Strengthen Patents to Boost Family Businesses

Which company is more innovative? A corporate giant, or a family-owned business?

More often than not, it’s the family-owned firm. A recent Harvard Business Review study found that for every dollar invested in research and development, family businesses generate more patents, new products, and revenues than their non-family-owned peers. These companies help drive economic growth and support millions of jobs.

Unfortunately, family firms face serious headwinds. Across the nation, courts are undermining firms’ property rights, making it difficult for families to sustain their businesses from generation to generation.

This needs to stop. Congress can safeguard family firms’ property rights by passing the STRONGER Patents Act.

The right to own property — whether it’s a piece of land, a business, or an idea for an invention — has been central to Western culture for over 800 years, ever since 25 barons and the King of England signed the Magna Carta in 1215. The document explicitly prohibited the king from appropriating another person’s property. It also protected people’s right to pass property on to their heirs, rather than forfeit it to the state upon their deaths.

The miracles of modern capitalism, from iPhones to cutting-edge medicines, simply wouldn’t be possible without strong property rights — especially intellectual property protections such as patents.

Without IP protections, any rival could create knock-off copies of a smartphone or a researcher’s breakthrough drug formula. These rivals could undercut innovators, who spend enormous sums of money to turn their ideas into marketable products. Soon, nobody would spend money on research and development, since rivals could simply steal the fruits of their labor.

IP drives the modern economy. IP-intensive industries comprise 38 percent of our GDP and support nearly 58 million American jobs. IP-related service exports have increased by more than 80 percent over the last two decades, totaling $130 billion in 2014.

Unfortunately, there are plenty of unscrupulous firms that try to infringe on innovators’ IP. And many of them get away with this IP theft because innovators — especially smaller family-owned firms — lack the legal resources to halt this infringement in court.

The STRONGER Patents Act would help fix this problem.

The bill, officially named the Support Technology & Research for Our Nation’s Growth and Economic Resilience Patents Act, affirms that patents are a form of property. This affirmation means that patent owners can ask a court to issue a permanent injunction to halt a rival from infringing on his patent.

Currently, patent owners have to file a new lawsuit every time a repeat-offender infringes on a patent. Small, family-owned businesses often can’t afford to repeatedly go after these intellectual property thieves.

The STRONGER Act would also rein in the notorious “Patent Trial and Appeal Board.” This branch of the U.S. Patent and Trademark Office exists to review patents that are allegedly too broad and vague. PTAB has gone out of its way to strike down patents, even ones that courts have found legitimate. In fact, PTAB has partly or completely invalidated patents in 84 percent of its final written decisions.

STRONGER would check this practice by giving federal courts the final say on a patent’s validity. So if PTAB’s decision differs from that of the court’s, the court’s ruling will win.

These reforms would encourage investment in IP-intensive projects and businesses. Three-quarters of investors weigh the value of small companies’ patents when deciding whether or not to back them.

Congress could further strengthen family businesses by fully repealing the estate tax. Currently, the federal government imposes a 40 percent tax on inherited property, including businesses, above a certain dollar threshold.

The recently passed Tax Cuts and Jobs Act partly eased the burden of the estate tax by doubling the threshold. But the law didn’t eliminate the tax entirely. As a result, the levy will still sound the death-knell for many family-owned businesses.

Just consider the plight of timber companies in Arkansas. A century ago, there were about 20 privately owned timber companies in the state. Because of the estate tax, all but one of them was shut down or sold.

Passing the STRONGER Act and repealing the estate tax would give innovative family businesses the confidence they need to take risks and make investments that boost our economy.

Dick Patten is president of the American Business Defense Foundation.

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