“U.S. small businesses produce 16.5 times more patents per employee than large firms.”

This compelling statistic was recently cited by House Judiciary Committee Chairman Bob GoodlatteRobert (Bob) William GoodlatteTop Republican releases full transcript of Bruce Ohr interview It’s time for Congress to pass an anti-cruelty statute DOJ opinion will help protect kids from dangers of online gambling MORE (R-Va.) to underscore the importance of inventive, disruptive small businesses to the U.S. economy.  He is absolutely right on this point.   

But while stressing the importance of patents to small business on the one hand, some in Congress, including Chairman Goodlatte, are seeking to enact legislation that will undercut the ability of individual inventors and startups to reap the benefit of their patented inventions for their employees and venture investors.  This disconnect is very concerning to me as well as many of my colleagues in the U.S. technology startup and venture capital community.  

ADVERTISEMENT

I have spent over 35 years in the technology industry in many roles, as an entrepreneur and investor, leading both small companies and large, and as patent holder.  So I have seen first-hand the importance of the patent system in driving innovation and economic growth in our country.   

Many patent reform proposals in Congress have the stated goal of stopping abusive and fraudulent patent lawsuits by so-called patent “trolls,” a pejorative created specifically by large tech firms to promote this legislation.  After all, who could be in favor of a troll, a creature that exacts tolls from innocents under threat of harm?  As head of product development at Cisco, I had to fight many patent assertions against the company.   

The problem with the legislation currently under consideration, H.R. 9 – the Innovation Act and S. 1137 the PATENT Act, is that they will do nothing, I repeat, nothing, to deter well-financed “trolls” from asserting their patents and initiating lawsuits.  Instead, these bills are specifically designed to increase the expense, time, and risk to assert a patent.  When this occurs the value of a patent increases in the hands of large, well-financed entities, and decreases to insignificance for startups and small businesses.  Quite simply, these bills significantly diminish the ability of individual inventors and small companies to protect their patented inventions from infringement by large competitors. 

Large companies generally have many elements of competitive advantage, including scale, product breadth, capital, brand, and large staffs.  Even the most competitive startups generally have none of these, and often only have their wits and their patents, with the constitutionally-granted benefit of a limited period of exclusive use.  This legislation will eliminate this sole advantage for all practical purposes. 

While working on educating others on this issue over the last 18 months, it was very clear that most of my colleagues and peers read the headlines of patent reform – defeating trolls – and supported the proposed legislation.  But they did not study the text.  Once entities such as the National Venture Capital Association fully understood the legislation, they quickly opposed it.  I encourage our Senators and Representatives to study the legislation if they have not done so.   If they do, they will understand that the legislation is not anti-troll as advertised, it is anti-inventor and anti-small business.   

This legislation would also violate a fundamental business principle by piercing the corporate veil.  Courts would be required to force investors in an entity that loses a patent case, and is unable to cover the other side’s attorney’s fees, to cover those costs.  Venture investors routinely take the risk of potentially losing their entire investment in a startup that is unsuccessful.  Ask yourself, what venture investor would invest in a company if the potential liability was not their investment but their entire firm?   

The legislation being considered by Congress was created by large companies, marketed as a battle with a fictitious foe, and designed specifically to reduce their exposure to patent claims when they callously infringe the inventions of small companies. I hope our legislators take the time to study the actual text of the proposed legislation and be prepared to explain its effect on our precious and vital patent creating inventors and inventive startup community, and not be persuaded by the threat of a fairy tale villain.

Giancarlo is a Silicon Valley-based entrepreneur, tech executive and angel investor. He served as a senior executive at Cisco Systems from 1993-2007.