Patents, Spotify, and Incentivizing Innovation


Tuesday brought decisions from both patent cases argued in front of the Supreme Court this term, Oil States Energy Services v. Greene’s Energy Group and SAS Institute v. Iancu. At issue in both cases was the process of inter partes review (IPR), which was instituted in 2012 after the passage of the America Invents Act. The process allows a competitor to bring call for an IPR, which, if institute, initiates a trial-like process engaging both parties. The USPTO has the sole discretion in reconsidering and potentially invalidating the patent at issue.

In Oil States v. Greene’s Energy, the question before the Court was whether the adjudication of IPR petitions by the USPTO is an exercise of the “judicial power” that under Article III of the Constitution can be exercised only by courts. The Supreme Court’s resident patent expert, Justice Clarence Thomas, wrote the opinion, holding that IPR does not violate the Constitution. Thomas wrote that because patents are a public right and the IPR process is simply a reconsideration of that grant, Congress has the authority to conduct the reconsideration. There has long been an academic argument about whether patents are public (e.g. statutorily created) rights or private (e.g. common law) rights, with Justice Thomas falling on the former side of that debate. But, Thomas was careful to articulate that the decision should not be misconstrued as suggesting that patents are not property for purposes of the Due Process Clause or Takings Clause.

According to Court documents, the IPR process has been used to invalidate some 1,300 patents since 2012. Tech companies are largely please with the decision, as it allows them to continue to use the IPR process to challenge patents instead of having to undergo long, drawn out litigation against alleged patent trolls.

But, pharmaceutical and biotech companies are more worried about the ruling, fearing it may open the door for competitors to more easily (and cheaply) invalidate patents through IPR. This gets to the difficulty of treating two fundamentally different industries (tech/internet companies and pharm/biotech companies) with different business models the same when it comes to intellectual property.

For modern tech companies, potential returns are much greater. Modern internet companies are driven by network effects that can generate massive returns to scale for innovation. They’re able to spread fixed costs over a massive user base that can scale quickly. Meanwhile, Moore’s Law (yea, I went there) implies that R&D cost, on a per unit basis, continues to decline for computing-based R&D.

On the other hand, evidence suggests that biotech and pharmaceutical R&D is only getting more difficult and more costly. Some have even referred to drug discovery as operating under a “reverse-Moore’s law,” and while machine learning may facilitate the drug discovery process, this promise is largely unfilled as of yet.

The Constitution gave Congress the power to “promote the progress of Science and and useful arts,” but the reality is spurring innovation requires different tactics in different industries. We can quibble about how strong patents should be in the biotech and pharmaceutical industries, but the heavy capital investment required to innovate in these sectors necessitates some statutory protection. But, the case for government-granted monopolies (patents) for software innovations is much more tenuous.

While we wait for the merging of software and biology (or, for software to eat biology), it’s important to recognize the different capital structures at play for different industries and structure incentives accordingly. We don’t need the government to incentive investment in the next “one-click buying” patent, but we do need to incentivize continued commercial investment in biological R&D. Government-granted monopolies are an impure means to an end (innovation), and it’s important to critically evaluate when and where they should actually be issued.

The second, less exciting opinion held that when the USPTO institutes an IPR process to review an already issued patent, it must decide the patentability of all claims the petitioner has challenged.

Photo by on Unsplash
Some inventions require patents (above). Some don’t. Photo by on Unsplash.


On April 24, Spotify announced its new free tier with a few major changes. First, it’ll recommend music to users on the fly using its machine learning. Second, and more importantly, it’ll let free-tier users listen on-demand to whatever song they want, as many times as they want, if the song appears on one of Spotify’s 15 personalized discovery playlists. These playlists account for about 750 tracks in total.

As I wrote after Spotify filed its F1, its success depends largely on its ability to cut out the music labels, whose content currently accounts for 87% of content streamed on Spotify. With the overhaul of its free tier, Spotify is attempting to mint new hints, allowing the 90 million users of its free tier to listen to certain songs, selected by Spotify, as often as they want. Spotify’s success depends in large part on its ability to serve as a platform for new or up-and-coming artists, helping users discover new artists while at the same time helping new artists get discovered. It’s a beneficial relationship for both listener and musician, with Spotify sitting in the middle taking a cut of the transaction. Providing free users access to unlimited listening of select songs drastically increases Spotify’s ability to be a hitmaker.

Apropos the patent discussion above, note that while Spotify has patents related to its machine learning and recommendation algorithms, these may not be essential to its business. The fact that it has 160 million total users makes the cost of acquiring these patents relatively trivial. Either way, the data Spotify continues to gather on its users is much more valuable (and protectable) than any patent it may or may not have acquired.


From one subscription media business to another. Reports have emerged that Netflix is looking for ways to get into the movie theatre business. While it may not be interested in Mark Cuban’s Landmark Theatres anymore, it sounds like Netflix wants to get some of its productions in theatres so it can qualify for awards. Jeff Bezos has long been obsessed with garnering awards with his Prime Video service, so it seems he’s not the only one with a complex (the Prime Video section of his shareholder letter is basically one long sentence about how awesome Prime is because of all the meaningless awards its various shows received).

Of course, Netflix (and to a lesser extent, Prime Video), are successful illustrations of the “laddering up” strategy that Spotify is now pursuing. That is, they built businesses off of licensing copyrighted content from TV and movie studios, building a war chest to invest in their own original content and cut out the middle man.

But, there may be differences between music and video that make this strategy harder for Spotify. Namely, old music still holds a ton of value, while old TV shows and movies are less valuable. I love to bump the Beatles, but only watch I Love Lucy when I’m home during the holidays and my mom makes me.

