On December 21, 2009, I embarked upon identifying the top 10 patent stories of the decade, which ends as we usher in the new year. The Top 10 Part 1 identified what I thought were in the bottom half of the top 10, and while any top 10 list is sure to be at least somewhat controversial, it seems as if the list hasn’t created too much of a stir, at least so far. Undoubtedly, once I set out the top 5 the real debating will begin as folks suggest what they would have preferred instead. Notwithstanding, I really cannot imagine any bigger stories than the top 5 below. Please also feel free (and I am sure you will) to point out things that I missed or clearly got wrong, at least in your opinion.
Without further ado, in descending order, here is Part 2 of my Top 10 Patent Related Stories of the Decade, with numbers 5 through 1. Up next, honorable mentions, which will be Part 3.
5. eBay v. MercExchange
Supreme Court watchers are seldom surprised when the Court passes on an opportunity to breathe clarity into otherwise unsettled waters. But what the Supreme Court did in the eBay v. MercExchange case was far more sinister than merely refusing to address important issues of the day. The Supreme Court decided to throw out long standing and well established Federal Circuit jurisprudence and in its place offered nothing! That’s right, the Supreme Court ruled that the Federal Circuit has been all wrong for years, but didn’t explain what they should be doing, leaving it to the district courts and the Federal Circuit to figure it out for themselves.
Prior to May 15, 2006, when a patent owner prevailed on the merits in a patent infringement lawsuit, there was a well established general rule that an injunction should issue absent the presence of a sound reason for denying it. In reality, what this general rule meant was that permanent injunction should issue, and if they didn’t issue the district court had some explaining to do. While the routine issuance of a permanent injunction to the victorious patent owner may seem reasonable, such a bright-line rule was believed by some to be inconsistent with well established equitable principles that apply to all areas of law.
The Supreme Court believed that the familiar principles of equity as applied to permanent injunctions do and should apply to disputes arising under the Patent Act. The translation: the often applied bright-line rule is erased in favor of the traditional four-factor test for granting injunctions. Henceforth in patent cases, in order to receive a permanent injunction a victorious plaintiff is required to demonstrate: (1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction.
It is still likely too early to tell what the outcome will ultimately be, but make no mistake, eBay v. MercExchange substantially watered down patent rights. A patent by its nature offers the owner the right to EXCLUDE others. Without a permanent injunction issuing as a matter of course the patent right is not really an “exclusive” right. Permanent injunctions still issue, and there haven’t been egregiously incorrect rulings yet, although some that would have been different no doubt. The disdain for patent rights in some corners could lead the public interest factor to be abused, and if that happens this will be one of the most dreadful decisions of all time! In the meantime, it certainly deserves its place in the top 5, perhaps should be higher, and may well lead to the making of the top patent story of the next decade.
4. USPTO Allowance Rate, Backlog and Pendency
As you read on you will see that the Claims and Continuations fiasco is still yet to be discussed. In some ways the allowance rate, backlog and pendency are inextricably intertwined with USPTO dysfunction during the time frame between 2005 – 2009, and also inextricably intertwined with the Claims/Continuation fiasco. Notwithstanding, I think the allowance rate, backlog and pendency issues deserve their own place in the top 10 because of the toll that it has had on the US economy, which is inexcusable and darn near treasonous during a recession as bad as anything we have seen since the Great Depression, and perhaps on par with the economic troubles of the late 1970s.
During the first quarter of 2009 the allowance rate for patent applications dipped to 42%. At the end of fiscal year 2009 there were 1,207,794 patent applications pending at the US Patent Office, with 735,961 of those still awaiting first action by a patent examiner, which means that 735,961 patent application had yet to be picked up and even looked at substantively. At the end of FY 2009 the average length to first action by a patent examiner was 25.8 months, and the average total pendency of a patent application was 34.6 months, up from 25.6 and 32.2 respectively for FY 2008. But the average pendency data doesn’t tell the whole story due to the way the Patent Office accounts for applications. Any more, getting a patent issued without filing a continuation or RCE seems increasingly rare, which was in no small part to the disincentives provided to examiners for allowing applications, particularly without mandating an RCE. But if you filed an RCE after being finally rejected the first application came to an end, only for a new period opening. So I would guess these average times are under estimated by about 50% if you want to know how long it takes on average from a first application being filed to a patent being issued.
To put this into some historical perspective, take a look at the chart below. You can see that the backlog started its upswing noticeably in 1998, and just went out of control over the last decade. Under the Bush Administration the USPTO held innovation hostage, prevented small businesses, start-ups and entrepreneurs from getting investor funding and that created a drag on the economy, prevented the creation of new jobs and then when widespread economic disaster hit the Patent Office was unable to play a part in recharging the US economy.
3. Congress AWOL on Patent Reform
Is it worse for the USPTO to have mismanaged itself as illustrated above, or is it worse for those who are supposed to be overseeing to simply not notice or ignore what is going on? Congress stood by and watched the Patent Office run itself into the ground. There was no meaningful Congressional oversight, unless watching the Agency crash and burn from the sidelines qualifies as oversight. Worse yet, we all know that small businesses drive the US economy, and small businesses, entrepreneurs, start-ups and individuals that could and otherwise would lead us out of recession are simply hanging in the wind, waiting for a Patent Office that is hopelessly behind. Thus, the abdication of oversight by our elected representatives seems a bigger story than the USPTO permitting the allowance rate to crater and the backlog of patent applications to grow to ridiculous levels.
