the same for my alma mater, Harvard, but fate has decreed that I seldom go to Boston these days. Recently I bought a book, which I am reading in occasional bursts as the mood strikes. It is called Making Silicon Valley, with the subtitle Innovation and the Growth of High Tech, 1930-1970, by Christophe Lécuyer. I thoroughly enjoyed the early chapters, which chronicle the events leading up to World War II that ended up being crucial to the emergence of the electronics business in Silicon Valley.

There are several names which are familiar, but which today we associate more with defense technology than Silicon Valley technology, and chief among these is the name of Charles Litton. He and two other pioneers, William Eitel and Jack McCullough, made their names originally as innovators in the technology of vacuum tubes. Specifically, they built tubes to enable their hobby of amateur radio. Even more interesting, it turns out that patents had a huge role to play, and it is interesting to note that the role of patents was the one which legal theorists have often stated is the goal of patent law: the existence of patents stimulated yet more innovation.

In short, what happened is that these men were forced to work around a large patent pool that had been accumulated by RCA, which was created at government request near the end of World War I to maintain US dominance in radio technology. The licensees of the RCA patents were not concerned with amateurs in Northern California, so in order to accomplish their goals Eitel, McCullough and Litton worked closely to study the RCA patents and develop non-infringing tube designs. This required great ingenuity, and the efforts were done under tremendous strain (they ran small shops during the Depression, when the “get rich quick” mentality of today’s Silicon Valley was not even a gleam in anyone’s eye). Eventually, they sold long-range radios to an innovative shipping company, the Dollar Shipping Line (from which eventually today’s American President Lines arose out of bankruptcy), and this helped keep them going.

When World War II broke out, their luck changed, because it turned out that their new designs had superior quality to the RCA designs for high output power tubes, and the demands of the US military for long-range communications drove the rapid growth of the electronics business in the Bay Area.

As a side note, a curious thing happened shortly after I read this history in the book. I went to a well-known historical eatery in San Francisco, the Tadich Grill, to meet a client. Arriving early, I bought a cup of coffee and sat down outside at a café to enjoy the brilliant day. After a couple of minutes, I began admiring another of San Francisco’s architectural treasures, an elegant three- or four-story office building directly across the street from me. Suddenly I noticed the engraved name on the building: “The Robert Dollar Building”. Dollar? Dollar! It couldn’t be a coincidence. In one of those ironies emblematic of the Silicon Valley story, I pulled out my shiny new iPhone and Googled “Robert Dollar” – sure enough, he was the founder of Dollar Shipping Lines (and had quite a life story). The willingness of the self-made Scottish lumber and shipping businessman who owned that building in the 1920s and 1930s to back some upstarts who took on a large patent-heavy corporate giant led directly to the founding of the semiconductor business a few years later, and ultimately made it possible for me to learn about him on my iPhone!

What does all this have to do with the patent situation today? While it is clear that there are problems with patent quality, many critics of patents in general, or software patents in particular, have been questioning the utility of patents quite bluntly. One of the key charges laid against patents is that they suppress innovators. At first glance, the (very brief) story I narrated above would seem to reinforce this view: patents slowed down the natural vacuum tube innovators. But in fact, without patents, they would have merely copied RCA designs, and they would have found a ready market in the same places they eventually did with their non-infringing tubes. But, in a classic example of how patents are supposed to be used, they studied the published patents in order to figure out how to legally “design around” them to create non-infringing products. This pressure to innovate led to long hours of experimentation, of trials and many errors, but ultimately results in superior non-infringing tubes.

Today, large software vendors noisily protest that they are held hostage by “patent trolls”, non-practicing entities (NPEs) who charge a “tax” on them by asserting patents that they don’t intend to use. But these companies really act more like RCA did in the 1920s and 1930s (for a long time RCA didn’t make anything, but merely licensed the patents to GE and others and then marketed the resulting products), and their protests are just an example of how they use their market presence to good effect. These vendors often say that they cannot write any code without violating someone’s patents. But in fact the same has always been true of companies who make complex products with many parts in competitive industries. The automotive industry, for example, has been dealing with patents for decades (and they’re not the reason for the Big Three Bailout pleading – that honor goes to health care costs, pensions costs, and so forth). People who make cars understand that they have to clear patents through licensing or designing around (or engaging in premeditated litigation with “the little guy”, famously narrated in the book Flash of Genius, by John Seabrook), and they know how to do this. Those who make large software systems don’t, at least not yet.

