For Whom the Patent Trolls

This week, representatives from a few startup tech companies made their way to Capitol Hill and the White House to show firsthand to lawmakers the detrimental effect that patent trolls can bring to small businesses and startups trying to make their way. Their goal—show how these patent trolls are, in President Obama’s words, “extorting” money from them through frivolous lawsuits and sometimes baseless claims.

Additionally, a letter was sent to leaders of Congress, signed by dozens of trade associations representing hundreds of businesses across many different industries, big and small, urging Congressional leaders to “address abuses of the legal system by certain patent assertion entities, commonly referred to as patent trolls.” The letter goes on to cite some astounding facts:

“The growth and reach of patent troll activity in recent years has been astounding. Since 2005, the number of defendants sued by patent trolls has quadrupled. Last year, they sued over 7,000 defendants and sent thousands more threat letters. This activity cost the U.S. economy $80 billion in 2011, and productive companies made $29 billion in direct payouts. Moreover, trolls no longer only sue large tech corporations. Small and medium sized businesses of all types, including startups, are now the most frequent targets. In 2012, trolls sued more nontech companies than tech, spanning a wide range of American businesses.”

Patent trolls are a terrible problem for many companies—stifling innovation and costing companies millions of dollars every year. One such organization going after companies was recently profiled in the New York Times—called IPNav, that sued 1,638 companies in the last five years, on behalf of clients who hold idle and sometimes questionable patents.

Companies like IPNav sue other companies, who they claim are infringing on these patents, for licensing fees. According to the New York Times article, one of the firm’s principles makes $25 million a year suing other companies over these often questionable patent claims.

One of the big losers in patent troll wars is the consumer. As patent trolls continue to file frivolous lawsuits over dubious patent claims, costs will rise and new products and new innovations will inevitably stop.

As evidence, the cost of fighting a patent troll can be in the millions—something that most new startups can’t afford. Many will give up, either not having the money or the willpower to navigate the legal system.

This activity robs society of truly great breakthroughs—of startups that actually execute on new ideas and technologies. Many of the patents are filed by companies who didn’t, or couldn’t, execute on the idea, with the accused patent infringer coming to the idea independently.

What really matters in creating new companies is the execution and follow through, not necessarily some great new idea (although that helps). True innovators are builders, creating the next great thing for consumers at a better quality and/or lower cost.

It looks like Congress and the Obama administration are finally taking action to institute some much-needed reform.

Last month, the administration sent out a memo with action they’d like to see Congress take on the issue. Some of the action would include loser-pays lawsuits and permitting more discretion in awarding fees. The memo also lists executive orders undertaken by the administration, including directing the Patent and Trademark Office to be more proactive in educating patent troll victims of their rights.

The Federal Trade Commission also announced they’ll begin investigations into the patent system and the companies who may be abusing it, with agency head Edith Ramirez saying they’ll go after companies that engage in “aggressive litigation tactics.”

If the problem is to be solved, Congress will most likely have to be involved.

There are several bills pending in both houses that address the issue, including the SHIELD Act. Most recently, a bill was introduced into the House last week called the Patent Litigation and Innovation Act.

Action is slow, however. If Congress wants to address this problem before it’s too late, it needs to act quickly, or more companies and more consumers will suffer.

Zack Christenson writes on digital tech issues for the American Consumer Institute Center for Citizen Research, an educational and research nonprofit organization.  For more information, visit www.theamericanconsumer.org.

 

 

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