Thousands of people every year travel to America in an attempt to live the American Dream. At the core of the American Dream, at least for many entrepreneurs, is the United States patent system. Patents are what help our economy run, and they produce benefits for the consumer as well.
Patents incentivize the creation of new products and ideas, and lead to innovation and improvement of existing technologies – all of which drive a vibrant economy. Without the protection of a patent, entrepreneurs and businesses would have no motivation to invest in new ideas and no new jobs would be created based on those ideas.
As significant as the U.S. patent system is, there are many issues that suggest it needs reform. For one, many corporations are abusing the patent system’s rules. When rules are abused, the patent system ends up doing the exact opposite of what it was meant to promote — innovation and creation by entrepreneurs. Indeed, there are good patents and bad patents.
Patents are sometimes hoarded and collected by companies until they see someone trying to actually build the same idea, then they sue. These so-called patent trolls are extremely harmful to small-businesses, especially in the tech sector. These are firms that buy and hold patents with no intention of producing a product. These firms look to profit not by manufacturing consumer goods, but by suing firms that do.
It’s estimated that up to one-third of all startups have been threatened with a lawsuit by a patent troll. Defending yourself against one of these lawsuits can be be costly, in time and money. Because startups are cash-strapped and usually working with a lean workforce, the last thing they need is to devote precious resources to these often frivolous lawsuits. Since 2005, the number of lawsuits filed by patent trolls has quadrupled, and cost the economy $80 billion dollars worth of lost economic activity in 2011 alone.
Patent pools are another form of potential patent abuse. Patent pools are groups of companies or individuals that pool their patents together to share them and create a simple system for licensing them. They’re completely legal, approved by the Justice Department, and often serve a good purpose. But sometimes, patent pools can go off the rails. Some of the companies that manage these pools buy up patents from for the sole purpose of suing those they think could possibly be infringing on that patent. On patent pool example is MPEG LA, which manages the patent pool for the MPEG-video compression technology that powers video on many televisions and PCs. MPEG LA has allegedly used their ownership of these patents to drive up the licensing costs of using the technology, thereby artificially driving up prices for consumers.