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Don Dodge from Microsoft’s emerging business team summarizes the Patent Reform Act of 2007 that just passed the House Judiciary Committee.

Damages are limited to the value added over existing technology. This bill would require the courts to look at the “free market” value of the patent if it were licensed in an “arms length” transaction. A very small win for the little guy – now instead of paying $600 Million to settle a patent lawsuit, you only pay the value added over existing technology – say $50 Million? Even $2 Million is enough to crush most startups.

A review board will allow parties to challenge issued patents and present prior art to mediate disputes outside of the courts. Another small win. It has the potential to reduce legal costs when challenging an issued patent – assuming you have the stones to step into the ring with someone like Amazon or Microsoft. The reverse may be a bigger win for small business if this forces big companies to mediate with you when challenging your issued patent. I don’t know enough about patent litigation to know if this is a possibility – any lawyers reading this please comment.

A really smart development is peertopatent.org. It’s a bit like Digg.com for patents.

“This process allows anyone to submit “prior art” for consideration by the US Patent Office. Users vote on the most relevant and compelling prior art examples. The top ten submissions get forwarded to the USPTO for consideration before granting the patent. This is a pilot project being tested on 250 patent applications. If successful, the project could be applied to broader patent areas.”

I love the idea, but my first thought is “users vote”? Digg gets gamed all the time and there’s nothing they can do about it. If you’ve got 100 votes from 100 different geographically distributed IP addresses and 100 separate user accounts that were registered with a captcha, it still doesn’t guarantee they’re real. When you consider that Microsoft (according to Dodge) spend over $100 Million on patent litigation every year, the incentive to game this is huge. The registration looks pretty standard. I think it’s a brilliant idea – but they need to use SSN’s or have some way to guarantee every registered user is a real person. If they solve this problem then online political voting becomes a reality.

UPDATE: Changed the title after realizing I’m referring to a niche within startups.

John Cook, one of my favorite Seattleites, has a post on his blog about yet another home office no money startup that got bought out for a few million. There is a growing realization that getting early funding if you’re a developer building a consumer web application is a very bad idea.

• You don’t need the money (hosting is cheap, your time is free, etc…)
• You don’t need the pat on the back (You’re a genius, OK? Now JUST DO IT!)
• You don’t need to be writing reports every month for a bunch of suits around a table
• You don’t need a business plan (Even Guy Kawasaki agrees it’s just a checkbox)
• You don’t need a big team to create a web app (If Markus Frind, Craig Newmark, James Hong and Scott Rafer can do it then so can you!)
• You don’t need to worry about a bigger company getting more funding and stealing your idea because as James Hong says “taking a zero off the budget is the best thing you can do for creativity”.

The more money a startup raises, the more vulnerable they become to little guys like you:

• Their target market sometimes becomes their investors and not their customer
• Every time they raise money they feel like they’ve achieved something and throw a big party – and work stops for a while
• They need to take huge risks to keep their investor happy because the investor wants to see a home run and $10 million in revenue doesn’t mean anything to them.
• Once they have committed to a business plan and sold it to investors, it becomes very difficult to change direction. You don’t need to have a board meeting or convince anyone. If you want to change direction you can do it in 24 hours.
• They hire people as a reflex action after raising money and more people in a dev team can actually slow things down instead of increase productivity.

So stop doubting yourself, stop having coffee with friends and talking about whether you’re going to go the Angel or VC route. Just sit down at your lonely little desk at home, grab some paper from your printer and sketch out your idea with a pencil. Then go visit serverbeach.com and buy a server for $79/month and start writing code.

A giant spinning sequoia caught in a tornado that throws off dollar bills instead of pine needles.

[Apologies if you thought this was going to be a treatise on creating passive income.]

ps: Can someone draw this for me?

Dustin Staiger has a list of 10 signs that you’re shooting down good ideas in your organization. This reminds me of someone I worked with a while back. Here are my personal favorite signs from Dustin’s list of 10:

7. Listing the top 10 ideas from your department this year, half or more are your own.

5. All ideas must be proven.

4. You only want BIG ideas.

2. Your competition is your main source of ideas.

1. No matter how much you’ve talked about ideas, collected them, praised them, in the end you don’t use them. (Like a maimed duck, you let them wander off and die.)