For businesses, innovation and hard work often drive success. Unfortunately, many businesses are being kept from achieving the success they deserve. It’s a problem that costs our economy billions every year, and prevents businesses from investing in job growth. But fixing the problem is achievable, and it’s one thing that Washington can actually get done this year.
Patent Assertion Entities or PAEs (sometimes pejoratively referred to as “patent trolls”) are companies that use overly broad patents as tools of intimidation. They force businesses to pay license fees for processes they are already using. Call it a drain on our economy, a siphon, burden or even a tax. Whatever you call it, it’s tantamount to extortion. It’s wrong, and it harms our economy. This is true across businesses of every shape and size. Realty, construction, retail shops, hotels, grocers, convenience stores, and restaurants are all affected, as was my industry, photography.
I am writing this with first-hand experience as a Connecticut small business owner. My company, Capstone Photography, was sued for the infringement of three vague and overly broad patents relating to how event photos are posted online for searching, viewing and purchase. The PAE in question was very clear and direct in its approach of financial and legal intimidation, spelling out for me that paying the demanded license fees would be far less costly than defending against the lawsuit.
Our small business, without even a single line item in our budget for legal defense, spent $100,000 to defend against the suit. After a ten month ordeal, a federal judge invalidated all three patents. Just like we knew from the beginning – the three patents, somehow granted by the wisdom of the U.S. Patent and Trademark Office, had no merit. Their only value was in their use as an intimidation tool against us. So while we can technically claim a legal victory, our small business is still reeling from the legal expenses which nearly forced us to close up shop.
Unfortunately, many small businesses are not equipped to interpret the poorly construed patents and allegations of infringement. Statistics show that the cost of defense can often exceed $1 million. Apparently we were lucky, though I hardly feel that spending only a hundred thousand dollars should be considered some sort of bargain. Businesses often choose to settle for far lesser amounts, even if they are completely innocent. Paying up is usually cheaper than mounting a defense, and PAEs are very happy with that reality.
These lawsuits force businesses to divert limited resources in order to defend these baseless charges. The total impact on our economy is staggering, with estimates from $29 to $80 billion drained from American business every year. That money would be much better used to invest in new jobs and to develop new technologies and innovations.
Even though Washington is so often divided by ideological differences, halting abusive patent litigation is an area of strong bipartisan agreement. Congress has an opportunity to pass common sense patent reform this year that will have a real and beneficial impact on small businesses across the country.
Senators Grassley, Leahy, Cornyn, Schumer, Lee, Hatch and Klobuchar introduced the Protecting American Talent and Entrepreneurship (PATENT) Act of 2015. A similar bill was introduced in the House earlier this year, and both have support from both sides of the aisle.
If passed, this common sense bill would make it harder for patent trolls equipped with overly broad patents to file baseless and frivolous lawsuits against businesses. It would increase transparency in our litigation process by heightening pleading standards so that assertion entities are required to provide more detailed information beyond vague and threatening demand letters.
The discovery process would also be streamlined so that defendants are no longer left with oppressive demands and costs, while provisions would require the most egregious plaintiffs to pay the legal fees of the defendant they dragged into a mess that has now disrupted their entire lives.
I urge Congress to not let another opportunity to reform our patent system slip through the cracks. We can’t afford to delay legislation that will help American businesses invest in the things that matter. Let’s create a climate where businesses invest in hiring the next generation of bright minds and hard workers. Let’s keep the American economy moving forward.
Mike Skelps is president of Capstone Photography in Middlefield.