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Is This the End of Patent Reform?

The Senate shelved a patent troll bill claiming lack of support. The move is unsurprisingly drawing jeers from the entrepreneur community.
Venture capitalist Fred Wilson wants strong government action against patent trolls.
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Businesses from Main Street to Silicon Valley want to put an end to patent trolls. But the Senate punted on its on patent troll bill Wednesday, and that could set patent reform back a year or more.

Senate Judiciary Chairman Patrick Leahy  (D., VT.) said a bill supported by major technology companies such as Cisco and Google has been removed from its roster because it lacked adequate support.

The bill is important because it was expected to help rein in litigation abuses from so-called patent trolls, otherwise known as non-practicing entities. These nefarious-sounding characters who buy up expired or soon-to-be-expired patents, or patents with dubious merits, often target companies to extract a quick financial gain. For small companies and startups, this process often involves paying steep settlement fees to avoid protracted litigation.

In a statement,  Leahy said he doubted that the reform as proposed in the bill was comprehensive enough and could satisfy the different sides of the debate. Leahy said:

Unfortunately, there has been no agreement on how to combat the scourge of patent trolls on our economy without burdening the companies and universities who rely on the patent system every day to protect their inventions. We have heard repeated concerns that the House-passed bill went beyond the scope of addressing patent trolls, and would have severe unintended consequences on legitimate patent holders who employ thousands of Americans.

Many attorneys representing the patent holders and the non-practicing entities themselves say their claims, and the patents represented in them, are legitimate.

The Supreme Court dealt a blow to patent trolls earlier this month in a ruling that will make it easier for prevailing parties in patent litigation suits to collect court costs and other financial damage rewards.

The entire issue has riled participants in the venture capital as the technology world. Investor Mark Cuban said at Inc.'s GrowCo conference in Nashville on Wednesday that he would do away with software patents completely as one remedy.

On his blog Thursday Fred Wilson, a venture capitalist and co-founder of Union Square Ventures, wrote:

Information technology startups are probably spending hundreds of millions of dollars collectively on an annual basis fighting off patent trolls. This is a tax on innovation and, I would argue, borderline theft. It must come to an end.

And on its blog today, data storage company Rackspace's Van Lindberg, vice president of intellectual property, wrote:

At Rackspace we have pushed hard for Congress to enact patent litigation reform. We have made it one of our core missions to battle patent trolls. To say we’re stunned by the Senate’s failure to act would be a gross understatement. As recently as last night, we had high hopes that a meaningful reform effort would move forward this week. Instead, we got the news today that the patent reform bill won’t be moving forward. We view this as a massive failure of leadership.

This is so disappointing because curbing patent trolls is not a partisan issue. The House bill that passed last December received broad, bipartisan support. It passed the House with an overwhelming 325-vote majority, including 130 Democrats, and earned public support from President Obama and the Republican committee chair. We were relying heavily on the Senate to be an ally against these parasites that make America less competitive every day.

The House and Senate have been working on corresponding litigation for years, and both houses are likely to take it up again soon. Little progress, however, is likely to be made on the issue for the remainder of the year, according to some patent experts, although many have vowed to keep fighting for comprehensive reform.

"We will continue the fight to pass patent litigation reform," Matthew Tanielian, executive director of the Coalition for Patent Fairness, said in a statement Wednesday. "The patent troll problem that has brought us here continues to grow, undermining our patent system, draining resources from innovators and causing real harm to main street businesses across America.”

IMAGE: Getty Images
Last updated: May 22, 2014

JEREMY QUITTNER | Staff Writer | Staff Writer, Inc. and Inc.com

Jeremy Quittner is a staff writer for Inc. magazine and Inc.com. He previously covered technology for American Banker and entrepreneurship for BusinessWeek.




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