When the patent system is not functioning properly, it undermines, rather than supports, innovation to the detriment of all Americans – inventors, employees, business owners, and, ultimately, consumers. Low patent quality and unbalanced litigation rules drive a dramatic increase in abusive patent litigation.
These problems unnecessarily drive up the cost of resolving legitimate patent disputes. Worse, they have conceived a new industry made up of companies that produce nothing but litigation and legal threats. Commonly referred to as “patent trolls,” these shell companies are often funded by large investors – such as hedge funds and private equity firms – and their sole function is to buy patents and assert them in lawsuits.
Today, patent litigation is dominated by patent trolls, which now account for the majority of patent lawsuits filed overall and almost 90% of suits involving high-tech products and services. The only goal of these shell companies is to extract money from successful businesses, often by leveraging the high cost of patent litigation to obtain nuisance settlements based on questionable patents. These lawsuits divert resources away from R&D and other productive activities into unproductive litigation, creating a drag on innovation and economic growth.