A few days ago, Rep. Peter DeFazio introduced the SHIELD Act, a new law that aims to deter frivolous patent infringement lawsuits. The bipartisan bill is co-sponsored by Rep. Jason Chaffetz.

The core problem: companies who abuse the patent system by threatening thousands of small businesses with legal action without even checking if products truly infringe on a patent. Most of the target companies end up paying the fee rather than going through a lengthy and expensive litigation process, even if the patent doesn’t even remotely apply to their products.

The proposed solution: Giving the judge the power to make the attacker pay for the legal expenses of the defending party if the law suit had no realistic chance of winning. That will make a patent troll will think twice before adding a company to the list of parties to sue: if the patent they claim is being infringed is not even relevant to the target company’s product, they’ll be on the hook not only for their own lawyers but for all the legal expenses of the other party as well.

ACT applauds Rep. DeFazio for taking a creative approach to address a complex problem that too many of our member companies have faced first-hand. We also want to make sure that our members have have worked years on legitimate innovations can protect them without additional financial risk. Good news related to patents is not something you see every day: finally things are moving in the right direction.

ACT today filed comments with the International Trade Commission on its consideration In the Matter of Gaming and Entertainment Consoles, Related Software, and Components Thereof

Given the economic and public value of the app industry, ACT’s members believe that granting an exclusion order for “Standards Essential Patents” is against the public interest. Standards are critical to the creation of dynamic, interoperable technological ecosystems on which app developers rely and from which the public benefits. They are particularly important in promoting the rapid adoption of communications technologies that require interoperability between devices and software. To permit the owners of standards essential patents to obtain exclusion orders would undermine the entire standard setting system

Motorola could have sought exclusive use of the patent but they chose a different route. The rest of the industry has lived with that decision. They must too.

Full text of the filing (pdf).

I see articles on the patent system nearly every day. Some are well-reasoned discussions about how patents and innovation intersect, some discuss issues the tech industry faces from poor quality patents, and others are simply rants by those claiming their industry would fare better outside the patent system.  Most days I can just ignore the latter kind, but on Friday I saw how it can bleed over and infect rational discussion.

Bloomberg News has an editorial that lays out some good points about the need for reform, and recognizes that bad patents — i.e. those granted for things that are not new, useful or non-obvious — can damage the industry. These bad patents are often built with overbroad claims, intentionally opaque descriptions, and even misleading abstracts.  They don’t help us make cool things, or make cool things better.  Everyone agrees that these bad patents should be purged, and systems created to prevent their proliferation.

But then the Bloomberg editorial veers into the absurd:

And the arms are piling up. Last year U.S. officials approved a record 244,341 patents, up 27 percent from 2009. Big companies bombard the patent office with incremental claims. Too many of these patents are duplicative or defensive; their existence becomes a tax on innovation, rather than a reward.

How does their mere existence become a tax? And since when do companies tax one another? Isn’t Bloomberg a company that focuses on news about capital? They should know better.

So where did Bloomberg’s claim originate? Look no further than TechCrunch, a publication ostensibly focused on the technology industry, known primarily for as a great source for news on startups and industry gossip, but not as much for in-depth analysis.  Their Friday article is titled The Terrible Cost Of Patents.

While TechCrunch has the more creative title, both articles play funny with the money.  They act as though cash is both created from thin air, and destroyed the same way.  Both talk about billions being “wasted” on patents instead of being spent on jobs.  I’d argue that the guys working in the lab, creating the patented idea, had a job. (Unless TechCrunch has re-defined the meaning of a “job,” sort of like Bloomberg is apparently redefining “tax.”) In fact Motorola spent about 45% of its revenue on R&D.  That is, hiring people and buying equipment to do (R)esearch and (D)evelopment to produce ideas that could lead to new revenue streams for Motorola, preferably in a way that gives the company some kind of leg up or exclusivity so that the payoff would last longer than a few hours.

Something a patent has been known to do.

In fact, we know that the patent portfolios of Nortel, Kodak and Motorola represent billions of dollars pumped into R&D.  Years of research, billions in expensive equipment, all in stasis looking for a way to become part of a greater whole.  Money, trapped like potential energy at the top of the hill, looking for release.  Some of the ideas will make it into the Android, iPhone and Windows Phone 8 designs that we will all rush to buy.  Others will end up being part of an overall package of ideas that help to solve a particular problem–perhaps never getting used exactly, but serving as reference points for the next new ideas. Still, others will have turned out to be worthless, and others will lose money because they didn’t patent. Neither is a crime—it’s capitalism.

Pretending that the money just vanishes is ludicrous and offensive.  The billions paid to Motorola go back to shareholders and VCs who pump that money into a bunch of new projects, some of which will have patents, and begin the cycle again.  This isn’t “trickle down” economics where the rich guy hires a maid.  This is basic capitalism – it’s invested capital that will soon be seeking new investments.  Moreover, Motorola’s patent pool doesn’t just come from internal R&D; like most companies Motorola has been acquiring good inventions for years, and paying the risk takers who created the new product along the way.  Without the patent system to offer great return on great risk, you’d never have companies like DEKA, Dean Kamen’s company that is currently creating limbs for returning war veterans, allowing them to pick up a spoon, pull on socks, or hold their child.

There’s no question that we need reform and we need it now; but let’s not answer the question of “how” with hyperbolic and absurd mischaracterizations. We need a patent system to have an effective and rewarding innovation economy; let’s fix the problems we face rather than create imaginary ones.

This all may seem like a “Sesame Street”-level lecture on the patent system, but both Bloomberg and TechCrunch seem to be forgetting that our current technology industry was brought to you by the letter “I” and the letter “P,” and the number $7 trillion – the annual US gross economic output from IP-centered companies.