Big Tech is Overwhelming Our Political System
Giant tech companies have come under a great deal of well-deserved criticism from across the political spectrum on a variety of concerns over their actions. On market power, privacy, political bias and disinformation, they are under a microscope. One area where their actions deserve even more scrutiny — and opposition — is their war on the patent rights of inventors and startups.
These powerful tech companies have long relied on a strategy of deliberate infringement because enforcement litigation is too expensive for younger smaller competitors. Last month, a Federal judge in Norfolk found San Jose-based Cisco Systems, a Goliath, had willfully infringed patents of cyber security startup Centripetal Networks Inc., a David. The judge found Cisco's conduct "egregious" and without "any objectively reasonable defenses” and ordered them to pay $1.9 billion in damages. This is typical of what is called "efficient infringement," essentially meaning “violating another's rights is profitable.”
While a welcome development for Centripetal, it is unfortunately not the typical result as few small companies have the financial resources to pursue such action and as the big companies have used their influence to chip away at patent rights. As a result, they can kill off small competitors or buy them up at fire-sale prices to maintain their market dominance.
Deploying their vast cash reserves, larger than many nations' budgets, giant tech companies overwhelmed our political system with lobbyists, PR firms and allied "think tanks.” As a result, they've been able to bend policy to suit their wishes. Small emerging companies, if they have any hope of competing with tech giants, need enhanced patent protections to lure investors.
For too long, giant tech companies' strategy has been to depress the value of startups and small emerging companies to scare off potential investors, like venture-capital firms, whose funding supports survival and then growth.
As the former chief Judge of the U.S. patent court, I saw the results of declining patent protections firsthand and I know that Congress must take action to enhance patent protections for startups and inventors.
Strong patent rights are critical for the ability of a startup to attract much needed investment to get their idea to market. Without outside investment, there's no growth, no job creation and would-be competitors to the big tech giants simply don't survive.
Venture capitalists and other investors need incentives to justify risking capital. Because new firms lack profits, and sometimes even products, the needed incentives include patents. How so? Because patents are property and, therefore, assets. If a small emerging company fails, as many do, the patents are owned by investors who can then monetize those patents. The presence of a patent also gives investors’ confidence that the company will receive a return on their investment. So, the internet giants campaigned to depress the value of patents by decreasing their reliability and making them easier to invalidate.
They got their way with Congress in 2011 with a statute creating an administrative tribunal, where it would be easier to kill patents when they could not do so in the courts. Then, in 2012 and 2014, tech giants convinced the Supreme Court to make all patents subject, for the first time, to easy extinction as "ineligible." The high court also made it virtually impossible to obtain court orders to stop continuing infringement, especially for small emerging companies.
Congress and the courts both fell for the exaggerated narrative about “patent trolls” — amplified by the news media — filing a bunch of abusive and extortionate suits based on "bad" patents, bleeding big tech giants financially.
It's no wonder the startup formation rate is at its lowest ebb in four decades. According to several economists, patent values, on average, fell 60 percent. Studies also found a sharp decline in venture-capital money going into real technology, like computer chips, and shifting instead to entertainment and social media. Investment in entertainment and social media is faster, not as risky, and not dependent on patents.
Venture-capital money is also migrating proportionally out of the United States to Europe and China, where patents are — shockingly — more reliable, injunctions are routine, and eligibility is clearer and wider.
As concerns over their behavior across the board threaten to shake up the near invincibility of the big tech companies, time will tell whether that will allow Congress to revive funding for small emerging companies by restoring the integrity of patents. But there are hopeful signs with the emergence of champions in the Senate, including Senator Coons (D-Del.) and Tillis (R-N.C.), who want to fix the mess of eligibility law. Sen. Coons — an expert on patent law — also introduced a bill that enjoys bi-partisan support in both the Senate and House that would fix the other problems of the system. Members worried about China overtaking the United States on 21st-century technology like artificial intelligence, or with members worried about creating jobs, must take action.
Big tech succeeded in stalling both initiatives in this session of Congress. For the sake of creating critically needed jobs and maintaining technology leadership, let's hope the new Congress convening in January will act fast and restore integrity to our patent system instead of creating winners and losers in the marketplace.
Judge Paul Michel was chief judge of the Federal Circuit, the nation’s top patent court, until his retirement in 2010.