For Whom the Bell Tolls: The US Patent System

The US patent system has a storied history: written into the Constitution by Madison; the Patent Act itself written by Jefferson; and, requested to be passed in Washington’s first State of the Union speech.  As a former speech writer for the Commissioner back in 1985, I had the fun task of finding little interesting factotums about the US patent system to add some flavor to whatever audience the Commissioner was addressing. Such facts might include: local inventors, known statewide innovative companies, or just interesting moments in the course of the system and its contribution to the development of the then brand new United States.

Some fun stuff: Abraham Lincoln reckoned that, along with the invention of the printing press and Columbus discovery of America, the US patent system was among the three most important events in the history of the world. Of the 4 faces on Mt. Rushmore, 3 are inventors (Roosevelt is the exception); but, only Lincoln got a patent. The British burned pretty much everything in Washington that mattered in 1812; except, the Patent Office, around which they placed a guard. And so it goes.

Why am I resorting to the emotional heart strings; because the current round of patent reform is an existential threat to the US patent system. If these proposals pass, we will be left with a very, very expensive registration system in which the Fortune 50, and no one else, will be able to participate. In case no one has noticed, the Fortune 50 do not innovate (with few exceptions, it is those who will become the Fortune 50 that do the innovating) and so, the system ceases to exist. Let me explain.

I know the alleged problem the current round of reform is meant to address: patent trolls. But, while the proposals will likely have some of the desired effect, it will be like a cancer treatment for every other healthy cell in the body: all innovators will face the same poison meant for the trolls. The proposals will greatly increase the costs and risks of enforcing patents, regardless of ownership or origin. The immediate effect will be a further extrapolation of what is already being felt through the last patent reform effort bringing on Inter  partes review (a.k.a. patent death squads); to wit: a great diminution of patent value and an almost cavalier attitude among accused infringers.

I quote what I have been told: “I throw away ten deals a day.”  Said the oft accused infringer. They cannot be stopped and cannot be made to pay. An infringer can drag you through endless PTO rounds of attack, if necessary (taking into account the current stats, 1 round is likely enough!), and now the Judge will be equipped to create a series of high hurdles followed by summary execution. You think Tech Transfer has trouble with a Valley of Death attracting capital and enthusiasm now; just take their patents out and shoot them… that ought to help. Start-ups will have absolutely no basis in value except for a popularity contest. Whatever the IP is or was, is worthless, and can never be sold for any value because it can never be enforced. Take that ….tech transfer.

Let’s look among the patent system Hemlock currently on the agenda: 1) heightened pleading requirements: now there’s a winner. You have to have, in hand, before pleading, all the facts necessary to prove your case. Every claim, every clause, every accused item. I guess the American tradition of post filing discovery applies to everything and everyone except patent holders. 2) Discovery standards: well, as we know, in light of No. 1 here we do not need discovery so we should not miss this much, and besides, since the patent will be invalidated by the PTO after a stay is put in place, why have any discovery. Saves time and money for everyone to just execute the patent before the copyist is put to any trouble, 3) Fee shifting: here we go, execute the patent and the owner! That will show those no good inventors what we think of their coming forward to pay for the examination and publication and issuance of their ideas through our patent system: if they make a mis-step and we can outspend them, we get it all back plus their ruination. 4) Mechanism to ensure recovery, even against shell companies: again, let us dispense with the entire basis for creating a corporation to limit liability, etc., when it comes to patent enforcement we want to reach right through and eliminate those wretched inventors. You can spill chemicals, kill people in mines, have shoddy workplace safety, all protected by the corporate veil; but, by golly, if you have the temerity to enforce your patents, woe be to you, you rotten monopolistic inventor. This is, plainly, idiotic. And yet, it is being seriously debated, and the general consensus is that some combination of these features in varying degrees of severity will emerge this year, pre-election!

Some Senator(s) are alleged to be conflicted on the basis that actual inventors are among the ranks of their citizenry, and calling for their execution would be, somehow, wrong. I hope good sense overwhelms that particular Senator and they, alone if necessary, put a stop to this mindlessness.

I put one question to these Senators, and their thoughtful staff, who are proposing to rid us of the US patent system: suppose another country that had a patent system were proposing any of these procedures or requirements to be put in place for US patent owners to enforce in that country: would the good Senators sit idly by and let the rights and property of US innovative companies (and stalwart campaign contributors) be summarily reduced in value and taken or destroyed by foreign governments and foreign companies?  I thought not. Then why do it to US companies of whom we do not yet know but which are hatchlings trying to grow and attract capital; to tech transfer; to garage inventors, etc. across America? (Do not get me started on what a give-away CBM is to bailed out too-big-too fail Banks. Boy, don’t those pity poor Wall Streeters need some help fending off the minnows of patent owners from their battleship of public capitalization. (If you do not get the dripping sarcasm here, you are not very keen.))

