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Patent Reform and the Future of Innovation

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Two years ago the America Invents Act ushered in a comprehensive overhaul of the U.S. patent system. The purpose was to stimulate innovation and business creation by strengthening the value of patents. One noticeable change was changing the patent system from "first to invent" to "first inventor to file."

This change, which is standard for nearly every other patent system across the world, was intended to provide greater certainty as to who is the real inventor and who would receive the patent if granted. Many of the provisions of the act are just now starting to show results. Yet, the floodgates have been opened. Congress is already looking at new changes. Rounds of legislation have been proposed that could derail the progress being.

Although the U.S. Senate Judiciary Committee had halted indefinitely consideration of a patent reform bill, several proposed bills are bouncing around the U.S. House and Senate. Many of these bills are touted as ways to end the abusive practices of nonpracticing entities, more commonly referred to as patent trolls.

Related: Unlocking America's Innovation Warehouse

The White House's Patent Assertion and Innovation report of June 2013 found that since 2005, the number of defendants sued by patent trolls had quadrupled. The report also noted that in 2011, such entities sued more than 7,000 defendants, costing the U.S. economy $80 billion. Productive companies made $29 billion in direct payouts, according to the report.  

I would argue that these numbers are inflated.

Some assert that troll-like behavior is costing the American economy billions of dollars, inhibiting innovation and undermining the U.S. patent system. The solution, however, is not so clear.

While the goal of proposed legislation is to address abusive litigation, in the aggregate the bill has the potential to diminish the value of a patent by making it harder to enforce. These proposed changes are generally not welcomed by companies, big or small, that realize that their intellectual property is the most valuable asset in their business.

Making it harder to enforce a patent (and harder to stop infringement) creates an incentive for companies to blatantly disregard an inventor's property rights. It also makes it easier for foreign companies to ship infringing products into the States and take sales from U.S. firms.

Related: A Primer on Patents: Who's Getting Them, Where and How Long It's Taking (Infographic)

The damage to independent inventors and entrepreneurs would be magnified. Independent inventors, who seek to license their inventions, would find it harder to negotiate licenses with prospective manufacturers. These licensees would discount the prospective value of the invention due to the difficulty involved with protecting inventions from infringement. Furthermore, without the economic incentive that comes from licensing an invention, inventors would reduce their efforts or completely stop producing new ideas. If there's no secondary market for their ideas, there would be no reason to generate them.

For entrepreneurs, the impact would be just as bad. Inventors who create businesses assume risk for the sake of profit. Many entrepreneurs need to raise outside capital to get their businesses off the ground or rely on personal savings. If enforcing a patent is made more difficult or the property rights of a patent are diminished, raising startup capital would be become more difficult, if not impossible.

After current proposed legislation was rushed to floor in just five weeks, the Senate Judiciary committee decided to pause and let the concerns of all parties be heard. The goal is to address the problem of patent trolls misusing the system. But is it worth the cost of burdening those who rely on the current patent system to protect their inventions? 

The likelihood of any patent legislation being passed during the rest of this year is very remote. But it's safe to assume that the new Congress next year will bring a flurry of new bills. Senator Patrick Leahy, chairman of the U.S. Senate Judiciary Committee, has already expressed plans to revisit the proposed legislation and hopes to rally sufficient support behind a more unified agreement.

Once proposed legislation re-enters the committee’s agenda, the independent inventor community needs to continue to speak with a collective voice. Fortunately, my company, Edison Nation, has been able to collect views and deliver the concerns of the inventor community to appropriate legislators. I plan to continue to rally behind entrepreneurs and independent inventors.

All stakeholders need to be granted the opportunity to voice their concerns in order to craft a fair and appropriate bill. Making it harder to defend a patent and thus reducing its value is the last thing this legislation should do. This would be detrimental for all.

Related: A Rant, and Some Suggestions What to Do, About Patent Trolls