Patent Trolls Stifle Innovation and Business Investment

In late 2013, I had the opportunity to testify before the Judiciary Committee of the United States’ House of Representatives about pending legislation focused on improving the country’s patent system. H.R. 3309, the Innovation Act, was subsequently passed by the U.S. House but was never voted on by the U.S. Senate. The abusive patent litigation that prompted activity in the U.S. Congress continues to stifle many young businesses and affect overall business growth for companies of every size.

EMC has a keen interest in seeing that the U.S. patent system is rational, fair, and evenly balanced. We create many innovations and look to the patent system to protect our intellectual property (IP) and the jobs it creates. We currently have more than 4,000 U.S. patents.

In my 20 years in the field of IP law and licensing, I have seen abusive patent litigation sweep the country – diverting billions of dollars from economic growth and innovation to battling frivolous suits filed by patent assertion entities (PAEs) or “patent trolls.”

EMC doesn’t settle frivolous patent suits

Since 2005, EMC has been sued by patent trolls over 30 times and we have never been found to have infringed any patents. As a matter of principle we don’t settle frivolous suits, but defending those suits has cost millions and caused business disruption because it requires our employees to shift attention from designing new products and growing the business to sitting in depositions or going to court.

For us, a typical PAE suit involves a shell company created solely to file suits. The PAE often sues dozens of companies, including EMC, in separate suits that get consolidated together. This causes each independent company to lose due process rights, and forces it to waste time and money coordinating lawsuits based on unrelated products.

Furthermore, patent trolls attempt to pressure us into settling by demanding that thousands of documents and emails be provided pre-trial, most of which are irrelevant to the suit and costly to produce.

To get a decision on the merits of a case, we typically have to wait two years, spend millions, and endure massive business disruption. Meanwhile, the PAE has nothing to lose with a steady income stream from defendants who settle along the way. This is often the fate of small and mid-sized companies who do not have the funds or bandwidth to hold their own in the face of this immense pressure.

Academics reveal economic impact of PAE activity

The Computer & Communications Industry Association commissioned a study by MIT Professor Catherine Tucker. Upon release of her paper, Professor Tucker said: “Some protection of intellectual property can lead to more innovation. However, more patent litigation does not imply more innovation. In fact, it implies less innovation. My analysis showed that litigation by patent trolls did not foster entrepreneurial investment at all. It is instead associated with significantly reduced venture capital investment in entrepreneurship, preventing startups from developing and suppressing job growth.”

Among the economic impacts discovered in Professor Tucker’s research, she found that “frequent patent litigators” (PAEs) led to a loss of at least $8.1 billion in venture capital that would have been otherwise invested in American business enterprises over the course of five years.

James E. Bessen, Jennifer Ford & Michael J. Meurer of Boston University School of Law also published a paper concluding that PAEs caused $29 billion in direct costs in 2011 alone. That number does not factor in broader costs, which have been estimated at $80 billion per year.

Looking forward

I believe that patent litigation reform is urgently needed. Litigation initiated by PAEs is exacting a major toll on EMC and other productive companies, both large and small. Failure to act on the abuses of the litigation system has resulted in the problem growing worse, with more industries falling prey to the tactics of the PAEs.

Legislation designed to reform our patent system will restore accountability and put balance back into the system, thereby alleviating some of the unfair legal tactics that are used against hardworking companies of all sizes that are the life-blood of the economy. Abusive patent litigation is a costly and rapidly-growing problem that is stifling American innovation and job creation each and every day.

About the Author: Krish Gupta