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SXSW: How to reform the nation’s patent laws for entrepreneurs and small businesses

Attendees use mobile devices as they wait to enter a session at the South By Southwest (SXSW) Interactive Festival in Austin, Texas. (David Paul Morris/Bloomberg)

Companies that purchase patents are increasingly targeting independent inventors and small businesses, drawing calls for Congress to act more quickly in reforming the nation’s patent laws.

Only there’s little consensus over how to improve the system — which was the of subject of a discussion among patent attorneys at the South by Southwest gathering here on Monday.

“More and more, we’re seeing Main Street businesses being sued on patents, often for using basic online tools,” Lee Dunn, senior counsel at Google’s legal and policy office in Washington, said during the event held at this week’s Startup Village in Austin, Tex. “We need to find a solution that can reduce the risk for small and medium companies.”

In many cases, patent assertion entities—critics call them “patent trolls—purchase relatively ambiguous patents and then demand royalty payments for use of their technology or jump straight to filing lawsuits against firms they believe are infringing on their intellectual property.

If the cases make it in front of a judge, Dunn said, patent firms tend to lose many more cases than they win. However, by going after small businesses that can rarely afford to roll the dice on thousands of dollars worth of legal expenses to defend themselves, patent firms can collect more than enough in settlement fees to make the practice worth their while.

In the last few years, she said, patent firm are increasingly targeting non-technology companies—many of them small retail stores or restaurants—that add common features on their Web sites, like store locators.

“American innovation and inventions represent $5 trillion, according to the Commerce Department, and it’s an area where we actually run a trade surplus,” Russ Merbeth, chief policy counsel for patent licensing company Intellectual Ventures in Washington, said during the discussion. He argued that the current laws need “finer distinctions” to more effectively protect firms with legitimate intellectual property while protecting those being targeted by non-practicing patent assertion companies.

In an attempt to combat the problem, Congress passed the America Invents Act, which more broadly was meant to streamline the country’s patent procedure and join the rest of the world by switching from a first-to-invent system to a first-to-file system. In addition, it provided new protections to companies that had started commercializing technology before a patent was issued.

Still, Dunn says many business groups and law firms have found that the legislation “hasn’t quite been the right solution” and has not “gone far enough to cut down on litigation.” Several federal lawmakers apparently agree and are already crafting new legislation aimed at improving the system once again.

The House, for instance, is considering a bill that would require patent infringement lawsuits to go into much more detail about which exact patents are being infringed upon and how, hoping to thwart frivolous attacks.

Meanwhile, Sen. Patrick J. Leahy (D-Vt.), chairman of the Judiciary Committee, has sponsored similar legislation that aims to curb patent troll activity. The White House has also called for further changes to the patent system.

And while there are differences that would need to be ironed out by the two parties, Dunn said she is encouraged that lawmakers have so quickly acknowledged the shortcomings of the previous legislation and are starting to work across the aisle on additional reforms.

“It’s very important that we get this right,” she said. “If we don’t, it will cause all sorts of angst and uncertainty in the market.”

To follow our ongoing coverage of start-ups, entrepreneurs and technology at South by Southwest 2014, click here.

Follow J.D. Harrison and On Small Business on Twitter.

J.D. Harrison covers startups, small business and entrepreneurship, with a focus on public policy, and he runs the On Small Business blog.



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