Most people know patents as tools to protect inventors and creators. Our patent system provides an incentive to follow through on a good idea or a new way of doing something. It ensures that inventors will be able to benefit financially from their invention, disallowing others from taking a product and selling it on their own without giving proper financial benefit to the original creator. For instance, where would society be without Edison’s light bulb? Would he or other inventors have work so diligently if not for the temporary financial benefit afforded through patent protection? That patent protection gave Edison incentives for 2,331 more patents. In short, patents work to reward those who create.
Sometimes, however, our patent system becomes a barrier to creation and innovation. In the Internet and technology sectors, patents have become a nuisance to many entrepreneurs starting new companies. Our patent system currently awards a patent to the “first to file,” but often times, especially in the fast moving Internet sector, ideas are arrived at simultaneously by multiple parties. There are also many instances where an idea is rather obvious, or where the technology didn’t require a great deal of investment or insight—for instance, as Techcrunch points out, writing code isn’t nearly the same as investing billions of dollars into medical research. These problems plague many entrepreneurs in the Internet and technology sectors.
Such problems are amplified with some of the more nefarious tactics of patent pools. Patent pools themselves aren’t bad. These patent pools, approved by the Department of Justice, are formed by companies to collectively share patents and license them to each other and those outside the pool. This is all well and good when used fairly. These pools are meant to keep prices low for consumers—if everyone pools their patents together, you can create a lower price for the consumer. And as the patents time expires, the licensing costs usually go down with it. Where some patent pools begin to go wrong is when they are formed for unfair purposes. These pools are formed by non-practicing entities (or NPE’s) or groups of companies that have never created anything on their own. Sometimes known as patent trolls, they simply own patents, and exist solely to sue those who might be infringing on their intellectual property. For example, many have accused Mobile Media of reportedly not using any of its technology to innovate, but takes legal action against innovators seeking to use its patented technology.
Affiliated with Mobile is MPEG LA which manages the MPEG-2 patent pool. This patent pool controls the technology behind the MPEG-2 video format that many consumer products, such as your smartphone, tablet or computer, utilize on a daily basis. In the opinion of some, MPEG LA uses their market power to force companies into long-term agreements at very high rates. Some have concluded that MPEG LA’s market power is potentially anticompetitive, leading to artificially high prices for consumer products.
Patent trolls are harmful to small businesses, especially young tech startups. According to one study, roughly one-third of new startups have been threatened with a patent violation. These lawsuits that are often brought against startups can be detrimental to their business. It costs money to fight these lawsuits, money that could be spent on staff or other operational costs. These patent lawsuits often come from patent trolls, who exist to do nothing more than make money from startups attempting to “use their idea.” Anybody can have an idea—it takes a true innovator to follow through on that idea. These patent trolls are feeding off the ingenuity and genius of true entrepreneurs, hoping to make a quick buck on the backs of innovators, the true drivers of our economy.
Congress is currently looking at steps that would address the patent troll problems facing young startups. The SHIELD Act is a bipartisan bill that would put the legal burden on the patent troll rather than the company using the technology by allowing the defendant to recoup some of the defense costs. This is a good first step, but more needs to be done. Some tech entrepreneurs, like Mark Cuban, would like to see an end to software patents, or at least a shorter life span. Whatever the solution, something needs to be done. The current system rewards unscrupulous business tactics, is causing havoc for the innovators, and higher prices for consumers as a result.
Zack Christenson is a digital tech writer for the American Consumer Institute Center for Citizen Research