Will Trolls Ruin American Invention?
It's hard to overestimate the importance of patents in American history. They're written up in the Constitution, after all, entrusted with the task of promoting "the useful arts and sciences." As Ira Glass explains in an eye-opening episode of This American Life, it's only because of our patent system that Eli Whitney was able to take his cotton gin out of a darkened room, share it with the world, and spark an agricultural revolution (though he didn't get paid much for it).
Patents are supposed to make it safe to share and innovate. But in the Internet age, where many companies use the same technology and share similar patents, many feel the system has been turned upside down, stifling innovation where it should be nurtured. And in particular, patent trolls—companies that buy up loose patents like ammunition, waiting for the day to unleash them in legal battle—have raised the operating costs for start-ups to prohibitive levels. Patents are the weapons in a heated arms race, becoming in essence an innovation tax indirectly levied on startups.
The numbers are escalating at an alarming rate. Between 2004 to 2009, the number of patent infringement lawsuits jumped by 70 percent, with licensing fee requests skyrocketing 650 percent. The upswing has Silicon Valley companies so worried that there's been a mad scramble in the past year for all available patents. In August, Google spent $12.5 billion buying Motorola Mobility, gaining control of over 17,000 mobile-related patents worldwide, with 7,000 more Motorola patent applications pending. A month before that, Apple and Microsoft formed an unlikely partnership, spending $4.5 billion to outbid Google for a trove of 6,000 patents owned by Nortel Networks.
So what can savvy innovators and startups do to protect against these patent bullies? Fight back. As Pascal-Emmanuel Gobry of Business Insider writes, the business model of patent trolls depends on easy and fast settlements. They know they're a nuisance, and they're banking on the fact that their victims would prefer to settle rather than stand up and fight. Says Gobry:
"Most of these patents are worthless and wouldn't hold up in court, and yet startups pay because they don't want the expense and the headache. And the answer isn't going to come from Congress, which can't do anything about it.
Gobry goes on to say that the only way to fight back is for startups and venture capitalists to agree to work together:
Every venture-backed startup needs to make a credible, public statement now: we will fight every patent troll case, to the Supreme Court if we have to. Every venture capitalist needs to make a credible, public statement: we will finance our portfolio companies' cases against patent trolls. We recognize that it's going to be a long, hard slog. We're going to burn tons of money at first. But spending money upfront for the chance of a better world is our job. And it's the right thing to do.
Change is already happening. On Thursday, Wired reported that Eolas, a patent holding company trying to sue websites for using interactive features like slideshows or streaming video, had been rejected by an eight-member federal jury in Tyler, Texas. Had the jury upheld the charges, companies like Google, YouTube, Yahoo, Amazon, Adobe, JC Penney, and Staples would have had to shell out a combined $600 million in damages. Now that money can be redirected back into research and development, and hopefully, future innovation. Not those fighting against it.