More Thoughts on Patent Reform & Building a Pro-Innovation Economy

30 Apr

I wrote about the introduction of the SHIELD Act a few weeks ago and the pressing need for further reform of the U.S. patent system. The bill from Rep. Peter DeFazio (D-OR) and Rep. Jason Chaffetz (R-UT) won’t see the House take action with immigration reform and restructuring of the tax code coming down the pike, but support for the bill is gaining steam. Presently, the Federal Trade Commission (FTC) and Department of Justice (DOJ) are taking public comments on the issue of patent trolls. Groklaw highlights one of the more compelling briefs from Barnes & Noble that sheds light on just how abusive patent trolls are on companies:

The patent system is broken. Barnes & Noble alone has been sued by “non practicing entities”—a/k/a patent trolls—well over twenty-five times and received an additional twenty-plus patent claims in the last five years. The claimants do not have products and are not competitors. They assert claims for the sole purpose of extorting money. Companies like Barnes & Noble have to choose between paying extortionate ransoms and settling the claim, or fighting in a judicial system ill equipped to handle baseless patent claims at costs that frequently reach millions of dollars.

B&N is asserting that the trolls’ litigation free-for-all is something akin to “death by a thousand cuts”. The company is spending tens of millions defending against a tidal wave of litigation and enduring a litany of claims that are without merit. While there are rules permitting groups to seek sanctions and recover attorneys’ fees, these awards are almost always limited to more extreme cases. These tens of millions spend on legal fees could be spent on developing new products, marketing, and other operating expenditures. Further, Mike Masnick at TechDirt highlights a key section of the brief stating that the abusive practice of the trolls directly violates the original intent of patents in the Constitution whose purpose is to promote the progress of useful arts.  B&N contends that since the legal rights afforded to the patent is not used in manner set forth by the Constitution, then it should be seen as unconstitutional:

The Patent and Copyright Clause grants Congress the power “[t]o…promote the Progress of Science and useful Arts,” not science fiction and litigious arts. (Article 1, Section 8, Clause 8 (emphasis added)). But the current system allows trolls to pursue fantastic allegations—claims that would be laughed out of the room in actual scientific or technical circles—in endless litigation that taxes and taxes true innovators while making no meaningful contribution to society.

The B&N filing is worth a read for anyone interested in fixing our innovation system over the long-haul. Further food for thought on the innovation front, the Mercatus Center’s Jerry Brito had George Mason University’s Professor Alex Tabarrok on his ‘Surprisingly Free’ podcast to talk about Tabarrok’s book, Launching the Innovation Renaissance: A New Path to Bring Smart Ideas to Market Fast, and his ideas on how to fix our innovation system.  Tabarrok discusses America’s declining growth rate in total factor productivity, what this means for the future of innovation, and what can be done to improve our long-term economic prospects:

According to Tabarrok, patents, which were designed to promote the progress of science and the useful arts, have instead become weapons in a war for competitive advantage with innovation as collateral damage. College, once a foundation for innovation, has been oversold. And regulations, passed with the best of intentions, have spread like kudzu and now impede progress to everyone’s detriment. Tabarrok outs forth simple reforms in each of these areas and also explains the role immigration plays in innovation and national productivity.

The future of the American innovative economy could be decided in 2013. Passing immigration reform, restructuring the tax code that encourages investment in innovation, the adoption of crowdfunding rules,  and stopping abusive lawsuits that tax our tech companies are four very huge steps towards that reality.

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