Just What is the Problem with “Patent Trolls”?

We have seen more and more coverage in the press lately about a group of companies called “Patent Trolls.”  Even President Obama recently called to fix what he called the abuses of these companies.  [Here is an article on it from CNN].  Many large technology firms, which are often the targets of companies that are enforcing patent rights, quickly lent their voices in support of the President’s position.  [Here is coverage in the Wall Street Journal.]

Like most issues, the current hot topic of “Patent Trolls” is not as simplistic as the general media would have you believe.

Our patent system is very basic law.  It was created by the nation’s founders and appears in the Constitution, in Article I, Section 8, Clause 1.  Patents are very basic in our law and in our economy for a very good reason.  Every economy grows when it innovates and stagnates when it does not.

Patents provide incentives for innovation by rewarding an inventor with a monopoly in his or her invention for a period of time.  Later, the invention is shared with all of society.  The inventor can use that monopoly position to do several things:  make and sell an exclusive product, allow others to make products utilizing the invention for fees that we call royalties, or sell the monopoly power to someone else for immediate cash.

This Patent Law system, which has been continually refined over the entire history of our nation,  encourages innovation, produces income to the inventor to fund additional innovation, and spreads new innovations throughout society for the good of all.  Much of the economic growth of the US can be attributed to the Patent Law system – from the Wheat Reaper and Cotton Gin through the telephone and electric light to the high-tech devices and health-care breakthroughs of today.

Most inventors are very good at their own field.  Very few of them also have the business skills needed to turn an inventive breakthrough into a financial pay-off through raising money to build and market products.  Even fewer of them are skilled at enforcing their patent rights when competitors decide to simply use the invention without paying for the right to do so.  If the inventor is not able to get the benefits that the Patent Law system was created to provide, the pace of innovation decreases.

So, the legal market devised a solution – companies were created that are very good at enforcing patent rights and purchased from inventors the right to enforce patents.  The inventor, rather than trying to be a businessman or patent enforcer, gets immediate cash as a reward for being innovative.  They get to use that cash to fund future inventions.  The newly created companies, which have the need skills needed to protect against people stealing the invention without paying royalties, get the right to force companies that do not innovate to pay if they want to use the innovation.  This supports the entire Patent Law system rather than allowing non-innovators to get the benefits of innovation.

As can be expected, the companies that complain the loudest about “Patent Trolls” are generally the companies that are the targets of the “Patent Trolls.”  But what is required for them to be successfully targeted?  They must have chosen to steal someone else’s invention rather than to innovate themselves.  They are not kept for innovating, but rather are kept from stealing someone else’s innovation!  When the are caught and forced to pay, their public statements attempt to misdirect the attention from the fact that they have been caught stealing someone else’s intellectual property.  Instead, they us an ad hominen attack against those that have enforced patent rights.

My profession – venture capital investing – only exists because of innovation.  I am a strong supporter of the Patent Law system, its protections of inventors, and the costs that it imposes on non-inventors.  I applaud the companies that help fund those inventors by enforcing patent rights – whether they are called trolls or not.

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