In the president’s address to the American people and Congress, he referenced the patent reform legislation as an example for the type of legislation we need. He says this legislation will create jobs. I didn’t think much about it but I was encouraged that our patent system, which hasn’t been updated in 50 years, was the focus of congressional attention and received a name-drop in a presidential address. I should have known better.
Since intellectual property is a strong contributor to having a competitive advantage, and since a defensible competitive advantage drives up the value and attractiveness of an early-stage business, I decided to do a little homework on the coming patent reform. Here is a quick summary of my findings:
Current system: The current system hasn’t been updated in 50 years, resulted in an incredible backlog of around 700,000 unanswered filings, an average waiting period of three to five years for a response, and a catalog of issued patents that are broad and contradicting. There is an entire website devoted to the ridiculousness of some patents (http://www.patentlysilly.com/) including the comb-over haircut, body-hair trimmers, and lap-dance protection gear (see image above). On a more serious note, and based on personal experience, I’ve seen a broadly written patent slow down the formation and launch of a company from 3 months to over 12 months and counting.
Key problems of current system: Oh, where to start…
- Process– The waiting period and scrutiny is tedious and often not productive. Over 700,000 unanswered disclosures with an average to three to five years is not an indicator of a healthy and functioning system. The filing and consideration system should be tiered and more resources should be dedicated. The US Patent Office actually generates more than it consumes in revenue (I know, I was shocked too), but the excess revenue is funneled off for other congressional pet projects (not shocked by that). Go here for an editorial by Senator Tom Coburn on this problem. The process needs to be streamlined, the USPTO need to be expanded, and the proceeds from filing fees need to stay in the USPTO. Also, I think the USPTO should offer a fast track option that cost marginally more if the patent is being practiced in a commercial product within twelve months.
- Litigation reform– Broadly written patents end up sitting on shelves and not being used for commercial application, only to be un-earthed years later as a weapon in a lawsuit against a start-up or a more mature company introducing a new product. There should be some restrictions, or at the very least some award caps, on non-practiced patents.
- Troll, troll, troll– The current catalog of broadly defined patents has resulted in equity funds and companies purchasing portfolios of patents with the expectation of using as tools against competitors. While this isn’t necessarily wrong, it isn’t the most productive behavior from an economic perspective. These companies often don’t practice the patents, using them as a foundation to file expensive an onerous suits against competitors and start-ups. These guys would make the ugly fellow living under the bridge blush. The way to solve this problem is to increase the cost of renewing the patent at it’s four year anniversary if the patent isn’t being practiced.
