Trolls Attack Innovation: Panic in Corporate Parks!

TrollPatent trolls are becoming a nuisance for technology companies. These trolls are companies/entities that develop or acquire patents for the sole purpose of suing companies that unknowingly infringe on those patents. The infringement lawsuit brought by NTP against Research in Motion (RIM) received a lot of attention in ‘06 when the ruling court threatened to shut down RIM’s Blackberry service. RIM eventually settled by paying NTP over $600 million. The motivation for such patent trolling is clear.

In the June 2008 issue of the Harvard Business Review (HBR), management professors Henkel and Reitzig have an article that offers their suggestions for how businesses can protect themselves against these trolls (which they call “sharks”). In my opinion, their recommendations are unrealistic in that they idealize the willingness of competing companies to cooperate with each other and to forgo competitiveness in technology development in order to protect themselves against the trolls.

The first half of their article is informative and makes very good points about the general situation that exists today. The recommendations they make, however, are not so good. I’ll address each of their five recommendations here and suggest what I believe are more realistic solutions below.

1. High-technology firms should move away from building huge patent portfolios for the purpose of cross-licensing with competitors
The authors correctly point out that one reason companies generate patents is to trade them for patents needed from other companies. Such trading is done because the patents behind key components in complex technical products are usually distributed across all of the major companies in an industry—no one company owns all of the patents necessary to produce a product. Because no company can produce a product solely on technology from their own patent portfolio, companies trade their patent licenses for licenses to the other companies’ patents. The cellphone industry is a typical example of this, e.g., Nokia trading patent licenses with Motorola and Samsung. The authors suggest that this strategy of building a strong portfolio and trading licenses is no longer valuable to companies and should be stopped because it doesn’t protect them from trolls. Indeed, it doesn’t—it protects them from their competitors, who are ultimately more threatening than patent trolls. Just because a patent strategy does not affect patent trolls does not mean that it isn’t worth doing. If I were Nokia, however, I would certainly try to convince Motorola to follow this advice to stop building up Motorola’s patent portfolio.

2. Companies must simplify technical standards and create more-modular designs
These two points are reasoned as follows. The authors assume that simpler technical standards would reduce the number of patents that teach the technology in a patent, thereby producing less opportunity for patent trolls to own the patents on technology required by the standards. The authors assume that modular designs for products would allow a technology component to be swapped out of a product if a patent troll claims that the component infringes on their patent; in other words, redesigning the product to respond to the troll’s threat would be easier with the modular design. Well, easier said than done. The nature of standards committees is such that they are not going to adjust their ways to account for a trend in patent litigation abuse that may or may not impact their standard—to make such adjustments would be considered by committee members as compromising the integrity of the standard. As for the modularity recommendation, a company has many other motivations to modularize their designs; if companies don’t modularize then it is because they can’t or have reasons not to (manufacturability, cost). The assumption behind the authors’ modular strategy is that patented technologies can be easily worked around by swapping different components, while in fact patents can be quite broad and difficult to design around. Whether RIM could have designed around the NTP patent is unclear to me, but there are many patents that are so fundamental that they embody the general feature of a product (e.g., an lcd screen on a remote control, ringtones on a cellphone) and to avoid the patent is to eliminate the feature. Finally, the bottom line is that companies will design products that best serve their customer in a way that best meets the needs of the company (e.g., profitability). The financial threat from patent trolls to a company is not (yet) so great that a company with risk revenue and profitability by changing their whole R&D approach to product design, particularly given that it’s unclear whether the proposed solution will, in fact, eliminate threats from trolls.

3. Companies must begin cooperating with their competitors early in the R&D process
The authors argue that the process of a company developing technology in secret, without the knowledge of their competitors, is “outdated”. The authors acknowledge that companies would be “uncomfortable” to share knowledge with their competitors early in their technology development process, but they argue that by doing so patent trolls can be abated. While the authors state that lawsuits from trolls “could change if more firms started to disclose early-stage information,” they do not explain why this the early-stage sharing of secret information would help against patent trolls. I can’t explain why either. Again, the authors seem to be suggesting that companies would be willing to forgo their competitiveness in order to avoid patent trolls, joining with their competitors in a spirit of innovation cooperation and protection. Again, if I were Nokia, I would strongly recommend to Motorola to share with me their early-stage technology development to guard themselves against patent trolls. I would go even further by offering to sacrifice Nokia to patent trolls by not sharing our technology secrets with Motorola and thereby drawing the trolls towards Nokia and away from Motorola.

