Startups depend on a strong patent system to thrive

The entire innovative process in the U.S. depends on a strong and robust patent system. I have seen this first-hand for over 20 years in my career as a startup entrepreneur in Silicon Valley.

As the CEO of a medical technology company, which is working to improve the lives of millions of Americans living with macular degeneration and other sight threatening diseases, I know that our innovations and those of countless other startups across the country are driven by strong intellectual property protections and the venture capital those protections allow us to raise.

{mosads}The creativity, exploration and entrepreneurship that fuel my company can only occur in the U.S. because of our patent system. It is a unique system and often held up as a model in other countries.  It is also the major reason the U.S. is considered a leader in innovation.  The patents we attain on our inventions enable us to secure venture capital funding to conduct R&D, attract doctors, scientists, engineers and manufacturing specialists, withstand a long FDA approval process, and ultimately provide safe and effective products to patients.  We are passionate about doing this work, even though it can take decades to make a single life-changing breakthrough.  But there must be some legal certainty to protect our investments, and there must be some reward.

Unfortunately, there are some large, established companies that are looking to weaken patent protections in order to strengthen their own positions in the marketplace and weaken smaller competitors that might challenge them.

What we all too frequently see in Silicon Valley is a process known as “efficient infringement,” in which large companies that have already established a huge market presence copy the intellectual property of smaller companies, knowing they will face little penalty if caught.  When requested to take a license or legally challenged, they deploy a range of expensive and time-consuming legal and procedural tactics in the courts or at the U.S. Patent and Trademark Office, expecting that the inventor or startup will likely be forced to give up or go out of business. 

The current bills being considered by Congress, the Innovation Act (H.R. 9) in the House and the PATENT Act (S. 1137) in the Senate, would effectively institutionalize the practice of efficient infringement.  These bills tout a noble purpose, but their impact would be devastating to startups and entrepreneurs.  Under the guise of pursuing so-called “patent trolls,” the bills employ overly broad language that goes well beyond what is needed to address true litigation abuse. Instead, their impact would be to make it much harder for all inventors to defend their innovations in court and confront actual infringement. 

Several features of these bills have also been rendered unnecessary based on recent Supreme Court decisions cracking down on abusive tactics, and administrative reforms, such as the stricter federal Judicial Conference pleading standards set to take effect in December.  Yet these bills remain largely unchanged, confirming many of our worst fears that this legislation is more about weakening patent enforcement generally than stopping limited examples of abuse.

For example, the mandatory “loser pays” provision in the legislation would force small companies to pay the legal fees of their larger competitors if they lose a patent case, making it often too risky for small companies to challenge even a clear infringement of their product.  To make matters worse, if a small company cannot cover these legal fees, the legislation would pierce the “corporate veil” and force the venture capitalists who invested in the startup to pay those costs.  This provision would have two very clear and destructive outcomes – fewer venture-backed startups would step forward to enforce their patents, and fewer venture capitalists would invest in them in the first place.  Adding this enormous new layer of risk would stifle growth in our most innovative sectors. 

These bills would also make it much more difficult for startups to plead their cases in court and to achieve the factual discovery necessary to demonstrate infringement.  Both of these changes would discourage smaller companies from protecting their patents and support the ability of larger competitors, including foreign competitors, to efficiently infringe them. 

The U.S. is on the brink of game-changing breakthroughs in medicine, technology, energy, manufacturing and many other fields.  These breakthroughs will continue to come disproportionately from startups.  And those startups depend on patents to secure the investments they need and fuel the passion they all have.  Instead of weakening intellectual property rights, Congress should be considering policies that strengthen the patent system in the U.S. and make it easier for startups and entrepreneurs to protect their investments and thrive. 

Macfarlane is CEO of ForSight VISION4, Inc. and a managing member of ForSight Labs, a Community of Ophthalmic Innovation based in Menlo Park, CA.