The newly elected Republican majority appears intent on moving a broad patent reform bill in the first few weeks of the new Congress.  In that context, the Congressional Budget Office recently released a paper that, while outlining the importance of innovation for future economic growth, tries to justify the need for patent reform – perhaps in an attempt to curry favor with the incoming Senate majority.  However, like Cinderella’s stepsisters trying to squeeze into a glass shoe that doesn’t fit, the CBO director has a problem fitting the facts of his research into the probable congressional outcome – weaker patents. 

The primary issue with CBO’s research which proves that innovation is good is their conclusion regarding patent litigation -- that the federal government should do more to protect defendants. In this conclusion, the CBO makes it clear that they just fundamentally don’t understand patents or more specifically the business case for patents. 

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Some mega-corporations do buy defensive patents. A defensive patent is intellectual property similar to a given company’s innovation – but not exactly the innovation – and is used to keep others from suing. Some mid-size companies beginning to accelerate toward an exit might even buy patent protection by renting a patent portfolio with defensive patents. However, small companies – early innovators – don’t buy defensive patents. Early stage companies use all of the capital they can scrape together to build a company and secure their own Intellectual Property. They don’t spend thousands of dollars to defend their space, startups spend their startup money to prove that they are innovative. Once they have proven their innovation then they have something to sell that proves that the innovation can continue to be protected. 

So, for a quick thought experiment: If the laws change to benefit the defendants more, then the intellectual property is harder to assert. If intellectual property is harder to assert then it is worth less. If intellectual property is worth less, then businesses are less likely to innovate and investors less likely to invest, because while they have the same to lose they will now have less to gain. 

If the CBO wouldn’t have been trying so hard to fit their conclusion into the Capitol Hill debate, they might have come away with a different solution. While it is definitely a bad idea to protect defendants, it should also be noted that sometimes bad actors do send out fraudulent demand letters.  

What the federal government should do is protect businesses against the fraudulent assertion of patents. Like internet spammers this type of patent abuser is hard to track down. Even harder though is to get Congress to focus on this narrow attack. As often seems the case, Washington addresses a specific problem with a huge overhaul that comes with numerous unintended consequence.  The House had two chances at the issue just last year. In fact, when the House considered their overreaching patent reform legislation, HR 3309, in the fall of 2013 they stripped the only section of the bill aimed protecting against fraudulent demand letters before it was passed on the floor of the House. Then when a consensus bill, surgically aimed at demand letters, was drafted in the House Energy and Commerce Committee it was again killed before reaching the House floor. 

The CBO’s understanding of patents aside, what the paper attempts to do is commendable. The paper has some very interesting points including a potential reason for innovation. “Looking ahead, innovation will continue to be important for economic growth, in part because the supply of workers to the economy is expected to increase at a much slower rate in the future.” And, the numbers and facts in the paper seem to support this statement. For instance, there is a high ratio of Research and Development (R&D) that is carried out by Computer and Electronics companies (15 percent), likely to help make up for likely labor shortages, versus the manufacturing sector (3 percent). Additionally, it is pointed out in the paper that the USPTO could benefit from more resources. The USPTO is funded by user fees, but like the mob the federal government takes a cut and over the last decade that cut amounts to more than $1 billion dollars. That is $1 billion that has been taken from innovators not to support more innovation, but to further fund the expansion of government instead of the economy.  And yet, the push for so-called patent reform does nothing to address this critical issue of fee diversion that nearly everyone agrees on.  

In the next Congress the new Republican led Senate is going to consider a bill that is widely discussed as stopping “patent trolls.” That sounds great, but what the legislation does is more likely to broadly weaken patents, make it less profitable to innovate, and still fail to address the lack of funding at the USPTO. Congressional leaders should read through the talking point softballs that the CBO has placed in their recent report, and use the facts of the report. Innovators need to be protected. Innovators need to be promoted. As CBO concludes, if the federal government helps drive innovation we all win. 

Sauer is president of Entrepreneurs for Growth and co-director of the Inventor's Project which both promote and defend innovation.