4.Firms must foster interdepartmental and intercompany cooperation
Here, the authors discuss the value of getting patent lawyers involved early in the patent process. No argument from me here, although I’m not sure what they has to do with interdepartmental and intercompany cooperation. They then suggest that companies should cooperate with each other, and they give an example where a patent troll bought patents from company A and then sued company B for infringement. The authors suggest that company B would have been better off if company A had talked to company B first and offered a license to them rather than selling the patent to the troll. Indeed! In other words, please don’t sell to trolls. What the motivation is for company A to do so, however, I don’t know. This seems to me to be an unrealistically idealistic hope for how companies could work together.

5. Companies must stop flooding the patent office with insignificant applications
Now, here I agree with the authors. The patent office in the US is overwhelmed, making them more prone to issue patents that are not novel and thereby not valid. Inventions that lack novelty but are erroneously issued can become legal weapons against companies that have used the technology in a product. Also, as the authors point out, a flood of frivolous patents in a field makes monitoring patent activity difficult. The suggestion that companies should unilaterally decide to reduce patent activity for the good of the whole (and their competitors) is, however, unrealistic. Again, as Nokia I would strongly urge Motorola to reduce their patent activity as to not overburden the USPTO and my patent managers who monitor Motorola’s activities.

As can be seen, the solutions that the authors suggest simply aren’t realizable in a competitive world such as today.

I believe that the solution to this problem to is to de-fang the trolls by

  1. making their threats less likely to succeed in court through the combination of new federal laws and Supreme Court guidance,
  2. improving the patent office process in a way that reduces the number of illegitimate patents that patent offices issue.

To the first point, the US Supreme Court has already ruled in such a way that the bar is raised for obviousness. This was done in the KSR case, which I have previously blogged about with respect to the Court’s interpretation of innovation. The authors of the HBR article do mention the KSR case and others, and they clearly support this idea. What remains to be seen on the impact of KSR is if its precedence will have an impact on future court decisions. If it does, the validity of frivolous patents wielded by trolls will be easier to attack.

To my second point about reducing the number of illegitimate patents, a test program (the Community Patent Review Project) is in place in the U.S. to assist the USPTO in finding and analyzing prior art so they can better assess whether an invention is novel or not. In this program, companies are able to see patent applications earlier than normal and to offer prior art and commentary for patent applications in their field of expertise. There are potential problems with this approach that I won’t go into, but trying new ideas to help the USPTO is critical for mitigating the effectiveness trolls.

Finally, there is a patent reform bill in Congress that has been trying to gain momentum for quite a while. One effect of this bill, if passed, would be to restrict the ability to sue over patent infringement. Obviously, this would de-tooth the trolls quite a bit.

Individual Innovation

Bill Taylor, blogger at the Harvard Business Review website, has an insightful post on two innovative companies. One of them is 37signals, a company whose products I’ve been using for a couple of years (Backpack, Basecamp) and which is admired by users and Web 2.0 companies everywhere.

If you have any experience with a 37signals product, you know that their two defining features are simplicity and intuitiveness (also defining features of the two most successful tech companies of this century, Apple and Google). During the recent Business Innovation Factory Conference, reports Taylor, the co-founder of 37signals explained their philosophy towards product development:

…if you try to make everyone happy with your products, you end up with mediocrity. Our company has opinions, and we build products based on those opinions.

This statement speaks to two sides of the product development process, whether the product is a movie, a restaurant dish, or an electronics device.

One side is consumer-oriented. Individualization is a theme in almost every consumer product and medical field these days. The more that a company can meet the unique needs of individual consumers, the more they differentiate themselves from companies that produce products for everyone that excite no one.

Taylor expands upon the thoughts from the 37signals co-founder:

If you’re going to do something original, something distinctive, something great, then almost by definition you’re not going to be right for everyone.

Disruptive technology, as described in The Innovator’s Dilemma, begins by meeting the niche needs of a select group of customers, technology that is initially deemed unwanted by the majority of traditional customers. The Long Tail is an extreme of this model of meeting the unique needs of individuals rather than a general product for everyone. Mainstream companies, however, are also embracing this approach (consider Nike’s consumer customizable shoes). Tivo, YouTube and independent films are all variations of this theme: either providing unique offerings for unique customers or allowing consumers to create their own customization.

