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Congress is considering a bill that’d make it harder for American start-ups and small businesses to successfully sue big corporations that steal their technology. That would make our economy weaker.
In recent years, many Big Tech companies have stolen proprietary technologies from smaller rivals.
Last year, a U.S. government agency had to ban the importation of certain Apple Watches that illegally incorporated a smaller company’s patented device that measures blood oxygen levels. In January, Google chose to settle a case for an undisclosed sum, after Boston start-up Singular Computing sued for $1.6 billion in damages over the alleged theft of AI technology. An Illinois district court recently ordered Amazon to pay $525 million in damages to software firm Kove IO for violating the firm’s data-storage patents.
But these successes are the exception rather than the rule.
Most start-ups -- let alone individual inventors -- can’t afford to take on Google, Apple, and Amazon in court. Even if patent owners had evidence to prove their intellectual property was stolen, litigating disputes can take years and cost millions of dollars. Many inventors have no choice but to accept a low-ball financial settlement outside of court.
Big Tech firms have this practice down to a science, which is why some have dubbed it “efficient infringement.” Established firms calculate that it will cost less to steal technology and pay any associated settlement that ultimately comes than to license the technology up front.
Small inventors have recently found a way to counter “efficient infringement.” Outside financiers -- banks, individuals, or even investment funds -- are increasingly providing financial support to start-ups and inventors. In many cases, these investors receive a share of the profits associated with market or licensing success, including if any subsequent legal action proves successful. This practice helps restore much-needed balance to a legal system that’s been thrown out of whack.
Some lawmakers worry that outside funding leads to frivolous lawsuits and could allow foreign rivals to obtain U.S. trade secrets.
Neither claim holds water. Critics of financial partnerships have failed to provide any evidence that malicious actors foreign or domestic -- are regularly funding lawsuits to steal proprietary information.
Similarly, there’s no evidence that outside financing leads to frivolous litigation. The number of patent infringement lawsuits initiated in U.S. district courts has trended downward since 2013, even as the number of new patents granted has risen. Litigation financiers have zero incentive to fund lawsuits that don’t stand much chance of succeeding.
Some argue that requiring patent owners to disclose any outside funding they receive for their lawsuits -- as the Litigation Transparency Act would do -- promotes transparency while doing no harm. In reality, disclosure requirements would further disempower inventors who already struggle to defend their intellectual property against larger rivals.
Mandatory disclosure could reveal information about a plaintiff’s legal strategy. Infringers might use this knowledge to adjust their own strategy and subject financiers to relentless negative public relations campaigns. All of this could make it harder for startups to find investors.
The Litigation Transparency Act is trying to solve a problem that doesn’t exist. In the process, it threatens to create actual problems for startups and small businesses trying to protect their inventions from theft.
Kristen Osenga, the chief policy counselor at the Inventors Defense Alliance, is the Austin E. Owen Research Scholar and Professor of Law at the University of Richmond School of Law. This item originally appeared in the DC Journal.
