Topics like last month’s historic tax reform and this month’s Congressional budget negotiations continue dominating headlines. But, other factors impacting small business growth deserve some attention as well considering 48 percent of Americans are employed by small businesses according to the U.S. Small Business Association (SBA).
Specifically, a percolating issue at hand is intellectual property protections and the major implications they carry for small businesses in nearly every industry. One court case in particular, Samsung Electronics Co. v. Apple Inc., a dispute between Apple and Samsung, has ramifications for small businesses, which are already vulnerable to patent abusers like patent trolls. Last month, the Supreme Court denied an opportunity to review an unprecedented decision, which will ultimately deal a blow to patent quality and empower patent abusers.
At the crux of that case, and Samsung’s request for Supreme Court review, was the standard for the ‘obviousness’ of utility patents. The unprecedented Federal Circuit ruling significantly lowered the bar for obviousness, meaning that patent holders face less stringent requirements to demonstrate that their invention is actually innovative or novel in comparison with what has already been patented. Because a watered down obviousness standard makes it more difficult to invalidate weak patents, the ruling as it stands is likely to lead to a surge in patent abuse while impairing accused infringers’ abilities to fight off attacks from trolls.
It is clear that steps to address some forms of patent abuse can result in tangible benefits and risk mitigation for small businesses. According to a February 2017 study, states that passed laws aimed at curbing patent trolling felt a 19 percent increase in the number of business raising venture capital funds and a 29 percent increase in the total amount of money raised through venture capital. Further, employment at small high-tech firms in those states increased by two percent, while having no notable effect on larger tech companies in the same areas.
Though the Supreme Court denied the appeal for review, which ends that battle, the larger smartphone war wages on. Following a December 2016 unanimous Supreme Court decision, the case was remanded back to the Northern District Court of California for a new trial. While the Supreme Court already reversed the lower court’s decision in this design patent case, they left it up to the California court to decide some key areas of that dispute that remain unresolved.
The primary unresolved issue in that case is a legal test for courts to decide to what feature or element of a product the patented design applies, known as the “article of manufacture.” This test is critical because design patents can allow for infringement remedies covering total profits from the entire product even if the infringement of patented design is applied to a singular feature. The Supreme Court already held that Apple is not automatically entitled to recovery of total profits from Samsung’s products, which were found to infringe minor design patented features like the rounded rectangle edges or the grid of icons on the screen at issue in the case.
Unfortunately, however, the test currently under consideration is overly complicated. It would create new uncertainty for small businesses because, in using that test, a court could reach two very different findings on the same infringed design patent if the same case were tried twice. That means that neither the patent holder nor the alleged infringer would have a sense of their chances in court. Uncertainty runs counter to small businesses because it hinders their ability to attract the new investment.
In an environment with already weakened patent quality, and strengthened patent trolls, smaller companies may not be able to afford a costly legal defense. Entrepreneurship already involves enormous risk, and the prospect of increased legal threats compounds this instability for small companies already struggling for access to loans. The stakes are especially high for minority-owned small businesses because minority-owned small businesses’ success and growth have the potential to create jobs that can uplift entire communities.
With the California case nearly underway, pivotal decisions are forthcoming. The results of that case may establish a legal framework for all future design patent cases and affect anyone who brings a product to market because they are susceptible to design patent infringement claims.
Patents can provide critical protections and certainty to inventors and entrepreneurs. However, a lack of clarity in the legal framework – for both design and utility patents – hinders small business growth. Entrepreneurs are hopeful that the court will seize this opportunity to increase some predictability through an appropriate test that would benefit small businesses by adding some certainty in an already risky environment.
Mario H. Lopez is President of the Hispanic Leadership Fund, a nonpartisan advocacy organization that promotes liberty, opportunity and prosperity for all Americans.