Lawsuit against Crowdfunding Platforms Signals the Urgent Need for Patent Reform

Crowdfunding PatentedCrowdfunding platforms just became the latest target for patent trolls – entities that purchase patents, not to produce any goods or services, but to threaten and file infringement suits and attempt to collect licensing fees. Take the case of AlphaCap Ventures, LLC, a company that supposedly “offers strategic, operations, and financial advisory services”, but whose website resolves to nothing.

A few weeks ago, AlphaCap filed a patent lawsuit against several dozen crowdfunding companies including CircleUp, Indiegogo, AngelList and Rockethub, for infringing on a patent that covers the “managing, tracking, distributing and syndicating resource consumers’ account, company, and relationship information” in debt and equity markets. The patent covers the seemingly basic business practice of organizing the kind of information essential to operating an equity crowdfunding platform. It sounds ridiculous, but due to an outdated, broken patent system, AlphaCap may be well within their legal rights to file such a suit.

Patent Troll CrowdfundingLawsuits like this one can be devastating to the defendants – especially smaller startups, like many of the companies on AlphaCap’s list. What’s even more distressing about this particular lawsuit is the threat to new financial platforms that enable other startups to launch and flourish. Crowdfunding sites represent a new wave of innovation in financing small businesses and projects around globe. For entrepreneurs outside traditional financing circles such as venture capital, crowdfunding platforms have begun to provide unprecedented access to capital, not to mention additional tools and services that help the businesses on their sites be successful.

Patent troll activity costs small businesses and the U.S. economy an estimated $29 billion a year (or more) in lost capital, and this particular suit may only contribute to that sum. But comprehensive patent reform to prevent lawsuits like AlphaCap’s may be closer than ever. Last week, a bipartisan group of House members re-introduced the Innovation Act, legislation that would directly address the patent troll problem.Julie Samuels

As Engine’s Executive Director and patent expert Julie Samuels explains, “The Innovation Act uses a combination of provisions to level the playing field, giving defendants more affordable access to make their case in a federal court.” This bill won’t interfere with the ability of a company or individual to file legitimate lawsuits for patent infringement. But it will require more transparency, and shift some of the costs and fees that can make even the most baseless suits impossible for startups to fight in court.

The AlphaCap suits are a reminder of the impact trolls have on every corner of the innovation economy, and the urgent need for real reform. You can let Congress know here that it’s time to make the Innovation Act law and eliminate the patent trolls stifling the businesses and the men and women behind them creating and enabling true innovation.

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Anna DuningAnna Duning is a program manager at Engine, a public policy organization supporting tech entrepreneurship. At Engine, Anna leads programming to connect startups to policy issues and policy-makers around the country. Prior to joining Engine, Anna worked on a legal team at Google focusing on intellectual property, online safety, and free speech issues across Google products. She managed projects to scale operations for copyright matters as well as European privacy laws. Anna grew up in the DC area and graduated from the University of Virginia. She currently lives in San Francisco.

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