POLITICS

How Congress Remade The Economy In Its Own Awful Image

02/26/2015 04:15 pm ET | Updated Feb 26, 2015
Massimo Pizzotti via Getty Images

A jury ruled on Wednesday that Apple must pay $532.9 million for infringing on three patents owned by a firm that could serve as a textbook definition of a patent troll. Smartflash LLC had essentially claimed to own the idea of selling stuff with smartphones, arguing it was entitled to a share of all iPhone sales as a result.

Apple and plenty of other technology experts see the verdict as absurd. But what the case says about Congress is actually more frightening than its implications for the judicial system.

American lawmakers have spent a decade trying to figure out how to curb lawsuits from patent trolls -- companies that don't make make any products, but make money by suing or threatening to sue companies that do, using poorly defined intellectual property claims to make their case. Patent lawsuits are a drain on innovation -- they discourage the development of new ideas and create major financial hurdles for startups. There are enough vague patents out there that almost anything a new company comes up with could be challenged in court. And even if a startup wins the suit, it has to devote years of time and mountains of legal fees to the process.

Congress has failed to deal with patent trolling for a simple, but often overlooked reason: It is gleefully paralyzed by battles between competing corporate interests. This legislative freeze doesn't break down along partisan lines. When environmentalists face off with oil companies, as they have over the Keystone XL pipeline, it's pretty easy to predict green Democratic support and Republican backing for Big Oil. But when one set of deep-pocketed corporate donors takes on another, the result is a bipartisan fundraising bonanza that accomplishes nothing.

HuffPost covered the surreal struggle over patent reform in a feature piece 3 and 1/2 years ago. You can read the whole thing here, but what follows is a summary for the uninitiated.

In 2011, President Obama signed into law the American Invents Act, a patent reform bill he had long touted as a job-creating juggernaut.

"We can't afford to drag our feet any longer, not at a time when we should be doing everything we can to create good, innovative jobs," Obama said. "We should be encouraging the entrepreneurial spirit anywhere we find it."

The job claims were ridiculous, and in the years since, neither Obama nor any of the overwhelming majority of legislators who voted for the bill have spent much time crowing over all the jobs they created with patent reform.

When the debate over the bill began nearly seven years earlier, lawmakers had been trying to deal with a deluge of lawsuits over software patents and vaguely defined "business method" patents. Inventors seeking these types of patents don't have to haul models into the Patent Office. They don't even have to write any code. A couple of diagrams and a lot of techy-sounding language is often enough to be awarded a patent. Determining what that patent actually covers frequently ends up being decided in court.

Big tech companies, startups and Silicon Valley venture capitalists had initially welcomed a bill to crack down on these patents and the court judgments issued in favor of them. But by the time Obama was celebrating its passage, they'd essentially thrown up their hands.

To figure out who defeated them, one need look no further than a man sharing the stage with Obama at the bill signing ceremony: John Lechleiter, chairman and CEO of Eli Lilly & Co., one of the most profitable drug companies in the world.

Big prescription drug companies love aggressive intellectual property standards, because they grant companies long-term monopolies on their products -- allowing them to charge prices far above what a competitive market would bear. In theory, it should have been relatively simple for a bill to distinguish between a vague software patent and patents on the molecular structure for a specific pill. But pharmaceutical firms didn't want to set the legislative precedent that intellectual property rights could be bad for society.

It's easy to see why lobbyists with trade group PhRMA, or the Pharmaceutical Research and Manufacturers of America, were concerned. Once lawmakers started questioning software patents, they might start wondering why the United States is the only country in the world that grants drug patents without regulating drug prices, amplifying consumer costs as much as tenfold. Or why drug companies that piggyback on government-funded research should be eligible for patents. Or whether patents are really promoting the right innovations at all, since pharmaceutical companies have poured money into hair-loss drugs, while shrugging off research into the next generation of antibiotics, or a host of fatal illnesses that afflict the global poor.

Obama's support for a PhRMA-friendly patent bill wasn't surprising. During Obamacare negotiations, the White House cut a deal with drug company lobbyists to support a host of other PhRMA priorities in exchange for the group's Obamacare backing. In the years since, Obama has gone to bat for prescription drug companies both at home and abroad, infuriating public health experts at groups including Doctors Without Borders.

But the seemingly endless struggle over the bill presented a host of fundraising opportunities for Republicans and Democrats alike. Every new patent reform compromise proposal was an opportunity to ask for more money from big tech firms and big drug companies. Congress cashed in year after year as the talks dragged on ... and on ... and on.

PhRMA eventually won the battle. It's always easier to preserve the status quo on Capitol Hill than to actually reform something. But now, the consequences are playing out in the American economy. Big tech companies have largely given up on a public policy solution, and armed themselves with huge arsenals of patents, which they can use to sue or counter-sue firms both large and small. Apple has been particularly aggressive with Samsung, winning judgments worth more than $1 billion over smartphone-related patents that it claims cover even the shape of app icons. Samsung is appealing the judgment, just as Apple is appealing the Smartflash ruling.

Pointless, expensive fights over nothing are now commonplace among major tech firms. Congress, in other words, has remade the American economy in its own awful image.

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