Senator Mike Lee’s Speech at CCIA’s Patent Progress Event Today

Below is the transcript of Senator Mike Lee’s speech at our event today, How Patent Trolls Harm Innovation.

I’m grateful for the opportunity to say a few words about patents and innovation.  In particular, I would like to thank Josh Lamel and the CCIA for the invitation to speak, and for organizing a panel to discuss the ways in which excessive patent litigation is harming American innovation.

My approach to governance is perhaps best described as constitutional conservatism.  As a conservative, I understand that protection of private property is at the very foundation of our free-market economy and is essential to individual liberty.  In today’s society, intellectual property rights are among the most critical of these rights for both individuals and the nation—IP is essential to technological progress, economic growth, and upholding the rule of law.

As a constitutionalist, I would note that the U.S. Constitution specifically directs the federal government to help foster innovation by means of securing certain intellectual property protections.  As you know, Article I, Section 8 provides that “The Congress shall have Power . . . To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to the respective Writings and Discoveries.”

Now, the precise contours of such intellectual property rights, and especially of the proper manner in which to enforce these rights, is the subject of much debate.  But there is at least one issue in this debate about which there is broad agreement:  The dramatic rise in abusive patent litigation—often involving non-practicing entities (NPEs) or “patent trolls”—imposes significant costs on American businesses, threatens innovation, and is ultimately detrimental to economic growth.

My good friend Mark Griffin, the General Counsel of Overstock.com from my home State, had hoped to participate on this panel.  Although he had to remain in Utah today to attend to an urgent matter, he shared with me a few practical examples of costs incurred by businesses forced to defend against abusive patent suits by NPEs.  Mark told me that Overstock.com has experienced a significant uptick in patent litigation with NPEs, none of which he believes has had any merit.  The most recent suit, in which an NPE plaintiff asserted three patents against Overstock.com, a jury returned a verdict of non-infringement of all three patents and a verdict of invalidity on the principal patent asserted.  Despite the victory for Overstock.com, the defense cost the company more than $3 million.  Under our current system, there is no way for businesses to recover these costs.  And routinely settling such cases is bad policy that seems likely to incentivize additional meritless lawsuits.

The experience of Overstock.com is increasingly common throughout the country, especially in the technology and software industries, and it plagues large and small companies alike.  A number of empirical studies suggest that during the past two decades NPE lawsuits have resulted in roughly a half a trillion dollars in losses.#  And such suits are on the rise.  A recent survey estimated that the direct cost to operating companies of NPE litigation rose to more than $29 billion in 2011 alone.#Much of this cost is borne by small and medium-sized businesses.  One report found that 82 percent of companies targeted by NPE suits have annual revenues of less than $100 million.

Abusive patent litigation not only entails private costs to particular companies, but also harm broader social and economic interests.  Studies show that defendants in these cases invest heavily in research and development, and that such lawsuits substantially reduce incentives to innovate.  Aside from legal fees, which divert resources away from productive activities, many companies avoid releasing new products or delay developing new technology during the course of such litigation.  And there is no evidence to suggest that this disincentive for innovation among defendant firms is matched by increased incentives to other innovators.  So the private loss for companies represents a public loss for society.  Excessive patent litigation discourages investment and innovation, and it ultimately harms economic well-being for all.#

Having said all this, it is important to remember that NPEs are not all bad and that not all such patent assertions are frivolous, abusive, or even meritless.

I do, however, believe we need further reform of our patent laws to address many of the problems that will be discussed throughout today’s panel.  Ours should be a system in which true innovators do not bear the full cost of excessive (and ultimately unsuccessful) patent assertions.  It should be a system characterized by transparency, providing notice both of the invention and the real party in interest who owns it.  And, more broadly, we should seek to help ensure that our patents are of the highest quality, so that opportunistic actors are not able to abuse the system and strategically assert vaguely worded patents that never should have issued in the first place.

I’m grateful to CCIA for organizing this panel.  I look forward to hearing about the discussion and working towards some meaningful reforms.