Patent News

Dec. 9, 2014

The Hill Opinion: CBO doesn’t know patents, by Charlie Sauer

This post originally appeared in The Hill on December 9, 2014.

The newly elected Republican majority appears intent on moving a broad patent reform bill in the first few weeks of the new Congress. In that context, the Congressional Budget Office recently released a paper that, while outlining the importance of innovation for future economic growth, tries to justify the need for patent reform – perhaps in an attempt to curry favor with the incoming Senate majority. However, like Cinderella’s stepsisters trying to squeeze into a glass shoe that doesn’t fit, the CBO director has a problem fitting the facts of his research into the probable congressional outcome – weaker patents.

The primary issue with CBO’s research which proves that innovation is good is their conclusion regarding patent litigation — that the federal government should do more to protect defendants. In this conclusion, the CBO makes it clear that they just fundamentally don’t understand patents or more specifically the business case for patents.

Some mega-corporations do buy defensive patents. A defensive patent is intellectual property similar to a given company’s innovation – but not exactly the innovation – and is used to keep others from suing. Some mid-size companies beginning to accelerate toward an exit might even buy patent protection by renting a patent portfolio with defensive patents. However, small companies – early innovators – don’t buy defensive patents. Early stage companies use all of the capital they can scrape together to build a company and secure their own Intellectual Property. They don’t spend thousands of dollars to defend their space, startups spend their startup money to prove that they are innovative. Once they have proven their innovation then they have something to sell that proves that the innovation can continue to be protected.

So, for a quick thought experiment: If the laws change to benefit the defendants more, then the intellectual property is harder to assert. If intellectual property is harder to assert then it is worth less. If intellectual property is worth less, then businesses are less likely to innovate and investors less likely to invest, because while they have the same to lose they will now have less to gain.