New York City is quickly becoming the Silicon Valley of the east — in fact, I think Silicon Alley already rivals, if not surpasses, its western counterpart in terms of creativity, productivity, and entrepreneurial spirit. I've toured dozens of tech start-ups in Brooklyn and Manhattan, and met hundreds of daring entrepreneurs who have an idea and the drive to turn it into reality. They find space, perhaps at a business incubator, a few smart and talented employees to get them off the ground, get the capital they need and they appear to be off and running. Then they open their mail…
Inside they find a letter from some company they've never heard of, threatening to take them to court for patent infringement. The letter isn't from someone who invented some earth-shattering technology, but rather from someone who is threatening a frivolous lawsuit against the nascent business just to make a quick buck. The claims in the letter are vague, referencing some unnamed patent and an unspecified infringement. But the demand is crystal clear: pay up, or else we’ll bleed you dry in a courtroom somewhere in Eastern Texas. That bright future suddenly looks awfully dim, as the thought of millions of dollars in legal fees keeps the business owner up at night.
The business has been struck by a scourge on so many businesses in New York and across the country: a patent troll.
Patent trolls, otherwise known as non-practicing entities, take advantage of vague, poor-quality patents to threaten expensive litigation and extract costly settlements from their unsuspecting victims. Victims range from restaurants to retailers to realtors, from coffee shops to corner stores, from hotels to hospitals; but the hardest hit may be tech start-ups. Patent trolls have spared few industries in New York and across the country. Last year alone patent trolls filed 2,791 new suits, taking a toll on the economy to the tune of $80 billion.
While the story of another failed start up may not raise eyebrows, remember they are an incredible force in today’s economy. For every one tech job created, another four are created locally. But this generation of innovators can’t create the next Google or Periscope when they’re fighting the bad actors gaming the patent system.
Take Facebook for example. Their litigation costs for combating patent trolls were roughly $50 million last year. That’s not the kind of cash-on-hand a new business owner has, and the trolls know it. 82% of patent troll suits are filed against small or medium sized business, which means the money these small business owners have to spend on legal fees fighting the patent trolls is money they can’t spend on growing their company, hiring a new employee, or further developing their technology.
That’s why I am introducing the Protecting American Talent and Entrepreneurship Act or PATENT Act with Senators Cornyn, Grassley and Leahy and several other cosponsors. This bipartisan bill will help patent holders, spur innovation and ultimately grow our economy. Our bill takes simple and important steps to address patent abuse while protecting the ability and incentives for legitimate businesses to invest in research and development of patents and to protect their inventions.
· First, it addresses frivolous demand letters sent by trolls hoping businesses will pay a “go-away fee.”
· Second, it establishes a clear, uniform standard for pleading patent infringement cases. Trolls will no longer be able to fill in the blanks of a simple form like a Mad Lib. The first step in pleading the case will require genuine notice to a defendant of the accusations against him.
· Third, the bill improves transparency in patent ownership by creating an up to date patent ownership database.
· Fourth, it reduces the leverage trolls have in extracting settlements with the threat of expensive discovery; the bill provides for an early pause in discovery while key preliminary issues, such as whether the plaintiff has a valid case and whether he brought the case in a fair court, are decided.
· Fifth, the bill deters abusive litigation practices by requiring the loser of the case to pay the winner’s costs if a judge finds that the loser acted unreasonably.
· Sixth, it protects those who simply use a product — end users — from being targeted by patent trolls.
Patent reform is like a Rubik’s cube — we need to twist and turn all the parts properly so that we fix the problem but also sincerely protect those who are not the problem. This bill does just that. Developed with input from patent holders, innovators and stakeholders across the spectrum, our bill curbs the abusive conduct of patent trolls that threatens our economy while supporting inventors and entrepreneurs. Kayak.com in Connecticut, King Arthur Flour in Vermont, WhatABurger in Texas, Cosi in Illinois, Etsy in my home state of New York and hundreds of other businesses in every industry are calling for Congress to Act. This bipartisan bill is what they need and they need it now.