OPINION

Travis Stoliker: Patent system needs upadating

Travis Stoliker is the chief sales and marketing officer‎ at Liquid Web.

What if a patent troll had stopped Henry Ford from building cars? Well in the early 1900s, the Association of Licensed Automobile Manufacturers (ALAM), which supported patent attorney George B. Selden, tried to do just that.

“Patent troll” is a term used for entities that do not develop or sell new technologies or products but exist solely to buy patents and use them to sue or threaten operating businesses.

For more than 100 years, patent trolls have caused uncertainty for American businesses. A patent troll harassed one of our country’s most revered innovators, Henry Ford, for nearly a decade, putting at risk the game-changing ideas Ford had for American industry.

Even into the 2000s, patent trolls were relatively few in number and they generally targeted multi-billion dollar businesses in pursuit of lottery ticket-sized damages. While they still do that, now they also target businesses of every size throughout the economy. While in 2006, patent trolls were responsible for 19 percent of patent litigation in the U.S., they now account for 67 percent of the cases. More than half of the businesses they target are small or non-tech businesses.

The growth in patent troll suits has been fueled by a flood of low-quality — overly broad, vague and overlapping — business method and Internet patents, many of which claim ownership over commonly used features of the Web. For example, patent trolls have sued small hotels and coffee shops for offering free Wi-Fi to their customers.

If sued by a patent troll, a small to medium-sized business has little choice but to settle out of court; taking on the troll through years of costly litigation just does not make business sense. However, settlements can equally devastating to small and medium sized companies, as the average settlement is $1.33 million. This type of patent troll harassment has huge economic consequences for America’s innovative businesses.

Since 1990, patent lawsuits have cost investors more than $500 billion — funds that could otherwise be used for innovation. Apple and Google, for example, now spend more on patent lawsuits and patent purchases than on research and development.

The patent system, once thought to protect inventors, now risks sapping U.S. innovation: patent trolls, often armed with portfolios of thousands of patents, engage in large-scale licensing (read: shakedown) campaigns aimed at America’s most promising, though still financially vulnerable, innovators. What’s more, trolls operate in the shadows, obfuscating their corporate structures and extent of ownership through the use of thousands of shell companies.

In 2014 alone, trolls sued 2,072 companies in 2,791 separate cases. It is not uncommon for trolls to target companies more than once. Recently, Apple was ordered to pay a settlement of more than $532 million. Days after the ruling, the troll was again suing Apple for devices that were released after the original filing.

Patent trolls are using America’s outdated patent system to exploit low-quality patents and skyrocketing court costs to make a financial return on their patent portfolios, while at the same time contributing little or nothing to technology transfer or innovation. Unless steps are taken to even the playing field and enable innovators of all sizes to get back to work, the patent troll problem threatens to derail innovation and economic growth in the United States.