Window of opportunity for action on patent reform

For more than 200 years, America’s patent system has safeguarded the rights of inventors and innovators – the individuals and businesses that push the technological envelope and provide the foundation of the amazing products that have changed our world.  The patent system traditionally also recognized the limits of patents, so that the patent grant didn’t become a basis for blocking legitimate entrepreneurs.  But over the past decade, the patent system has been under assault from patent assertion entities that use and abuse the legal system with intimidation tactics to rake in financial settlements.

Just last week, the White House announced executive action to improve patent quality and to help stop these patent assertion entities from their pattern and practice of rent-seeking behavior.  But as Secretary of Commerce Penny Pritzker and National Economic Council Director Gene Sperling pointed out, ultimately Congress must step in and overhaul our patent system to make a meaningful impact.

{mosads}At a time when Congress is tied up in knots on a range of issues, patent reform is one area where legislation is not only possible, but achievable in short order.  The U.S. House of Representatives has acted, approving a patent overhaul by a broad, bipartisan majority.  The Obama Administration supported that legislation.  Can you think of many other issues where Speaker of the House John Boehner (R-Ohio), House Minority Leader Nancy Pelosi (D-Calif.) and President Obama are on the exact same page?

Now it’s up to our leaders in the Senate Judiciary Committee to pass companion legislation in the Senate.  We hope that they can find common ground, just as their colleagues in the House have done.

The patent problem is becoming worse.  What began as a cottage industry of abusive patent litigation and threatening demand letters has become a full-scale flood, a veritable business model predicated upon abuse.

Patent assertion entities target businesses, large and small, from whom they believe they can extract financial settlements, no matter the merits of the case.  Nearly 60 percent of new patent lawsuits are being filed by patent assertion entities, up from 25 percent in 2007.  And a new study by Professor Robin Feldman of the University of California Hastings College of the Law has found that no industry will be immune.  What started in the technology industry, has moved to main street, and the pharmaceutical and biotechnology industries may be next as patent aggregators stockpile patents hoping that they can make a case that those industries too are somehow copying earlier inventions.

Sometimes the targets of abusive tactics are product manufacturers like our companies that have the means and ability to defend ourselves – and many times we do so, even though it’s much less expensive to settle.  Other times, it’s small businesses who get a threat letter in the mail.  The logic in both instances is extortionist – send us money now or we will cause you considerable pain in the form of huge legal bills later.  The merits of the case are secondary, at the very least.

This is what Congress must address.  We need a patent system that ends the patent assertion entity’s business model.  This requires a balanced approach, where legitimate claims will go forward, much as they do today.  But plaintiffs should be required to state what their underlying legal claims are; expensive, document-intensive fishing expeditions should be limited; and in frivolous or abusive cases where a court finds no reasonable basis for the positions taken, fee-shifting should be the rule.  This creates a measure of accountability and transparency that does not exist today.  All these reforms were in the House-passed measure.

Bottom line:  The Senate should push ahead with reform that will keep American businesses growing and investing in innovation.  In doing so, the Senate will send a message to the American people that they are on the side of innovation that drives economic growth and job creation.

The solution is before us.  There is a window of opportunity to act.  We ask the Senate to make meaningful reforms to the patent system soon and take a step toward a patent system that meets the Founders’ goal of truly, “promoting progress in science and useful arts.”

Chandler is senior vice president, general counsel and secretary, and chief compliance officer of Cisco.  Dillon is senior vice president, general counsel, and corporate secretary of Adobe Systems Incorporated.