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Summary:

President Obama offered some tough talk on patent trolls, the parasite shell companies that are taxing the start-up sector. He has the power to fix the problem — it’s time for him to use it.

Barack Obama
photo: White House

GigaOM’s regular readers are familiar with the plague of patent trolls. These are shell companies that don’t make anything but instead amass old patents in order to demand licensing fees from those that do. Startups are frequent targets for the trolls and those who resist are dragged into multimillion dollar litigation they can’t afford.

The patent troll problem, widely exposed by NPR in 2011, has long infuriated real companies and the tech sector. And now people in high places are starting to notice.

This week, a young woman told President Obama in a Google Hangout that she and other entrepreneurs live in fear of patent trolls and asked if he planned to continue patent reform. In response, the president made his boldest statement to date on the issue:

“The folks that you’re talking about are a classic example; they don’t actually produce anything themselves. They’re just trying to essentially leverage and hijack somebody else’s idea and see if they can extort some money out of them.”

It looks like common sense has come even to the highest halls of power (see interview and transcript here via Patent Progress). The question now is whether President Obama will actually take charge and do something about the patent plague that is sucking money out of the most innovative sector of the economy.

In the past, the president has proved adept at throwing sops to his fans and fundraisers in the tech sector without doing much to help them. In 2011, for instance, he signed the America Invents Act, which was a milquetoast measure to fix the worst elements of the patent system. While the law made it easier to challenge bad patents, it didn’t reign in absurd jury verdicts or overly broad patents that enable the trolls in the first place.

It’s time for the president to try again. To do so, he will first need to get around the specific concerns of the pharmaceutical industry, which has blocked previous patent reform efforts; as Judge Richard Posner has noted, drug makers are among the few who may need the monopoly power of a patent in order to recoup their investments. This is not the case for software and tech where a first-mover advantage provides an adequate head start and technology rapidly becomes obsolete.

As for addressing the trolls, law professor Brian Love has proposed a very sensible solution. Love, a protege of IP godfather Mark Lemley, suggests changing the patent fee structure to create disincentives for hoarding the obsolete patents that trolls typically use to torment their targets. The advantage here is that this is something Obama can do directly. Meanwhile, in Congress, the president can push for legislation to eliminate billion dollar jury verdicts.

Finally, the president can also tap his executive power to increase antitrust scrutiny of giant patent trolls like Intellectual Ventures for imposing what is, essentially, a startup tax across the tech sector. If the Obama administration even attempted to impose such a tax, the political cost would be enormous; there’s no reason the private sector should get away with the same thing.

Enough talk. It’s time to act, Mr. President.

  1. Patent trolls operate in the legal and judicial branches. He could have some influence in congress but this is literally not his job. If you want someone to do something, look at the congressmen not the executive branch.

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  2. Patent trolls are just a name people give anyone who owns a patent that he did not personally invent, and who threatens to enforce that patent. The value of patents, in part, comes from inventors being able to sell them in the free market. Reducing the value of patents is just a way to make sure that large corporations, who have legal staff on call, can trample the rights of small inventors. Doing what you suggest will make it harder for startup companies to attract capital, since funders (angels,VCs and others) will just know that large companies will wait for small companies to invent things, and will then steal their innovations, shouting, “come sue me!” all the way to the bank.

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  3. That’s not true lawhusick. If a patent owner actually makes something related to the patent, or proactively licenses or sells the patent, then they are not a troll. A troll sits on a patent doing nothing (not even licensing) until someone else infringes on the patent, then demands payments and threatens to sue. Trolls do nothing but slow innovation down.

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  4. This problem of intellectual property distribution was resolved in the music industry by the government setting royalties for performance and mechanical rights. It was impossible to license every song from every artist… so they created ASCAP and other rights agencies.

    Patent holders are granted the right to “exclude”, not to collect money. A patent holder should be allowed to exclude if they use their own patent, or optionally collect a license from a pool setup by the government, like the music industry.