🦅 Bird’s Eye View. In China, facial recognition technology was used to spot a man in a crowd of 60,000 concert goers.

💡 From the Printing Press to the Internet. A chart showing productivity from 1440 printing press to today. Other academics have studied causes of the productivity slowdown since 2004, illustrating it’s more than just a “measurement problem” (Business Insider, Marginal Revolution).


Ring’s Patents and Amazon’s Everything Ambitions

Amazon wants to own your home; Ring’s IP gives it the opportunity to do just that

By now, everyone has heard the news of Amazon’s $1+ billion acquisition of smart-home startup Ring, most famous for its video-enabled doorbell and “failed” Shark Tank appearance.

Amazon’s acquisition of Ring marks its latest move into the smart home/ home security space.

Understanding Amazon

It’s become apparent that the $50 billion home security market is the first real use case or potential “killer app” for the smart home. With the Ring purchase and its recent purchase of another smart home startup, Blink, Amazon is positioning itself to win the space. But for Amazon, “winning” a space doesn’t simply mean gaining a few customers and selling them a bunch of stuff. Time and time again, they’ve executed against a very specific strategy:

  • Invest in a market with massive fixed costs but the potential to benefit from economies of scale
  • Build an integrated solution, justified by the fact that Amazon itself will use it
  • Open up the integrated solution to third parties, providing the “primitives” for continued development on top of the Amazon platform

The Amazon Marketplace (the core ecommerce offering) and Amazon Web Services are the two most prominent and realized exercises of this strategy, but it is actively pursuing the strategy in logistics, food services, and now, the smart home. Notably, Amazon’s moves into all of these markets feed off each other. For instance, its moves into logistics—particularly its goal to solve the “last mile problem”—is directly strengthened by its effort to own the smart home, particularly the home security system.

Continue reading Ring’s Patents and Amazon’s Everything Ambitions

What Do Amazon’s Patents Tell Us about Its Healthcare Ambitions?

Amazon is already one of the most advanced tech companies in the world. How will it bring this technology to healthcare?

There has been much speculation about what Amazon’s announcement that it’s creating an independent healthcare company with Berkshire Hathaway and JPMorgan may mean. Of course, I’ve been one of those prognosticators, speculating that it’s a long-term play to build an Amazon Health Marketplace. But, Amazon is already one of the most advanced technology companies in the world; I thought I’d look at some of its existing patents and see if the company had visions of using them in healthcare. As it turns out, Amazon has a number of patents and technologies that might be deployed to make the healthcare system a more efficient experience. There are more to be added as I comb through the USPTO database, but here’s a sampling of the things Amazon is already thinking about:

Automatic exchange of data with doctors

In 2016, Amazon was granted a patent for “a wireless device management environment… based on a determination of communication events.” Noting that wireless devices collect a variety of information and data, the patent claims a system allowing for the exchange of this data in a number of settings, but provides healthcare as an example:

“In [an] illustrative example, assume that the data processing component has determined that the wireless device is within proximity to a hospital or clinic. In conjunction with user calendaring information indicative of a calendar event corresponding to a doctor’s appointment, the data processing component can determine the communication event and begin the information exchange prior to the user arriving at the doctor’s office and powering down the wireless device”

In other words, imagine walking into a hospital or clinic, and your phone and Fitbit immediately start exchanging with your doctor all the information they’ve collected since your last visit (steps, sleep, heart rate, etc.).

Advanced location tracking

Amazon has patented a method for switching between various methods of location tracking to pinpoint user location and provide exact directions in, for example, a hospital.

Another patent, granted in 2014, recognizes that mobile phones have multiple methods for tracking location. By being able to switch between these various methods, the phone can more accurately pinpoint a user’s location and provide directions. For example upon detecting a trigger (e.g., detecting a QR code or detecting an access point signal), a device can switch from using GPS to a second type of positioning element (e.g., using accelerometers, QR codes, etc.) in determining the user’s current location. By using the appropriate type of positioning element for each environment, the device may determine the user’s current location more accurately. The device may provide an overlay (e.g., arrows) for displaying the directions over images captured from the user’s surroundings to provide a more realistic and intuitive experience for the user. Again, Amazon gives hospitals as a preeminent application of this technology:

“In one example, a remote server may push a hospital map and additional information regarding the hospital to a user upon the user making a doctor’s appointment.”

With gigantic hospitals often spanning multiple city blocks, wayfinding is a major challenge, and Amazon may offer a unique solution to provide patients digital guidance to their appointments.

Inventory and bed management

Imagine the wheeled object is an automated mobile unit, and the large square item it docks to is a patient bed. The mobile unit can dock to the patient bed and move it as needed.

Another patent claims a “method and system for transporting inventory items.” The patent essentially claims an inventory management system centered around a “mobile drive unit” (the wheeled item in the drawing) that can assist in automatically managing and transporting inventory in a variety of settings.

While the patent provides many examples where this may be used — airport luggage, custom-order manufacturing, and of course, ecommerce warehouses — it also gives hospital beds (with patients) as an example:

“inventory items may represent people. For example, in a hospital setting, inventory items may represent beds containing particular patients. Thus, [the] inventory system may be configured to provide a safe, effective system for moving hospital beds that limits the potential for injury to patients and reduces the possibility of mistakes arising from human error.”

Amazon has notorious integrated human and robot workers in its warehouses, so maybe its not long until they attempt to do the same in hospitals.

The list goes on

There are many more examples, for instance a patent “limiting the effects of faults in a data center,” which has immediate application in hospitals where “downtime may result in significant disruption and, in some cases, adversely affect health and safety. I’ll add more examples later, but wanted to illustrate how Amazon already has some of the technology the healthcare industry has long needed.