Patent Trolls are Destroying Innovation Part 1 of 2: Can the Obama Administration Solve the Problem?

Patent Troll

Today the Obama administration announced that the President will be issuing a series of proposals as well as an executive order aimed at curbing the rampant abuse of patents that has escalated in the last decade. Why is the President taking this action now, especially since Congress is already working on legislation aimed at stopping the abuse of patents? Maybe it is because a third of startups are harassed by patent-trolls. Maybe it is because the aggressive litigation from these companies is bogging down our legal system and slowing the economy. Maybe it is because the Obama administration is desperately trying to change the subject as Congress investigates the IRS, the Justice Department and the EPA for major abuses of power. I’ll let you decide.

But no matter what the President’s motivation might be, we can all agree that the current system is broken. Patent-trolls can purchase a patent, especially an overly broad one and then threaten small businesses with litigation unless they agree to a licensing fee. That startup is then forced with the impossible choice of siphoning off precious capital or risking losing everything in an expensive court case. Keep in mind that the vast majority of the time patent-trolls do not take a case to court, they just use the threat of litigation to get what they want. It is essentially extortion and it is strangling thousands of small businesses all over the United States.

The President’s proposals can be broken down into three main parts:

1. The narrowing of patent claims. This means that it will be more difficult to patent doing something and easier to patent a way of doing something. This will hopefully cut down on some of the more ridiculous claims like one patent-troll’s claim to have a patent on sending medical images over the internet.

2.  It will now be easier for companies that are sued by patent-trolls to be awarded enough money to cover their own legal fees if the judge deems the suit to be frivolous.

3.  Anyone using a patent in a suit will have to update the ownership information on file with the USPTO. One of the many problems that a business being sued over a patent has is that many of these massive companies that use patents to extort money from legitimate enterprises use shell corporations to hide their true identity. In theory this action might help solve this problem in a small number of cases, but any company that wants to abuse a patent in a lawsuit can just transfer ownership of that patent over to one of those shell corporations at any time.

The executive order will cause USPTO administrators to be trained in the best ways to identify and stop abusive patents. Certainly a step in the right direction, but hardly a solution to a very large and very complex problem.

The reality of the situation is that even if all these proposals from the Obama administration were passed by Congress tomorrow, they wouldn’t actually solve the problem. All these proposals will do is make the patent-troll business a higher stakes game. Lawsuits will necessarily be for much larger settlements since the cost of losing one of these suits would be so much higher. This means that just one victory for a patent-troll could terrify small businesses into coughing up licensing deals for years to come. Luckily Congress is already working on legislation aimed at solving this issue. Hopefully the various subcommittees involved in crafting the bill will be able to explore some of the intricacies of the legal system and write a law that will actually fix this problem.

Getting rid of  the trolls while still allowing our patent system to reward and incentivize innovation is not a simple task. A “use it or lose it” policy across the board would prevent many large companies from investing in experimental technologies that may or may not actually make it to market. This trial-and-error approach to innovation is vital for large companies to allow their employees to work on a project that might not necessarily pan out while still having their work protected.  The court system that allows for the abuse of patents is highly complex, so the solution to this problem will also be complex. Obviously the Obama administration can propose solutions all day, but Congress will have to make these ideas into laws, hopefully sooner rather than later. Now is a great time to call your Congressman or Senator and tell them what you want from future patent legislation.

This is the first part of a two-part series about the ongoing abuse of the US patent system. This may all seem very abstract and dry but believe me, these issues affect the everyday lives of every tech enthusiast. Part 2 is coming tomorrow, in it we will discuss solutions to some of these problems. Jump on over to Google+ and let me know what you think about these issues. Can Congress actually do something that will solve the problem? Does the Obama administration have enough political capital to get anything done on this issue? What solutions do you think will help stop patent-trolls? Let me know, I’ll be reading and responding to your comments as we explore this complex issue together.