At Engine, we are lucky to spend a lot of our time talking to startup founders across the country. We hear about the truly exciting and innovative contributions they are making, and how federal policy decisions can better support them (but also, unfortunately, sometimes stand in the way). So this week, during the inaugural Patent Quality Week, Engine, the Consumer Technology Association, and ACT | The App Association hosted a webinar to allow more of you to hear directly from these startup leaders across the country about the exciting work they are doing, and about how patents and abusive patent assertion affect their ability to grow and succeed.
Moderated by CTA’s Tiffany Moore, the panel reflected a spectrum of companies in multiple industries hailing from several states.
Emily Hart is the COO of MotionMobs, a woman-owned development agency and technical consulting company in Birmingham, AL. In the earliest days of the COVID-19 pandemic, they developed Alabama’s contract tracing app—allowing users to know if they had come in contact with someone who had COVID in a privacy-preserving way.
Rich Hirsch is Chief Marketing Officer at UnaliWear, a medtech startup based in Austin, TX. UnaliWear has developed a revolutionary, disruptive product in the medical alert industry: the only smartwatch that offers discrete, 24/7 protection with monitoring and built-in fall detection.
Tony Hyk is the CEO of TheraTec, a telemedicine startup near Minneapolis, MN. TheraTec is looking at telemedicine in a comprehensive way, helping musculoskeletal patients to get better faster. TheraTec focuses on three prongs: remote therapy delivery, remote monitoring, and predictive analytics, and improves outcomes with a focus on sustained connections between clinicians and their patients through an app.
Joshua Montgomery is the Founder of Mycroft AI, a company based in Kansas City, MO. Mycroft has developed a voice assistant software stack, with a focus on building something open and private. In the rapidly growing smart speaker market, they have developed a voice assistant that is continuously learning and can be adapted or changed to suit a user’s preferences. Montgomery is also the author of a children’s book—Mycroft and the Patent Trolls—which explains the problem of “patent trolls” in a way that’s accessible for everyone.
During the panel, several themes emerged. For this group of companies developing different technologies, they rely on and develop intellectual property (IP) in varied ways. For example, Mycroft takes a very open source approach, while TheraTec has a combination of patents and trade secrets. As developers, MotionMobs does not develop its own IP but uses patents developed by others, including the IP owned by its clients. For UnaliWear, “our patented battery system means our Kanega Watch wearers never have to take their watch off to charge; and this, along with other key habit-forming features, translates to over 90 percent of our wearers wearing our watch 24/7 vs. competitive pendant offerings that are worn only about 40 percent of the day and never at night, when these devices should provide the most critical protection. It's part of how we deliver on our mission: Extending Independence with Dignity.”
Each of the panelists also discussed their experience with patent assertion entities (PAEs), or so-called “patent trolls.” Hyk explained how ThereaTec has “been the victim of a patent troll. A troll in the sense that it’s a shell company with lawyers at the helm, and it purchased patents from somebody else. They don’t have a product themselves, yet they are suing us for infringement. This one in particular was patenting something that’s not patentable, the patent should have never been issued. I wanted to at the time just invalidate the patent, but that just costs way too much.” Likewise, for Hart and MotionMobs, when they were developing Alabama’s COVID exposure notification application last year, the “GAEN framework—Google-Apple Exposure Notification—used a particular implementation of Bluetooth. Bluetooth has a patent, it also has standard essential patents. We received a note from a patent troll who was asserting that they owned the use of Bluetooth to detect distance between devices. We weren’t claiming to make it, we weren’t creating that technology. We were just using what Apple and Google had put into the framework and we were building that package into the app we were building.”
These types of patent assertions take a serious operational toll. Montgomery spoke about Mycroft’s “particularly brutal fight with a patent troll.” The company “currently ha[s] more law firms than it has employees. . . . For the last several months, our legal costs as a company have far exceeded all the other operating costs of the company. So the biggest thing we do as a company right now is litigate. And we are litigating against patents that should never had been issued.” While Mycroft has mounted a patent challenge through inter partes review, it is still looking at $2 million in legal expenses, out of the $7 million it has raised to date. And as Montgomery explained “Companies shouldn’t have to do that. We should be able to focus on the technology we are building, on standing up teams of developers and business operators, not teams of lawyers.”
The panelists also discussed how uniquely vulnerable startups and small business innovators can be. As Hirsch explained, “For a startup, [defending against PAEs] is more than the cost of doing business. Quite frankly, [] lots of times these patent trolls start with the startups to build up to and develop credibility, and money, to be able then to tackle the big boys. We are not only the ones that are being extorted first, but we are the canary in the coal mine for industries all across the country.” The existence of abusive patent assertion also “makes it that much harder to raise money. The last thing an investor wants to know is that their check goes in the door, and then three-quarters of it goes out the door to the lawyers.” And Hart noted how the experience of being targeted in this way is particularly scary and confusing to a small company or an entrepreneur without a technical background. They have to be thinking “Is this claim valid? Do I need to respond to it? Do I need to take it seriously? Does it threaten my business?” And will often pay thousands of dollars to make each patent assertion just go away.
As far as what policymakers can do, Montgomery suggested “changes in the patent process at the point of issuance. Right now, by the time you find out a bad patent has been issued, it’s already being asserted by this PAE. There needs to be a window at the end of the patent process that makes it easy and very inexpensive for companies that are in the industry to challenge the patents.” Somewhat relatedly, Hyk noted that in a system where we know there are so many invalid patents, he “cannot help but think are our patents legitimate?” He’d like to be able to more proactively put TheraTec’s patent applications through a rigorous process, without incurring a lot of additional expense, to know the company has “something concrete with our patents.”
While all of the panelists came from different perspectives, the similarities in their experiences also confirm that policymakers should be thinking about how to reduce the volume and impact of abusive patent assertion. Because that will allow these innovators, and others across the country, to get back to innovating new solutions, hiring engineers and business leaders, and growing the economy.
