Intellectual Property Rights

Intellectual property rights are inevitably exploited for harmful purposes by Non-Practicing Entities – turns the case.

Unfortunately, a lot. A particularly relentless group of Non-Practicing Entities (NPEs) – “patent trolls” – is putting the future of U.S. innovation at risk. NPEs stockpile patents, not with the aim of producing anything, but just with the goal of suing against infringement. A sizable set of NPEs buy up overly broad patents, then target relevant companies (often startups flushed with venture funding), and file frivolous patent infringement lawsuits with only one goal in mind: to coerce the targeted firms into settling for large sums of money so that they can avoid costly litigation.

In 2013, for example, Lumen View Technology LLC, an NPE based in Cambridge, Mass., used a patent on computerized matchmaking to sue numerous online dating companies. Among the targets was FindTheBest, a small operation Lumen View targeted in hopes of landing a $50,000 settlement. While other companies paid off Lumen View to avoid expensive and protracted litigation, FindTheBest resisted and last year won a $300,000 award from a U.S. District Judge who invalidated Lumen View’s patent and lauded FindTheBest’s ability to fight back. “It appeared that none of the other defendants sued by Lumen made that choice,” the judge wrote. “But for FindTheBest’s financial resources and resolve, Lumen’s predatory behavior would likely have proceeded unchecked.”

Unfortunately, most small companies are unable or unwilling to fight back against trolls. Defending a patent case can cost millions of dollars and can wreak havoc on a young venture. Consequently, NPEs are having a serious negative impact on innovation. Our research has revealed, for instance, that companies hit by NPE lawsuits became gun-shy about innovations, as illustrated by a 20% decline in R&D spending.

Beyond this, we identified some other troubling trends:

· Patent trolls frequently go after companies with significant cash on hand. Firms with an additional $2 billion in cash are more than six times as likely to be targeted by NPEs.

Although the concept of patent trolling is not new, prior to our study, the impact of trolling activity had been difficult to measure. Unchecked, the trolls are undaunted in their efforts to profit from litigation regardless of how transparent those efforts might be. For example, an East Texas firm called RecruitMe, LLC, purchased a broad patent aimed at online transactions and used this single patent to sue 24 companies for patent infringement over the past year. That same patent was purchased from another firm, Data Match Enterprises, another East Texas operation, which had already sued 11 companies using the patent.

In the already complex and often perplexing field of intellectual property, the presence of patent trolls has caused chaos and confusion. Clearly defined property rights are essential for well-functioning markets. But unlike ownership of physical assets, the space of ideas is difficult to delineate. The patent is intended to solve this complexity by allowing the inventor of an idea to have sole commercialization rights for a period of time, unencumbered by copycats.

Not surprising in an age of vast technology innovation, the battles over intellectual property and patent rights have been growing in intensity. In the United States, the legal system is the arbiter of patent infringement, and the courts are weighed down with patent battles.

The construction of intellectual property rights through patents stifles industries and kills innovation.

Branson says that companies like Tesla, which make electric cars, are changing the world for good, but they can't do it alone. "As it stands, it is impossible for Tesla to build electric cars fast enough to make a major positive impact upon carbon emissions," he notes. So instead of monopolizing the market and keeping innovation at bay with patents, Musk is encouraging other innovators to utilize Tesla's technology and effectively join a movement towards more sustainable transportation.

Both of these revolutionary businessmen agree that removing stringent patent laws from the equation also encourages some healthy competition, which, Branson argues, keeps everyone on top of their game. Indeed, when Branson began his initial foray into music, he was intent on changing the industry for the better. The same can be said of Musk's aspirations for the automotive industry.

In his blog post from June 12, 2014, Musk explains that the patents once thought to protect Tesla have done so from a non-existent, though perceived threat. "The unfortunate reality is [that] electric car programs...at the major manufacturers are small to non-existent, constituting an average of far less than 1% of their total vehicle sales," he said. The assumption that a major car company could use Tesla's technology to overwhelm their success was an understandable one, but the reality is that the demand for these vehicles exists, yet few manufacturers are doing anything about it.

Most recently, Tesla announced their newest addition to their line-up of vehicles, the Model 3. With a price tag of around $30,000 as opposed to the Model S's $70,000 sticker, Tesla is getting closer to bringing their electric vehicles mass market. Still, there's a way to go, but hopefully their landmark patent decision will help get more drivers behind the wheel of an electronic vehicle in years to come. Even so, Musk's revolutionary move has paved the way for less bureaucracy and more innovation, entrepreneurial spirit, and continued evolution for the good of all.