Study shows patent trolls have negative effect on startups

Jun 12, 2014
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Study shows patent trolls have negative effect on startups

As much great stuff as we see with platforms like Kickstarter, the more streamlined approach for innovation comes via venture capital and similar background efforts. A new study shines a light on why some of those individuals and companies who fail before they get off the ground do. It seems that big or small, sometimes the same fate is reached due to patent trolling.


Catherine Tucker, of the MIT School of Business, took a look at “frequent litigators”, which is a polite way of saying “patent troll company”. She found that over the past five years, patent trolls were responsible for about $20 billion not being seeded to startups via Venture Capitalists.

Smaller companies typically go through several funding rounds. A startup may not catch the eye of patent holding firms initially, but once they do, some venture capitalists back off. Even when a case is dismissed in court, the damage may have been done. In the case of a California eyewear firm, they were forced to lay off nearly one-third of their workforce to cover unforeseen legal expenses.

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But how do these patent troll companies exist, or do business? They’re helped along by lawmakers, who can’t agree on what should be done to reform pur patent system. Senate Judiciary Committee Chairman Patrick Leahy, who recently spearheaded a bill to reform our patent system, dropped his reform due to partisan bickering. “Regrettably, competing companies on both sides of this issue refused to come to agreement on how to achieve that goal” he said at the time, noting that too many solutions to a single problem exist.

Recent Supreme Court judgements may ease the strain of the patent courts, but don’t hit the heart of the matter. Judgements pertaining to clearly outlining a patent squabble will alleviate those “just because” lawsuits, which serve to scare so many smaller companies off or into cutting a conglomerate like Rockstar in on their Intellectual Property, but don’t actually reform the system. The judgements didn’t have anything to do with what can or can’t be patented, which is the ultimate issue.

Patent trolls continue to gather patents and litigate, and venture capitalist continue to make sound investments; even shying away from litigation. Without a source of income, many companies either fold up and go home or pivot, changing course entirely to avoid litigation. They may also be undervalued as a result of some patent firm making a fuss over IP they don't have right to. In the delicate dance that is getting an idea or product to market, patent holding firms who litigate more than they innovate only skew the process.


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