A recent US Census/Kauffman study found that startups create three million net new jobs per year in the US, while existing companies destroy 1 million jobs per year.
Startups are clearly critical to our economy. So why are we letting them get fleeced? Startups are being waylaid on the path to success by “patent trolls.” Trolls buy up disused patents and then sue real companies for alleged infringement. Usually the patents themselves would be held invalid if properly scrutinized and/or there is no actual infringement. But companies are forced to pay “licensing fees” because they can’t afford the legal battle. It’s highway robbery worthy of a Clint Eastwood film.
This is not a small problem. More than half of all patent litigation today is brought by trolls. At a recent gathering at the Cambridge Innnovation Center, a home for startups in Cambridge, the patent troll problem was voted the number one public policy issue facing entrepreneurs. It’s a scourge on society. It’s time for our senators and congressmen to act.
Our patent system was created with very good intentions. For most of our history it worked well. One of the key ways our country supports startups is to allow innovators to obtain protection for their ideas by filing a patent. This is a good thing. Such protection allows them to make money pursuing their idea, and helps convince investors to financially support them.
Once in awhile, a very broad, poorly worded patent makes its way through the system. These are purchased by trolls, with the intent of extracting payments from real businesses. It doesn’t much matter if the patent is valid, or really covers what these other businesses do, because it’s cheaper to pay them off than to incur the years of high legal expenses needed to fight them. This is what keeps trolls in business.
This happened to my friend and Boston entrepreneur David Rose, who invented and patented photo-sharing, uploading a photo to the web and inviting your friends, way back in 1996. It was pre- camera phones and too early, so he sold the company. The patent was transferred to the acquirer, who become a patent troll. The troll then waited, as trolls do, almost a decade, for someone else to create another business that came up with some of the same ideas. As soon as the victim came along, the troll pounced, suing that company, demanding large licensing fees, nearly driving it out of business. Instead of promoting innovation, today’s patent laws are actually preventing innovation.
Washington is beginning to pay attention. President Obama, the FTC and some Capitol Hill leaders have made mention of this problem. Several pending pieces of bipartisan legislation in both chambers have been introduced.
Some of the most promising fixes include: creating a program that lets startups challenge the most abused patents in the Patent Office instead of court; and making patent trolls explain their case up front and pay discovery expenses so that they cannot use the high cost of litigation as a weapon.
This is the right time and the right opportunity for federal legislative action that will allow defendants to fairly question the validity of broad patents.
Greater Boston is one of the most important places in the country for innovative businesses. Biotech firms, clean energy developers and internet companies call Boston home and provide the biggest source of job growth in the area. To protect what we have, Massachusetts leaders should be in the forefront of legislation to fix the patent troll problem.
Startups make the world better and we can’t let these businesses, as they work through their fragile first few years, be drowned out because current patent policy allows a select group of bad apples to misuse our laws for personal gain.
Tim Rowe is the founder and CEO of the Cambridge Innovation Center.