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Patent Reform Movement Shines a Light on Economic Development Opportunities

In an innovation economy, few things are as sacred and valuable as intellectual property. At a time when an idea can quickly become a product, and that product can quickly go to market and create the next billionaire success story, the ability to protect and capitalize on one's own intellectual property can mean the difference between making history and being a footnote on the sidelines (just ask the Winklevoss twins, though things seem to have worked out just fine for them).

Mindful of the important role IP plays in an era of tech and gadgets, the federal government is taking new strides to protect American innovation. Late last year, the U.S. House of Representatives passed the Innovation Act by a dramatic 325-91 vote; a similar bill is now under consideration by the U.S. Senate. President Obama spoke about patent reform in his 2014 State of the Union address, saying Congress needed to pass a bill "that allows our businesses to stay focused on innovation, not costly and needless litigation," and just last month he announced several Executive Actions that have been taken to promote transparency, make patents clearer, and protect main street from abuse. Likewise, the U.S. Supreme Court is hearing seven oral arguments on IP-related cases this term alone. The writing on the wall is clear - across the board, government officials are trying to minimize the detrimental effects of patent trolls on innovation and economic development.

Patent trolling has become an easy way for companies that do not produce anything, to acquire en masse patents - that may or may not be valuable in a practical sense given their function and timeliness. Trolls then pursue litigation against corporations or individuals whom they claim have infringed on their patents.

One significant consequence of trolling is usually costly litigation, the likes of which small businesses cannot afford to bear. Often times, these same businesses will pay a patent troll an exorbitant license fee just to avoid further action in a lawsuit, regardless of whether or not they are actually infringing on the patent in question. Similarly, in larger scale transactions between corporations, patent trolls will litigate as a means of stifling competition. The practice has become so widespread that even foreign governments are getting in on the action of pursuing frivolous litigation based on outdated, outmoded patents, and global corporations are petitioning the European Union to reign in the anti-competitive and costly behavior. For example, the government of Korea controls one such entity called Intellectual Discovery. This troll can be engaged by the Korean government to attack competitors to Korean economic interests rather than compete with them fairly. Similarly, the French government has also launched a entity called France Brevets, and we can expect other foreign governments to follow suit rather than risk being left behind.

A related issue worth watching as the debate over patent trolls unfolds involves patent pools. Patent pools are groups of related patents that are necessary to a given technology format (frequently audio or video files) which are licensed together. When administered fairly group licensing can bring efficiencies to the patent licensing, but patent pools can also acquire a high degree of market power over certain technological standards required to manufacture common gadgets. But not all pools adhere to market pressures. The pricing mechanisms employed by the patent pool One-Blue, which licenses patents for Blu-Ray players and equipment, is a good example that illustrates the disconnect between license fees and actual consumer demand and patent value. Despite the rapid decline in popularity and market value of Blue-Ray technology, One-Blue continues to charge a license fee of $9 per player - a large percentage of the cost of a Blue-Ray player today. At a time when consumers are increasingly turning to streaming services for their content needs and One-Blue's licensing fees should be reflective of this new paradigm, hidden costs like these on established technologies give consumers one more reason to look to what's new.

Intellectual property is the most valuable currency of the information age, and like any vital resource, it merits protection from misuse. The practices of trolling, in all its forms, to generate revenue from lawsuits without merit, stand to stifle continued growth and economic opportunity in the digital age. It artificially inflates the costs of production and distribution of worthwhile products and services. It is high time that the government take a more active stake in ending abusive patent practices, and kudos to President Obama, Congress and the U.S. Supreme Court for their efforts in this space.

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