At any rate, I highly recommend you check out the book – it’s a very interesting story, and starts much earlier than most Silicon Valley histories.

Making Software Patents Transparent and Understandable: Begin by Determining Whether Software is Patentable

By Dennis Crouch

via www.patentlyo.com

A good idea from Dennis Crouch—stop forcing software patents to be written as if they were NOT software patents. But Dennis also says, "We need to have the courts take a stand and deliver the law in a way that is clear and precise. Finally answer the question 'Is software patentable'?"

I commented on Dennis' blog, but basically I think the notion that software is different than, say, firmware is wrong headed and dangerous. Software lies behind much of our economic growth in the last 30 years, and the really big players would like nothing more than to eviscerate the patent system—or at least software patents—to prevent losing their iron grip on the marketplace.

NY Times gets it badly wrong on patents—again

For three decades, Mr. Phillips had focused on writing software to allow computers to understand human speech. In 2006, he had co-founded a voice recognition company, and eventually executives at Apple, Google and elsewhere proposed partnerships. Mr. Phillips’s technology was even integrated into Siri itself before the digital assistant was absorbed into the iPhone.

via www.nytimes.com

Following on a long stream of public denunciations of the patent system, the NY Times this evening published an article discussing the offensive (dual meaning intended) use of patents by technology companies. I have several issues with the piece:

1. They cite uncritically one of the worst pieces of scholarship I have ever read, by Bessen and Meurer (it gets quoted a lot, evidently by people who either didn't read it or simply don't like patents and so simply see it as support). B&M make simplistic arguments alleging for example that patent lawsuits cost hundreds of billions in market value—as if they had some magic insight that eludes all of Wall Street that allows them to isolate one minor variable and attribute (temporary) stock swings to it. It's naive and polemical, but nobody seems to care.

2. The issue with Nuance isn't patents, it's the company's culture. Nuance is an aggressive acquirer, who for reasons I do not understand has managed to avoid antitrust scrutiny. Again: the issue with Nuance isn't patents; it's antitrust enforcement.

3. I have run software companies (and I was even a CTO at Nuance for a few months, before I figured out #2 above), and I have a dozen patents myself. I have seen companies that invent have their inventions stolen by large companies who abuse the system—and it is these large companies that pushed hard for dilution of patent rights. Their behavior is no different than that of older people in France, who keep voting to keep the system fixed despite its cost to younger people: they have theirs already, and will do anything to keep it, no matter what it costs others. Same with MSFT, Cisco, Nuance, etc.

4. At least Apple invented, vigorously defended their trade secrets, and then launched disruptive products (iPod, iTunes, iPhone, iPad, etc.), and then defended their IP as well. This is what the system is for, and Samsung knew it but copied the iPhone anyway—intentionally. They took a calculated risk, and they appear to have lost a round. But even if the patent war costs them $5B (highly unlikely), they will still be up overall, since they sell a LOT more than that in phones each year. Don't cry for Samsung…

5. When thinking about patents, it is important to remember the much more common cases where large tech companies ignore smaller innovators and simply copy their inventions (making it hard for them to get traction). Sometimes they even work with the smaller company before deciding to steal the technology (as MSFT did to i4i). Again, even when they lose, they lose peanuts. For i4i, Vlingo, and many others, it not patent trolls that tolled the bell, but MSFT, Nuance, and others like them. And they are the ones who fund naive press attacks against the patent system, and who lobby Washington to weaken it.

The NY Times should seriously think it through before publishing such articles. The patent system is complicated, and has its warts, but a rush to dismantle it by activists such as Bessen, Meurer, or even Posner will do grave harm to our economy. Consider that most of the value of our biggest companies resides in intellectual property, which is easily copied absent legal constraints.

Beware the law of unintended consequences—if Congress were to rush to change the patent system even more than it just did, we would get a major dose of its results!

Is the New Supplemental Examination a Complete Replacement for Owner Initiated Ex Parte Reexamination?

By Dennis Crouch

via www.patentlyo.com

I have been working on a series of blog posts resulting from the several major events in patent law in the last two months. But since I am also swamped and haven't gotten it done yet, I figured I should dive in.

Dennis Crouch points out one of many interesting new aspects of patent practice in the PTO. As he notes, there has been a lot of discussion about the use of Supplemental Examination to cure alleged inequitable conduct. Dennis makes the point that the new (since 9/16/12) Supplemental Examination is likely to replace patent owner-request reexaminations. The post and its discussion are well worth a read.