3 reasons why the US might finally be ready for real patent reform

The U.S. patent system has been broken for years: the country is awash in flimsy patents and, worse, a species of economic parasite known as patent trolls have been buying up those patents in order to extort startups and shake down productive businesses.

In 2011, President Obama signed a law called the America Invents Act that was supposed to fix the problem, but little has changed. The trolls, who rarely make products of their own covered by their patents, did not go away; instead, they become more brazen, attacking app developers, grocery stores and even non-profit groups.

Now, Congress is back with another, stronger bill led by House Judiciary Chairman Bob Goodlatte (R. Va) that could cripple the trolls for real. The bill itself is an improvement but, equally important, there’s been a shift in political and intellectual attitudes towards the patent system.

Here’s what’s changed since last time around:

A political big tent — with pharma on the sidelines

The final version of the 2011 America Invents Act emerged as toothless in part because patent reform was considered to be a pet project of Silicon Valley companies connected to the Democratic Party. As a result, opponents convinced Republicans and others that the original version of the AIA threatened property rights and inventors. Meanwhile, the pharmaceutical industry — which relies heavily on patents to recoup its decades-long investment into drug research — lobbied to water down the bill.

This time around, the proposed law takes aim at the specific tactics that trolls use to abuse the legal system, and offers measures to stop them. These include new requirements for trolls to identify themselves, and to inform their victims what exactly the lawsuit is all about. Other proposed rules would tag the trolls for legal fees and make it harder for them to swamp the other side in litigation tricks.

You can get full details about the bill from Ars Technica or the Washington Post (or see the IPO’s helpful chart here), but the bottom line is that its goal is to change the basic economics of patent trolling.

As Matt Levy, patent counsel for Computer & Communications Industry Association, explained by phone, “trolling is so profitable with such little risk. It’s only growing because it’s so cheap to do.” According to Levy, the proposed bill’s focus on curtailing litigation abuse has, unlike last time around, attracted wide bipartisan support without rousing the pharma lobby.

“The pharma industry is on the sidelines because the bills are designed to not affect them,” said Levy.

New allies

While technology companies like Google(s goog) carried the banner for patent reform in 2011, this time around the call to fix the patent mess is coming from all quarters. In the last two years, small businesses, state governments and Scientific American have added their voices, while President Obama this year stated that the patent trolls “hijack” and “extort.”

Meanwhile, scholars like James Bessen and Colleen Chien have published influential research that undercuts the legitimacy of the patent troll business, while financial blogger Felix Salmon has called for the government to “aggressively prosecute patent trolls.” Even senior judges have stated that the patent system is dysfunctional and, in one case, invoking the Dixie Chicks to say it’s time for a change.

This turning of the tide against the trolls is also being fueled in no small part by the increasing aggressiveness of the patent trolls themselves. Funded by investors who demand a financial payout, the trolls have been casting an ever-wider net by seeking to shake down companies like the New York Times, the transportation sector and even small businesses throughout Vermont.

“The trolls have gone after so many types of business, and gone after Main Street too, that our coalition has bloomed,” said Michael Beckerman, CEO of the Internet Association.


Few believe the patent trolls’ “innovation” theory anymore

The spiritual and intellectual godfather of the patent trolls is Nathan Myhrvold, a former Microsoft executive who launched Intellectual Ventures, a giant patent-holding company that has spawned at least 1,300 shell companies that act as parasitic vectors for the corporate mothership.

Until recently, Myhrvold could beguile some in the the press — most notably Malcolm Gladwell — with tales of Intellectual Ventures as a house of marvelous ideas and inventions. In this view, IV’s blatant patent trolling could be excused on the grounds that the company was providing a crucial means of funding capital to researchers whose inventions might not have seen the light of day.

All of that is now regarded as so much flimflammery. Real inventors continue to do what they always have done — tinker away, launch startups and seek investors who believe in their products. The trolls, meanwhile, simply pour more money into lawyers whose innovation consists of finding new ways to mug vibrant young companies like Etsy and Uber.

As the bloom falls off the patent-troll rose, the trolls have had to fall back on a lobbying campaign in hopes of preserving their racket. Intellectual Ventures, for instance, is pouring money into Washington in the hopes of “educating lawmakers on … how the secondary market for patents works.”

At this point, one can hope that even the most money-hungry Congress member will understand that there is no excuse for a trolling industry which reportedly dunned the economy for $29 billion in 2011 alone.

The political stars are aligned – so what’s the outcome?

Patent reform flopped in 2011 but, this time, the proposed law takes square aim at the trolls who have made a mockery of the system. Is it perfect? No, it won’t curtail trolling altogether and it won’t eliminate the large number of bad patents already floating through the system.

But the good news is that the law has a strong chance of passing, and soon. Since Rep. Goodlatte is the Chair of the Judiciary Committee, his bill will move quickly, all the more so since it has strong bipartisan support and champions in the Senate.

According to Beckerman of the Internet Association, all this means the bill is likely to receive a vote on the House floor this year, and to be signed into law next year. If that’s the case, 2014 will be the year when America’s long patent nightmare may come to an end.

Images by  Iakov Kalinin via Shutterstock.