Patent reform enjoys a long tradition of intellectual support from a wide range of right-leaning think tanks and advocacy groups. Conservative and libertarian groups that have advocated for patent reform in one form or another include Americans for Tax Reform, the Heartland Institute, the Cato Institute, the Heritage Foundation, the Competitive Enterprise Institute, the Mercatus Center, Americans for Prosperity, Frontiers of Freedom, the Independent Institute, the Manhattan Institute, the Mises Institute, Institute for Liberty, Hispanic Leadership Fund, the Institute for Policy Innovation, the Latino Coalition, Independent Women’s Forum, Lincoln Labs, the American Enterprise Institute, the Center for Individual Freedom, American Commitment, Taxpayers Protection Alliance, the Discovery Institute, Generation Opportunity, Citizen Outreach and others.
There is clearly something wrong with the way our patent system currently works. As my Mercatus colleague Eli Dourado has pointed out, the number of new patents granted annually has quintupled since the early 1980s. This has resulted in many more patent lawsuits, but it hasn’t led to the economic growth that patents are supposed to generate.
The problem is simple: When patents are wrongly awarded for “inventions” that are either obvious or nothing new, it creates an opportunity for the patent holder to sue everyone else under the sun. Entrepreneurs are faced with a choice to quickly and cheaply settle or to spend millions of dollars in litigation fighting lawsuits. Because everyone chooses to settle, the bad patent never gets overturned in court and the “patent troll” reaps a tidy return.
It would be one thing if patents were never wrongly awarded, but unfortunately this happens all the time. As Dourado and our George Mason University colleague Alex Tabarrok explain in the economics journal Public Choice, the Supreme Court has consistently granted only a narrow scope for software patents, but its rulings have been continuously eroded by the Court of Appeals for the Federal Circuit, which has been captured by patent litigators. A 2013 GAO report found that half of all patents awarded are now related to software, the kind most favored by patent trolls.
It’s not surprising that pro-entrepreneur conservatives like Representative Bob Goodlatte aren’t happy with this status quo. His patent reform bill, the Innovation Act, is essentially tort reform for patents. Under the bill, if you lose a patent case, you have to pay the other side’s legal fees. This would substantially reduce the incentive to file a frivolous suit. In addition, the bill has provisions that make it harder for trolls and other bad actors to hide behind mysterious shell companies.
If the Innovation Act sounds familiar, that’s because it is. It passed the Republican House of Representatives overwhelmingly back in 2013 before being killed in the Senate by Harry Reid on behalf of his trial lawyer buddies.
Fortunately, this year Harry Reid is no longer in charge of the Senate (or is he?). Let’s hope that conservatives can take some version of patent reform across the finish line so that fewer of our country’s entrepreneurial resources will be tied up in wasteful litigation.
By the way, Representative Goodlatte also had a pretty good piece of proposed legislation—called the Online Sales Simplification Act of 2015 — that would make it easier for states to tax online purchases, while also limiting the states’ power by allowing for something known as an “origin-based” sales tax.