VCs Agree: Startups Need Tools to Fight Patent Trolls

Today, one hundred forty early stage investors from around the country joined Engine and the App Developers Alliance in urging Congress to pass meaningful patent reform legislation this session. Their position is consistent with the opinion of the broader venture community that patent trolls are harming the ecosystem in which they operate - reflected in a study by Robin Feldman of NVCA members,. Patent trolls make an uncertain patent system even less hospitable to innovation. And, as reported by Catherine Tucker, this means less financial investment.

Patent litigation abuse is a growing problem, with patent trolls having filed 2,791 new lawsuits in 2014 - up 500% from 2005. It’s also a problem that disproportionately harms startups. 82% of troll activity targets small and medium sized businesses, and 55% of troll suits are filed against startups with revenues of less than $10 million.

In their letter to Congress, the investors write: “[W]e find our portfolio companies facing a dangerous patent troll problem. When a troll sues, or even threatens, a small startup, the results can be disastrous. Many of us have seen young companies fail in the face of such threats. In fact, a recent survey found that 70% of VCs have portfolio companies that have received patent demands, the majority of which come from so-called patent trolls. This is not sustainable.”

Engine and these investors agree that we need legislation targeted at the patent troll’s business model – threatening small businesses with ambiguous claims and taking advantage of asymmetries in the patent litigation system to force settlement.

The current system does not take into consideration a new generation of innovators and tech entrepreneurs. The massive influx of patents in this particular space creates more confusion as to what’s already been invented and who is infringing - and this confusion builds on the large amount of uncertainty that already accompanies patent litigation.

Enter the Innovation Act: a bipartisan bill that was recently reintroduced by Rep. Goodlatte, aimed at making patent litigation a more fair assessment of infringement rather than a tool for intimidation. The Innovation Act is carefully tailored so as not to weaken patents but rather require plaintiffs to bring better cases in a number of key ways:

  • By requiring judges to consider end-of-case fee-shifting; the looming threat of fees will pressure bad actors to act more “reasonably” from the beginning of the case in order to avoid the possibility of paying the defendant’s fees.
  • By limiting a troll’s ability to drive up the cost of discovery (and by default increase the time it takes to complete this step) early in the case, the language addresses a frequently used method for leveraging the high cost of this step early in a suit to extort settlements.
  • By requiring a more comprehensive complaint from the plaintiff at the beginning of the case, the defendant will not only be properly informed but the “reasonableness” of the plaintiff’s claims will be clearer.

These provisions set out better litigation practices that will lead to more efficient litigation. And better litigation reduces the burden for plaintiffs, defendants, and the courts.

At the moment, startup defendants do not have access to justice in the courts. Most simply can’t afford the ongoing costs of patent litigation. If everyone is forced to settle, without invalidating the patent, we feed the beast and encourage a growing number of startup casualties.

The one hundred forty VC partners that signed today’s letter are part of the growing chorus in favor of real patent reform. But we need to make sure everyone’s voice is being heard by Congress, to combat the powerful entrenched interests that are opposed to change. So please go to to learn more about the problem, and to use our handy tool to tweet at your representatives. Together we can stop patent trolls and protect the future of American innovation.