The actions of the Supreme Court, though, over the past two years have largely been pro-business…
LASERSOHN: It has not been pro-business; it’s been anti-patent and pro-infringer. My companies are all businesses, but they happen to rely on their patents.

So they have been pro-infringer and they have been negative on the patent holder. Obviously these are broad generalizations, but I don’t think anybody would disagree with that characterization. So in that context, you already have decisions which are very, very negative and which have already affected the way I think as a venture capitalist. When I have our patent lawyers do due diligence on how valid and strong a patent of one of these potential portfolio companies is going to be I can tell you that the tone of that discussion has changed dramatically since eBay and KSR. Those decisions alone have already had an impact on how we make investments.

And do you see that as something that would be an across the board effect?

Mostly the entire Internet system doesn’t really pay any attention to patents. But in almost every other industry, patents are absolutely critical to our investment decision….

LASERSOHN: Yes, for companies in the venture capitalist community that rely on patents. It’s true that there are segments of the world that we finance that really don’t pay any attention to patents. Mostly the entire Internet system doesn’t really pay any attention to patents. But in almost every other industry, patents are absolutely critical to our investment decision, and on the margin. You know, it’s always a decision on the margin. The lack of a strong patent system will absolutely affect our decision eventually. I testified in the congress once. Somebody asked me, “Well does it turn down deals because of patents?” In other words, because of infringement, that they aren’t free to operate? I said that in my entire experience as a venture capitalist that has never happened. But I have turned down dozens of deals because they did not have strong patents.

Do you think the current Congress has a significant enough understanding of this issue and of the impact it will have businesses?
LASERSOHN: I think it did not start that way, but I have to say that people strived, at the staff level and in the case of, for example, the Congressional delegations from places like California and Massachusetts where there’s more venture capital than anyplace else, although, obviously, that’s go in a lot of other places like Minnesota. So what’s happened is that this legislation, some of it was, nobody was paying any attention to it two years ago. And when the venture capital community and other industries who would really be adversely affected started to realize it, we went to the Congress and said wait a second, do you understand what you did here? You may help a couple of very large companies refine having to defend against patent infringements. But in the course of doing that, what you are doing will potentially destroy entire industries. I would say they absolutely do realize that what was being proposed, you know, as “gee, this is inconsequential. Don’t worry about it. It’s just going to save us some money in litigation” by, frankly, just a couple of big companies was simply not accurate– that the consequences are potentially very far reaching. And as result, I think there’s been a big step back from, in the legislation and I know that there is an effort to try to reach a compromise. We’ve not reached a compromise– the other side of this debate has really been completely inflexible. And we have tried. We have made the National Venture Capital Association together with four or five other major alliances, the biopharmaceutical industry, the medical industry, many people in high tech, and made proposals to try to address the legitimate concerns raised by a handful of large companies. And these proposals have not even really been responded to. So it has been a little frustrating. I do think that there’s new life within a couple of these key issues. The one in particular that everybody is worried about is the damages concept because that’s the money. That goes to the heart of what is your patent worth. And if you reduce what a patent is worth, you reduce the disincentives to infringement, and as a result you drastically impact the value of the patent to small entrepreneurial companies.

If the recent actions of the Supreme Court have been negative in terms of the strengths of patents, in terms of globalization — in the world we live in — the U.S. is looked at, and continues to be a leader in inventing, and is a leader in filing patents. And globalization is showing us that the U.S. is going to continue in that way, and we are outsourcing manufacturing elements of what we do. So isn’t that contrary to what the U.S.’s role is going to be in the future, that of an idea developer, and therefore, we will need to have our ideas patented and have strong patents. And, essentially, we send our products out into the world to be manufactured and distributed.
LASERSOHN: I couldn’t have said it better, and I will give you two data points that you should consider your own need. When this legislation was proposed, it was analyzed in an article that was published in China, by the former head of the Chinese Supreme Court, and the top intellectual property lawyer of China. And it was published in Chinese, and I think the expectation was that it was never going to be circulated outside of China. Nobody would ever see this outside of China. Somebody read it and translated it and circulated it in the United States. And basically what it said is — he was responding to the question is, “How will this legislation affect China?” What he said was, “This is terrific piece of legislation for China. It will significantly reduce the obstacles to our infringing.”

That’s what he said and it is true. And so the top people in China to deal with this is that this is incredibly positive for China because it reduces — it weakened the patent system of the United States, which gives them a much greater opportunity to compete by infringement.

This is what the top guy in China said. And he didn’t say it because it was good for us to hear that. He said that because he thought we would never hear him say that. It was only going to be only inside of China. That’s number one. So the answer to your question is absolutely, obviously yes. I mean this would — this is the exact opposite of the direction we should be going in. Second point is what this really comes down to, particularly the issues surrounding damages and some of the other issues. This really comes down to saving a penny a share of expense in companies that make billions of dollars, saving them a little bit of money under litigation expense. Now you can say that’s annoying and not fair. And why should they have to spend you know, like in Cisco – Channel, 20 million dollars litigating this. But Cisco makes billions of dollars. And they are basically saying we should turn over the entire patent system in order to save a couple a pennies a share of expenses. And what we are saying is in return for that, you have the potential to shut down vast sectors of the innovation industry in the United States. That is not a rational balance.

So, I agree with you on some level we are all just completely shocked that this has proceeded as far as it has. But, having said that, I think a lot of it was because people weren’t paying attention and now there are many Senators, in particular from the states that have both box and venture capital as well as a lot of high technology — big, high technology companies. We’re saying that there are two sides of this. We got to get the balance here right. We can’t fault the “let’s save a few a cents a share of litigation expense for the big companies” and drastically, negatively impact, you know, whole sectors of the innovation system, in particular, you know, the ones that are — I mean clearly the ones that are most at risk are medical devices by technology, clean tech, and certain other industries where patents have just been absolutely critical. We are surprised, but at the same time we have made a lot of progress. And a lot of people in the Congress to their credit have worked really hard to make sure they did this right.

And California, I believe, files the most number of patents in the U.S.?
LASERSOHN: I’m not sure of that statistic. It wouldn’t surprise me, but Massachusetts, obviously, has lots of patents, too. The venture capital is now spread very widely across the country. It used to just be California and Massachusetts. And now it’s the research triangle in the South and parts of the Southwest, and obviously Minnesota. The venture capital industry is now much more than just California and Boston. And those places are — people from those places are also very concerned about all of this. So we’re optimistic that now the people have awakened to what’s really being proposed here, and the potential consequences that everybody’s going to take a very, very deep breath and say, “Okay, let’s make some changes. Let’s improve the system a little bit. Let’s not try a radical experimentation on how we’ve done innovation in the United States for the past 40 years without considering what the consequences might be.”

Okay. Well, thank you very much for your time and your input.
LASERSOHN: Glad to help.

Thank you very much, Jack.
LASERSOHN: You’re very welcome.