Vermont is a creative, innovative place with a strong history of entrepreneurial initiative. Despite difficult economic news, many Vermont businesses are growing and reaching out to new markets. Unfortunately, as our Vermont entrepreneurs gain wider recognition in the marketplace, they are increasingly becoming targets of a very insidious, very un-American threat: bad faith assertions of patent infringement — commonly known as “patent trolls.”
Growth in economic activity is frequently coming from “knowledge-based” companies whose differential advantage is underpinned by intellectual property such as patents, trademarks, licenses, etc. If those firms are unfairly attacked with bad faith assertions of patent infringement, an impediment to commerce is erected; the firm — its shareholders and employees — suffers, the economy suffers, and our state and nation suffers.
Vermont is often “first in the nation” on social and environmental issues, but I’m proud to say that we are first with an important business law. Vermont recently passed legislation making the state the only jurisdiction in the United States that offers an affirmative defense against a practice that can only be described as extortion. I’m not talking about the legitimate activity of the owners of intellectual property to protect their property from misuse or infringement; I’m talking about a shakedown that leaves a company no option but to pay out.
Vermont’s attorney general has been aggressive in pursuit of these bad actors, but there is only so much one state can do. We need Congress to pass a comprehensive, national solution. Fortunately, Vermont’s own senator, Patrick Leahy, has long championed patent litigation reform in Congress, and has an opportunity this month to help make sure they are defeated once and for all.
The need for patent litigation reform is clear and urgent. Trolls are almost indiscriminately suing companies across the country. The problem is not getting any better, despite recent Supreme Court decisions on the issue. In the month of January, more patent lawsuits were filed than in the whole of 2004. The economic costs of this are tremendous. Businesses are spending billions of dollars not only in payouts, but also in legal fees and lost productivity — money that can’t go to research and development, business expansion, or job creation.
Reform would prevent these bad actors from using vague threats to shakedown businesses. Secondly, reform would protect customers who merely use patented products and allow manufacturers of the product to handle the cases. Most importantly, reform would change the cost/benefit equation for bad actors.
The problem of bad faith assertion of patent rights is not an issue top-of-mind for most citizens. It is, however, very important to Vermont entrepreneurs. When our law was debated, it received multi-party support and wide coverage in the press. Taking this challenge to the national level is an opportunity for the increasingly partisan Congress to show that it has the back of small business in the U.S., wherever they operate.
Paul Ralston is a former member of the Vermont House and founder and CEO of the Vermont Coffee Co.