I had a chance to quiz five Washington-area startups Thursday, and I didn’t offer up a single question about the customary topics of business models, funding rounds, potential competitors, or exit strategies.
Instead, I wanted to know about patents: Have you applied for any? Why or why not? Have your investors pushed you to build a patent portfolio? And what’s your potential exposure to a patent-infringement lawsuit?
The occasion was the “Demo Day” that the District-based investment fund Fortify Ventures runs to showcase companies it’s backed. The five startups covered a range of use cases, but all had managed to line up both prior funding and paying customers.
Two catered to the kind of political market you might expect in this city: LegCyte provides algorithm-driven analysis of pending legislation, while TrendPo monitors social-media metrics for political campaigns. The other three focus mostly on consumers: SnobSwap runs a marketplace through which individuals can resell high-end clothes and accessories, RidePost matches up drivers and passengers for trips between 50 and 500 miles, and Trip Tribe gathers like-minded people for group travel.
Unsurprisingly, the two more stereotypically Washington startups were farther along in the patent process, but one had been a lot more aggressive about it than the other.
TrendPo didn’t skimp in seeking a patent on its data-digestion system: It hired the law firm DLA Piper to write and file the application. LegCyte, however, only put in for a provisional patent–a cheaper way to start the process–and had its co-founder Guy Morgenstern write it himself. (The company profited from Morgenstern having learned that specialized skill at a prior company.)
RidePost, SnobSwap and Trip Tribe, meanwhile, hadn’t applied for any patents, although each had at least considered what sort of intellectual property could be turned into one. Trip Tribe seemed least interested in a trek to the patent office; as CTO Joe Dzikiewicz phrased it, “the key point of our company is not really the technology so much.”
None said their investors had pushed them to file for patents. Said Fortify managing director Jonathon Perrelli, “We don’t require it, but we do support it.” He added that has to come after a startup has established a product. “When they’re raising $50,000 to pay for ramen and hosting services and their desks, $15,000 doesn’t have to go to intellectual property.”
These startups’ answers were most interesting–not always in a good way–when I asked about potential exposure to patent suits, a substantial risk to young companies.
The one firm to write large checks to an IP law firm sounded most confident. “You can never tell, but DLA Piper gets paid lots of money to get patents covered,” Chang said. “I feel very comfortable with my attorneys and their assessment.”
At LegCyte, Morgenstern and co-founder Aneet Makin said they’d chosen to run their service on open-source and other patent-free tools whenever possible as one way to lower that risk.
Trip Tribe’s Dzikiewicz allowed that patent trolling was “always a concern.” But he said he didn’t know of any patents relevant to his company’s product and wasn’t sure if they’d done a comprehensive search for them–at a prior employer, AOL, he said the lawyers told staffers not to read competitors’ patents, lest they be held responsible for knowing infringement.
The last two startups stressed how they strive to avoid copying anybody else’s ideas. “We have processes in place that document how we build stuff and how we do stuff,” RidePost founder Mary Bauer said. SnobSwap CEO Elise Whang was even more definitive: “We wouldn’t do anything that would infringe on anybody else’s patents.”
That’s a right and honorable thing to say. But patent trolls don’t care if you do the right thing, and they can’t be bought off with the usual cross-licensing settlement that getting your own patents allows.
As NewEgg.com chief legal officer Lee Cheng said in a biting TEDx talk Thursday night, the lawyers and the investors behind patent trolls only care about the profit to be had from exploiting the system. And that won’t change until enough get beaten in court by companies (like NewEgg) that risk spending more money fighting them than settling with them–and the laws stop enabling this kind of extortion scheme.