TO:

The Honorable Charles Grassley
Chairman
Committee on the Judiciary
United States Senate
Washington, DC 20510

The Honorable Patrick Leahy
Ranking Member
Committee on the Judiciary
United States Senate
Washington, DC 20510

Dear Chairman Grassley and Ranking Member Leahy:

As you continue to assess necessary changes to S. 1137, the PATENT Act, we remain concerned that the views and positions of inventive startups and entrepreneurs are not being taken into account or even solicited.

The Alliance of U.S. Startups and Inventors for Jobs (USIJ) is a diverse group of Silicon Valley based inventors, entrepreneurs, venture capitalists, startup companies, incubators and research institutions.

The research and development that our companies and institutions do has led to numerous breakthrough technologies in fields including medical devices, drug products, clean tech, mobile technologies and cloud computing. We create real products, and real companies that continue to drive the U.S. economy, but it seems increasingly hard to be heard and included in the conversation. We believe the current PATENT Act, will have devastating consequences for our ecosystem, by wiping out the incentive to invest in fundamental inventions and small businesses.

Our entrepreneurs, venture capital members and incubators have – for many years – founded and financed dozens of companies that have created billions of dollars of value and thousands of jobs. We are indicative of the contributions that startups and small businesses make to the U.S. economy – in fact, inventive U.S. small businesses currently produce 16.5 times more patents per employee than large firms.

Despite making improvements over the disastrous provisions contained in H.R. 9, the Innovation Act, the PATENT Act still does nothing that will actually strengthen the patent system for inventive U.S. startups. In addition, the just-released Manager’s amendment continues to turn a deaf ear to the interests of U.S. venture capitalists and inventive startups.

Here, we feel compelled to make an important distinction for the Committee. There is a huge difference between startups, like those in the USIJ, who must attract tens of millions of dollars in venture funding to invent, develop and commercialize true breakthrough technologies and products, and startups in areas like social networking and app development. A startup in the life sciences or medical device field with $50 to $200 million in venture funding invested in a new product has a much different view of its patent portfolio than a few developers designing a new game for the iPhone. Unlike the app developer, we are completely dependent on the strength and enforceability of our intellectual property. Through the PATENT Act, you are taking away our ability to effectively protect our intellectual property against large companies and foreign competitors. We may get more apps as a result, but you will destroy many VC-backed startups in very important technical fields.

USIJ and the venture-backed start up community have consistently made our concerns with the PATENT Act clear, but the recently released Manager’s amendment demonstrates that, unfortunately, our concerns have not been heard.

The PATENT Act will make the pleading and discovery processes much more complex, expensive, and risky for startups and small businesses that must enforce their patents. Furthermore, the bill carries fee shifting provisions that would also deter startups and small businesses from enforcing their patents and make investors reluctant to provide them capital.

Overall, the complex intertwining of various sweeping and related provisions in the PATENT Act work together to make patent litigation of any kind too expensive and risky for small companies and inventor entities to take on the giant companies pressing for the legislation, whether the small companies be defendants or plaintiffs. This would greatly increase the significant advantages large companies now have over the dynamic startups that create most of the new products and technology that fuels our economic growth. If you take away the ability of inventive startups to protect their intellectual property you will see fewer breakthroughs and you will stifle venture investment in fundamental invention of all kinds.

To make things worse, one of the main beneficiaries of the current form of the PATENT Act would be overseas competitors, such as Chinese company ZTE, who would be able to copy U.S. inventions with little concern of a meaningful enforcement action, or the need to pay for the right to use American technology.

The Manager’s amendment to the PATENT Act does not effectively address these concerns, and USIJ must continue to oppose the legislation.

We believe that the Committee could easily and effectively address concerns regarding patent litigation abuse with a much more focused set of provisions such as directly addressing demand letters sent to retailers and retailer patent lawsuits. “Less” is many times “more” in a market economy, particularly when so much change has already occurred in the U.S. patent system with AIA and recent court rulings that provide guidance.

We also believe that the Committee must do much more to address the disastrous unintended consequences that the USPTO’s inter partes review (IPR) process is having. The IPR process has been expanded beyond Congressional intent to become a blunt force tool that is being used by large companies and hedge funds to undercut competitors and manipulate stock prices. Clearly, Congress can do more than the minor tweaks in the Manager’s amendment. At a minimum, IPR petitioners should have some standing relative to the patent(s) they are challenging and the USPTO should use the same evidentiary standard to asses a petition under an IPR as is used in federal court.

We are ready to meet with you or your staff to discuss an approach to the stated patent litigation concerns in a way that does not weaken the patent system, benefit large companies at the great expense of smaller companies, or tilt the system against legitimate, inventive companies that must be able to efficiently and effectively protect their intellectual property in an increasingly competitive environment.

Patents and invention drive the U.S. economy. It is crucial that we consider the significant impact that any proposed changes will have on American inventors, investors and entrepreneurs.

Sincerely,

Charles Giancarlo
Chairman of the Board of Advisors
The Alliance of U.S. Startups and Inventors for Jobs