The Protection Racket Shakedown

By Allen Holub

November 1, 2004 —

Patents are a weapon. A patent’s value is proportional to the patent holder’s willingness to go to court. Many businesses (IBM is notable) use patents as an offensive weapon. They attack the competition for infringement in order to drive the other company into bankruptcy. Looked at this way, the validity of the patent is not much of an issue. The U.S. Patent Office, which seems particularly incompetent when it comes to weeding out bad patent applications, doesn’t help the situation.

Unfortunately, determining validity is surprisingly difficult. You defend yourself from a patent-based attack by proving “prior art.” You have to show that someone other than the patent holder had the idea first.

In pursuit of getting some work as an expert witness, I was chatting recently with an attorney at Fenwick and West, one of the Bay Area’s larger high-tech legal firms. She was working on a case where IBM was suing a smaller company for infringement. IBM was claiming that they had a patent on the notion of checking referential integrity in a database by examining the references one at a time.

Of course, every programmer that you talk to thinks that it’s nonsensical to patent such a basic concept, one that’s been around since the dark ages. The attorney, however, was having a hard time actually documenting this fact. She needed to locate someone who had used or published the idea before the patent was actually filed, and could document its use. Finding such a person was not easy.

(As an aside, one way to prove prior art short of actually applying for a patent yourself is to keep a written engineering notebook with bound, numbered pages. Date and sign each page and give the notebook (or certified copies of it) to a neutral third party for safe keeping. You should do the same thing with snapshots of your source code. Another way to establish prior art is to publish your ideas and keep copies of the publication.)

This very publication made a controversial choice earlier this year, and put one company that embraces patent-based attack strategies, The SCO Group Inc., in the “SD Times 100” list as a top influencer,” (www.sdtimes.com/news/102/special1.htm), citing that its legal assaults on IBM and Linux users dominated technology headlines and inspired fervent debate, fear, uncertainty and doubt.

For those of you who have been living in a cave, SCO’s business strategy is to compensate for a notable lack of intellectual capital by suing other companies on “intellectual property” grounds. They buy up companies in order to acquire their patent portfolios, then sue the deepest pockets that they can find for allegedly stealing their intellectual property. The attacked companies settle out of court because it’s cheaper to just pay off SCO. This is a classic protection racket: SCO extorts money from innocent companies, who pay up in order to avoid long-term pain.

The SD Times award was not an endorsement of SCO’s tactics; it made no judgment about whether the influence was good or bad. No one can deny that SCO has been influential, however, and we’re now seeing SCO’s strategy being adopted by other companies.

In particular, Kodak, who’s management seems to have missed the digital-photography revolution, is now trying to fund its move into the digital world by extorting money from other companies. Kodak sued Sun (and won) for violation of patents that Kodak acquired from the now-defunct Wang computers. The validity of the patents is dubious, but Sun has nonetheless paid Kodak $92 million in protection money to get Kodak off its back.

Kodak’s claim that these particular patents are valid is really nonsensical, but is hard to disprove. If you don’t believe me, the patents in question are 5,226,161, 5,421,012, and 5,206,951. To read them, do a patent-number search at http://patft.uspto.gov/netahtml/srchnum.htm. In essence, Kodak is claiming a patent on the notion of a server program delegating some of its work to a helper program (such as a database). Bear in mind that Kodak won the case. A non-technical court agreed with them.

On the positive side, SCO posted a net loss of $7.4 million for last quarter, compared with a profit of $3.1 million a year ago. In other words, SCO’s strategy doesn’t seem to make for long-term success. Let’s hope that companies like Kodak will either learn from this failure and compete by developing better products rather than by extorting money from intellectually superior competitors. If not, let’s hope that the SCOs and Kodaks of the world simply go out of business. It’s hard to imagine that you can achieve long-term success simply by preying on your betters. z

Allen Holub is an architect, consultant and instructor in C/C++, Java and OO Design. Reach him at www.holub.com.

Share this link: http://www.sdtimes.com/link/28209

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