Twitter’s Lack of Patents Seen as a Risk to Investors | Hacker News Reader

Twitter’s Lack of Patents Seen as a Risk to Investors

bloomberg.com

19 pointsRougeFemme33 comments

"If Twitter does deal with patent-infringement lawsuits, they don’t have too many patents to lean on to countersue. That does put Twitter at a disadvantage.”

And there's the rub.

That's only the rub if the plaintiff is a producing entity. Some of the patent litigation has been from NPE's, and in others I can't imagine that there is often a tit-for-tat counter suit opportunity. My gut feel is that this article is taking a hot topic (the twitter IPO) and blowing one angle of it out of proportion.

Twitter's patent portfolio (not including patents not assigned to Twitter, Inc. that may be held by Twitter employee inventors):

http://www.plainsite.org/flashlight/index.html?id=467846&tab...

Apple's substantial patent trove didn't help them fend off Samsung (which just printed a nearly $10b profit quarter), and Twitter's patent position also will have absolutely nothing to do with their long term success or failure.

There's no core patent that is just going to shut down their business tomorrow. Reid Hoffman & Co. are the only ones I know of with such a potentially nuclear patent position, and they seemingly have zero interest in applying it offensively.

There's a large patent lobby out there, and I generally assume this kind of article is mostly propaganda in favor of patents as some sort of huge competitive value.

Facebook and Google as two simple examples, sure haven't been hurt by not being high on the list of patent issuers and patent suit launchers.

Craigslist doesn't have any patents as far as I know and numerous companies from Microsoft (with Live.com expo) and Ebay (with Kijiji) as well as others (olx) have tried to de-thrown it and failed hilariously.

Patents are not the only weapon businesses can use, there's always design, community, emotion, and the good ol fashion network effect.

The reason Craigslist can't be beaten easily is because it makes less money, just like how Wikipedia can't be beaten easily because it's non-profit. Twitter as a for profit company can't afford to make less money.

Craigslist is making money though.

tou·ché

The link to the study in TFA is broken, but here are some more relevant studies:

1. Study of startup patenting in various industries indicating entrepreneurs say patents help getting financing: http://www.law.berkeley.edu/9135.htm

(There was controversy around this study, where VCs with an anti patent stance, such as Brad Feld, publicly disagreed with the analysis. As TFA shows, they are probably in the minority.)

2. Study showing startups with patents more likely to get late stage financing and/or have a successful exit: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=802806

3. Study (apparently -- it's paywalled unfortunately) showing startups with "stronger than typical" IP more likely to succeed: http://m.iam-magazine.com/blog/detail.aspx?g=ae1d78db-9c5e-4... (Note that the study was done by MIT Sloan and IPVision, an IP consulting firm, so something to keep in mind.)

Keep in mind that all studies must necessarily make some assumptions to make sense of their data, and some assumptions may be more valid than others. Also, different data sets and different methodologies give different results. For instance, the 2007 paper in [2] found much lower patenting rates in software than did the 2008 survey in [1].

Yet the patent possession/success correlation is hard to doubt. In addition to [2] and [3], there are other papers, such as by Rosemary Zeidonis, that also show a robust correlation between patenting and eventual success in high tech industries. Also, there's a working paper by a Pepperdine professor showing firms with patents four times more likely to succeed. I linked [2] particularly because it has a greater focus on the software industry.

I do agree that Twitter's strength is in network effects, and so is less likely to be affected by issues affecting other startups. Just trying to show some numbers to explain why (some) investors see the lack of patents as worrying.

However, the argument that the Innovators's Patent Agreement will attract the "best and brightest" is a false premise, handily disproved by Google and Facebook, just to pick two. It will attract a certain type of talent, maybe something Twitter is particularly looking for, but "best and brightest" is not necessarily it.

    Also, there's a working paper by a Pepperdine professor 
    showing firms with patents four times more likely to 
    succeed. I linked [2] particularly because it has a 
    greater focus on the software industry.

