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Mr WebTV skewers US patent bill

Startups in danger?

By Cade Metz, 2 Oct 2007

The man who invented WebTV thinks the US patent system is on the verge of ruin.

Last month, after a heavy lobby from big-name tech companies like Apple, Google, Intel, and Microsoft, the House of Representatives approved a bipartisan bill that seeks to reinvent patent litigation, and Steve Perlman is adamant this Patent Reform Act would put a stranglehold on the country's traditionally vibrant startup culture.

"You know how they tend to name bills in ways that seem positive but don't really represent what the bill is all about?" Perlman told The Reg. "This isn't patent reform. This is patent repeal."

According to Perlman, the Silicon Valley entrepreneur and inventor best known for his work on WebTV and the original color Macintosh, the Patent Reform Act has been pushed through by tech behemoths who either don't understand patents or don't need them for success in the marketplace.

These companies are simply interested in protecting themselves from expensive litigation, Perlman says, and in doing so, they're curbing the hopes of the country's entrepreneurs, whose livelihood depends so heavily on patent law. "Patents protect small companies. They help them grow into large companies."

Many in the press have painted the bill as a battle between high-tech businesses and pharmaceutical businesses, which generate so much revenue from patent licenses. But in Perlman's eyes, it's a fight between large tech companies and everyone else, including small tech companies.

"This is isn't pharm versus high-tech," he said. "This is people who need patents versus people who don't need patents."

In essence, he argues, the bill devalues patents, and that helps no one but the Intels and the Microsofts and the Googles of the world. "They just don't need patents to maintain their market position, so - on the balance - it's better for them if no one has patents to assert against them," said Perlman, who has over 70 patents to his name. "Intel isn't concerned with suing little companies. They're only concerned with little companies suing them."

And, yes, he includes Apple with the Intels and the Microsofts. "If somebody cloned the iPhone or the iPod - and certainly people have tried - would it make much of a difference?"

I believe in America

The Patent Reform Act of 2007 - which the Senate has yet to vote on - seeks to harmonize the US patent system with systems used in the rest of the world. But it's also an effort to bury so-called "patent trolls," businesses who use their patents solely as a means of siphoning money from other businesses.

Currently, the US is the only country where the patent goes to the person who first invented a technology - not the person who first filed a patent application. If passed into law, the Patent Reform Act would switch the country to a first-to-file system. This would simplify patent disputes, but according Perlman, it would also stifle innovation.

"It would be nice if the world had a unified patent system," he said. "But when it comes to technology, I like our economy better than the economies in the rest of the world. I don't envy other countries for their startup economies. Why do we want to change ourselves to be like them?"

Filing a patent is expensive, he points out, and with a first-to-file rule in place, startups don't have the dough to cover all their bases. "In a first-to-invent country, if you have 25 ideas on a whiteboard, you don't have to file 25 patents. You don't even file when you whittle it down to 12. You file when you're down to five really good ideas."

"In a first-to-file company, you can't do it that," he continued. "You have to file all 25 ideas, just in case one of those turns out be the right idea." And each patent costs you $10,000. "The cost of invention is less in a first-to-invent country."

The biggest problem with this switch, he adds, is that it would kick in as soon as the bill becomes law. Startups who've carefully planned their patent strategies will be caught with their pants down. "We need warning on this," Perlman said.

The baby and the bathwater

But the first-to-file rule is the least of Perlman's worries. He's more concerned with the bill's efforts to cut back on damages awarded in patent cases.

If a court finds that only a portion of a product infringes a particular patents, the bill says, then it should award damages that reflect only a portion of the product's revenue. What's more, the bill would discourage courts from awarding triple the damages for "willful" infringement.

These are obvious attempts to battle trolls, but in cutting back on damage awards, Perlman argues, Congress is tossing out the baby with he bathwater. So many times, it's just a portion of a product that generates all the revenue. "With a lot of inventions, there's a very small, very clever insight that makes all the difference between a great product and a not great product."

Plus, the bill fails to account for inventions that reduce costs. "Many times, as an inventor, you're taking something that used to be expensive and bringing it down to something that's inexpensive," Perlman said. "If I improve a machine part, so that the machine is now inexpensive and it can be sold for cheaper, my damage award is now less than if I'd left it the way it was."

He believes the Patent Reform Act has gained so much momentum thanks too a pair of high-profile suits generally tagged with the troll label. Last year, a suit against eBay by a small Virginia outfit called MercExchange went all the way to the Supreme Court, after a jury awarded the company $35m in damages, and Research in Motion forked over $612m to another Virginia company, NTP, as a federal court threatened to shut down its Blackberry mobile email service.

"This really hit home on Capitol Hill, because everyone there uses Blackberries," Perlman said. "They said 'Oh My God. Some little company can bring down our entire communication system? We have to fix that.'"

But he is adamant that trolls are the exception, not the rule. "Trolls have defined the bill. A bill should identify who the bad actors are and then sanction them. This bill doesn't identify the bad actors. It just sanctions everybody." Patent reform should deal with trolls, but not at the expense of legitimate inventors.

Mr. Perlman goes to Washington

Through lobbying groups like Coalition for Patent Fairness, the Apples and Microsofts may have pushed the bill through the House, but Perlman believes it's finally facing some stiff opposition.

Last month, Perlman and fellow inventor Dean Kamen, known for the Segway and the AutoSyringe, flew to Washington to lobby against the bill. And late last week, a group of more than 100 California-based bio companies and venture capitalists sent a letter of opposition to Diane Feinstein, the state's senior senator and a member of the Senate Judiciary committee.

"They're gathering the troops," Perlman said. "They're saying 'We're not going to let this thing slip through the Senate the way it slipped through the House.'" ®

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