Fixing the Patent System to Improve Innovation

On Friday, April 12, 2013, I was at American University Washington College of Law for a program titled Patent Subject Matter Eligibility Today: Software, Genomics, and Business Methods. I participated on a panel titled CLS Bank en band: Are Software Methods Patentable? What I want to write about today, however, is not our panel presentation, but rather the Keynote presentation by Suzanne Michel (no relation to Chief Judge Michel), a former deputy director of the FTC who is Senior Patent Counsel at Google, Inc., working in Google’s policy office in Washington, DC.

It is no great surprise probably, but I disagreed with practically everything she said, although I did enjoy her presentation. I love to debate the issues, and she is extremely knowledgeable and well briefed on what is happening in the trenches. Those of us who disagree with the proffered narrative that the patent system is broken can’t ignore competent advocates like Michel. She is not a patent-hater and her message is sharp, crisp and clear, although I do think it is misleading. The patent system is not broken, and for reasons I can only guess the best and brightest leaders in much of the big-tech industry are pursuing paths not calculated to succeed; at least if the goal is to stem the rise of patent litigation and innovate for the future.

With this in mind, what follows is a summary of Michel’s presentation, which if not titled was certainly themed — Fixing Problems of the Patent System to Improve Innovation. I also provide my thoughts and comments in the format of comments from the peanut gallery, or perhaps as a patent law equivalent to Mystery Science Theater 3000.  In order to differentiate my thoughts/comments from Michel’s presentation, my comments are italicized, colored, indented and tagged with the IPWatchdog logo.

You just don’t understand what innovation is!

Michel began her presentation recognizing that while the patent system is not perfect, there is “no doubt that innovation is critical to promoting consumer welfare, and no doubt that the patent system plays an important role.” She explained that “patents play a critical role in innovation in many industries.” But it was not long before she moved into what is wrong, in Google’s view, explaining that there are flaws in the patent system and citing patent assertion entities (i.e., patent trolls) and the need companies have to spend money to obtain large defensive patent portfolios.

Michel then explained that a big part of the problem within the industry is that there is not a common understanding of what the word “innovation” means. She defined innovation as taking a new idea, turning it into an invention and putting it into the hands of consumers. “Until a product is put in the hands of consumer it is still an invention, not an innovation.”

Frankly, I agree with Michel. Many within the industry simply do not know what “innovation” means. Of course, her definition of innovation is completely wrong.

Merriam-Webster’s dictionary defines innovation in this way: “1: the introduction of something new; 2: a new idea, method, or device: novelty.” Thus, it is rather clear that Michel and those from big-tech who rail against patent trolls are the ones who are misrepresenting and misleading with respect to the true definition of “innovation.”

Innovation is NOT about products in the hands of consumers. Innovation is about advance. Under her definition of the term innovation no university researchers innovate, those scientists in Federal Laboratories do not innovate, research and development companies do not innovate, and independent inventors do not innovate. For crying out loud, Thomas Edison would not have been an innovator either based on this definition of innovation. How ridiculous is that? How ridiculous is it to pretend that Edison didn’t innovate, but the companies that licensed his patent rights and took products to market did? This offered definition of innovation strikes me as utter nonsense. 

Big tech prefers to define innovation as products, and that is how they can erroneously conclude that patents harm innovation. Patents do not harm innovation. Patents promote innovation because they require disclosure of the invention and explanation of the “something new” so that those who come thereafter can stand on the shoulders of those who have come earlier. Patents provide incentive and we simply would not have as much disclosure without them. Just look at the explosion of patents after the creation of the Federal Circuit. Up until then patents were rarely, if ever, found valid. Once they have a chance in court they are worth pursuing and we get disclosure over closely held trade secrets.

Obviousness standard and its application at the USPTO

Michel explained that obviousness is a problem with the patent system: “The system is supposed to grant patents only on those inventions that are not obvious.”

Because of the limitations of language you are likely to either grant patents that don’t deserve to be issued, leading to what she referred to as false positives. Similarly the limitations of language can cause leading toward false negatives, where those that deserve to be issued are denied.

