Congress is considering a bill that would inadvertently make it harder for American startups and small businesses to sue successfully big corporations that steal their technology. That would make our economy weaker and less dynamic.
Many Big Tech companies have stolen proprietary technologies from their smaller rivals in recent years.
For instance, last year a U.S. government agency had to ban the importation of certain Apple Watches that illegally incorporated a smaller company’s patented device that measures blood oxygen levels. In January, Google settled a patent infringement case for an undisclosed sum after Boston startup Singular Computing sued for $1.6 billion in damages over the alleged theft of AI technology. An Illinois district court recently ordered Amazon to pay $525 million in damages to software firm Kove IO for violating the firm’s data-storage patents.
These successes are the exception rather than the rule.
Most startups — let alone individual inventors working out of a garage — can’t afford to take on the likes of Google, Apple and Amazon in lengthy court battles. Even if patent owners had the evidence to prove definitively that their intellectual property was stolen, litigating these disputes in court can take years and cost millions of dollars. Many inventors have no choice but to accept a low-ball financial settlement outside court if they receive any compensation at all.
Big Tech firms have this practice down to a science, so some have dubbed it “efficient infringement.” In short, established firms calculate that it will cost them less to steal technology from smaller rivals and pay any associated settlement that ultimately comes — if it ever comes — than to license the technology up-front.
Some small inventors have recently found a way to counter this “efficient infringement” model. Outside financiers — be they banks, individuals or investment funds — increasingly provide crucial financial support to startups and inventors, allowing them access to valuable licensing and litigation expertise. In many cases, these investors receive a share of the profits associated with market success or licensing success, including if any subsequent legal action proves successful. This practice helps restore much-needed balance to a legal system thrown out of whack by Big Tech’s abusive tactics.
It’s these financial partnerships that some members of Congress want to restrict. Some lawmakers worry that outside funding leads to frivolous lawsuits and could even allow foreign rivals to obtain U.S. trade secrets.
Neither of these claims holds water. For one, critics of financial partnerships have failed to provide evidence that malicious actors — foreign or domestic — are regularly funding lawsuits to steal proprietary information or hamper U.S. innovation. Their warnings are entirely speculative and procedurally impractical.
Similarly, there’s no evidence that outside financing leads to frivolous litigation. The number of patent infringement lawsuits initiated in U.S. district courts has trended downward since 2013, even as the number of new patents granted has risen steadily. In addition, litigation financiers have zero incentive to fund lawsuits that don’t stand much chance of succeeding.
Nor is there anything inherently wrong with third-party funding. Few people take issue with a lawyer who agrees to work on contingency. Litigation financing is fundamentally no different.
Some might argue that requiring patent owners to disclose any outside funding they receive for their lawsuits — as the Litigation Transparency Act would do — promotes transparency while doing no harm. In reality, however, disclosure requirements would further disempower inventors struggling to defend their intellectual property against larger rivals.
Mandatory disclosure could reveal information about a plaintiff’s legal strategy, including how much money they have at their disposal. Infringers might use this knowledge to adjust their own litigation strategy and could even subject financiers to relentless negative public relations campaigns. All of this could make it harder for startups to find investors.
The Litigation Transparency Act is trying to solve a problem that doesn’t exist. And in the process, it threatens to create problems for startups and small businesses trying to protect their inventions from theft.