Addressing the unmet needs of a unique group of potential customers is one road to product innovation.

The other side of the 37signals statement that I referred to earlier is the company side. The way that companies choose to develop their ideas and products is critical to the innovation development that will drive their marketplace differentiation.

I’ve always felt that design by committee produces a lowest-common-denominator result. Take several brilliant chefs/authors/directors and ask them to create something together, and the result will be significantly less creative and satisfying than what each could produce individually. Creativity and innovation require risk and the execution of a unique vision, both of which get diluted and ground down through compromise.

I’m not saying that collaboration and interacting with others is detrimental—on the contrary, this is one of the best ways of developing new ideas—but ultimately a singular vision has to be created that the company follows, whether everyone is in agreement or not. Jobs is brilliant at this, and even when his ideas fail, as with NeXT, they still demand the respect of having achieved innovation at the highest level (of course, much of what NeXT developed was ultimately integrated successfully into the remake of Apple).

I’ve got a strong feeling that the concept of entropy, which in information theory is a measure of uncertainty in a signal, can be applied to these concepts. High entropy systems are less predictable and embody more originality in its signals than low entropy systems. The most innovative companies/ideas/people would be quantized as having high entropy in an information theoretic applied to innovation. Any mathematicians want to give it a go?

Negotiation Strategies

HandshakeI’ve been interested in negotiation strategy for a while. In some ways it embodies many characteristics that are rare in scientific research, with a focus on human interaction and an unambiguous concluding point where success can be measured relatively directly. I can understand why some people thrive on it and why some people are terrible at it. It has more in common with courtroom battles than the scientific method, yet it has significant room for innovation to take play.

There was an interesting article a month ago in the Harvard Business Review on negotiating that caught my eye. The authors outline basic principles from their new book, Negotiation Genius, that provide guidance towards understanding the person/company with whom you are negotiating.

I found this article interesting because it gives more than the basic negotiating advice of understanding your counterpart so that you can drive to a win-win scenario. This basic win-win approach is, of course, an important concept to start with because people often approach negotiations as a poker game where one is trying to win as much of the pot as possible while not reveal any of their cards, with the assumption that the other side is playing the same game and trying to win as much as they can at your expense. The false assumption with this approach is that only way to win is for the other side to lose. The first step towards a successful negotiation is to realize that to be successful, both you and your counterpart must achieve your separate goals—hence, the win-win objective.

One has to understand the objectives of the other side to know what a win-win is, and the authors of this article expand upon this concept by pointing out that often negotiations stall because one side makes incorrect assumptions about the needs and motivations of the other side. The authors provide a few case studies that they have developed to test business students in which the majority of the students make wrong assumptions and therefore drive the negotiations to solutions that cannot succeed:

They are solutions to a problem that has not been diagnosed.

The authors outline how to conduct investigative negotiation, their term for the active pursuit of information about the needs of one’s counterpart in the negotiation. The five steps that they outline are (in their words):

    1. Don’t just discuss what your counterparts want—find out why they want it
    2. Seek to understand and mitigate the other side’s constraints
    3. Interpret demands as opportunities
    4. Create common ground with adversaries
    5. Continue to investigate even after the deal appears to be lost

The authors provide business case examples for each of these steps that make them more intuitive. They finish with tips on how to get information out of distrustful negotiators who don’t readily explain the reasons behind their own negotiating position. All very useful stuff.

Some of this reminds me of the work of Vantage Partners, a consulting firm with origins at the Harvard Law School when the founders were asked by the Carter administration to help with negotiations between Israel and Egypt at Camp David in 1979. Their directors have published several books, including Getting to Yes. Vantage stresses the need for a thoroughly understanding of the motivations on the other side, and emphasizes the possibility that each side has a different set of values that is driving their behavior. Vantage has expanded their expertise to business collaborations, explaining with data why collaborations between different businesses typically fail, and providing guidance on how to conduct a successful collaboration. There is a set of white papers from Vantage Partners on these topics that I highly recommend, including a huge set on managing alliances.

Buy the Investigative Negotiation article here from Amazon:

Architectural Innovation

GordanaA friend of mine, Gordana Pavlovic, was featured in Saturday’s San Francisco Chronicle for her architectural design work. I’ve always thought that she had a lot to say about innovation, and the Chronicle article articulates why.