According to Gallup, the US Congress ends the decade with an approval rating of 25% and a disapproval rating of 69%. The shocking part of this, at least to me, is that there are 25% of those polled who approve of what Congress is doing. Sometimes I wonder what Members of Congress are thinking, or even if they are thinking, and while there are high profile matters where Congress seems to be essentially ignoring the will of the overwhelming majority of Americans, there are more obscure areas where Congressional behavior is even harder to rationalize. Enter patents. For years now Congress has wasted all kinds of time and energy attempting patent reform, only to have nothing happen yet again. I suppose one way to look at this is that by not doing anything at least they are not causing any more harm, but Congress being absent without leave (i.e., AWOL) on patent issues is unacceptable given US economic reliance on intellectual property, and in particular patent rights.
Even if Congress has managed to collectively take their head out of the sand long enough to get patent reform done, it would not have helped. Playing politics and bowing to lobbyists is the name of the game in DC, but doing so with US innovation policy is inexcusable. The US Constitution allows Congress to foster innovation, and for this decade they seemed to only get in the way, and then focused on things that would benefit large corporations and not fix the Patent Office. Patent reform would have created more work for the Patent Office, not provided any additional funding and it would have ignored the several basic, fundamental changes to the law necessary to prevent US innovation from dying an undignified death, rotting on the vine.
Patent reform must fix the Patent Office, it must provide adequate funding to the Office to dig out from the errors of the past, it must force the Federal Circuit to apply a fraud standard for inequitable conduct and it must reiterate that the 1952 Patent Act did away with the flash of creative genius standard that the Supreme Court unceremoniously brought back in KSR v. Teleflex.
Missed opportunities to chart a coherent course for US patent and innovation policy demonstrated just how out of touch the Congress really is, and how little they know about the US economy.
2. USPTO Claims & Continuations Saga
This easily would have been the top story of the decade had the Patent Office been able to implement the claims and continuations rules they announced as final during August of 2007, but thanks to Dr. Tafas, GlaxoSmithKline and their respective attorneys that was not going to happen. The claims and continuations rules would have placed limits on the number of claims a patent application could have without filing what is known as an Examination Support Document (ESD), which is known by some in the industry by another name; perhaps the best one being the Express Suicide Document. An ESD essentially requires that the patent applicant examine their own patent application and make all kinds of horrible admissions that could be used later by a defendant to claim inequitable conduct, which would destroy the patent by making the patent unenforceable.
Limiting claims to 5 independent claims and 25 total claims without the filing of an Examination Support Document really wouldn’t have made any difference in terms of reducing the number of application unless the Patent Office could also limit the number of applications that can be filed. That is where the claims and continuations rules really became awful, evil and just outright unacceptable for innovators. An argument could be made that forcing bite-size applications maked sense and would allow for more even workload management, but limiting the number of claims that could be obtained by limiting the number of continuations was an all out assault on the pharmaceutical industry, and attacked all commercially relevant inventions because only an invention that is commercially relevant leads to a stream of patent applications.
Thankfully, the Eastern District of Virginia issued an injunction against implementation of the rules. The first Federal Circuit panel completely missed the boat, with the exception of Judge Rader who dissented. The full Federal Circuit wanted to hear the case en banc, but new USPTO Director David Kappos withdrew the rules and mooted the appeal. The Federal Circuit refused to vacate the district court decision, so the precedent will remain a constant reminder of the egregious process followed by the USPTO and a reminder of the saga that engulfed the patent community for over two years.
1. KSR v. Teleflex
In my opinion the top patent story of the decade absolutely, positively is KSR v. Teleflex, and there is no room for argument or discussion. You would be hard pressed to identify a case where the US Supreme Court has so single handidly screwed up more than in they did in KSR v. Teleflex, which doesn’t give many hope that they will get it right when they decide Bilski v. Kappos. Page after page after page of the KSR v. Teleflex decision demonstrates a complete lack of understanding of patent law, innovation and technology. It is also clear that the Supreme Court does not understand the patent process or how the Patent Office goes about their business. It was also clear that they haven’t a clue with respect to patent examiners either.
Patent examiners play a critical role in the innovation process, but they are overwhelmingly not attorneys. They are engineers and scientists who apply to the best of their ability what the Manual of Patent Examining Procedures sets out for them. Patent examiners become expert in a few legal concepts, and adept with understanding technology and how it compares with prior art. It is naive, however, to believe that patent examiners can approach patent applications on a case by case basis despite the fact that the Supreme Court believes they should. The Supreme Court never wants to box themselves or any court into a corner, and loathes bright line rules and tests, which was disaster for the teaching, suggestion or motivation test to determine whether an invention is obvious.
The Supreme Court felt that patent examiners and district courts would be able to figure out whether to issue a patent on a case by case basis through the application of “common sense.” I kid you not, that is what they said. Never mind that what is common sense to one is not common sense to another. Also never mind that there are over 6,000 patent examiners who are not legally trained. Never mind that scientists and engineers typically abhor squishy-feely tests. Also never mind that the patent laws as enacted by Congress prohibit questioning how an invention was created, specifically having done away with what was previously the flash of creative genius requirement to obtain a patent. We are left with what is a modern day flash of creative genius requirement, based on common sense of 6,000 plus patent examiners and hundreds of district court judges who now get to apply their common sense.
With KSR there is no way to ensure even application of the laws, which itself calls into question long standing constitutional principles. The district courts are now just diving into KSR in a large way, the Board of Patent Appeals seems to apply it strictly when given the chance, which means the invention in the crosshairs is unpatentable, and the Federal Circuit is embarking on what will be many years, perhaps a decade or more, of evolution to make sense of a test that is ridiculous.
We will live the the disaster that is KSR until the Federal Circuit can erode it sufficiently or Congress steps to the table to do the right thing. With Congress pathologically AWOL (i.e., absent without leave) on patent legislation year after year, KSR will dog the patent community for years to come and may well wind up the top patent story of the next decade as well.