Reactions to story from Valleywag, Silicon Valley's Tech Gossip Rag

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  Allied Security Trust formed by large companies as a way to crush small companies and individual inventors. Consolidation of the high tech sector continues.

  http://blogs.law.harvard.edu/jim/2008/07/05/copyfight-google...
  64 days ago in Jim Moore’s blog: Innovation, Strategy, Public Policy · Authority: 12

  Allied Security Trust formed by large companies as a way to crush small companies and individual inventors. Consolidation of the high tech sector continues. July 5th, 2008  Have you heard the expression”kill the snake while it is small”? Google, Hewlett-Packard, Cisco, Verizon and Ericsson have reportedly joined together to fund a snake-killing operation.   Smart technologists and small companies beware. Here is the story, from the ever-observant Valleywag Silicon Valley blog: Copyfight: Google, HP and others form League of Extraordinary Patent Holders “Google, Hewlett-Packard, Cisco, Verizon and Ericsson are among the companies rumored to be behind the formation of the Allied Security Trust. Ponying up $250,000 down payments and $5 million in escrow to make purchases, the trust seeks to buy patents…” The article above reports the development correctly, but incorrectly argues that the motivation behind this Alliance is to protect against a prior patent pool, Intellectual Ventures.  This despite the fact that several companies are reportedly members of both pools. Actually, both of the patent pools have exactly the same attraction to large companies:  Large companies use these pools to keep small, emerging companies out of their markets and/or to force small companies to sell out to large companies before becoming a threat. How does this work?   Patents are a way for a small company to protect itself from predatory large firms while the small company remains small.  Company S has a new idea, but little financing, marketing, distribution, or manufacturing.  So it starts to grow with very little clout.  As it grows, if it grows, it attracts the interest of large companies it has the potential to threaten.  The large company’s first move is to clone the offer–think of Google Videos, which was a response to YouTube.  But if the small company has good patents, the large company must think twice about cloning. The large company’s second move is to try to buy the small company on the cheap.  While the two firms negotiate, the large company will attempt to learn the small one’s secrets, and improve its clone.   Again, if the small company has good patents, the large company will be deterred from doing this, and/or punished for infringement later by the courts–think Microsoft in a number of cases.  Microsoft, by the way, is estimated by stock analysts to have more than twelve billion dollars in infringement liabilities moving through the legal process. Eventually, the well-protected small company grows to the point that it can sustain market attacks from large ones.  This is the nightmare scenario for large firms.  Think of Google against YouTube (before it bought it) and Facebook (today).  Now the large firm must either pony up a billion-dollar-plus price and buy the upstart (Google buys YouTube) or suffer the effects (Google in the face of Facebook). The motivation of both the Allied Security Trust and of Intellectual Ventures is to protect the oligopoly positions of their large member firms.  The largest firms in the IT space–Google, IBM, Microsoft, are not so much in competition with each other as with the future.  They are not in competition with existing firms so much as with “companies unborn” who may–and probably will–disrupt their markets as profoundly as they disrupted their predecessors’. Large companies are not afraid of each other–in general they have worked out relations that work to the benefit of each other.  Rather, Google, for example, is most afraid of the likes of Facebook.  There are always new small innovative companies capable of growing large enough to challenge the current behemoths.  Strong patents help small companies stay independent while they grow. Small companies use their patents to help stave off crushing clone-based competition from the slower-moving but vastly more powerful giants. What large companies are afraid of is innovation by small companies and individual inventors. Both the Allied Security Trust and Intellectual Ventures are mechanisms invented by large companies to make them safe from small, disruptive newcomers.  Both enable large companies to buy up patents that might pose potential threats, and get them out of the hands of small firms and individuals. These alliances are just one of the means large companies are using to consolidate their power and protect themselves from competition from smaller rivals.  Phony “patent reform” sponsored by large companies is another.  Phony “reform” (called “Patent Deform” by Britt Blaser) is an attempt to secure market power by weakening patents. Note that all of the large IT companies file thousands of patents each year.  Do the large companies sue each other?  No. With each other they have “mutually assured deterence” where if one company sues that other can counter-sue, and their relations will melt down.  No large company does this.  But large companies do sue and punish unmercifully smaller  companies that challenge them. The great fiction is that large companies mostly compete with each others.  Not true.  Large companies work out “arrangements” with each other.  Large companies compete against smaller companies that have the potential to grow large. The most insidious campaign large companies are currently using to crush small ones involves PR.  Large companies have quite successful reframed “infringer” (themselves) to “victim,” and “small innovator without market power” to “troll.”  Give me a break. The term “patent troll” was coined by an Intel CFO.  Intel uses its patents unmercifully against small  companies.  For example, Intel sued AMD for years in order to keep AMD from growing into an effective challenger. The future of American innovation depends on small companies.  Small companies, in turn, depend on patents.   Biotech and pharma companies know and accept this, which has made innovation in biology vibrant in the US.  Energy companies know it as well.  Energy innovation is thriving. By contrast, innovation has slowed in information technology. As any investment analyst, and he or she will tell you that consolidation is the key to understanding high tech today.  Oracle, Google, Microsoft, IBM, HP and Intel are consolidating their respective parts of the market.  Only the social networking space remains contested, and the domination of MySpace, Facebook, and YouTube is increasing rapidly. This consolidation seems surprising and ironic, given the amount of independent talent available in high tech, and given the educational value of the open source movement (free as in “free ideas” and “free education”).  What is happening? What is happening is that large companies in the technology space use their market power to crush, control, and consolidate innovation by individuals and small companies.  How is this happening?  Why is this happening in high tech but not in biology and energy? In biology, the biotech sector is flourishing and big pharma, appropriately, is on the mat.  In energy small companies are the rage.  In automative, now seen as a segment of the energy business, small electric car companies are thriving as GM collapses. What is different about high tech?  Simple, patents and other property rights are being systematically attacked by the large high tech companies, and pundits and scholars are going along with this.  The open source movement is terrific for education.  The free software movement, by contrast–”free as in beer”, not “free as in ideas”–is terrible for the property rights of individuals and small companies.  Idealistic innovators are being conned by large companies into giving up the rights to their ideas.  Free indeed, free for big companies to exploit. The announcement of the Allied Security Trust is just another step toward the serfdom of the individual innovator in the high tech sector.   The Allied Security Trust is another way to ensure that the most talented members of this generation go to work for Google, IBM, and Microsoft, rather than competing with them. Posted by jim Filed in Comments off
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  The Coming Patent War- Carnage predicted

  http://www.mikeford.com/2008/07/allie/
  67 days ago in Mike Ford :: Total Consciousness · No authority yet

  Interesting article on patent firms and an upcoming battle royale.   Intellectual Ventures which I discussed here and a new company,  Allied Security, backed by Google, HP, Cisco, Verizon, Ericsson.

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