News outlets picking over the entrails of Twitter’s IPO filing in search of red flags think they have found one in the form of the company’s intellectual property portfolio: the company has hardly any patents.
This situation, which Bloomberg has dubbed Twitter’s “patent problem,” is largely of the company’s own making. Unlike other recent pre-IPO companies, Twitter declined to stock up on patents (a tried and true way for companies to primp for IPO investors) and even promulgated an unusual policy that allows engineers to dictate how Twitter patents can be used in the future.
These decisions made Twitter popular with many in the tech community but, now that money is on the line ahead of an IPO, is it possible that Twitter make a strategic mistake? Under conventional wisdom, which equates patent prowess with successful innovation, the answer is yes. As Twitter itself explained in its IPO filing under “Risk Factors”, its light patent portfolio could make it more exposed to lawsuits, while its “Innovators Protection Agreement” means it loses a legal tool to stop former employees from developing technology for rival companies.
But that doesn’t tell the entire story. In the bigger picture, there are two considerations that should give pause to Twitter’s patent pessimists.
The first is tactical. While Twitter’s patent portfolio (its IPO filing cites six patents and 80 applications) is tiny compared to IBM, Google(s goog) or even Facebook(s fb), the company can quickly change this. Recent acquisitions such as BlueFin will bring it more patents; the latter has at least seven pending applications for technology like “Displaying Estimated Social Interest in Time-based Media.” And, like everyone else, Twitter can enter the grubby game of buying lawsuit protection from the likes of RPX and other giant patent “research” firms.
The second, and more important, reason not to worry about the state of Twitter’s IP portfolio is that its “patent problem” is, paradoxically, a sign of strength — one that reflects why Twitter has become such a powerful, disruptive company in the first place.
In this view, Twitter lacks a patent portfolio not because it is naive or uninventive, but because it had the courage and the independence of mind to reject the premises that underlie the current dysfunctional patent system: that patents are a proxy for innovation, that the system rewards inventors and that patents are an efficient use of investment capital. Instead, Twitter has rightly acknowledged that most patents — especially in the software sector — are simply a product of a system run amok, in which trolls and lawyers can bleed startups with impunity.
Twitter has also chosen to fight — and win — against patent trolls that make a business of suing, rather than inventing. As the company’s former general counsel, Alex MacGillivray told me last year, “We studied it with some pretty smart people and it seems the only thing you can do is defend it as vigorously as you can and beat the shit out of these players.”
Another Twitter choice, the so-called Innovators’ Protection Agreement, likewise reflects a decision to challenge the current patent system rather than perpetuate it. Its terms do not, as some have said, allow employees to keep their inventions; instead, Twitter is the owner of patents subject to a promise that it won’t use them for trolling like behavior.
These choices, overall, are the sign of an original, inventive company that will be able to thrive in an ever-churning technology sector — regardless of its patent portfolio. In contrast, the companies that place the most stock in their patent portfolio are fading; Nokia and Microsoft(s msft), for instance, now rely heavily on their patent portfolios as a business model, but have for years failed to innovate in ways that please consumers.
The bottom line is that Twitter’s patent principles may give investors short-term jitters but they are no long-term problem.