IP Update: What’s Happening With Patent Reform?

“What’s happening with patent reform?”

Founders Workbench regularly fields this question from founders. Often it comes up when we’re touting the critical importance of protecting their start-up company’s intellectual property. It also arises when we’re discussing broader business goals and objectives. Either way, we thought it would be helpful to keep our entrepreneur clients current on patent reform, trolling, and other key patent-related developments.

The U.S. Congress took up patent reform last year, announcing its intention to revise federal patent law to, among other goals, prevent dubious patent ownership claims. This effort, of course, placed a particular target on so-called “patent trolls” – companies that make patent claims but don’t actually produce any goods or services. These companies exist solely to issue threatening demand letters to legitimate businesses in the hope of extracting royalties or other concessions. Patent trolls can impose expensive legal fees on start-ups and other small companies and hinder their willingness to hire new staff.

But this federal legislative effort has stalled, and tech community members who rejoiced at the thought of patent reform now must wait and hope that the U.S. Congress can jumpstart the process. Prospects on this front seem dim, however, as last month (May) the U.S. Senate Judiciary Committee cancelled a much-anticipated legislative markup, and activity in the other chamber remains stuck at the subcommittee level of the U.S. House of Representatives.

Amidst this lack of progress, those hopeful of some action to curb patent trolls are encouraged by a new development: patent reform legislation at the state level. Vermont started the trend, passing state patent reform legislation last year that prohibits “bad faith” assertions of patent claims. Since that time, at least 11 other states have passed similar legislation against patent trolls and related demand letters.

Of course the trick lies in fighting patent trolls while balancing the need for legitimate patent holders to be able to assert their rights. This balance will be especially important in whatever federal legislation might emerge in the U.S. Congress.

Meanwhile, states continue their efforts to address this key issue in the intellectual property universe.

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