ARTICLE

‘Patent trolls' stifling business with lawsuits

By Curtis R. Nelson

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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, each goat figures out a way to trick the troll and make it over to the other side.

In this modern-day world of small business development and technology start-ups, there’s a real troll lurking. Unfortunately, not all of today’s “goats” make it to the other side. This new threat is called a “patent troll” and it is having a profound and extremely costly effect on small business and technology growth.

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.

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. More than half of the 2012 patent-related lawsuits filed in the United States came from such patent firms. Most troubling: 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.

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 on any one of the 1 million active software patents.

Growing, innovative technology companies have been forced to shift resources and spend billions on defensive patenting that they otherwise would not do. Meanwhile, start-ups and other small firms, which don’t have 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.

There is no simple fix to the increasing troll problem. But there are encouraging signs that policymakers understand the magnitude of the patent troll problem, and want to help.

Rep. Bob Goodlatte, who chairs the House Judiciary Committee in Congress, acknowledged last month that trolls are a “drag” on the U.S. economy. President 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 (PTO) have held a series of discussions on patent trolls.

On the legislative side, the proposed 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. Congress and industry agree that legislation requiring more transparency into patent ownership could help stem the tide of patent trolls.

The U.S. Senate and House 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.Curtis R. Nelson is president and CEO of the Entrepreneurial Development Center Inc. in Cedar Rapids. Comments: cnelson@edcinc.org

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