Design is often thought of as a purely artistic process, where the designer does all of their work in front of their CAD program or sketchbook in the same way that a painter works in front of their canvas. Modern design, however, emphasizes an interdisciplinary approach that requires engineering, psycho-social research, manufacturing, and artistic vision to all work together in a process of innovation.

Gordana makes it clear that the same holds true for architecture. Her unique creations that include a glass-enclosed bridge tell how her work incorporates an understanding of the needs of her clients. She notes,

…you have to observe how people use space and how they live, and then design around that.

Similar sentiments were made in a short piece by architect Arthur Gensler in the January 2007 issue of the Harvard Business Review. Gensler describes how many architects talk about their clients getting in the way of the architect’s vision. Gensler goes on to say that his vision is based on designing to the client’s needs—there is no conflict between designer and customer. The same holds true in technology: a modern focus of technology innovation is to focus on the user experience and unmet needs: the vision starts with a focus on the client/customer.

In the Chronicle article, Gordana notes that having significant constraints put on her design requirements makes the problem solving process an exciting one. Again, a common modern theory of innovation is that the existence of significant constraints on possible inventions provides a framework from which one can best exercise one’s creativity. Too much freedom to innovate is like providing consumers with too much choice: one is left frozen by so many possibilities that one doesn’t know where or even how to start. By providing constraints, goals are clearly set and strategies can be more easily defined. By requiring an integration of a house’s design with nearby centennial oak trees, for example, Gordana was given a framework from which to begin her own creative process.

The picture at the beginning of this post, by the way, is a photo that I took at one of Gordana’s art exhibits: a glimpse of three of her paintings. Good design, after all, is part artistic.

Defining Innovation

Geoffrey Moore’s blogging dialogue with Tom Forenski highlighted to me my own vagueness over what, exactly, is meant by innovation and innovative. Tom Forenski said, "I think innovation *always* has to have the quality of disruption" in response to 10 myths about innovation posted by Moore on the Sandhill website.

Moore (correctly, in my opinion) argues that there are varying levels of innovation, many of which are not disruptive. Moore’s arguement is made clear by the very fact that the term "disruptive innovation" was the focus of Clayton Christensens book The Innovator’s Dilemma: if all innovation were disruptive, then disruptive innovation would be redundant. I doubt that Christensen would have wasted his time detailing and defining a redundant concept, anymore than I expect to see a leading chef publish a book detailing how we should focus our culinary resources towards “edible food.”

Still, where do you draw the line on what is and isn’t innovative? I believe we can draw some guidance from the decades of thought that has gone into determining what is patentable. One of the criteria for whether an invention is patentable is whether it is novel or nonobvious. By this is meant whether someone knowledgeable in the field of the invention would consider this to be an obvious creation or not. A patent attorney at one of my previous companies liked to demonstrat this concept by pulling a pen out of his pocket and saying, “This type of pen may have never been produced in the color red, but that does not mean that a red version of this pen is novel or nonobvious and can therefore be patented. To anyone who knows the field of pens, the creation of a red version of what I am holding is an obvious creation.”

This criterion, perhaps, could be part of the definition of innovation. To use the example above, a red pen might be a new product, but it would not be innovative, unless there was something unique about that color which causes it to succeed in the marketplace far beyond the expectations of one who knows pens. Then, the development of a red pen is only innovative in the selling and marketing of it.

As detailed by Moore, innovation can take many forms, and can include incremental improvements that cause no disruption whatsoever. But, the development of a new product, or the sales of a new product, should not be described as innovative unless there is something special about the product or the result in the marketplace that is not obvious to someone expert in the field of that product.

The February issue of the Harvard Business Review has an article on Management Innovation, and in that article the author unintentionally provides his own description of what makes something innovative. I have slightly modified one of his statements on management innovation to speak to innovation in general:

innovation can be defined as a marked departure from traditional principles, processes, and practices or a departure from customary forms that that significantly alters functionality.

The author later states that (management) innovation stems from “unorthodox thinking” and “wisdom from the fringe”. This surely separates innovations from simply good ideas. Introducing a de-featured, lower cost version of a product may be a very good idea, but I would not classify this as an innovation.

Gordom Graham makes valid points on distinctions between different types of innovation over at Broken Bulbs. I invite readers to comment on, and bloggers to post and trackback their own thoughts on, what is meant by innovative and innovation.