428A Russell Senate Office Building, Washington, DC 10:00am EST
Chairman David Vitter
I want to thank our panel of witnesses for taking the time to be here today for this important topic. We look forward to your testimony.
Our conversation today will focus on whether the patent litigation abuse problem demands a major rewrite of our patent laws or if the changes taking place are having the desired effect, specifically with regards to small businesses.
The closer the issue is examined the more it becomes apparent that small business entrepreneurs and universities are at the heart of innovation in this country, and protecting them with a strong patent system lies within the responsibilities of this Committee.
The U.S. patent system is unique in that it fuels our economy, and on the whole, is far more prosperous and successful than those of other countries.
Small businesses provide 55% of all jobs and 66% of all net new jobs since the 1970s, and hold 16.5 times more patents per employee than large firms.
In the past twenty years, U.S. university licensing activity contributed $181 billion to the U.S. GDP. The numbers clearly speak for themselves.
Unfortunately, the rise of so-called “patent trolls” who acquire patents solely for the purpose of making money through royalty demands or lawsuits have had a detrimental effect on businesses, innovators, and universities alike.
Patent reform is needed. However, before Congress jumps to overhaul the entire system, the extent of necessary reform needs to be clarified.
Today, we are here to revisit the question: How do we address patent reform while protecting innovation and not impose negative consequences on small businesses and entrepreneurs?
The first step is to examine exactly how recent changes, court decisions, and other Judicial Conference changes have impacted our small businesses and universities.
Since Congress has last thoroughly considered these issues and drafted legislation to address patent law, there have been several major judicial and administrative developments. As a result, patent lawsuit filings have already dropped dramatically – 40 percent from September 2013 to 2014.
But that’s still not good enough. Frivolous litigation is never a good thing, and these “patent trolls” must be stopped. The very threat of litigation from abusive patent trolls diverts resources away from business activities.
The second step in addressing the faults in our current patent system is to take a look at the potential impacts of current proposed changes.
As Chairman of this Committee, I have made it a priority to open the lines of communication with small businesses and universities to find out what specifically they need in terms of reform so that they can stop worrying about potential litigation or changing rules and get back to innovating.
When I first took over this Committee, one of my top priorities was to ensure that small business voices would be heard in Congress, especially their views on patent reform. That’s why I held the Senate’s first Small Business Committee hearing on patent reform in March of last year.
During that meeting we heard from advocates of both sides of the issue regarding specifics of legislation, and it was clearly established that a balanced approach is the only solution that would sustain and support America’s innovative culture.
In the 11 months since that hearing, a considerable number of changes have gone into effect, and even more have been proposed that would change the way small businesses engage in the patent system.
This Committee has heard from folks across the country who are being forced to divert critical resources to defend themselves against vague claims of patent infringement, and many of them go bankrupt in the process.
These “patent trolls” are creating a substantial drain on the core of our economy, and this specific problem requires a specific solution – one that is delicate enough to avoid disrupting the system as a whole.
Unfortunately, when dealing with bad actors, there is rarely a one-shot solution. That is why it is not surprising to see folks who support a comprehensive approach attempt to inflate the perceived notion of litigation abuse by including innocent, well-intentioned business lawsuits with those of trolls.
It is essential to remember that many legitimate owners of intellectual property do not manufacture anything, but nonetheless, have legitimate claims of patent infringement against other parties.
A comprehensive overhaul of our patent system would fail our innovators and allow large companies to strong-arm smaller organizations, ultimately leading to a less prosperous and successful American system.
It is no secret that the ever-changing federal rulebook is one of the greatest obstacles for business growth and innovation. Since the passage of the America Invents Act, several reports have come out saying that the onslaught of ongoing changes is making it more difficult for small businesses to protect their patents.
We have also witnessed increasing abuse of new mechanisms that were aimed to aid in the fight against the so-called trolls. There is evidence that certain hedge fund managers are intentionally shorting stock and then challenging a company’s patent at the Patent Trial and Appeal Board (PTAB).
Since our last meeting on this issue, new reports have shown how the value of patents has dropped at a staggering rate in the past four years, with some reports showing a decrease by as much as 80%.
The key is to strike a balance between combating frivolous lawsuit claims from trolls and maintaining a level-playing field between small business inventors and large companies.
In an effort to support a targeted approach that takes into account the ongoing changes to the patent system and “patent trolls’” lawsuits, I have co-sponsored Senator Coons’ legislation, the STRONG Patents Act of 2015, which has the support of our fellow Committee Member Senator Hirono, as well as Senators Durbin and Cotton.
Patent reform is a key issue this year, and I certainly look forward to continuing to fight overly broad efforts to fix this system and to discussing and developing effective balanced solutions as Chairman of this Committee and as a member of the Senate Judiciary Committee.
Thank you again for being here today, and with that, Senator Shaheen – the floor is yours.