Hard to argue with this so far, but that is typically the way the argument starts. Put forth something that is unassailably correct and then tweak it a bit more than logically correct. The playbook then typically is to so moral indignation that there is disbelief of what is unassailably true, when in fact the disbelief is associated with what is objectively incorrect. In any event, it is true that when seeking a patent something needs to be unique. As a result sometimes language does betray the underlying innovative reality. This is particularly true with pioneering innovations. 

Michel then went on to say that the system tends toward the false positives with respect to software and business methods. She explained that a lot of things would happen regardless of whether a patent could be obtained. She claimed that this view of the universe is supported by Graham v. John Deere, or at least the interpretation of that case by Professor Duffy, who she cites.

First, I am really sick and tired of hearing that the Patent Office grants software and business method patents as if they are candy. That is FALSE! To the extent it ever was true it was true over a decade ago, and Michel and all those who make this false accusation either know it or they should know it. Certainly, the USPTO under the Obama Administration is once again issuing patents, but to pretend that patent examiners issue everything that crosses their desk is fanciful.

You may recall that there was great interest in covered business method post grant review, which was a part of the America Invents Act (AIA). This gives those charged with infringing business method patents an avenue to utilize post grant review proceedings at the USPTO. Since it became available on September 16, 2012, only 15 such proceedings have been initiated according to the USPTO during the first six months. That is a telling statistic! These patents are such an overwhelming problem that the industry simply ignores the vehicle they demanded to challenge them at the USPTO? Must not be such a big problem after all!

Those who represent innovators in this space know that over the past 8 to 10 years things have considerably tightened at the USPTO, particularly during the majority of the Bush Administration. Bad software and business method patents were issued during the Clinton Administration, then during the Bush Administration little was issued, which was a problem in and of itself because innovation was being buried for fear of a single bad patent issuing. That did tremendous damage to our high-tech economy that became most apparent after the financial crash in 2008. Now during the Obama Administration we are somewhere in between, with good patents issuing, bad applications being denied. 

Still, not all is a tale of roses and golden eggs at the USPTO. Take for example Art Unit 3689, which has an abysmal allowance rate of just over 6% according to statistics accessible through the PatentAdvisor system. See also Allowance Rates for Art Units Examining Business Methods. Those who are saying that today patents are being handed out on bad patent applications and non-inventions in the business method and software space are either grossly misinformed or they are lying.

Of course, whether something would have happened eventually even without a patent is not a part of the patent inquiry. Frankly, it cannot be a part of the patent inquiry because this slippery slope would render everything unpatentable. Anything and everything can be said to be eventually inevitable. The question the system asks is whether the invention is new, non-obvious and adequately described. Patents are about incentive, and the fact that eventually innovations would be made is anathama to the system. The Constitutional foundation for the patent system is to benefit society as early as possible through the dissemination of information and the advance of science and innovation as quickly as possible. That is why in the words of Thomas Jefferson we tolerate the embarrassment of a monopoly for a limited time.

Why the patent system leans toward false positives

Michel explained that the patent system leans toward false positives because there is a belief that there is little harm in doing so, citing Judge Rich’s language explaining that the marketplace will justify and check because no one will want to pay for bogus patents.

This was described as a theory, and only a theory. Indeed, a theory that is not true. In fact, I couldn’t disagree more. Patent detractors love to pretend that they are victims of the patent system and patents need to be curtailed. The trouble is that Google and other big tech companies have their own patents and simply want to prevent others from obtaining patents.

Google and other big tech companies know how they achieved their dominance and it was thanks to innovation that became protected by patents. The ire of Google and the rest of those who are being plagued by bad lawsuits – nuisance value lawsuits – should be directed to the district courts. The district courts have the tools at their disposal to ferret out shakedown, extortion-style, nuisance value lawsuits that are a very real problem for the industry. These tools, such as Rule 11 sanctions are not used primarily because the legal system is not predisposed to believe that litigants (i.e., patent plaintiffs) are engaging in nefarious, nearly criminal activity by seeking to shake down defendants.

