What the new Patent Reform Act means for small startups

Don Dodge from Microsoft’s emerging business team summarizes the Patent Reform Act of 2007 that just passed the House Judiciary Committee.

Damages are limited to the value added over existing technology. This bill would require the courts to look at the “free market” value of the patent if it were licensed in an “arms length” transaction. A very small win for the little guy – now instead of paying $600 Million to settle a patent lawsuit, you only pay the value added over existing technology – say $50 Million? Even $2 Million is enough to crush most startups.

A review board will allow parties to challenge issued patents and present prior art to mediate disputes outside of the courts. Another small win. It has the potential to reduce legal costs when challenging an issued patent – assuming you have the stones to step into the ring with someone like Amazon or Microsoft. The reverse may be a bigger win for small business if this forces big companies to mediate with you when challenging your issued patent. I don’t know enough about patent litigation to know if this is a possibility – any lawyers reading this please comment.

A really smart development is peertopatent.org. It’s a bit like Digg.com for patents.

“This process allows anyone to submit “prior art” for consideration by the US Patent Office. Users vote on the most relevant and compelling prior art examples. The top ten submissions get forwarded to the USPTO for consideration before granting the patent. This is a pilot project being tested on 250 patent applications. If successful, the project could be applied to broader patent areas.”

I love the idea, but my first thought is “users vote”? Digg gets gamed all the time and there’s nothing they can do about it. If you’ve got 100 votes from 100 different geographically distributed IP addresses and 100 separate user accounts that were registered with a captcha, it still doesn’t guarantee they’re real. When you consider that Microsoft (according to Dodge) spend over $100 Million on patent litigation every year, the incentive to game this is huge. The registration looks pretty standard. I think it’s a brilliant idea – but they need to use SSN’s or have some way to guarantee every registered user is a real person. If they solve this problem then online political voting becomes a reality.