I would suggest, in the absolute and complete alternative to the present proposals to eliminate the patent system, this: before a patent suit can be brought, the PTO works with a patent owner, like the ITC, to certify an infringement. Cost: under $ 5000.00. Once that is certified, a District Court complaint can be filed with notice to State AGs about who and how many accused exist within their state, the process is then automatically stayed until validity is likewise certified, also by the PTO, on the basis of the accused, alone or in combination, paying for and challenging validity. Once validity is determined up and through CAFC appeal, the court proceeds to enjoin and/or mete out damages. All of this occurs within 2 years. Inasmuch as the PTO is the gate keeper for infringement and validity, the claim interpretation does not change. The District Court does what they do best, determine damages, not claim scope and meaning. The CAFC runs it all, subject to occasional interference (guidance) from the S.Ct. Everyone is a winner. Both sides have predictable timelines, costs and outcomes. It is not, as it is now, rigged so that the victory goes to the well capitalized, and merit is of little or no import, and the patent is an afterthought.

 

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ID 33563691
Author zacariasdamata

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37 comments so far.

  • [Avatar for Benny]
    Benny
    April 24, 2014 01:41 am

    Angry,
    Good guess. Israel ranks 13th in the listing of foreign countries (based on inventors’ residence) filing patent applications in the US.

  • [Avatar for Anon]
    Anon
    April 23, 2014 01:12 pm

    Benny,

    Why the comedy of “Take your pick?” Are you ashamed of where you live?

  • [Avatar for angry dude]
    angry dude
    April 23, 2014 11:51 am

    Benny at #34

    Israel ?

  • [Avatar for Benny]
    Benny
    April 23, 2014 09:02 am

    Step,
    “There is a set of democratic countries that have no criminal jury system (as I define the term above) and have no imminent plans to introduce one. These countries, some of which engage lay participation in trial adjudication in some form, include: Chile, the Czech Republic, Hungary, India ,Israel, Mexico,the Netherlands,and South Africa.” (quoted from E. J Leib, Ohio state journal of criminal law)

    Take your pick.

  • [Avatar for step back]
    step back
    April 23, 2014 08:53 am

    Benny writes … “Where I live …”
    North Korea?

  • [Avatar for Benny]
    Benny
    April 23, 2014 01:46 am

    Angry,
    Your statement still appears to make perfect sense if you re-write it without using the word “patent”
    Where I live we don’t have a jury system. Justice is in the hands of people who have actually learned the profession.

  • [Avatar for angry dude]
    angry dude
    April 22, 2014 05:13 pm

    30.Henry Blanco White

    as you probably know, jury trials in majority of patent cases are huge waste of money and main cause of completely unpredictable outcomes in patent trials

    patent trials should be different from OJSimpson case

  • [Avatar for Henry Blanco White]
    Henry Blanco White
    April 22, 2014 09:42 am

    “the PTO works with a patent owner, like the ITC, to certify an infringement. Cost: under $ 5000.00.” So the accused infringer never gets a chance to dispute infringement, and infringement is never reviewed by the courts. At which point you stick the accused with the cost of disputing validity. Also, the fact that infringement and validity are decided by different authorities predictably (see Germany) leads to inconsistent claim interpretations and nonsensical outcomes. You complain that the present system is too anti-patentee, but your proposed solution would deprive the accused infringer of basic constitutional rights. I had to look twice to make sure that it was not dated April 1.

    Oh, yes, and you need one extra clause:
    “Whereas the constitutional right to jury trial in civil cases appears only in the 7th amendment, and not in Article 3, the outcome of this proceeding shall be reviewed by a jury limited solely to nullifying Bill of Rights violations, and not exercising the Judicial Power.

  • [Avatar for ipkid25]
    ipkid25
    April 21, 2014 01:16 pm

    As I tell all that will listen, there are no more patents. Just applications. Everything is going to go back to the PTAB for review. Irrespective of how long it has been issued or its licensing history. More importantly, the standard of review is a preponderance of the evidence. Even if the patent has already had a claim construction in district court and a jury decision (see e.g. Virnetx). As a result, patent values are plunging and will continue to plunge. Why would anyone buy a patent for licensing? Makes no sense. Why would any company even consider taking a license? Makes no sense. Just IPR it.

    Interesting that most of the claims that have been invalidated are based on 103 arguments. So now we are using hindsight to kill issued patents after a substantial amount of capital has been used to prosecute, maintain, license and potentially enforce such patent. More absurd is the so-called ability to amend claims. The process is nothing like in re-exam and, to date, the PTAB has not allowed one amendment!

    Rader has it correct. Death squads. Money is flowing out of the IP space, as it should. There’s no certainty and certainly no end to the ability of infringers to attack patents, irrespective of their value. At the end of the day they have no value so why would a financial player get involved.

