It’s repeated often, the assertion that America is a special place. There’s certainly a lot to be proud of: individual liberties, not-too-corrupt politicians and officials, an economy that blasts the rest of the world’s away, and a military that spends more than the next 14 nations combined, according to mercatus.org. The list goes on.

Yet in this election year, it’s been made clearer than ever that nothing is fabled and talked-about more than the links between innovation, ingenuity, and prosperity. The story of the self-made man is as classic-American as it gets, started by Ben Franklin himself! It’s the stuff that draws immigrants from near and far: a promise of opportunity in return for hard work, a better life for creative effort, and a chance to win big by following dreams.

The very thing designed to protect this mentality and place a positive incentive on intellectual productivity and encourage innovation—patent law—has been stifling it for years in an era more litigious than any in memory.

Today, giants like Samsung and Apple, with the help of patent law, fight to destroy one another’s devices using patents, instead of fighting to make their own devices bigger, better, and more enticing to the public.

Patents 101

The idea of patents was a great one back when it was first conceived as a fundamental part of American law: encourage people to invent new stuff by ensuring (by law) that their inventions will only be used for their own profit. No copycatting allowed, and any violators are liable to be sued. To see how it works in the ideal case, take this fantastic (and simplified) anecdote from This American Life:

“To get people to share their ideas and inventions…[the government says] to somebody like Eli Whitney, OK, you have this amazing invention, the cotton gin. If you tell everybody how it works and how to make their own, in exchange anytime someone uses the idea, you get paid. If there were no such thing as a patent, Eli Whitney would have to keep his invention hidden in a dark room with no windows, so nobody would steal the idea, and then people would bring him their cotton and he’d spit it out for them, all processed, on the other side. Instead of that we had thousands of cotton gins, everywhere. Patents make it safe to share and to innovate.”

So these patents became property—anyone could buy or sell the right to produce an invention exclusively, provided they owned it in the first place. This is where things get a little tricky, though, because then parties with no vested interest in innovation become able to use the patents they acquire to extort money from new inventors—inventors who use the old, patented ideas to come up with new creations.

Enter the patent troll

Perhaps the worst innovation to come from the rise of small Silicon Valley start-ups is the unnatural predator that feeds on them in their youth: the patent troll. A patent troll, simply, is a company that works only to threaten others for infringing on the patents it buys. Most are benign, or at least toothless, like the Nigerian email scammers incessantly begging Internet users to take back their abandoned inheritance money. One would have to walk right into the mouth of the beast to be affected in the least. Others have been arming themselves with the law, with depressing results.

The original patent trolls were the toothless kind. They would send threatening letters to start-ups and entrepreneurs in hopes of gaining settlement money over alleged infringement of patents allegedly owned.

Recently, a more disturbing brand of leech has evolved, the patent troll that actually owns patents. One of the biggest such trolls, Intellectual Ventures (IV), is reported by This American Life to own more than 30,000 patents it’s not responsible for creating. IV buys small inventors’ patents, the patents of people worried about infringement, and tries to recoup the money by suing everyone who comes close to infringing.

Trolls, wars, and lawyers, oh my!

The courts are where the biggest battles are played out, and the biggest companies in the technology business have taken up arms in the fight. Instead of working to produce new innovation (and thereby patents), large companies have been spending cash left and right to arm themselves with portfolios of patents. These patents provide a negative competition in the marketplace: instead of competitiveness working to make everyone’s products better and more desirable so that they stand out in the marketplace, they push corporations to fight one another to make each other’s products illegal, eliminating choices for consumers and needed gadgetry.

When Nortel, a defunct communications manufacturer went bankrupt, its portfolio of over 6,000 patents was sold to an alliance of Apple, Microsoft, and other tech giants—for $4.5 billion (dealbook.nytimes.com). For nothing more than intellectual property! In Google’s recent purchase of Motorola Mobility, a filing with the Securities and Exchange Commission (SEC) revealed that $5.5 billion of that was spent on the smaller company’s patents alone (Ars Technica).

The cases have been high-profile, and always amassing staggering legal fees. Here are some recent examples:

• Ongoing:
  • Apple v. Samsung over iPhone and iPad rights, with Apple offering licensing fees to Samsung of fees as high as $30 per smartphone and $40 per tablet, according to science/technology news site Ars Technica. This could add up—Samsung revealed in the court case “it has sold 21.25 million ‘accused’ phones and 1.4 million tablets” since June 2010, according to technology blog Engadget. At that price, the case could very well set the Korean manufacturer back a whopping sum of $690 million dollars.
  • Recent:
    • Google v. Oracle. Google ended up with a $4 million legal bill, despite the fact that all it won was an invalidation of Oracle’s existing patents.

What is seen here is simple economics: modern tech companies, enabled by patent law, find it easier to put themselves ahead in the marketplace by hobbling the competition than it is to build up their own work. All of this threatens a dangerous “race to the bottom” in which companies produce fewer and fewer new products, in favor of zealously protecting their existing ones in court while attacking all others.

So, what can be done?

Patent reform is where it needs to go from here. The way things work now, there is some significant patent overlap: many people hold patents for things that are so general that most others have to use it, or are so obvious—so close to common sense—that they merit no protection. In an age where software patents have become commonplace, it’s time the patent authorities get a grip on what is and is not patentable, and understand the need for a consistent, reformed system, where the $5 million-and-up average patent case is a thing of the past.