Dubious Patent Tactics at the International Trade Commission Threaten Innovation

It is easy to assume startups have little at stake in a simmering patent fight between a little-known overseas company and some of the world’s largest mobile device makers, such as Samsung, Motorola, Microsoft, Dell, and Amazon, and Apple, among others. But that assumption is wrong and overlooks a remarkably successful symbiosis.

It is no overstatement to say that mobile technology is at the heart of the most sweeping change in daily life since the Industrial Revolution. In the last ten years, companies large and small have invested trillions of dollars in everything from infrastructure to R&D, creating millions of jobs.

Tech startups are the lifeblood of the digital economy. In fact, startups often outpace established companies as employment engines. For example, in 2017 alone, 415,226 new U.S. startups were launched, fostering a gain of 1.7 million additional jobs.

Of course, new firms rarely pop up out of nowhere. They often thrive on platforms built over time by companies that can afford to risk multi-billion dollar investments. Start-up designers, vendors, and entrepreneurs of all kinds, in turn, enable big companies to stay agile, attentive to shifts in market dynamics, consumer demand, and innovation.

With industry giants racing to compete in the emerging 5G world, startup activity increasing by nearly 200% since 2012, and new tech hubs emerging beyond Silicon Valley. The U.S. can look forward to a few new segments and products as well as game-changing innovative improvements of existing technologies.

A Matter of Concern

Two complaints filed by an Ireland incorporated entity called Neodron are a matter of concern not only to the big companies in the cross hairs, but also the countless startups throughout the global supply chain. Likewise, Neodron’s petitions for the U.S. International Trade Commission (ITC) to ban the import of devices with the disputed technology—over 90% of smartphones and tablet in the U.S. market—could hit large companies’ sales and upend the environment where small and mid-sized companies have thrived.

Neodron and other dubious actors, sometimes termed Patent Assertion Entities (PAEs) and often referred to as “patent trolls,” do not invent or manufacture new products and technologies. They obtain patents and then file suits alleging intellectual property infringement. Often backed by hedge funds or other third party profiteers, they spend freely on legal wrangling on even flimsy assertions to bully and vanquish actual tech innovators – and then pocket millions of dollars.

To be sure, respect for patent rights is indispensable for innovation, whether a company is large or small. When IP disputes arise, the federal courts are best equipped to adjudicate claims and award damages. However, costly, drawn-out litigation by PAEs too often distracts large companies from coming up with new ideas in cooperation with the startups with which they interact as partners, customers, or competitors. Threatening lawsuits can also cripple the ability of emerging innovators to attract capital from investors, build a talent team, or to find new partners. In a recent survey of 200 venture capitalists, 100% indicated that the presence of a patent demand letter would be a major deterrent in their decision to invest.

Drastic Remedies Threaten SMEs

Enlisting the ITC to threaten exclusion from the U.S. market, meanwhile, creates a range of additional hazards for companies large and small. The sweeping import ban Neodron wants would negatively affect the bottom line of innovators, and the resulting higher prices and supply shortages for mobile phones, tablets, and touchscreen laptops at various price points would hurt the millions of Americans and businesses that rely on these devices. Small and medium-sized business that are fastest to adopt mobile services, for example, experience much faster revenue growth and create more jobs than their mobile-hesitant counterparts.

Startups play a key role in driving innovation and job creation in our economy and have an especially strong interest in preserving IP protections. They also have a lot to lose when fly-by-night operators use the drastic remedies of the ITC to force settlement of IP disputes against the industry leaders competing in a global arena. Entrepreneurs cannot thrive in a marketplace beset by continuous litigation, massive supply disruptions, and uncertainty.

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