[Gary Lauder is the Founder and Managing Director of Lauder Partners LLC, a venture capital firm in Silicon Valley. Over the past nearly four decades, Lauder, who has been a tireless advocate for “smart” patent reform, has invested over $500 million in venture capital in more than 150 companies and more than 100 venture capital funds. He is the inventor or co-inventor on approximately 17 patents. I took the time to explore Lauder’s thinking on some aspects of patent reform, which is set out in the interview that follows.]
JA: Gary, you’ve been a voice for protecting the U.S. patent system since before the passage of the America Invents Act (AIA) in 2011. Why were you so riled up about the AIA?
GL: It was an example of how big tech and their trade associations have hijacked the patent system to make it work for them, to the detriment of inventors, entrepreneurs, and investors. The legislation was written by lobbyists and congressional staffers – basically nonexperts with vested interests – rather than experts who understand and care about the stakes for all those involved in the patent system. Not surprisingly, the AIA has been bad for inventors and entrepreneurs – those who are at the center of the development of new and better technologies and for whose benefit the constitutional provision creating the patent system was intended.
JA: What specifically was wrong with the AIA in your view?
GL: Well, to begin with, it’s poorly drafted. It’s long, complicated, and often vague. I confess that I am not a lawyer, though I have kept many of them well-fed over the years. But what concerned me most was that it transformed the U.S. patent system from a “first-to-invent” into a “first-to-file” system, meaning that the patent for an invention goes to the party that files the application first, rather than the party that invented it first. This has all sorts of undesirable consequences, including encouraging the usurpation of patent rights through hacking and industrial espionage and discouraging communication among innovators, investors, prospective employees, and customers. It also forces inventors to file applications early and often, which is burdensome for small companies and for the already overworked Patent Office.
JA: Now, you also take a dim view of efforts to combat “trolls,” or parties that acquire patents for the specific purpose of going after others for purported infringement of those rights. Don’t we want to encourage initiatives to control this sort of activity? After all, these folks are not contributing anything to the invention process.
GL: The fact is that not all trolls are bad. Again, big tech have used trolls as the bogeymen in order to weaken the patent system to save a few basis points on their expenses. These companies are hawking a “chicken little” message by asserting that the patent system is being overrun by litigation brought by trolls. Anyone being sued for patent infringement wants you to believe that they are being pursued by a troll, but the troll threat has been greatly exaggerated. For example, if you look at intellectual property lawsuits as a percentage of patents in force or other gauges, such litigation has actually not been increasing at all. Big tech is using the specter of trolls to fix a “problem” that does not really exist. One aspect of this that alarms me is that, based on my random sampling of friends on big tech’s boards, most of big tech’s board directors are not even aware of what their companies are doing.
JA: Why would the Apples and Googles want to weaken the patent system? Don’t they benefit from it?
GL: While they do apply for patents, they rarely assert any. For most of these companies, their market power derives from factors other than patents. As the dominant players, these firms are concerned about so-called “creative destruction,” or the replacement of existing technologies by newer and better ones. A commonly cited example of this would be how the auto industry replaced the horse and buggy industry in the early 20th century. Incumbent companies do not like the destruction part, even if it’s creative. But creative destruction helps bring about better and cheaper technologies and so is something society should be encouraging. However, big tech seeks to maintain the status quo and see a weakened patent system as an effective means for accomplishing that.
JA: But you do agree that at least some trolls are bad. What is an example of a good troll and how do you separate out the bad trolls from the good ones?
GL: An example of a good troll is a party that created a technology and after being copied, brings a legitimate claim for infringement against another party, as opposed to a frivolous one designed to harass that other party into settling. We really need to be surgical about this, and it is largely up to the courts to get this right. While the judiciary has demonstrated a fair amount of sophistication on this front, we need to encourage the development of even greater expertise. That is an aspect of the system that congress should be doing something about. There are some good bills pending—and some bad ones.
JA: What else do you think the government should be doing?
GL: I acknowledge that certain trolls are a problem, but the bigger problem out there is the copying of inventions that inventors have created. We need to do a better job of protecting these inventors, as that is central to the whole purpose of the patent system – i.e., to afford inventors a period of time during which they have the sole right to exploit their invention in order to encourage technological innovation. Court decisions, including by the Supreme Court, have made it easier to invalidate a patent, and congress must address this trend, as it has reduced the amount of venture capital flowing into fields that rely on patents. On the other hand, additional anti-troll legislation would only do more harm than good to legitimate patent holders.
JA: Why should we be worried about all this now?
GL: In 2015, a legislative initiative to address the troll “problem” fortunately failed. But big tech and their lobbyists are still hard at work on this. It takes over two decades for the weakening of the patent system to play itself out. In this regard, we still do not know what the full effects of the AIA on technological development will be. In the meantime, you might end up in a hospital room wishing that someone had invented a cure for what ails you, because many great inventions and entrepreneurs are not getting funded. That’s why you should be worried.
[For more on Gary Lauder’s thoughts on patent law reform, see: https://bit.ly/techlashmisdirection and https://lauderpartners.com/PatentReform/#:~:text=The%20Roll%20%5Bsic%5D%20of%20Patents%20In%20Corporate%20America%20(part%20Duh%20(as%20in%2)]
