For investors in technology start-ups, things are about to
get much more complex and dangerous. Friends of inventors, family, angels,
venture capitalists and private equity managers: Listen up.
The "Innovation Act," also known as H.R. 9, will
reenter the House Judiciary Committee in the next two weeks, thanks to the
efforts of Chairman Bob Goodlatte, R-VA. Then it will speed back to the floor
for passage.
President Obama, known to be tight with Google, has said he
will sign it. Google and other mega-corporations will be pleased.
Touted as a triumph in the killing of "patent
trolls," those voracious creatures whose influence has been vastly
exaggerated by corporate image-makers, this bill actually will kill investment
and innovation.
The American patent, so indispensable to technology
start-ups, is about to be rendered useless when faced with an infringer of
disproportionate size.
Start-ups asserting an infringement claim will be met with
an onslaught of high-priced lawyers and legal fees.
They will find themselves with a limited capacity for
discovery and pleadings, coupled with stays against the use of their
technology. These actions will set in motion the likely outcome of bankruptcy.
Ill-informed Republican and Democratic members watching this
wool-clad wolf move forward, and having passed it last year as H.R. 3309 (only
to have it die mercifully in the Senate), will be unlikely to recognize the
immediate danger it creates for the investment community. Indeed, in the name
of burning trolls at the stake, the measure places all innovation in America on
the pyre.
Technology start-ups, funded often by friends and family and
later angels, venture capital and even private equity, have lessened their
investment risk through the assurance that their fledgling enterprise has
applied for or has been granted a patent.
Once marked as a triumphant accomplishment in the Silicon
Valley landscape, this now threatens to become its undoing.
Complicated by the proposed Innovation Act's creation of
"joinder liability," which forces investors to pay damages for
actions of third parties over which they exert no control, this no longer
represents security to the investor. It represents risk, big-time risk.
If you are an angel, a friend, a family member and have
become part of a claim of infringement by a large corporation, you will find
nothing but pain and grief.
At the end of your rainbow you will succumb to complex
pleading rules, fee-shifting and — that ungainly phrase, again — joinder
liability.
The American patent system once was hailed as a great
equalizer, just as the six-shooter was to our pioneers. Its entire purpose was
the ability to assert a claim of valid, unique technology when faced with a
case of infringement.
Now, if H.R.9 becomes law, infringers merely have to lay in
wait, earning income from the very technology they infringe and devising a
strategy for when the small start-up dares to stand up and fight.
In perhaps its cruelest stroke, H.R. 9 gives corporate
infringers the ability to reach into the grave of these departed start-ups and
into the pockets of their investors, co-owners and stakeholders, placing
unlimited liability on them for the legal fees of a major corporation.
Bankruptcy furnishes little escape from these liabilities.
Involuntary joinder liability is a salient feature of the Innovation Act. This
form of liability will cause the millions of dollars dubiously incurred by the
mega-corporations using top-notch counsel to be shifted to small entities
incapable of defending themselves.
Such once-innovative entities will be crushed by the weighty
presence of major corporations. If they seek bankruptcy they will find the
bills will shift to their investors and stakeholders.
Could it be that these are the fundamental intentions of
this bill rather than the "tort reform" claimed by its proponents?
Rohrabacher is a Republican who represents California's 48th
congressional district and is a member of the House Science, Space, and
Technology Committee.
Read More At Investor's Business Daily: http://news.investors.com/ibd-editorials-on-the-right/042415-749634-dana-rohrabacher-innovation-act-will-be-disaster-for-high-tech-startups.htm#ixzz3YJwQY12B
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