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Patent Litigation Stifling Small Business Growth

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The United States patent laws are supposed to keep the intellectual property developed by individuals or businesses from being used without compensation to the developer. Instead, these laws are being used to make money for patent owners who have no plans of actually developing the product.

They’re called patent trolls by technology CEOs in Silicon Valley and around the world. Patent trolls purchase patents from inventors and later use those patents to sue other companies who they say are infringing on the patent. Some patent trolls have tens of thousands of patents in their portfolio which can net them a lot of money, mostly from lawsuits that are settled out of court.

Surprisingly, some of the people most opposed to the current patent laws are the inventors themselves. Nearly anything that can be done on the Internet has at least one patent attached to it which almost assures that any company developing new products will find themselves in patent litigation. For example, there are more than 5,000 patents registered for using the Internet to backup files. Because of this, many who have developed cloud computing systems are being sued by some of those patent holders although the specific technology to accomplish that goal is new technology.

How does it hurt the nation’s small businesses and business startups? First, it holds up the development process. Even if a business startup receives funding from an angel investor or venture capital firm, there is often little to no excess money. Each day that a product is in development and not producing a return on investment, the company is losing money. If a small business is sued for allegedly infringing on a patent, they can’t afford to add years to the development of the product while the legal battle plays out.

Second, because available capital is limited, small businesses don’t have the money to defend the litigation even if they’re clearly not infringing on the patent. Often, companies will settle with these patent trolls because the cost of the settlement is much less than the cost of attorneys defending the litigation. For some business startups, even the cost of the settlement will cause them to cease to operate and file for bankruptcy.

There are two ways that companies defend against patent litigation. First, by purchasing insurance that protects them from patent litigation. Second, companies amass large amounts of patents of their own so they can threaten the company suing them. In other words, “if you sue me, I’ll sue you.”

This problem has no end in sight and for small business, this discourages them from developing new technologies.