The Subcommittee on Intellectual Property of the Senate Judiciary Committee recently held a series of hearings on the topic of patent subject matter eligibility. That Subcommittee is considering potential amendments to 35 U.S.C. §101—the provision of the Patent Act that defines what subject matter is (and is not) eligible for patent protection. In our view changes to 35 U.S.C. §101 are not needed, and we submitted comments to the Subcommittee articulating our concerns.
The companies we work with are patent owners and innovators. They appreciate the important role patents play in protecting investments in the development of new technologies. But these companies also experience, in often disproportionate ways, the devastating impact that low-quality patents and abusive litigation can have.
Section 101 of the Patent Act is important to startups. It levels the playing field in litigation (threatened or actual), giving startups an easier, faster, and cheaper defense when over-broad, low-quality patent claims are asserted. And therefore, Engine respectfully opposes changes to §101 or the framework articulated in Alice Corp. v. CLS Bank International. Such changes would re-open doors for abusive patent litigation and deprive startups of a critical tool for avoiding and/or curtailing the burdens of that abusive litigation. Moreover, the absence of a meaningful check on eligibility risks dissuading innovation generally. Indeed, the value of §101 and Alice can be seen in steadily growing investments in innovation. Venture capital funding in the U.S. grew from $47.8 billion in 2013 (the year before Alice was decided) to a record high $132.1 billion in 2018.
Patent assertion entities (PAEs) routinely approach startups, identifying weak patents that the startups purportedly infringe and seeking a nuisance value settlement—asking the startups to pay a licensing fee that is less than the cost of litigation. And while this problem of weak patents and PAEs is not unique to startups (large companies receive patent demand letters, too), startups are more vulnerable. They have fewer resources to spend on litigation, and even a nuisance value settlement will be a large fraction of their overall budgets. Receiving these demand letters also makes it harder to raise funding, and many startups have to hire outside counsel to handle even small legal matters because they have no attorneys on staff.
Section 101 and Alice have been a critical factor driving down the number of suits PAEs file against startups. Any sweeping legislative changes or expansive abrogation of existing case law will create confusion and unpredictability in the startup community about how and when the new law applies, and PAEs will be able to leverage that unpredictability to extract more money from innovators. In short, the current framework is working for startups who face less litigation because of §101, and when they are sued, use it to fight back against frivolous litigation and focus on innovation.
To read the full set of comments Engine submitted the Subcommittee, click here.
