The Tweet Heard ‘Round Silicon Valley

Twitter’s buzzworthy announcement of its “Innovator’s Patent Agreement” could rewrite the tangled web of patent litigation in the technology world. Just to refresh you, he’s what that web looks like for mobile patents alone (source: Reuters):

Twitter is proposing that its IPA can help prevent patents from being used to impede the innovation of others, something that many engineers are worried about.

“The IPA is a new way to do patent assignment that keeps control in the hands of engineers and designers. It is a commitment from Twitter to our employees that patents can only be used for defensive purposes. We will not use the patents from employees’ inventions in offensive litigation without their permission. What’s more, this control flows with the patents, so if we sold them to others, they could only use them as the inventor intended.

 This is a significant departure from the current state of affairs in the industry. Typically, engineers and designers sign an agreement with their company that irrevocably gives that company any patents filed related to the employee’s work. The company then has control over the patents and can use them however they want, which may include selling them to others who can also use them however they want. With the IPA, employees can be assured that their patents will be used only as a shield rather than as a weapon.”

There’s been a lot of positive response, including this from VC Fred Wilson:

“In the world of patents, the advantage goes to the Incumbents who can hoard patents and use them to their advantage. The insurgent, three engineers in a walk up in Bushwick, can't even afford the lawyer or the time to file a patent. So it is very encouraging to see an emerging incumbent, Twitter, do something like this. They are saying to the world that they do not intend to compete on the basis of patents and instead they will compete on the basis of product, feature set, user experience, etc, etc.”

The problem is hard to overstate. A Stanford Technology Law Review study found that:

• Internet patents were up to 10 times more likely to be challenged that non-Intenret patents
• Patents on business models were litigated at a significantly higher rate than those on business techniques
• Patents issued to small companies were far more likely to be litigated than those issued to large ones.

Another survey by patent research firm Article One Partners found that the current litigation wave is taking a major toll on technology companies:

• Non Practicing Entity (NPE)litigation in the high technology industries represented 75% of all active litigation matters.
• More than half the executives surveyed reported that NPE litigation increased over last year, with a median estimated increase of 22%.
• More than 80% of IP legal budgets are used for litigation defense activities.
• The majority of overall patent litigation matters take a year or more to settle, with 27% taking more than two years.
• It cost companies an average of $1.1 million to defend a single NPE lawsuit.

At Forbes, reporter Rob Hof sees the Twitter move as a positive step forward, but doubts it will change the dire situation that we find ourselves in:

“Unfortunately, it’s doubtful that Twitter’s proposal will bring a cease fire in the patent wars anytime soon. Too many billions are at stake, and a company will face angry shareholders (as Yahoo did) if it doesn’t pursue all avenues to extract value from its assets. Patents are an increasingly lucrative asset. What’s more, the rise of so-called patent trolls–companies that buy up patents with the sole intention to get companies to pay for licensing them to avoid lawsuits–could make it tough for companies to play strictly defense.”

Fair point. But we need a step forward to get us out of this mess, and to preserve the spirit of innovation and disruption that makes this industry great. Bravo, Twitter. Who else will take up the challenge?