Silicon Valley: The land of unicorns — and trolls

I live in an enchanted and magical land of rainbows and unicorns called “Silicon Valley.” In addition to unicorns, Silicon Valley is also inhabited by trolls, who emerge from under their bridges to threaten the denizens of the valley with lawsuits based on dubious patents.

I was shocked to read that Andrei Iancu, director of the United States Patent and Trademark Office (USPTO) gave a recent speech where he complained that people who call non-practicing entities (NPE) patent trolls are “storytellers” who are “scaring our inventors and our entrepreneurs …”. Given how far this is from reality, I could not imagine what kind of fantasyland Director Iancu lives in.

Patent trolls exist in Silicon Valley and are a very real threat to innovators. I should know. I have fought off two patent trolls, most recently this past summer as the general counsel of Bitmovin.

Bitmovin is a startup that provides application programming interface-based (API-based) products to solve complex video problems in the cloud. Bitmovin has about 30 patent assets. I, myself, am the named inventor on 2 patents, and am working on a third.

In June, Bitmovin was the defendant in a patent lawsuit brought by a notorious patent troll based on a truly weak patent. I likened the patent to a “digital 8-track player.”

Patent trolls tend to be at the bottom of the intellectual property (IP) food chain, and they take advantage of asymmetries in the economics of litigation to pick up some quick cash.

We knew we had to change the balance to our favor. We threatened to countersue the troll, win the case on the merits and then seek recovery of our fees and costs from the troll and his lawyers.

Further, Bitmovin pledged to reinvest any funds we recovered in invalidating all of the troll’s 15 other patents, which he was using to attack companies through two other LLCs. This troll put his tail between his legs, sulked away and dropped his lawsuit against us.

Now imagine that our troll case had not gone our way. Settling the case for anything near the proposed license would be the equivalent to about one software engineer’s annual salary. One software engineer may not sound like a lot, but it represents about 5 percent of Bitmovin’s current engineering resources.

That’s 5-percent fewer features and products we could build and at least 5 percent lost revenue due to fewer sales. Compound that loss of innovation over a five-year forecast, and it becomes nearly impossible for Bitmovin to achieve unicorn status (a private company worth more than $1 billion). And, that’s before other trolls try to come feed on us. 

Bitmovin’s anti-troll strategy relied on having access to “three billy goats gruff” to knock this troll off the bridge. The first little billy goat was the America Invents Act (AIA). The AIA gave us a faster, cheaper way to show that the low-quality patent was invalid. The AIA also allowed the USPTO to implement new safeguards to improve patent quality.

The second, medium-sized billy goat is the Inter Partes Reviews at the USPTO’s Patent Trial and Appeal Board. Filing an IPR costs about one-tenth of similar litigation in district court, where the median cost of a patent case is roughly $1 million.

It also takes less than one year, much quicker than federal court proceedings. That allows us to get back to business faster.

The final, big billy goat was the Supreme Court’s decision in Alice Corp v. CLS Bank Int’l, which allows defendants to challenge the validity of the patent and have the suit dismissed early instead of spending tens of thousands of dollars. After the Alice decision, R&D investment in software and internet technologies grew 27 percent from 2014 to 2015.

Because Bitmovin had access to these legal remedies, our troll knew that we had the ability to fight. Had we not had the defenses provided by these three billy goats, our dream of growing up to be a unicorn would have vanished in the autumn mist.

These three protections have helped companies like mine and Congress, and the USPTO shouldn’t allow them to be weakened. Sorry, Director Iancu, trolls are real. They don’t just exist in fairy tales, and the real ones are a threat to innovators. And that’s not crying “wolf.”

Kenneth R. Carter is the general counsel to Bitmovin, Inc., a multimedia technology company that provides services that transcode digital video and audio to streaming formats using cloud computing and streaming media players.