Patent trolls block the bridge to innovation

  • Article by: DAN GANNON
  • Updated: March 4, 2014 - 6:15 PM

Fortunately, helpful reform is in progress. It’s now up to the U.S. Senate.

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In his State of the Union address, President Obama called on Congress to pass patent-reform legislation. His comments, though brief, underscore the vital importance patents play in today’s high-tech economy. Last year, the House passed its patent-reform bill. It’s now time for the Senate to continue the momentum.

Patent trolls continue to impact our nation’s economy by attacking legitimate businesses. Frivolous lawsuits such as those put forth by patent trolls are a drag on our nation’s most innovative companies, particularly those that make up the nuts and bolts of the Internet.

Working for a Minnesota-based technology leasing company, I have seen firsthand the damage that patent trolls have inflicted on businesses that significantly communicate and transfer information via the Internet, and I recognize the economic impact for our state. Minnesota had 124,000 tech workers in 2012, employing 5.5 percent of the state’s private-sector workers. These positions had an average wage of $84,600 — 76 percent higher than the average private-sector wage in the state.

And this issue extends beyond Minnesota. As a member of the Internet Infrastructure Coalition (i2Coalition), which supports these very companies, I regularly talk with others across the country who face the same issues.

The president and the Congress need to work together to ensure that all affected industries have a seat at the table so that this engine of economic growth can continue unimpeded. Washington must rise to the challenge to ensure that Internet innovation continues to fuel the economic recovery.

Each year, $8 trillion is exchanged through e-commerce, according to the McKinsey Global Institute. To ensure they get a piece of this e-business, trolls assert vague patent claims on some of the Internet’s most basic functions. For instance, one troll sued more than 220 retail stores, claiming they violated a patent covering technology that enables businesses to retrieve and display information from a database. Another troll sued more than 400 businesses on a patent it claims covers technology used to track a vehicle’s location and send shipment notification e-mails.

Exploitative business practices like these have real consequences for productive companies and the economy as a whole. According to one estimate, trolls have cost the U.S. economy half a trillion dollars in the last 20 years.

Today, trolls account for a majority of all patent litigation in the United States, a clear illustration that this problem is only getting worse. And a lot of the problem is borne by small or independent businesses who feel compelled to succumb to specious licensing fees or settle out of court to avoid costly, protracted lawsuits against the better-funded troll and its attorneys.

These businesses desperately need a way to push back on trolls that is separate from the courts and that doesn’t break the bank.

Fortunately, the House of Representatives has taken the first step toward comprehensive patent reform by passing the Innovation Act with large majorities from both parties. The bill requires a patent holder to provide certain obvious and essential details (such as what the defendant is actually accused of doing) when it files a lawsuit. This provision is vital to reducing the number of meritless troll suits. The bill also includes a fee-shifting provision, which would allow companies to recover fees if they prevail against a frivolous troll suit. Additionally, the Innovation Act puts limits on discovery costs. By doing so, the bill seeks to prevent trolls from driving up discovery costs as a way to bully defendants into negotiations and settlements.

The Innovation Act will help small businesses across the country, and the Senate should follow the lead and adopt similar measures. It also should address the basis of this issue: patent quality. The Senate should make it easier to challenge broad, low-quality patents that trolls favor. Adopting such a measure can help save businesses millions of dollars and cut down on frivolous litigation while improving patent quality.

This week, members of the i2Coalition are traveling to Washington to talk with our elected officials about issues of importance to our industry, including patent reform. The Senate needs to pass patent-reform legislation now so that companies from start-ups to large corporations are better able to direct their resources to the creation of new products and jobs rather than wasteful litigation. The innovators of the Internet and the billions of us who use it daily can’t afford anything less.

 

Dan Gannon is lease program manager for Data Sales, a Burnsville-based company.

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