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SAUER: Legislation that would overreact to ‘patent trolls’

Congress should proceed cautiously with patent reform

- - Tuesday, April 1, 2014

Back in January, President Obama used the State of the Union address to mention an issue many Americans may have been unaware was even considered a problem: patent reform.

Calling on Congress to "pass a patent reform bill that allows our businesses to stay focused on innovation, not costly and needless litigation," Mr. Obama drew attention to the issue and signaled not-so-subtly that it would play a role in a major piece of legislation on Congress' agenda.

Patent reform legislation, called the Innovation Act, was intended to address the so-called "patent trolls," who aggressively seek and gain patents with the intention of frivolously suing infringers and making lots of money in the process. By the time of the State of the Union, it had already passed the House in December, so the president was merely keeping his finger on the pulse of an issue that had already proven it had bipartisan support.

However, without suggesting patent reform is a bad thing necessarily, there are significant problems with the legislation that passed in December, of which the Senate version is scheduled for mark-up on April 3.

First and foremost, the legislation assumes that "patent trolls" are such an unwieldy problem that they must be dealt with immediately and with broad legislation. Unfortunately, legitimate patent holders such as universities (who hold many patents but never intend to manufacture their inventions) and small "garage" inventors will be lumped into the broad provisions of this bill and could be targeted as trolls. Given innovation is a key ingredient to jobs and economic growth, these drivers of economic abundance could easily become victims of the Innovation Act if it passes the Senate in its current form.

In January, the Heritage Foundation released a report on the issue titled "A Balanced Approach to Patent Reform: Addressing the Patent-Troll Problem Without Stifling Innovation," by John Malcolm and Andrew Kloster. The report questioned the extent of the problem, citing dubious claims about the number of frivolous lawsuits and the amount of money actually wasted and extorted each year. These claims were ostensibly used to push the issue of patent reform as a necessary piece of legislation with a fast-track time frame.

The most important takeaway from their study was that patents are, in fact, property and should not be subject to reform lightly:

"Patents are treated similarly to any other piece of property: They can be bought and sold on the open market, and what a patent holder does with a patent is his business. Just as a homeowner might decide to purchase a piece of land and not develop it or permit others to use it, a patent holder may also choose to do nothing with the patented invention. Alternatively, the patent holder might authorize someone else to utilize his patented invention (which could be a product or business process); license it to others for their use; or hold on to the patent as an investment until he decides to sell it (or it expires).

"Certainly, there are many who invent simply due to curiosity about how the world works and a desire to solve problems. However, patent rights — the exclusive ability to sell an invention for a period of years — provide powerful financial incentives to companies to research and develop technologies that benefit society."

In the name of attempting to mitigate the so-called "patent troll" problem, Congress is lowering the ability to protect intellectual property. While several provisions they are currently discussing might potentially curb marginal abusive legal practices, many of the provisions being debated either cast a broader net than intended or miss the abusive practices altogether and make it harder to defend intellectual property.

Congress needs to slow down and thoughtfully deal with this important issue.

Charles Sauer is a founder of Entrepreneurs for Growth.