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Patent trolls, patent thieves, and the future of innovation

The “troll”:  an unlikeable, irritable ogre who hides under a bridge and eats unwary passers-by.  Yecch.  An inside-the-beltway media campaign in favor of so-called “patent reform” has appropriated this “troll” image to reframe the debate on patent protection.  What was once a “patent assertion entity” (PAE) has now been derisively but effectively rebranded as a “patent troll.”

Consider HR 9, the Innovation Act.  Superficially, the bill has a reasonable purpose, namely, to punish firms that assert patent claims in bad faith with large fines. Example: A shell corporation sends out letters to firms unwittingly using proprietary technology without licensing the patent.  Those letters demand, and often generate, compensation.  It can be a sneaky con game because it is often less hassle for a small business owner to pay the fee demanded than incur the expenses and time to litigate.  

{mosads}Most in Congress don’t even realize that the Federal Trade Commission (FTC) has already dealt with this situation and is targeting those who abuse this practice.  Any illegitimate letter is now subject to a $16,000 fine.  And that’s for every single letter, to every recipient.

That should be the end of the story.  However, the push to pass HR 9 has not abated – because the “troll” narrative was always a sideshow, a phony pretext.  The real goal is to make it easier for “patent thieves” to steal another’s intellectual property, using “trolls” as the excuse to make wide-ranging changes in patent law seem urgent.

Let’s back up a moment:  An inventor labors for years to turn a great idea into a patent, hoping to commercialize it, or sell it to someone who can bring it to market, and to protect it against theft.  Patenting is a lengthy, expensive process.  And there is always the risk that some company might try to use the idea without paying for it.  If that happens, the inventor can sue.

But such litigation is often a David-and-Goliath scenario.  Individual inventors, investors in the development of their ideas, tech startups, and university tech-transfer departments are no match for any jumbo companies that steal their ideas. Unfortunately, this means that for some large corporations, stealing intellectual property is a worthwhile proposition. Often, especially against “little guys” who lack resources and full-time legal staffs, it is clearly more cost-effective to steal a patent than to pay for it. Even a court settlement with an inventor on the brink of bankruptcy might significantly reduce the licensing fee. 

Because most inventors, universities, startups, etc. are “little guys,” they depend heavily on the current protections embedded in our patent law.  Sometimes their only hope to survive protracted litigation is to partner with a PAE, a “troll.” The better-funded PAE buys their patents and helps to level the playing field, essentially revamping the lawsuit into Action Hero-versus-Goliath.  “Patent thieves” invented the label “patent trolls” to obscure the real economic service PAEs perform.  PAE’s wouldn’t exist if they didn’t win; they wouldn’t win if big companies were always honest.  So, even on these terms alone, HR 9 is hardly the no-brainer it is made out to be.

BUT, the effects of HR 9 do not stop there.  The bill changes many key provisions of our patent law, devaluing all patents and making them more costly to defend.  Bingo!  Advantage to the rich, patent-infringing mega companies!

Most companies are honest.  We wish all of them were.  When any company uses the patented idea of another, no matter how sophisticated, useful, or revolutionary that company’s product, it has a moral and legal obligation to pay the inventor or his licensee.  Instead, in a world of lax business ethics and easy money in politics, these corporations run deceptive advertising/lobbying campaigns to stampede an unwitting Congress into enacting unnecessary laws that make it impossible for the little guys – anyone smaller than the corporate behemoths – to protect their patent rights and get paid for their hard work.  

Bottom line: Patent thievery not only will continue if HR.9 passes; it will increase.  HR 9 will completely reshape the already-uphill economics surrounding inventing and, just as important, discourage anyone from investing in pioneering “little guy” innovations.  

It’s not a stretch to say that HR 9 is an economy-changing piece of legislation, and not for the better – unless we want fewer inventions, unbridled infringement, unenforceable patents, less innovation, and slower economic growth. The House must not vote again to pass the little understood but far-reaching HR 9 simply on the basis of a clever ad campaign about fairy tale characters. 

Rohrabacher has represented Southern California congressional districts since 1989. He sits on the Foreign Affairs and the Science, Space and Technology committees.  Arnott is chairman of Research Affiliates, an investment management firm based in Newport Beach, California.


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