Recent studies estimate that patent trolls cost the U.S. economy about $29 billion in 2011. This is money that could have funded research and development. Instead, it paid huge legal bills. The average legal defense against a patent troll costs a small- to medium-sized business $1.33 million.
While patent trolls take a toll on large corporations, it is startups and independent developers that are hit the hardest. A majority of companies targeted by trolls are relatively small, with annual revenues of less than $10 million. This is especially troubling because startups are responsible for much of the job creation in the U.S. economy today.
Trolls are the most visible outgrowth of our broken patent system, taking advantage of other problematic trends. A flood of low-quality software patents, many of which have ambiguous scope and are overbroad, makes operating in the Internet economy particularly stressful and unpredictable. By conservative estimates, there are 40,000 new patents on software issued each year. A startup, even with a full-time patent attorney on hand, which no one has, cannot be expected to make sense of the tangled and overlapping software patent landscape.
That’s why my organization, the Application Developers Alliance, is hosting Developer Patent Summits in 15 cities across the U.S. The events convene developers to share stories of threats from trolls, litigation, and ideas for reform.
The problems are so vast, and the patent trolls so well-funded, that we need real reform from Washington. Fortunately, we’re seeing promising signs that Congress agrees, and that they’re working hard to pass legislative solutions to improve the system for startups and developers.
The House Judiciary Committee has held two hearings on the issue in the last few months and Chairman Bob Goodlatte (R-Va.) is now poised to take action against abusive patent litigation. Just last week, New York Sen. Charles Schumer (D) introduced the Patent Quality Improvement Act, an elegant proposal that would enable businesses to challenge the validity of a troll’s patent in the Patent Office instead of the courtroom. It would do so by tweaking a temporary program, called the Covered Business Method (CBM) Review Program, and making it permanent. Importantly, if a number of small businesses are sued, or threatened with a suit, on the same low-quality patent, they could band together and jointly fund the petition. Moreover, any ongoing litigation would be postponed until the completion of the review, which would mean lower legal bills for small businesses. Senate Judiciary Chairman Patrick Leahy (D-Vt.) has also promised to take action on patent trolling.
In the House, Reps. Peter DeFazio (D-Ore.) and Jason Chaffetz (R-Utah) introduced the SHIELD Act earlier this year. The proposed law would help deter patent troll activity by allowing businesses targeted by trolls to recover their legal expenses if the troll is ultimately vanquished in a patent suit. Even 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.
On May 15, another hearing on patents was held in Congress, the third since March. In this hearing, the House Committee on Small Business examined the patent challenges faced by small businesses. Committee Chairman Sam Graves (R-Mo.) gave strong introductory remarks, in which he referred to patent trolls' "frivolous patent claims ... which hinder innovation and economic growth."
All of this is welcome news for small business entrepreneurs, who are increasingly feeling the pain but are uncomfortable speaking out, fearing retribution from patent trolls. Congressional action would send a powerful signal that we can get the patent system closer to its constitutionally defined purpose: to promote — and not hold back — America’s innovation economy.
Potter is the president of the Application Developers Alliance, an industry association representing more than 20,000 individual developers and more than 100 companies.