    All of this to kill the low end shakedown artists/lawyers. Ironic that they haven’t been killed at all. The negotiation is just different. “Give me $50-100K, instead of $500-1m”. It’s the high quality stuff that has to go through the ringer endlessly and suffer invalidation in a skewed system that allows endless attacks and invalidation under 103.

    Hat’s off to Congress and the PTAB. Job well done.

  • [Avatar for babalu]
    babalu
    April 21, 2014 11:17 am

    I have been in patent law for 25 years and it certainly looks like Congress, the courts and the patent office are doing everything possible to screw the inventor and small company. Patent Examiners have been trained to repeat claims and cite to non-existent support (lies). When challenged, they merely repeat or add hindsight, illegal references that can’t properly be combined.
    I agree with the comments that it appears that all partiest are weakening the system for attacks by the well heeled – either domestic or foreign. I checked the legal article and the abstract says the US patent system too strongly protects inventors – based on info from Lemley, etc. They also cite the last three symposiums on patent law for support. This group is acting exactly like the folks who took down the antitrust systems in recent decades: Pay for jurists to go hear stacked panels in tourist locations and watch the trusts get away with competition murder – now patent murders.

  • [Avatar for step back]
    step back
    April 20, 2014 06:28 am

    Steve writes:
    Is this what our politicians and president really want? [Extermination of the US patent system]”

    Well on this holiday weekend maybe all one can say is, forgive them they know not what they do.

    On the other hand one might say, best government that 30 pieces of silver can buy.
    In either case, these are not the leaders of Tom Brokow’s Greatest Generation
    They are the leaders of the Lemmings to the Cliff Generation

  • [Avatar for NWPA]
    NWPA
    April 20, 2014 02:21 am

    Steve, just think of what Obama did. He brought Chen to the Oval Office to meet with business leaders to approve her. He then appointed her as the new shadow director. Did CJ Smith come to the Oval Office too? Is CJ Smith stacking the board with patent judges that are anti-patent? It certainly appears that this is going on.

  • [Avatar for Steve]
    Steve
    April 19, 2014 10:23 pm

    PTAB patent and innovation death squads are alive and well.

    What will happen when the death squads start doing the bidding of the foreign generic drug makers … killing off our own country’s pharma and medical discoveries … that they’ve investing 100’s of millions of dollars (or more) on.

    Over the coming years, how many millions of lives will be lost … because of all the breakthroughs that will not be made? (even the generics-makers will eventually die off … because they won’t have these breakthroughs to copy anymore)

    Is this what our politicians and president really want?

  • [Avatar for step back]
    step back
    April 19, 2014 05:12 pm

    (Continuing from comment #23)

    C) So as mentioned, there are two kinds of “technological” leapfrogging, noncontributing and additively contributing.

    1) In the not-additively contributing type of technological leapfrogging, the second competitor sits around and lets the entrepreneur do all the hard work of inventing, developing a market for the new thing and then, without any of those initial burdens, jumps into the market and takes over.

    2) In the additively contributing type of technological leapfrogging, the second competitor sits around and … (repeat all of type 1 except …) except that the second competitor adds a small incremental improvement to the technology of the thing. But again all the unfairnesses of type 1 remain. The pioneering entrepreneur loses and the second entrant into the market usually wins.

  • [Avatar for step back]
    step back
    April 19, 2014 05:01 pm

    Joachim,

    Thank you for bringing into this discussion the issues of domestic and global economic competition.

    Many here, because their daily practice is focused only on technology; think mostly in terms of technological competition.

    In all these realms there is the issue of unfair leapfrog competition:

    1) economic leapfrogging at the domestic level,
    2) economic leapfrogging at the global level,
    3) technological leapfrogging at one or both of the domestic and global levels.

    A) Assume first that there is no technological advance. One domestic entrepreneur discovers or develops through hard work (marketing) a market demand for some product or service that other domestic businesses did not realize was there domestically. So the first one does all the hard work and then the others jump in and take the benefit of his hard work without bearing any of the burden. This is not quite fair, but generally we say, tough luck.

    B) Next assume that again there is no technological advance but one country in the global market has lax laws regarding worker exploitation (e.g. child labor, prison labor, unsafe work conditions, etc.). So the foreign business has an ability to leapfrog past and reap the rewards of a market developed by a domestic business, not because of better quality or advances in technology but simply because they can exploit differences in domestic laws.

    C) Finally, there is technological leapfrogging … in fact; 2 kinds (to be continued)

  • [Avatar for NWPA]
    NWPA
    April 19, 2014 04:52 pm

    Interesting point Anon. Not sure I have anything to add.

  • [Avatar for NWPA]
    NWPA
    April 19, 2014 04:44 pm

    You are right angry dude that 2 is enough. And that is the minimum amount that does not risk stirring up the unwashed masses that now inhabit our land.

