Patent trolls kill startups, but the Biden administration has the power to help
It would be an understatement to say “launching a successful tech startup is hard work.” But for years, many startup founders have been fighting with one arm tied behind their backs. In addition to all the usual challenges that come with starting a new tech company, those founders face another hurdle: abusive patent lawsuits. And unfortunately, after several years of improvements, those suits are now back on the rise.
Patent assertion entities—also known as “patent trolls” or non-practicing entities—are nothing new. They scoop up scores of low-quality patents and threaten to sue startups and small businesses, coercing them into paying nuisance value settlements just to avoid the (very high) cost of a frivolous patent lawsuit. These trolls do not make or sell anything, let alone anything new, but abuse the patent system to attack real innovators.
Ten years ago, Congress decided to crack down on the damage patent trolls were doing to innovators and entrepreneurs across the country, and it passed the most sweeping reforms to our patent system in recent memory. The Leahy-Smith America Invents Act (AIA) was a bipartisan achievement: passed by a Republican House, a Democratic Senate, and signed into law by President Obama.
With the goals of improving patent quality, weeding out invalid patents that hinder innovation, and curbing abuse, the AIA was working as intended for many years. The law created an improved process, known as inter partes review (IPR), where expert judges on the Patent Trial and Appeal Board (PTAB) can take a second look at a patent. If it was incorrectly granted, i.e., if a patent fails to claim a truly new invention, the PTAB can cancel it before parties are forced to incur the full costs of litigation. Patent law can be highly technical and feel opaque to outsiders—even some judges and juries—making the PTAB’s experts especially well-suited to this second look review. And they assess patent validity in a fraction of the time and for a fraction of the cost of a lawsuit.
From 2012 until 2018, IPR helped level the playing field in abusive patent cases, protecting countless tech startups and small businesses. Larger companies and non-profits could (and did) step in to clear out bad patents that were being used to threaten thousands. IPR reduced the settlement value of invalid patents and it made troll litigation less profitable, less expensive, and less common. Not only did the PTAB help startups thrive, but it contributed an estimated three billion dollars in economic growth over just five years.
What Congress did not anticipate, however, was that a future director of the U.S. Patent & Trademark Office (PTO) would discount or deny the real-world harms of patent abuse. Yet beginning in 2018, the then-PTO director reached beyond the statute and, pursuant to perceived discretion, adopted new rules that hindered IPR.
Without going through standard rulemaking processes, the agency made new policies to deny IPR petitions that challenged likely-invalid patents. For purely procedural reasons that conflicted with the AIA, the PTAB started leaving more questionable patents in force, and those patents in turn continue to work their way through the courts. This cuts against the fact that Congress created IPR to be a backstop against frivolous litigation over patents that should never have been granted in the first place.
It is no surprise that patent trolls have taken full advantage of this situation. Troll suits are up 42 percent over 2018, reversing years of progress that had been made for American innovators and entrepreneurs. With the IPR system improperly cabined, it allows trolls to increasingly menace startups today.
At Engine, we are lucky to work with brilliant entrepreneurs in every state. They know, firsthand, the substantial damage bad patents cause. In fact, studies show more than half of the companies targeted by patent trolls have less than $10 million in annual revenue and trolls often start their campaigns by suing smaller companies. But these startups are fighting to navigate the landmines patent trolls keep throwing in front of them. And they know how and why we need a functioning, accessible IPR system.
Of course, what one PTO director has broken, the next can just as easily fix. President Biden has now nominated Kathi Vidal to serve in this role. If she is confirmed by the Senate, Vidal will have an opportunity to support tech startups across the country who just want our patent system to work the way it should.
Critically, that means putting the agency to work for all startups, even those that only interact with the patent system when they are accused of infringing an invalid patent. And that must include ending the unlawful exercise of so-called discretion to deny meritorious IPRs, improving the IPR system, ensuring companies targeted by patent trolls have the tools to fight back, and focusing the agency on vital goals of quality, equity, and balance.
When the Senate Judiciary Committee holds its confirmation hearing for Vidal, innovators across the country will be watching closely. It is critical that she commit to reversing the harmful changes made by the previous administration and hit the ground running on her first day so that more startups, in small towns and big cities across this country, can compete on a level playing field.
Abby Rives is IP Counsel for Engine, a non-profit organization that works with government and a community of thousands of high-tech, growth-oriented startups across the nation to support technology entrepreneurship through research, policy analysis, and advocacy.
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