Patent Policy and the Promotion of Job Growth

Patents stifle innovation.

Patent trolls are the modern day robber barons.

All patents are acquired by large corporations who operate to destroy small businesses.

These statements reflect the views of many individuals regarding patents and patent owners. Whether you agree or disagree with these statements, I have no intention to change your mind.  However, there is one aspect of patents in which I would like to discuss, namely the effect of patent policy in the promotion of job growth.

New and young companies, generally referred to as startups, are the primary source of jobs in the United States. Startups are commonly considered to be those companies in existence for less than six years.  The chart below details net creation of jobs amongst companies of different ages from 1988-2012 where companies of an age of 0 to 5 years have consistently led net job creation, even in the post dotcom crash of 2001 and post housing crash of 2008. This chart is reproduced from The Importance of Young Firms for Economic Growth by Jason Wiens and Chris Jackson of the Ewing Marian Kaufman Foundation, September 13, 2015.

Among all startups, high-tech startups are particularly important for job growth. High-tech companies between one and five years of age created a net 16,700 jobs in 2011 according to Paula Dwyer of Bloomberg, The Only Startups That Matter to Job Creation, August 16, 2011.  High-tech companies, in addition to their job growth, provide additional economic benefits, which include technology development and the introduction of new products and new features.

How can patent policy affect job growth, and why are patents important for the success of startups? It is widely accepted that if companies wish to become profitable over a long period of time, economic barriers to entry are needed by the firm to thwart competition.  Economic barriers to entry are obstacles which hinder the movement of companies into an industry.  These barriers may include legal restrictions (e.g. only one retailer can sell food concessions at a venue), technical superiority, economies of scale, large initial capital investment, control of a resource, and patents.  However, most of these economic barriers to entry may only be acquired by large companies with many resources which may not be available to startups.  Patents are one type of merit-based barrier to entry that is available to startups and may be effectively employed to improve a possibility of long term profitability for startups.

Consequently, patent policy should operate to allow the protection of intellectual property developed by startups to promote job growth. One example of current patent policy which is favorable for startups is the enactment of the micro-entity fee structure as part of the America Invents Act of 2011.  The micro-entity fee structure provides for reduced patent filing, prosecution, issuance and maintenance fees for small businesses whose inventors are named to no more than four patent applications and whose inventors do not have a gross income that exceeds the median household income for that preceding calendar year.  Additional considerations for patent policy would be the removal of fee diversion at the United States Patent and Trademark Office (USPTO) to allow more efficient operations at the USPTO and a reduction in a patent application pendency of patent applications from patent application filing to issuance (the average patent application pendency is 26 months according to USPTO statistics).  Companies can more effectively operate with reduced patent application pendency as they may be able to more quickly determine appropriate research and development resources and activities.  Startups may be particularly benefitted by reduced patent application pendency as they may rely upon quick issuance of patents to obtain funding and venture capital assistance.

Another policy consideration is that current attempts to thwart non-practicing entities, considered in both the House and Senate in 2015 (H.R. 9 and S. 1137), should only impact abusive litigation without devaluing a patent itself. Reducing the value of patents, possibly through legislation to curb non-practicing entities, could negatively impact startups and reduce job creation.  While opinions regarding patents vary significantly, startups are important for job creation and patents are important for the long term profitability of startups.