I'd also add that it's possible that there is a high correlation between having patents and working on a business that is well ahead of the curve relative to industry. When you create a photosharing service based on off-the-shelf parts like Rails or Angular, you are less likely to do any patentable work. It's also less likely that you have a defensible business model if successful, since anyone else out there can pick up the same off the shelf parts or analogues and build the same product.

With patentable work, the idea may be out there, but the implementation isn't necessarily out there as well and you often don't have enough information in a patent filing for someone skilled in the start of the art to implement a comparable clean room implementation without spending a long time experimenting to reach parity.

  Yet the patent possession/success correlation is hard
  to doubt.

How do you tell apart correlation and causality in studies like this?

I mean, it seems to me patents are at their most useful when you have to make large upfront research investments, which is mandatory to get your foot in the door in some parts of the tech industry (IC fabrication) - but in other parts of the tech industry people would prefer to test the market with an MVP, and may be able to avoid a large upfront investment at all, so investors would tolerate higher risks of failure (iphone apps).

So it's believable there could be confounding factors - how do studies control for them?

As far as I recall, most of these studies, especially [2], mostly just present their findings of a correlation, along with the data and any variables that may be relevant, without trying to prove causation. They may posit some tentative theories in their analyses, but are careful not to make any conclusions on those.

However, your observation about many software startups would prefer to release an MVP and iterate rather than invest a lot of upfront work and patent is also borne out by data in [1] and in other studies, such as some of Bessen and Maskin's papers.

I think Malandrew's sibling comment is also a very salient point, and combined with my hunch that a vast majority of startups (or, heck, software companies in general) are not doing particularly technically innovative work, it goes a long way in explaining the data in those papers.

Patents aside, I feel Twitter does not have much in terms of innovation.

Twitter may not have much in terms of technical innovation, but I believe that isn't Twitter's goal. Their true value lies in the news-making ability (you hear about many news events first reported on twitter and relatively few first reported on facebook or google+ or other social networks). And in that sense, they have much to offer.

I think Twitter's value reside in connecting people but I am not really sure about that.

Frankly, I think once Twitter (and FB) removed their RSS streams they could no longer be fit to spread news in a efficient way or claim to be anything news-related/efficient-to-spread-news.

I have a hard time using Twitter for its news-making ability. The noise is way too much preponderant. Its ability to quickly spread news depends on how close someone watches its subscribed streams and I am only checking it twice a day or every other day.

But I am still using Twitter as a micro-blogging platform and I am only following real people and NASA streams. + I have a tendency to un-subscribe from streams that send too much information that are not related to the reason why I first subscribe or that send information every 20 minutes about anything they are doing (eg: William Gibson or Dresden Codak, because I want to hear stuff about their work, not their personal life tidbits... But people close to them might be more interested in tidbits than in comments on their work so I may be the one misusing Twitter). But is everything news-worthy then ?

Actually, removing RSS streams is what makes twitter a business. They hold the keys to the data and can charge customers for access to the firehose.

Your assumption is that the news consumption pattern ultimately dictates where the producers flock, which makes sense in the traditional journalistic business model. In a model where individual users contribute, the key factor is which platform gives users an easy way to speak (and I would argue that twitter has done a decent job at reducing the tweet friction)

> Actually, removing RSS streams is what makes twitter a business. They hold the keys to the data and can charge customers for access to the firehose.

Following on the analogy: to me they replaced a very good firehose (RSS) with a less efficient one.

> Your assumption is that the news consumption pattern ultimately dictates where the producers flock [...]

What ? No, my consumption pattern dictates where I (a user) go. And it turns out Twitter as a news media don't work for me (not twitter's fault though).

> In a model where individual users contribute, the key factor is which platform gives users an easy way to speak (and I would argue that twitter has done a decent job at reducing the tweet friction)

I don't see how removing the RSS feeds makes it less easy for a user to contribute. (shouldn't users who contribute be named producers in that context ?)

