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New Patent Laws Introduced to Favor Smaller Tech Companies

by Beck Alleman, published

patent laws

Last Monday, new legislation was introduced in Congress that would reform current patent laws by lessening the number of patent lawsuits, especially in the technology field, where many of these suits originate.

This legislation, introduced by New York Democratic Senator Chuck Schumer, is also known as the "Patent Quality Improvement Act." The bill aims to level the playing field for smaller technology companies by reducing the number of patent lawsuits that are filed.

To do this, Schumer proposed that the Patent and Trademark Office be allowed to review patent claims to ensure authenticity.

The main target with this new bill is what are referred to as "patent trolls". Basically, these "troll" companies license a large number of patents; then, when one of them is inevitably violated, they attempt to file suit and profit off of it.

"The legislation that I'm introducing in Congress today will finally crackdown on patent trolls that are preying on our nation's technology companies," Schumer said in a statement. "This bill will save these companies billions of dollars in litigation fees by allowing the Patent and Trademark Office to review unwarranted claims in lieu of expensive lawsuits.

According to Schumer, these patent trolls collectively cost companies $29 billion in 2011 alone, with the average settlement costing what Schumer classifies as a "small to medium company" $1.3 million. For a new start-up company, such a lawsuit is devastating and could very well cause them to go out of business.

Many, including the Consumer Electronics Association (CEA), applaud this legislation because they believe the laws surrounding patents have been excessively abused and many companies, especially smaller ones, need someone to protect them.

“By enabling defendants to seek review of a patent’s validity, the bill creates a quick cost-effective alternative to litigation," said Gary Shapiro, president and CEO of the CEA. "Without having to face the immediate potential of millions of dollars in legal fees, companies targeted by trolls will face less pressure to pay money to resolve frivolous lawsuits."

There are many who believe the patenting system is flawed and even a few -- such as Washington University professors Michele Boldrin and David Levine -- believe they should be done away with altogether.

"The political economy of government operated patent systems indicates that weak legislation will generally evolve into a strong protection and that the political demand for stronger patent protection comes from old and stagnant industries and firms, not from new and innovative ones," Boldrin and Levine said in an essay on the subject. "Hence the best solution is to abolish patents entirely."

However, recent studies by Intellectual Ventures, a business that specializes in patents, reveal that the overall attitude toward patents is positive.

In fact, according to the study, 68 percent of company executives had a positive overall perception of patents, 70 percent said they were good for innovation, and 78 percent believed licensing fees should be paid if a company uses technology patented by others.

The results of the study suggest that patents are generally perceived as crucial to modern business practices; the trolls that pollute them are a necessary evil.

"[It's] not whether patents matter, but how they matter," said Adriane Brown, president and COO of Intellectual Ventures.

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