Patent Reform: We’re Ready for Round II


Today, a bipartisan group of House members re-introduced the Innovation Act, an important piece of legislation that would directly address a patent troll problem that has ballooned out of control, costing our economy tens of billions of dollars annually.

You might recall that last year similar efforts got incredibly close to becoming law (In fact, the last time the Innovation Act was introduced, it passed the House with a 325-91 vote!), before stalling out at the eleventh hour in the Senate. We were disappointed at the time, saying then:

"This news is devastating to the welfare of startups who will continue to face the threat of patent trolls. That no agreement could be reached, especially in light of the efforts being made across the committee to find common ground, is also bad news for the economy where annual losses from patent troll litigation are billions of dollars."

More importantly, though, we noted then that the hard work we did transformed the political framework, and said to you, our community: “you changed the conversation from a wonky, back room discussion of legal tenets, to real world examples of harm. With your continued support, and the support of our friends in Congress, we can be on the winning side.”

Well, that time is now.

Despite some important progress in the courts and from the states on patent reform, trolls continue to be a serious threat to the innovation and startup ecosystem. Which is why we need comprehensive legislation to really fix the problem.

The reason why is fairly simple. Patent trolls are “successful” because they are armed with two weapons: low-quality patents, usually covering software-type inventions, that are nearly impossible to understand; and the ballooning costs of patent litigation (it can costs each side easily into the millions of dollars to fight a patent suit in court). Most of last year’s progress, especially an important case called Alice v. CLS Bank, dealt with the first problem, trying to improve patent quality. While that’s good news, it has—at least in the short term—only limited effect.

The Alice ruling can only be helpful in three distinct circumstances: 1) for new patents being issued by the Patent Office; 2) in litigation where a defendant attempts to invalidate the patent at issue; or 3) in one very specific proceeding at the Patent Office called a covered business method review (CBM). Let’s unpack each for a second:

  • It’s critically important to have better standards for patentability going forward, but currently, there are approximately 2.24 million active patents in the United States. More than a million of those represent a software-type invention. And each of those patents has a lifespan of 20 years. The potential damage from this existing world of patents alone is enough to warrant legislation.
  • As mentioned above, litigation can easily cost each side millions of dollars in legal fees, not to mention years of distraction from a business’ core function. Which makes the barrier to startups essentially impossible to overcome.
  • CBM review is a great program, allowing affordable and efficient review of existing patents at the Patent Office. Yet it is currently limited to patents that touch financial products or services and—unless the law changes—the entire program is set to expire in 2020.

What’s more, none of this touches the out-of-control patent litigation system. Which is precisely why we need the Innovation Act. The Innovation Act, and other comprehensive efforts like it, use a combination of provisions to level the playing field, giving defendants more affordable access to make their case in a federal court. These provisions include common-sense reforms like requiring transparency when filing a lawsuit or issuing a demand letter (who are you? what patents do you own? what product do you claim infringes those patents?); shifting fees to winners when a losing party brought a particularly baseless lawsuit; shifting some of the costs of discovery, usually the most expensive part of litigation; and creating a vehicle for suppliers and manufacturers to help protect their customers when those customers become the trolls’ target.

Of all the good work we’ve done so far, the most important piece was earning a seat at the table. For the first time the startup community has a critical voice in this important debate. It is important that we use it and let Congress know the time has come to make the Innovation Act law.