Recently I had the opportunity to interview Efrat Kasznik (pictured left), who is President of Foresight Valuation Group. Kasznik specializes in performing valuations of intangible assets for financial reporting, tax compliance, transfer pricing, litigation damages and business liquidations. She is also starting to work with start-up companies at earlier stages in order to help them develop a strong IP portfolio and to prevent them from making mistakes that later cannot be fixed.
What follows are the highlights of my long form interview, which took place on Tuesday, December 23, 2014, and was published on IPWatchdog.com on January 7, 2015.
I spent some time discussing whether investors should seek patent protection or whether they should freely share their ideas, which is what some VCs actually recommend.
Kasznik explained:
QUINN: If you didn’t have anything to trade nobody would trade with you. And that fundamentally is what a patent can be. If you have good technology your patent is not necessarily going to be used going out and suing somebody. These are tools, these are assets that can be used to help facilitate a deal with another company that has interesting things that you may want. They want part of your rights so you trade.
KASZNIK: Absolutely! And that wisdom is beginning to proliferate a little more. But still, you see the kind of advice that startups are getting from influencers in Silicon Valley who are extremely misinformed about patents. Take, for example, a VC firm like Andreessen Horowitz, which is a Tier-1 VC firm in Silicon Valley. And they’re writing a blog that says something like: why startups should not spend their first $25,000 on filing patents, and instead they should build products. There is so much ignorance in this saying. First of all, it shouldn’t cost you $25,000 to file a provisional patent. Second of all, building products and investing in IP are not mutually exclusive, on the contrary: they should go hand in hand. Then the post goes on to recommend that startups should freely share their ideas for feedback, just send it to ten people and ask for comments, and not be “too guarded” about sharing their ideas. Which, in the post AIA environment is exactly the wrong advice to give, unless you want your ideas leaking into the public domain. So that’s just an example of the mentality we’re dealing with. And these are the people holding the money, you have to understand. So startups are trying to follow their advice and not spend the money on patents. I have actually addressed this specific example in an article I just published on IP best practices for startups.
We also discussed the benefits and burdens associated with using open source in software projects.
QUINN: And so open source for some people is the right thing but it is not the universal tool in your toolbox. And I think that that message has gotten out, which is good.
KASZNIK: Yes. The other thing to remember about open source, it’s considered a big headache in acquisitions: if the target company comes in with lots of open source elements it’s not considered a positive thing to have. So the tradeoff here is between getting access to free IP as opposed to creating your own IP. So that’s another thing to keep in mind.
One of the more interesting, and newsworthy, items to come from the conversation was discussion of the value of software patents today. Kasznik also explained that some crafty patent owners are finding new ways to try and bundle patent licenses and sell them to start-up companies. These licenses might not be worth a lot given the climate for software patents post Alice.
KASZNIK: Right. So I don’t see a lot of people buying software patents. I think that segment of the market is fairly dead at this point. But what I’m seeing is a lot of people offering patents for sale. I see a lot of the patent-holding companies that have now all turned into startup incubators. So they’re offering patents for sale/license or all sorts of deals with startups. And I think a lot of the startups are roped into it without really understanding what they’re getting into. And I see situations when companies are offered access to IP portfolios that I know are not worth anything. But they don’t really understand that. And so they are being offered access to get these patents and tie it up with their product so they can sell the company at a higher price. So the problem is that these are usually junk patents. I mean, if whoever is offering these patents to the startups could do anything better with them, they would have done that. So I’m seeing people coming to me with these deals. And what my advice to them is if you’re building an IP portfolio around your company, you need IP that’s related to your product. Buying software patents from someone, the odds of these patents fitting your product is very low. The odds of these patents being good is very low. I see these things happening more now because I think people just have these arsenals of software patents they’re trying to get rid of, and they’re finding the startups and they are an easy target for these patents.
Tags: interview, patent, patents, software patent, software patents, startups
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