Patents are especially harmful to small innovators---they’re uniquely key in emergent fields like green tech.

Inventor Tom Bermatz wants you to buy his wind turbine. The turbine, a work of engineering and visual art, is small, efficient, and smart. One thing it is not is conventional. It can consistently produce electricity even in slow winds, whereas larger traditional three-blade turbines fail to overcome their own inertia. The turbine, appearing strange and foreign with its numerous spokes and circular blade design, is the result of exactly the sort of inspiration that comes best from individuals with great ideas-independent individuals free to rethink long-held and often incorrect assumptions about design and engineering. Bernatz has an invention that seems worth selling; however, some believe that our patent system and policies may hinder his ability sell it. There are patent-related pressures from existing wind patent holders, limiting his ability to design the most effective turbine; litigation pressures that come with skirting too close to often ambiguous and broad patents; and a lack of venture capital because his technology is an extremely longterm investment facing potential patent litigation if he is able to manufacture his new design. Bernatz is not a unique example.

While green technology appears set to become the next boom industry, lone inventors and small businesses often find that barriers to bringing the next green tech innovation to market are simply too great to overcome. Bernatz certainly wants you to buy his wind turbine. But will you have the chance?

The history of innovation is a progression of pioneering, breakthrough technologies, breakthrough inventions, and industries growing from nonexistence into flourishing markets worth billions of dollars in a matter of years. Over the past 150 years, the United States has generally enjoyed a favorable innovative position. Breakthrough industries have driven U.S. industrial growth. Notable examples are easy to find, from Edison's innovation of carbon filament incandescent bulbs in the 1880s, resulting in the market force that became General Electric (GE) in 1892' (still the second largest company in the world"), to Sergey Brin and Larry Page's creation of a new search engine algorithm in 1998,3 resulting in Google and its prime position in the then-emerging Internet search engine industry.4

The green technology industry is likely the next breakthrough industry. As with all breakthrough industries, there is currently a land grab taking place. Nations are scrambling to find the best policy and provide the right incentives to ensure that the next new innovations in green technology will be from their local companies or technology purchases and will benefit their local economies Countries making the right decisions may house the next GE or Google. Those making poor decisions will fall behind.

Despite the United States' history in breakthrough innovations, it is losing the battle to innovate in green technology. The U.S. patent system and policies historically provide small innovators with the tools necessary not just to innovate, but to capitalize on that innovation. However, entrenched corporate defense of overbroad patents, aggressive litigation by patent trolls, and a lack of national policy may be destroying the United States' ability to take a lead position in the green technology industry. U.S. inventors are taking notice and considering foreign business opportunities in countries such as China, where policies support the development of a thriving green tech industry. The United States faces a far less enviable task tan in the past. It must find a way to prevent falling behind as the rest of the world rides the green technology wave.

Small Companies, Capitalization, and Patent Costs: Small Green Tech Companies Burdened with Industry Problems

Small companies always face challenges entering into existing marketplaces; however, in emerging industries like green technology, there are few entrenched competitors to pose barriers to entry. Despite this, small green technology businesses in the United States have to deal with disincentives raised by the costs unique to green technology innovation in this country. The most significant of these costs are the high capitalization associated with green technology and the significant patent costs when broad patents are (improperly) granted and used to keep out innovators.

Capitalization: Cost of Entry Keeps Out All but the Most Capitalized

One of the largest problems facing green technology innovators is simply that green technologies often require very high capitalization compared to typical technologies. While garage innovators can create new green technology, creating a business around it requires an extremely high outlay. Venture capital is often essential to nourishing the development of green technology. 6 Unfortunately, venture capitalists often avoid green technology ventures that may not pay off for years. Intellectual property challenges further add to green tech inventors' imposing set of options.

Small companies that might otherwise fuel green technology innovation are forced to settle for licensing their technology, selling out to foreign interests, or moving to other, lower-barrier industries.

Patent Costs

Patent costs provide another drain on incentives for green innovation. Patent preparation, enforcement, and defense costs, potential antitrust abuse by entrenched businesses; and patent trolls hoping to capitalize on others' success in green tech all create significant disincentives to entry.' Small green technology businesses are disadvantaged compared with larger and less agile (and accordingly, often less innovative) businesses.

Antitrust Issues Threaten Small Business Green Technology Innovation

Antitrust issues typically arise a substantial time after a market is created and a clearly dominant competitor emerges. However, small green technology innovators can experience antitrust pressures earlier. Large companies seeing potential profits in green technology may claim broad patent rights before small green technology innovators have a chance to produce real advances in green technology. Already, the major players are girding their patent litigation machines for battle.

The problem facing small innovators is twofold. First, large corporations may be able to defend against broad enforcement of broad patents, but small businesses will not. A corporation may be in the best position to acquire a patent on a new technology or field before a green technology innovator can exploit it, and may be in the best position to exclude or demand rents for innovation in that area, even if the corporation is not necessarily in the best position to innovate. Second, a corporation is usually structured around existing paradigms because those paradigms have earned it revenue and assets. Such a corporation is predisposed against change. Although corporate research and development labs create numerous innovations, those innovations most often represent evolutionary development on existing technology with proven markets Comparatively, the seismic shift technologies most often come from nonestablished players. They come from the Steve Jobses and David Packards out of their garages, the Thomas Edisons out of their labs, and the Sergey Brins and Larry Pages out of their universities.

Patent Trolls: Small Businesses Lack the Resources to Defend against Nonpracticing Patent Litigants

Another patent issue with green technology is the rise of patent trolls. Patent trolls are intellectual property holding companies that do not produce any innovation or product, but instead create revenue by leveraging a patent portfolio Patent trolls disproportionately hinder small green technology innovation because small businesses or sole innovators are often completely unprepared to handle an early and aggressive litigation. Moreover, small businesses that do not yet have income cannot easily settle such disputes or agree to license fees. The result is that patent trolls represent a real barrier to green technology.'0