Patent protection racket
One other advantage that large companies have that enables them to appropriate the ideas of small companies is a deep legal staff. This is commonplace in the area of intellectual property, where big companies can marshal a phalanx of lawyers to intimidate smaller competitors. Whether the big company is infringing on ideas that the smaller one has patented or the big one accuses the small one of infringing on its patents, simple arithmetic often make the smaller company back off.
This behavior is illustrated by an example cited by Gary L. Reback, one of the world's top software lawyers, in an article in Forbes magazine ("Patently Absurd", 06/24/02).
Reback recalls the time when Sun Microsystems was still small and IBM still utterly dominant in the computer business. IBM sued Sun for patent infringement, and Sun's legal staff called for a meeting to iron things out. As Reback puts it, "Fourteen IBM lawyers and their assistants, all clad in the requisite dark blue suits, crowded into the largest conference room Sun had." After hearing details of the alleged violations, outmanned, but of tech-savvy Sun lawyers, demolished the arguments of the IBM lawyers one by one.
At first, the IBM lawyers were silent. Then, recounts Reback, "the chief suit responded. 'OK,' he said, 'maybe you don't infringe these seven patents. But we have 10,000 U.S. patents. Do you really want us to go back to Armonk [IBM headquarters in New York] and find seven patents you do infringe? Or do you want to make this easy and just pay us $20 million?'"
Sun wrote IBM a check (for not quire $20 million), and the IBM lawyers packed up and presumably went on to shake down another small company.
Sun, of course, survived and thrived, but the story gives us a rare peek at a pretty common practice. Things are, if anything, even tougher now. Big companies (along with so-called "patent trolls", but that's anoher subject) collect patents, useful or not, ready to pounce on small companies. They know that they can disrupt the operations of a small company simply by forcing them to bulk up their legal staffs.
Litigation can take years and chew of millions, discourage investors, and distract the energies of company executives. Often it seems cheaper just to settle, as Sun did in Reback's story. The problem is that it might make you inviting target for others. There can always be another knock on the door and a brand new lawsuit.