Rather than seeking to solve the problem Google and others would prefer that USPTO to stop issuing software and business method patents. Unfortunately, the law is written so that patentees are presumed to be entitled to receive a patent. There is great divergence of allowance rates at the USPTO, and to pretend otherwise is ridiculous. Some patent examiners openly tell patent attorneys that they don’t issue patents because their supervisors won’t allow them to issue patents.

Patent litigation is the root of the problem

Michel stated that increased patent litigation does not promote innovation, but rather distracts from innovation.

That sounds good, but my problem with it is that like so much else she said it is provably false. History is replete with so-called patent wars and so-called patent thickets. In each case these patent thickets and patent wars were the precursor to stunning, sudden and stark leaps in the advancement of technology. So if we are going to concern ourselves with factual reality then we should rely on facts, not sound-bytes that play well on Capitol Hill or in the media.

This often proffered and seemingly logical position that litigation is the problem simply does not hold water. Indeed, the patent system is practically designed from the top down in order to promote patent thickets as market participants race to dominate the marketplace and win as the sole standing company that has the ability to exclude all others. That never happens though and the thicket ultimately forces industry collaboration, which leads to explosive, paradigm shifting technological innovation.

Google’s problem is they are forced to sell patents to Patent Trolls!?!?

During the question and answer segment I asked several questions, specifically dealing with the industry causing their own problems because they settle for nuisance value, thereby making the trolling business model extremely profitable and without any risk. Michel stated that Google doesn’t settle these cases.

She also indicated that a problem Google and others have is that they “have to” get so many patents and can’t afford to keep them so they are practically forced to sell them to NPEs and then they wind up getting sued on those patents.

I can’t speak to whether Google settles patent litigation for nuisance value, but everyone knows that big-tech, small-tech and really, really small tech, settle with patent trolls who are bad actors engaging in extortion-like behavior. Very few companies fight to win. The overwhelming majority fight until a small demand (maybe $25,000 to $50,000) is made. Then those who would fight to the death to prove a point simply ask “who do I write the check out to?”

Settling nuisance value perpetuates the cycle, as the automobile industry discovered in the 1980s and early 1990s. Show a willingness to pay extortion-like demands and you will see more lawsuits filed. It is an endless cycle, at least until it gets broken. The solution is an easy one — fight at least occasionally, or at least one! Because the easy solution isn’t pursued and instead the industry pursues a strategy akin to a Buck during deer hunting season I have to assume that they really don’t want a solution. What other conclusion can you reach when intelligent people ignore the obvious?

It is almost surreal, but defendants settle nuisance cases without any merit and then drag legitimate lawsuits out as long as possible, challenge rights in as many forums as possible and litigate, re-litigate and re-re-litigate the same issues over and over in every possible forum. How utterly and completely ridiculous. In what universe does it make sense to reward bad actors with riches and deny innovators a reasonable royalty? Welcome to the wonderful world of big-tech logic!

In terms of being forced to sell to those who then sue, all I can say is: WOW! If this isn’t a problem that Google and other big-tech companies can’t figure out I don’t know what to say. I am nearly speechless. Obviously one solution is to simply not sell. Another obvious solution is to sell but keep a license for yourself. Still another solution is to sell but prior to selling grant a consortium a license. If the best and brightest legal minds in big-tech can’t figure that problem out then they need different legal representation. Feel free to give me a call. I can tell you how to solve this and other problems you face. I’ve made that offer numerous times and it is never taken. It never will be taken either because they aren’t interested in solutions. They are interested in perpetuating the problem to achieve their ultimate long term goal, which is a radical redefining of the patent system.

Finally I agree with something!

Michel said: “It is ridiculous to think the AIA solved the problems we are talking about.”

AMEN! The AIA just changes the law, but solves no problems. In fact, it actually encourages more patent lawsuits to be filed because of the anti-joinder provisions. So if you don’t like the steep increase in patent filings you really need to lay the blame squarely at the feet of Congress. See The AIA Explains the Recent Rise in Patent Litigation. This is the system they designed and it is working exactly as designed, albeit it not as intended. But this type of unintended consequence really is the hallmark of Congressional involvement, which is a sad commentary in and of itself.