RSS feeds make it easier be only a reader.

If you use the Twitter user interface to read the stream, reply and post buttons are right there. If you use an RSS reader, going to twitter to post something on your own takes an extra step. Also, RSS feeds make it easier to filter out advertising posts, whereas with the official API Twitter can ban clients which introduce Adblock.

This assumes that at least some of the RSS users migrate to the official UI, instead of abandoning the platform. But it might be a reasonable tradeoff.

Nothing wrong with what you are saying but let's get back to what started this conversation:

> Their true value lies in the news-making ability (you hear about many news events first reported on twitter and relatively few first reported on facebook or google+ or other social networks). And in that sense, they have much to offer.

My point is that regarding news it's more efficient and pratical for the consumer/reader to get them via RSS than via Twitter streams. I am only dealing with the 'getting news' pov here. The producer and the conversationalist issues aren't the same as those of the reader.

What about pull to refresh! But seriously, I know a few guys that worked there and helped build out Twitters distributed system platform and I think it's something they could have patented if they didn't open source it. Now that I think about it, they have a few cool technical products under the hood but the creators have all left Twitter gone their separate ways.

Innovations that might cover their ad avenues all falls as a business processes. Patents on those i think are hard to get.

A risk to investors? The only risk you have when "investing" (buying stocks) in Twitter is that you have to step out at its peek. All this IPO will be, is payout day.

Since everyone is just going to do it anyway, I'll start:

Boo, hiss

Now we can talk about something else.

If Twitter were on Shark Tank right now, Mark and Robert and MR Wonderful would be out due to lack of patent.

With mark publicly opposing software patents, I'd disagree.

However, your point stands, twitter doesn't make much sense in the traditional business POV.

To bolster @hayksaakian's point (plus I just like the name of the Chair position):

"The current state of patents and patent litigation in this country is shameful," said Cuban, owner of the Dallas Mavericks. "Silly patent lawsuits force prices to go up while competition and innovation suffer. That's bad for consumers and bad for business. It's time to fix our broken system, and EFF can help. So that's why part of my donation funds a new title for EFF Staff Attorney Julie Samuels: 'The Mark Cuban Chair to Eliminate Stupid Patents'."

https://www.eff.org/press/releases/eff-patent-project-gets-h...

I wouldn't put much weight behind Mark Cuban's words. He makes statements like the one you quoted and the next thing you know, he invests in a patent troll that's suing Google for hundreds of millions.

Not just his words. He put money into the EFF as well.

He put 500K into EFF. And 2M+ in Vringo. Well, he's putting money and seems it's more where his mouth isn't.

People who are saying stuff like patent doesn't mean anything as long as you have good community and network effect don't know what is going on here. Facebook owns a patent for activity feed. Theoretically Facebook can sue Twitter once Twitter goes public. Although it's not likely going to happen and it will be settled somehow even if it does happen, it's still an important factor for investors.

If that were true, Facebook would have been better off destroying Twitter a long time ago. Not waiting until they pick up another $1.5 billion in cash to fight with and buy more patents with.

Facebook doesn't have to wait for Twitter to go public. There's no benefit to waiting. Facebook would gain a lot more from killing Twitter (which is why they'd have sued years ago), than even if they won a billion dollars in a settlement via IPO cash. A billion dollars is meaningless to Facebook. What matters is owning social.

What you say is all true. And what I say is true also. You're just talking from Facebook's point of view, and i'm talking from investors' point of view, which is what the article is talking about. As I also mentioned, it is unlikely that it will happen, but from an investor's point of view you cannot deny that it still is an existing risk. And I don't think it's nice to downvote someone else's comment just because you disagree

I still don't understand why is twitter going for IPO? They have zero innovation, Vine is apps for wasted people, Twitter users are not growing...

$10 Billion is a lot for twitter. Facebook story was different cuz it has user locked into its system.

twitter should not be worth more than $3 billion

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