By Curtis R. Nelson / Guest Editorial
Most of us are familiar with the famous Norwegian fairy tale, “Three Billy Goats Gruff,” where three hungry goats must cross a bridge to find more grass to eat. The problem is, underneath that bridge is a ferocious troll who wants to eat each one as it passes by. In the end, after each goat figures out a way to trick the troll, all three make it over to the other side and live happily ever after.
Although to most a fairy tale, in this modern day world of small business development and technology startups, there’s a real troll lurking and unfortunately, not all of today’s “goats” survive and make it to the other side. This new threat is called a “patent troll” and they are having a profound and extremely costly effect on small business and technology growth.
More politely referred to as patent assertion or non-practicing entities, patent trolls do not develop or sell new technologies, and they exist only to prey on others who do. These trolls amass large patent portfolios through licensing then, using broad patent language, assert and, if necessary, litigate unsuspecting businesses for infringement. Affected businesses must then spend significant sums settling or defending with a company whose only revenue stream comes from this practice. It is one thing to use patents to protect a product your company is producing and selling, but these patent trolls are dragging down our economy, costing us jobs and putting a tax on our most innovative products and services. Solving this serious problem requires action by Congress and the Obama administration.
According to one estimate, patent trolls have cost the U.S. economy half a trillion dollars in the last 20 years, with more than $320 billion of that economic loss occurring in just the last four years. In 2012 alone, it was reported that more than half of the patent-related lawsuits filed in the U.S. came from such patent firms. What’s most troubling is that a majority of companies targeted by trolls have annual revenues of less than $10 million; breaking the backs of those who can least afford it and those our country needs most.
Despite efforts like the America Invents Act (AIA) passed by Congress in 2011, patent trolls continue to exploit flaws in the patent system, to the detriment of the U.S. economy. In fact, the problem has worsened since the passage of the AIA.
The patent system is intended “to promote progress of science and the useful arts” that would not otherwise occur. However, in the fast moving Internet and software driven economy we are witnessing the opposite: patents are slowing innovation and serving the interests of exploitative trolls. Software patents are often vague, overbroad and overlapping. It would be prohibitively expensive and practically impossible for an innovative company to determine whether it may be infringing any one of the one million active software patents.
Growing, innovative technology companies have been forced to shift resources and spend billions on defensive patenting which they otherwise would not do. Meanwhile, startups and other small firms, which don’t have an army of high-paid patent lawyers on retainer, risk their businesses and livelihoods when faced with a demand letter from a patent troll. Even worse, the problem is spreading beyond the high-tech economy, affecting brick and mortar businesses like grocery stores that have even the simplest presence online, in other words, a basic website. These vague, overbroad patents on software and business methods are allowing trolls to thrive.
There is no simple fix to the increasing troll problem. But there are encouraging signs those policymakers understand the magnitude of the patent troll problem, and want to help.
At a March hearing on abusive patent litigation, Rep. Bob Goodlatte, who chairs the House Judiciary Committee in Congress, acknowledged that trolls are a “drag” on the U.S. economy. President Barack Obama, in a conversation with constituents in February, spoke out against trolls that “extort” businesses and called for “smarter” patent laws to address their harmful practices. Additionally, the Federal Trade Commission and the U.S. Patent and Trademark Office have held a series of discussions on patent trolls.
On the legislative side, the Saving High-tech Innovators from Egregious Legal Disputes (or “SHIELD”) Act would force patent trolls to pay for the defendant’s legal costs, forcing trolls to think long and hard before filing frivolous lawsuits against companies, in hopes of obtaining a settlement payment from the target.
Congress and industry agree that legislation requiring more transparency into patent ownership could help stem the tide of patent trolls. Prompt action on a number of fronts is needed if policymakers want to send an unequivocal message to patent trolls. The U.S. Senate and House, including Iowa’s own Sen. Chuck Grassley, the ranking member of the Senate Judiciary Committee and the Obama administration must act quickly to halt these bad actors from further burdening our economy, limiting consumer choice and negatively impacting America’s future.
At a time when we need to be supporting entrepreneurs, creating good jobs and fueling a stronger economy, cracking down on patent trolls is the right thing to do. We need every “goat” to make it across the bridge in order to meet and exceed its full potential. It’s time to crack down on patent trolls. If you feel the same, please contact your congressman or senator and help change this practice before it significantly impacts Iowa’s vitality.
Curtis R. Nelson is President & CEO Entrepreneurial Development Center, Inc.