San Jose Mercury News Opinion: How to kill the next generation of startups, by David Pridham
This post originally appeared in San Jose Mercury News on May 19, 2015.
The proposed Innovation Act (HR 9) is supposed to target only patent trolls. But as the National Venture Capital Association and 144 major universities warn, the bill’s poorly drafted provisions actually will undermine the startups and small businesses responsible for nearly all breakthrough innovation and job growth in the United States.
Take the bill’s fee-shifting provisions. These require all plaintiffs — not just patent trolls — to pay the legal costs of defendants that prevail at trial unless additional rulings reverse the loser-pays presumption.
Even meritorious suits, however, win at trial only about 50 percent of the time. So a startup that sues an industry kingpin would wind up bankrupt if the defendant’s vastly superior resources carry the day in court and the startup has to pay its mammoth legal fees.
And it’s not just legitimate startups that face an extinction-level fee-shifting event. Under HR 9’s joinder rules, the angel investors and venture capitalists who invested in the startup are also on the hook, as is any university that licensed its research to the startup.
Sixty-seven percent of entrepreneurs say patents are vital to getting funding. But try to get funding for your startup with that Damoclean sword hanging over you and a venture backer.
As for the universities whose patented research has spawned 10,000 new startup businesses and marvels ranging from GPS and the Internet to hundreds of lifesaving medicines and vaccines, this fee-shifting rule could dry up university technology licensing completely, leaving future startups and innovations stillborn.