    A business should be able to pay a single licensing authority a fee for rights to all non-asserted patents and they will distribute this to all patent holders fairly…. not just the ones who sue. Similar to how ASCAP in the music industry pays artists for performances. Patent holders can then sue each other for their share but it would not affect normal businesses and peoples jobs.

    The result would be that only operating businesses competing with the same product would assert patents. The rest of the patent holders would get their fair license fees… this means ALL inventors, not just trolls who litigate.

    I refuse to pay Trolls since there will be another extortionist lawyer right around the corner if I do. However as a business owner I would gladly pay a fee for full indemnification from patents. My revenue would more than double and I would hire twice as many people. Half of my contacts are held up over indemnification provisions… and nobody wants to take that risk.

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  5. Reblogged this on Niki.V.all.ways.My.way. and commented:
    but the PROBLEM isn’t really that. so doing something about this problem will just produce latency in the structure. sigh.

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  6. You don’t want this loser president involved in the patent system. He has destroyed everything he has gotten involved with. Witness the US economy and N. Africa/Middle East chaos.

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  7. Dear Leader is not interested in anyone’s problems but his own, so I would expect that your plea to “do something” about the seriously broken patent system will fall on completely deaf ears. Especially now that he doesn’t face re-election.

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  8. Two T-Baggers in a row Ha..Ha..The SEC, and the patent system such as it is, works very well for the big corporations who control it.

    Oh, Wall Street, Bankers, Hedge Funds, and the deregulation of the financial industry wrecked the Western Economies’s, particularly in those countries in Europe that don’t want to build things (all countries in Europe not called Germany, you know the trade union, single payer socialist country).

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  9. Well , there’s also a bunch of big fishes playing at competitors trolling .. (AAPL ,MSFT …)

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  10. It is obvious that Obama has never invented anything and has never obtained a patent for himself, so he really has no basis to speak on the patent system, which is designed to protect *inventors* like me. By his quote in this article, it is obvious that he doesn’t understand the patent system at all (and he probably gets his information from blogs like GigaOm, rather than from actual inventors.) Based on his comments, if he does something to change the patent system, it seems he intends to reduce the value of patents in general by taking away the protection granted to inventors for their inventions. Getting a patent involves a lot of time, energy, intellect, money, and risk. Essentially in order to get a patent, you must expose your invention to the public, and that can be detrimental if you are not successful in the art of patent writing, even if your invention really is unique and nonobvious. If you do succeed, your risk paid off and you are granted by the government 20 years to protect your invention. This time period is very important for inventors, especially for small entities with limited resources and who just sank around $20K towards a patent. Now they must best decide how to move forward.

    Now remember, a patent does not grant the right to produce anything. Rather, a patent provides its inventor the right to exclude others from using his protected invention for a defined time period, unless the others obtain special permission from the inventor. Also we must remember that the art of inventing and the art of producing involve two very different skills and aspects of business. Oftentimes, one can have a patent, but in order to produce a product that actually embodies the invention, it would require using an order of 10 or more other patents in the finished product. So to produce involves much more complexity and business arrangements if the other patents are not owned by the same entity, such as cross licensing, partnerships, etc., let alone the actual production, marketing, and distribution of the thing.

    As such, we should keep this in mind when discussing any type of patent reform, such as “requiring” an inventor to produce something within a certain time frame, or requiring an inventor to pay more fees (more than are already required) in order to keep his patent.

    For small entities, which most inventors are, such proposed requirements can really be a burden. Patents are not free, they require time and money, and they have inherent risks. Most importantly, inventing and producing are completely unrelated.

    As an inventor with published patents myself, I think we should be very careful in any proposed changes to the patent system. Personally, I think it is fine, and in the spirit of protecting our capitalistic society, anything and everything we can do to protect great ideas should be done. It is our inventors who make this country great. Just look around and see how the world has changed in the last 100 years because of them.

    It is my hope that neither Obama nor any administration would do anything that would prevent me from licensing, selling, or protecting my patent from, to, or against others. I have a lot vested in my inventions, and my intellectual properties should be protected against unfair competition, regardless if I ultimately end up using my patents to produce an end product or not.

    Some people are inventors, and I am one of them. I need all the protection I can get.

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