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New Patent Legislation: Warning to Venture Capitalists and Angel Investors

Are you an angel investor or venture capitalist (VC)?

Do you look for investment opportunities with early-stage, high-potential startup companies, in which you can obtain significant ownership equity?

If you are a VC or angel investor, new patent legislation threatens to eliminate these investment opportunities, entirely.

Why?

The Innovation Act (H.R. 3309) and similar legislation (S. 1612, Patent Litigation Integrity Act) current ly being rushed through Congress will make patent assets extremely risky to legitimately enforce.

How?

The proposed litigation threatens to impose a loser-pays, bond-requirement system.

What does this mean?

If you believe in good faith that a competitor is practicing your startup’s patented idea without authorized use, then you can’t enforce the patent without taking on significant risk of paying your competitor’s legal fees if you lose.

As an example, if you assert a patent against a competitor and the patent is invalidated during litigation, then you will be required to compensate your competitor for all of its legal fees. Worse yet, your competitor can potentially force you to pay an upfront bond, to hold your money in escrow prior to you being able to initiate an infringement lawsuit.

Why is this problematic?

How can you trust the United States Patent & Trademark Office (USPTO) is issuing valid patents? If you rely on them in good faith but they happen to be invalidated, then you pay for it, not them.

Who is holding the USPTO accountable for issuing legitimate patents?

Unfortunately, no one.

What does this mean for you if the new patent legislation passes?

You can’t rely on patent assets anymore. When looking for your next investment opportunity, you will need to seriously consider passing on s tartup ventures that rely on patent assets as security for their competitive edge and business model.

Why is Congress considering such drastic measures to patent reform?

They are attempting to rid our patent system of litigation abuse—but in doing so, they are threatening to undermine the legitimacy and enforceability of all government-issued patents.

This will serve to undermine the entirely of the VC and angel-investor business model.

Is there a better way to achieve patent reform?

Yes–we need to strengthen our patent monetization system by basing it on open, free-market principles, n ot by weakening our litigation system. You can read more here: http:/ /www.investinip.com/how-do-we-achieve-patent-reform/

What can you do about it?

1. Educate yourself—read more here: http://www.investinip.com/letter-senate-december-7-2013/
1. Contact your Senator immediately–the Senate will be voting on the Patent Litigation Integrity Act (S. 1621) at 10 AM EST on December 17, 2013. You can contact your Senator here: http://www.senate.gov/general/contact_information/senators_cfm.cfm
2. Ask your Senator to preserve the venture-capitalist and angel-investor business model by rejecting the Patent Litigation Integrity Act (S. 1612).
4. Instead of weakening our litigation system, ask your Senator help make our patent monetization system better by structuring it around open, free-market principles (read more here: http://www.investinip.com/how-do-we-achieve-patent- reform/).
5. And share (e.g., LinkedIn, Twitter, Facebook) this link with your colleagues and encourage them to contact their Senators—your business depends on it.