One big reason is the campaign against patents in general, and against software and e-commerce patents in specific.
Why would an investor put down money for an idea for a new website where FB Google Amazon Apple MS will simply copy the idea and use their economy of scale to remove even the hint of success?
Filing patent applications isn’t all that cheap and can easily cost 10k per application in legal fees. Not sure that is the best use of resources for a pre-series A company. These early stage startups usually die off from not getting customers/users. I imagine seed investors are more worried about their companies not getting traction. By the time they have enough users that facebook and google start to notice, they can raise a series A and file for patents.
Also, let’s say Facebook does copy a seed startups patent protected product. What are the company going to do, sue them? Seed funding might be able to pay lawyers for like a week. Patents are a big company’s game.
TLDR: no, patents have absolutely nothing to do with the decrease in seed funding.
The "campaign" includes Supreme Court opinions [1], Inter Partes Reviews [2], the Patent Trial and Appeal Board [3], and biased government actions that favor, e.g., Google over smaller companies and inventors [4].
"patent rights are still strong ..." Yes, anyone can file a patent, but the costs for enforcement are higher and higher [5], while the probability of successful enforcement is lower and lower [6].
"What [is] the company going to do, sue them?" Yes. If patent rights were "strong" like when BlackBerry got sued and settled for $612M [7], then investors would be lining up to fund the company and its litigation.
[1] https://scholar.google.com/scholar_case?case=778413475528498... [2] http://www.ipwatchdog.com/2017/08/08/problem-inter-partes-re... [3] http://www.ipwatchdog.com/2017/07/22/ptab-number-one-enemy-i... [4] http://www.ipwatchdog.com/2017/11/13/ptab-targeted-advertisi... [5] http://www.ipwatchdog.com/2017/07/16/real-staggering-cost-ge... [6] http://www.ipwatchdog.com/2017/11/16/ipr-petitions-virnetx-p... [7] http://money.cnn.com/2006/03/03/technology/rimm_ntp/
Patent rights have not diminished one bit. What has diminished is the ability of patent trolls to abuse the patent system, and more review allowing for patents that should not have been granted in the first place to be revoked.
There are several that think quite the opposite of this extreme statement. [1]
More to the point, the courts have finally addressed one of the major problems with patent trolls, which is the cost difference between a plaintiff and a defendant for adjudicating an arguably frivolous case. [2] [3] With this new interpretation of venue, it is significantly harder, if not impossible, for plaintiffs to pick a friendly venue where plaintiff costs are 1/10 to 1/100 the cost of defendants for arguably frivolous adjudication.
However, past attempts to whack patent trolls (the AIA, IPRs, and PTAB) are still harming the patents of small companies and inventors. [4] [5]
[1] http://www.ipwatchdog.com/2017/08/11/us-inventor-patents-on-...
[2] http://www.ipwatchdog.com/2017/05/26/supreme-court-reverses-...
[3] http://www.ipwatchdog.com/2017/09/21/federal-circuit-strikes...
[4] http://www.ipwatchdog.com/2017/08/08/problem-inter-partes-re...
[5] http://www.ipwatchdog.com/2017/07/22/ptab-number-one-enemy-i...
The issue is more than simply the increase in cost. To address the issue, small companies and inventors would likely have to file appeals to the Federal Circuit and then file appeals to the Supreme Court AND and hope that enough judges go against the grain of the current environment to help with the plights of small companies and inventors.
By definition, small companies and inventors do not have the money for this litigation and investors are unwilling to fund litigation that will probably not be successful in the current environment.
But I don't think the things you mentioned are really relevant because patents are just not a viable strategy for _seed_ level startups, and that was just as true 2012-2016 (the seed boom) as it is today. Litigation may be getting more expensive, but it is a moot point because it was already prohibitively expensive for seed startups when it was "cheap." For a company that has only raised in the 500k to 1.5m range with negligible revenue (as would be usual for a seed startup), litigation is off the table.
I also find your reference to the BlackBerry case to be totally out of left field. Under no possible definition of the word "seed startup" could NTP possibly ever be considered one. So how is the example relevant?
Do you have any examples of actual startups that use patents as part of the strategy? There are different definitions of startups, but no one considers a non-practicing patent holding company founded in 1992 to be a startup.
I feel like you have an axe to grind about patents, which is fine, but I honestly don't think there is any relation to the decrease in seed startup funding.
Even with patent protection, $BIGCO can still win that battle. Litigating and protecting intellectual property in that context will kill the startup anyway.
If $NEWCO_A and $NEWCO_B are effectively equivalent (team, advantages, etc.), but $NEWCO_A has a provisional patent application that protects the idea and $NEWCO_B does not, then the value of $NEWCO_A should be greater than the value of $NEWCO_B. Thus, patents (i) should add value and (ii) may make an average investor more likely to invest.
If the value of the patents of small companies is being reduced because patents cost more [1] and are harder to enforce [2], then $NEWCO_A will have less of an advantage and won't receive as much funding as it would have otherwise. Thus, there may be fewer investors willing to invest because of the decrease in the value of patents of small companies.
[1] http://www.ipwatchdog.com/2017/07/16/real-staggering-cost-ge... [2] http://www.ipwatchdog.com/2017/11/16/ipr-petitions-virnetx-p...
Interestingly, this was also a form of wealth redistribution that forced large companies to give money to smaller companies with good ideas.
If you assume that the patent system is being weakened, it is interesting how it aligns with a reduction in seed funding while at the same time seeing massive market valuations for already enormous tech companies.