Patent reform threatens lifeblood of northern Nevada economy

We are all familiar with the old saying, "The best defense is a good offense." This is the underlying rationale for patent reform legislation now awaiting consideration by the U.S. Senate. While change can be good, not every change is good.

The lifeblood of entrepreneurs and small businesses is creative ideas and innovations. Historically, this segment of our society is vastly responsible for job growth and the United States patent protection process has been a pillar in enabling innovators to protect their ideas and create jobs. As documented by the internationally recognized Kauffman Foundation of Entrepreneurship, from 1980-2005, nearly all net job creation in the United States occurred in firms less than five years old. This data set also shows that without startups, net job creation for the American economy would be negative in all but a handful of years.

The current patent process, like most processes, can always be fine-tuned with improvements and is well-established and understood by inventors and investors. This is vitally important for the survival of growth due to the interdependency of these two dynamic groups.

When an inventor is accused of patent infringement, the best way to avoid conviction is to invalidate the patent in question. Patent reform's express purpose is to expand and expedite the process of patent invalidation. Unfortunately, as a direct side effect, this enhanced invalidation process will make investors more cautious and thus, investing in patented technology will become more risky. Higher risk will further dry up already scarce capital needed for innovative start-up activity here in northern Nevada. The end results would be depressed job creation or even worse, jobs being lost.

Nevada already suffers from the recession's shrinking of capital available for its emerging tech start-ups. New tech-based companies need private capital to grow. Whatever benefits this bill may provide to the huge, multi-national companies pushing for its passage, it will most surely harm Nevada's start-ups who like the proverbial "canaries in the coal mine" are now in their most fragile stage. They will be the first to feel this unintended consequence. As directors of C4Cube, a non-profit and privately-funded incubator dedicated to the support of such start-ups, we think this legislation will severely harm Nevada's entire economic recovery where new tech-based start-ups must play such a key role and further derail the diversification of our economy.

It is universally agreed, even among economists, that Nevada must diversify its ailing economy by encouraging tech-based economic development, especially in green energy, where it now has a competitive advantage over other states. Concerted tech-based development doesn't start up by itself. Just as new, young companies need the infrastructural support provided by incubation, the initiation of new and broad- based high tech activities, like Silicon Valley and North Carolina's Research Triangle Park, requires the support of innovation infrastructures to succeed.

That is why most states have long since established government and quasi-government programs to provide physical infrastructure, research facilities, special training and capital that they believe will provide a competitive advantage over other states in job creation and other beneficial by-products. For example, New Mexico, Arizona, Utah and Texas have green energy potential similar to Nevada's, but unlike Nevada, those states have already initiated state supported technology-based economic development programs to support their start-ups.

When it comes to building broad tech based economic development, Nevada is in a start-up mode and thus far more threatened than other states by the dangerous side effects of patent reform.

Ky Good is managing director and Norman Smith is executive director of C4CUBE, a business incubation organization in Reno. Contact them through www.C4CUBE.com.