Software patents are broken, and it’s hurting our economy

[Josh Hartwell, CEO and founder of Mobile Deluxe, an independent mobile gaming publisher, discusses the fight between small business owners and patent trolls, one of the biggest threats to an entrepreneur's business.]

We have an incentive system at work in the apps ecosystem. Angry Birds has been downloaded one billion times, Temple Run more than 150 million. Other developers see the potential for great financial reward with their work, which encourages further development, risk taking and invention. This benefits not only developers but also smartphone owners and our economy.

Ideally our patent system would be humming alongside this app freight train, rewarding original and unique ideas, conferring exclusivity on the truly novel. Unfortunately, it has been doing the opposite in many cases, creating undue burdens on this vibrant sector due to a few bad actors. Developers have grown fearful of receiving letters from patent trolls seeking nominal license fees for seemingly unrelated patents, written long ago in many cases.

Our system facilitates, even encourages, the two business models of patent trolls. Some trolls seek overly broad patents and pursue large tech companies for hefty paydays. Other trolls seek similarly weak patents, but choose thousands of small tech companies as their quarry, seeking seemingly small “license” payments.  With both types the initial math is simple: convince the target company that fighting in court is hundreds of times more expensive than merely licensing the dubious patent, even if you win.

In 2011, for the first time ever, more information technology patent lawsuits were filed by non-practicing entities (NPEs) than by practicing entities. I don’t mean to imply that all NPE’s are bad actors.  To the contrary, they play a vital role in a properly functioning system.

However, more NPE’s have turned to trolling, taking the tack of accumulating older technology patents, devising creative and over-broad interpretations of what exactly is covered by the patent, then threatening hundreds or thousands of practicing businesses with lawsuits if the patent is not licensed. The license fees are always nominal when compared to the cost of a federal court defense, which is what makes trolling such an attractive numbers game for these unscrupulous actors.

The U.S. Patent and Trademark Office is in the business of granting patents. As a rule, it lets the courts handle everything else. But with an expensive legal system and the granting of overly broad patents, the current system is simply untenable for the average entrepreneur.

Congress attempted to address the problem in 2011 with the America Invents Act, which gives additional methods for patent invalidation. However, in many troll cases the patents are valid, they simply don’t pertain to the target company’s business. Trolls seek expansive and creative definitions of their patents’ scope, sometimes pretending that new technologies are analogous or equivalent to the old technologies that the patent actually covers.

The first step in the solution is simple. We must offer an alternative to the two current choices: a full-blown federal court defense or caving to the patent trolls’ demand for a license. The oft-proposed small claims court for patent matters needs to be implemented now. It should be set up as a one-defendant court so that trolls can’t sue multiple parties at one time. It should also be set up as a loser-pays court to bring the scales back in balance for the current patent system.

Further, threatened companies should be capable of bringing trolls to court preemptively, for a ruling regarding the scope of patents asserted by trolls against them. Such a system would preserve the rights of bona fide patent holders while discouraging the growing scourge of trolls that threaten to otherwise derail this vibrant and growing sector of our nation’s economy.

Our country’s spirit of entrepreneurship and our technological leadership have given rise to an incredible tech industry, and in particular, a booming apps ecosystem. As an entrepreneur, this has helped me create a vibrant company of more than 25 full and part time employees. Our patent system must work in concert with entrepreneurs, providing further incentives without undue burdens.

Living under the threat of being sued for an irrelevant patent is no way to grow a business, or in this case, tens of thousands of businesses. I have immense faith in our entrepreneurs and startups. I am a believer in our intellectual property system, and I believe that we can and must change our patent system such that it is part of this growth engine — not part of the problem.