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Innovation Imperiled
Patent Trolls Cost Start-Ups Billions

Patent trolls, which are corporations that own patents not to manufacture or design products but solely to sue productive companies, have become a major drag on the American economy. Ars Technica reports:

[T]here is a very real, and very negative, correlation between patent troll lawsuits and the venture capital funding that startups rely on. A just-released study [PDF] by Catherine Tucker, a professor of marketing at MIT’s Sloan School of Business, finds that over the last five years, VC investment “would have likely been $21.772 billion higher… but for litigation brought by frequent litigators.”

Patent trolls prey on companies that can’t afford the costs of an extended lawsuit and so cough up the cash to settle instead. Tucker found that when confronted with patent trolls, start-ups often had to resort to layoffs or abandon projects. In short, patent trolls are quashing the next, nascent wave of tech innovation.

Recent legal developments show promise in combating this practice. A Federal court in California handed down down the first ever “extraordinary” fees punishment to a troll this month. This type of ruling, in which the troll is forced to pay all the legal fees of a successful defendant, was upheld by Supreme Court in 2013. Legislative solutions, on the other hand, have been harder to come by. Congress is considering several bills that address the problem, notably the “Innovation Act”, sponsored by Representative Bob Goodlatte (R-VA), but designing laws that stop trolls but don’t trample the rights of true innovators has proven trickier than expected.

Protecting intellectual property while promoting innovation is a difficult balancing act, one which is becoming increasingly important not only in our domestic economy, but also in foreign affairs. Recognizing, and hopefully punishing, the damage done by patent trolls is a needed first step.

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  • ShadrachSmith

    Loser pays is the obvious solution.
    And IRS investigations of the trolling lawyers 🙂

    • mgoodfel

      “Loser Pays” means you don’t dare sue a big company, even if they are screwing you over. They have more money for lawyers, will pay their lawyers more, and if they win, you are ruined before you can appeal.

      • Richard T

        “Loser pays” simply means you have to persuade some wealthy lawyer that your suit is likely to win. Real inventors stand a fair chance of doing this: lawyers don’t get that wealthy by being stupid or ignorant.

      • ShadrachSmith

        Let’s compromise, let’s add full public disclosure of legal fees as a requirement for every class action judgment.

        • mgoodfel

          There are two basic causes for trolling: 1) the expense and uncertainty of the legal system, and 2) far too many garbage patents.

          There may not be much you can do about #1 (too many rich interests behind that one), but #2 could be solved by raising the bar on patents. If the legal system isn’t going to completely overwhelm innovation, patents need to be granted only on the really awesome, non-obvious, vital inventions. Not “one click ordering systems” and that sort of garbage.

          If patents were completely non-obvious, you wouldn’t have inadvertent duplication, it would be much clearer when you are infringing, and there would be a lot fewer patents.

          This system will change when companies start getting sued by the Chinese over their junk patents. Then American companies will suddenly realize what a stupid game this was.

    • Andrew Allison

      Right on the first count, but the IRS is too busy acting as the enforcement arm of the so-called “Democratic” party and expensive junkets to trouble itself with important stuff.

  • LarryD

    What has been forgotten is that Patents are supposed to “advance science and industry” by encouraging the publication of an inventions details so it can be eventually built upon by others.

    The American Patent system has become the playground of rent seekers.

  • Ann_NY

    This has already been done. You can’t just submit a one page patent and expect it to be granted. We have patents for our company that are hundreds of pages long with detailed images. Our patent attorney has an engineering background so he can walk the official through the process of implementing the devices so they understand how it works. The laws were changed after Research in Motion lost to one of those patent troll companies a few years back.

  • SeanInNYC

    No doubt the patent trolls create shell companies to launch the suits that can just declare bankruptcy and never have to pay a cent towards the defendant’s legal fees. This win may be “something” from an ideological or ethical perspective, but I couldn’t imagine any impact on the patent trolls.

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