At AngelList, we've spent the last several years creating a platform for startups and founders to connect with their peers, secure seed investments and recruit employees. We're passionate about what we do, which is why it's all the more upsetting to see fledgling businesses continue to take unnecessary and costly hits from greedy patent trolls.
For years, patent litigation has drained small businesses of resources that would otherwise be used for research, investment and job creation. Specifically, flaws and loopholes in the current law allow patent assertion entities (PAEs), also known as patent trolls, to exploit the system and claim rights to patents without ever having made a product or provided a service to any customers. Congress' inaction has led to billions of dollars spent on frivolous patent suits, needlessly costing the economy and consumers.
The problem is not waning anytime soon. As technology has and continues to become a more important factor across industries of all size, companies looked to adapt to the new economy and provide better, more efficient products for costumers. But patent trolls have capitalized on the trend. PAEs were responsible for 62% of patent suits filed in 2012 and they are broadening their target past traditional large tech companies and on to smaller, easier prey with less capital and resources. End-user patent suits, which is the practice of targeting businesses that use a piece of patented technology with low quality patents owned by troll companies, are on the rise. Non-tech sectors, such as restaurants, retailers, even funeral homes, are accounting for a larger share of total patents initiated by PAEs, increasing to over half in 2012.
The damage caused by trolls cannot just be measured in lost revenue. There are incalculable opportunity costs, lost operational time and undue stress on startup founders. And then there's the exorbitant legal cost regardless of whether the defending company wins at trial. Average defense cost in a patent case is reportedly over $1.5 million through the end of discovery and about $2.8 million through final disposition. It's an amount few startups can afford. In fact, extorting settlements with threat of high litigation cost is exactly the strategy employed by patent trolls in almost all cases.
The White House, the Congressional Research Service and other empirical studies provide compelling evidence that patent litigation stifles innovation, reduces capital investment and research and development. Harvard Business Journal reported that, "Patent trolls cost defendant firms $29 billion per year in direct out-of-pocket costs; in aggregate, patent litigation destroys over $60 billion in firm wealth each year...and mean damages today run about $21 million." Even worse, it impacts our most productive and innovative firms. The more a firm invests in technology and R&D, the more likely they are to be sued for patent infringement.
Given the broad impact of trolls throughout a wide range of industries, diverse coalitions have formed to give a louder, unified voice to the issue and demand action. In the last few years, bi-partisan patent reform legislation introduced in Congress failed to be reconciled between the two houses. In contrast to past years, the Senate is taking the lead on the reform proposal. The Protecting American Talent and Entrepreneurship Act of 2015 is sponsored by both sides of the aisle, including Senators Grassley, Leahy, Cornyn, Schumer, Lee, Hatch and Klobuchar. Lawmakers are starting to realize that more reforms are needed to disincentivize the trolls and protect businesses and entrepreneurs from abusive, costly practices.
Hopefully the heightened awareness and pleas from reform advocates will move this important issue forward for American businesses. Until then, patent trolls and plaintiff attorneys will continue to thwart innovations, job growth and overall productivity of the entire ecosystem.
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