The Associated Press recently reported that despite the United States experiencing the longest economic expansion on record, new business formation has failed to return to the levels seen prior to the Great Recession of 2007-2009. What is behind this extended startup slump? Most reports cite regulatory hurdles and difficulty finding qualified workers. But there is another cause that has received far too little attention – the recent weakening of patent protections for America’s entrepreneurs.
As the President of ExploraMed, a Silicon Valley-based medical device incubator that identifies, creates and develops solutions for unmet health needs, I have seen firsthand the importance of patents to startups. For companies like the ones we have launched at ExploraMed and thousands like them, patents are the currency that drives venture investment. They incentivize risky research and development. They help attract top research and executive talent. And they facilitate the transfer of knowledge between university researchers and manufacturing companies.
If you are going to disrupt a marketplace, create an entirely new product category or leapfrog an existing technology platform, you need patent protection that is reliable and predictable. Unfortunately, we no longer have that in the United States. Through a series of court cases and harmful congressional actions, the patent system in the United States has been significantly degraded over the past decade.
Consider the reality faced by nearly every inventive startup company like ExploraMed in the United States today. The Supreme Court’s 2006 decision in eBay v. MercExchange has made it virtually impossible for inventors to gain an injunction, a judicial order stopping a proven infringer from continuing to use or sell an invention. So, when a startup company is faced with the not uncommon reality of a larger competitor launching a product that infringes on its intellectual property, the startup is basically told that there is no practical and effective way to remove that infringing product from the market.
Startups are often told that pursuing monetary damages in district court should be sufficient. But this takes years, costs millions and is not a substitute for the startup’s true objective, which is to see their invented product succeed in the market. And if the startup pursues this costly and time-consuming legal strategy of seeking monetary damages, which very few startups can afford, the infringing company is in the market, fighting them all the way, launching multiple administrative challenges at the U.S. Patent Office’s Patent Trial and Appeal Board and waiting for the smaller company to simply give up or go under.
This well-known dynamic facing startups in Silicon Valley and other innovation hubs has been called “efficient infringement,” because it is now more efficient and less costly for some large companies to infringe on a startup’s patent than to pay them a licensing fee. Even if the larger infringing company ultimately loses and is forced to pay monetary damages to the patent owner, it is simply a cost of doing business for them. They have already integrated the startup’s intellectual property, captured market share and used their scale to tilt the balance in their direction – all for the cost of maybe paying a damage award.
Thankfully, there has been some movement in Washington, D.C., to try to fix this problem. This summer, Sen. Chris Coons and Rep. Steve Stivers, two members on near opposite ends of the political spectrum, led bipartisan delegations in both the U.S. Senate and House to reintroduce the STRONGER Patents Act. And the Senate Judiciary Subcommittee on Intellectual Property held a hearing on the bill last week.
This legislation would make pragmatic improvements to U.S. patent law that would increase innovation, spur investment and promote American competitiveness. Importantly, it would once again allow startups to obtain an injunction when their patent is infringed. And it would restore fairness in PTAB administrative proceedings by limiting repetitive and harassing challenges against inventors. While the PTAB was intended to save time and money by providing an alternative to district court litigation for challenging the validity of questionable patents, in practice, the process has been abused by large corporations who have initiated repeated PTAB challenges against valid patents, in ways not intended by Congress or tolerated in district court.
So to reinvigorate startups in the United States, we can start by passing the thoughtful, bipartisan legislation that is already on the table in Congress. The STRONGER Patents Act will help ensure that our nation’s entrepreneurs have the patent protection they need to succeed.
Eb Bright is president of ExploraMed.
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