IT Public Policy Blogs

The Need For Patent Reform

The United States has the finest patent system in the world. Let’s be clear on that point.

Our patent system has provided protection for inventors and innovators for over 200 years. Unfortunately, at a time when our country needs innovation more than ever, our nation’s innovative spirit is being trampled by a small minority of litigants who have put profit ahead of innovation, and personal gain ahead of all else. The very principles upon which our entire intellectual property system is based – that in exchange for the sharing of ideas the government shall provide for inventors the right to be prevent others from practicing their inventions for a limited time, and that inventors should be compensated for the value of their inventions when and if an infringement occurs, has been twisted and stretched by these legal extortionists to the point that our Founding Fathers are no doubt rolling over in their graves. Today, patent litigants, many of whom have one business purpose, namely to sue others for patent infringement, seek to be compensated far more than the value of the inventions recited in their patents. They use abusive, outrageous claims to try and extort exorbitant settlements from innovative, productive companies that provide jobs and contribute to society.

As an example of the magnitude of the problem, a simple survey conducted among 7 companies in Silicon Valley found that between them, there were 98 current, active patent litigations. Of those 98 patent litigations, 93 of them where brought by shell companies established by lawyers for the sole purpose of suing others for infringement.

The lawyers involved typically have contingency fee arrangements or personal stakes in the outcomes of the litigations. They effectively represent a tax on innovation. They often times threaten companies by saying it will cost you millions of dollars to defend, so you should pay us XX$ which is less than the cost of litigation. For every dollar that they extort through threat of litigation or that they cause innovative, productive companies to spend on defense, it is one less dollar that can be spent on innovation; one less dollar that can be spent on salaries for innovators; one less dollar that could lead to a breakthrough innovation that could impact the lives of millions of Americans. While the casual observer may say “if you don’t infringe, you shouldn’t settle,” you should know that it typically costs between 3 and 8 MILLION dollars to defend each one of these meritless lawsuits. Many times, these extortionists will approach companies and offer to settle for much less than the 3-8M it will cost to litigate. Given the uncertainties of litigation, it is inevitable that some cases must be settled.

Why do these companies bring these cases? Because the current state of the law allows litigants to claim damages that are unrelated to the value of the invention. Instead of limiting damages to that which compensates the patent holder for their invention, today’s patent plaintiffs seek, and courts routinely award, damages based on whatever system allegedly includes the innovation. This is wrong. As an example, if someone invents a minor improvement to a car radio, they shouldn’t get damages related to value of the car but rather the value of the radio. Unfortunately, today that is exactly what happens. Only when we remove the lottery jackpot mentality from the patent system will we see improvement in the threat that productive, innovative companies face. Patent holders should only be compensated for damages related to the value of the patent innovation. Clearly there are times when such an innovation is the reason that a device that incorporates the innovation is sold. In such circumstances, it may be appropriate to allocate a percentage of the sale of the device to compensate the inventor, but those situations without more proof should be the exception and not the norm.

After all – when was the last time you bought a car because of the radio?