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Patent Reform and the Future of Innovation

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Two years ago the America Invents Act ushered in a comprehensive overhaul of the U.S. patent system. The purpose  was to stimulate innovation and business creation by strengthening the value of patents. One noticeable change was changing the patent system from “first to invent” to “first inventor to file.”

This change, which is standard in nearly every other patent system around the world, was intended to provide greater certainty as to who is the real inventor and who will receive the patent if granted. Many of the provisions of the act are just now starting to show results. Yet, the floodgates have been opened. Rounds of legislation have been proposed that could derail the progress being made as a consequence.

Although the U.S. Senate Judiciary Committee halted indefinitely consideration of the patent reform bill, several proposed bills are bouncing around the U.S. House and Senate. Many of these bills are touted as ways to end the abusive practices of nonpracticing entities, more commonly referred to as patent trolls.

The White House’s Patent Assertion and Innovation report found that since 2005, the number of defendants sued by patent trolls has quadrupled. In 2012, such entities sued more than 7,000 defendants and sent thousands of threat letters, costing the U.S. economy $ 80 billion in 2011. Productive companies made $ 29 billion in direct payouts.

Many assert that patent trolls are costing the American economy billions of dollars, inhibiting innovation and undermining the U.S. Patent System. The solution, however, is not so clear.

While the goal of the proposed legislation is to address abusive litigation, in the aggregate, the bill has the potential to diminish the value of a patent by making it harder to enforce. These proposed changes are generally not welcomed by companies, big or small, that realize that their intellectual property is the most valuable asset in their business. Making it harder to enforce a patent (and harder to stop infringement) creates an incentive for companies to blatantly disregard an inventor’s property rights. It also makes it easier for foreign companies to ship infringing products into the States and take sales from U.S. firms.

The damage to independent inventors and entrepreneurs would be magnified. Independent inventors, who seek to license their inventions, would find it harder to negotiate licenses with prospective manufacturers. These licensees would discount the prospective value of the invention due to the difficulty involved with protecting inventions from infringement. Furthermore, without the economic incentive that comes from licensing an invention, inventors will reduce their efforts or completely stop producing new ideas. If there’s no secondary market for their ideas, there is no reason to generate them.

For entrepreneurs, the impact is just as bad. Inventors create a business and assume risk for the sake of profit. Many entrepreneurs need to raise outside capital to get their business off the ground or rely on personal savings. If enforcing a patent is made more difficult or the property rights of a patent are diminished, raisining startup capital will become more difficult, if not impossible.

After current proposed legislation was rushed to floor in just fiveweeks, the Senate Judiciary committee decided to pause and let the concerns of all parties be heard. The goal to address the problem of patent trolls who are misusing the system. But it is it worth the cost of burdening those who rely on the current patent system every day to protect their inventions?

The likelihood of any patent legislation being passed during the rest of this year is very remote. But it’s safe to assume that the new Congress next year will bring a flurry of new bills. Senator Patrick Leahy, chairman of the U.S. Senate Judiciary Committee, has already voiced plans to revisit the proposed legislation and hopes to rally sufficient support behind a more unified agreement.

Once proposed legislation re-enters the committee’s agenda, the independent inventor community needs to continue to speak with a collective voice. Fortunately, my company, Edison Nation, has been able to collect views and deliver the concerns of the inventor community to appropriate legislator. I plan to continue to rally behind entrepreneurs and independent inventors.

All stakeholders need to be granted the opportunity to voice their concerns so as to craft a fair and appropriate bill. Making it harder to defend a patent and thus reducing its value  is the last thing this legislation should accomplish. This would be detrimental for all.


Entrepreneur

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