  • [Avatar for NWPA]
    NWPA
    April 19, 2014 04:43 pm

    A lot of people would say Joachim that there is no such thing as an american corporation anymore. That all large corporation are international. But, your point is a good one that perhaps outside influences are pushing our patent system into the grave. You know, though, the bigger point again is that we are pushing the patent system into the grave and we are doing it without any real debate on the consequences.

  • [Avatar for Joachim Martillo]
    Joachim Martillo
    April 19, 2014 01:59 pm

    Once a lawyer starts discussing competitive advantage, he is addressing not law but microeconomics, and we have to acknowledge that a large part of the debate over patents pertains at least as much to national and international economic policy as it does to the US patent system.

    While there is not an international patent system, since 1995 US patent law has been harmonized (GATT Uruguay round) within the trade and tariff international regime.

    Anyone that does not understand that national law can affect international trade should look at the effect of state laws on the liquor business at the Massachusetts/New Hampshire Border.

    I am not a lawyer, but the State Department has consulted me with regard to international regimes in the past.

    The proposed patent “reforms” look to me as non-tariff facilitation of the penetration of US markets by foreign corporations even as foreign governments and super-governments move to protect their markets from penetration by US corporations.

    Hence I have some doubts that large US corporations have any interest in the gutting of the US patent system although I can hypothesize some other international actors that might have such an interest.

  • [Avatar for angry dude]
    angry dude
    April 19, 2014 01:53 pm

    NWPA

    antitrust “law” 🙂

    rule of thumb indeed:

    Intel vs AMD, Dish Network vs Direct TV, Home Depot vs Lowes etc. etc etc.

    2 is more than enough

    and now goes patent law

    we’ve seen it already: Apple vs Samsung and no one else really matters..

  • [Avatar for Anon]
    Anon
    April 19, 2014 01:32 pm

    NWPA,

    The difference is subtle, but no less real. Take for comparison the trademark laws. (Even) given that trademark law originates from a different section of the Constitution (the Commerce Clause), Congress has created a system of phased rights – there are different levels of rights that may mature to a different level (e.g. contestability).

    But this is expressly not how patent rights are. Patent rights do not ‘mature’ into a different set of rights after grant. After grant, the patent right contains the full bundle of rights. Period. Not even Congress can violate due process on the property rights – as granted.

    Now if Congress wanted to change patent rights in total, and create a different system in which the patent right at grant was not complete, they very well may be able to do so. But it is beyond argument that such is not what we have. A patent at grant still very much contains within its bundle of sticks a precious particular one that suffers a taking – even if it is Congress in the AIA that has ‘permitted’ this taking. The law is not so malleable as to allow a violation of due process just because Congress could have set up the patent rights system differently. That different system does not exist. Congress is not at liberty to dispense with Constitutional rights tied to property. Even they must obey the Constitution.

  • [Avatar for Anon]
    Anon
    April 19, 2014 01:22 pm

    Joachim – you are doing that “forgetting which forum you are in” thing again and to your vast detriment forgetting that we are discussing law.

    I wonder how much you are aware of what this does to your credibility in these discussions. I suggest tha tyou take greater care in thinking about and putting forth your position on these things.

  • [Avatar for NWPA]
    NWPA
    April 19, 2014 01:17 pm

    That is a subtle but good point Anon. I think there is no doubt that the AIA was a taking of existing rights that had been granted. No doubt about that. No sure how that would pan out in. Let’s face it, we need administrative law, but at the end of the day it really isn’t constitutional. So, we get into some pretty gray areas when you mix up taking and administrative law.

  • [Avatar for NWPA]
    NWPA
    April 19, 2014 01:14 pm

    Joachim, I think you miss the bigger point. That is the system is being essentially dismantled without a real discussion about removing the patent system. What we are seeing is lots of intellectually dishonest proposals for reform (when by the way the budget office said there is no need for reform and they are most apolitical agency in all of DC). So, we see the system being taken down without a real debate.

    It is hard, Joachim, for me to take you seriously when you don’t’ address that point. And, I will point out as many before me have that many big corporations don’t want a patent system. And just like every other area of law that they have decided to bend to their will we are seeing the big corp bending patent law so that it is in effect nothing.

    Think of antitrust law that is still existent, but has radically changed since the 1950’s and now is, in effect, really nothing but a rule of thumb to keep 3 players in a market (or sometimes 2 is ok.) There are a few per se rules that live on like price fixing, but basically anti-trust law is a fading shadow of what it was. We see patent law becoming that same fading shadow with no debate about the consequences.

  • [Avatar for Joachim Martillo]
    Joachim Martillo
    April 19, 2014 11:55 am

    It is hard to take seriously an article that is written by an attorney instead of a political economist and that makes no reference to the extensive literature discussing non tariff barriers to the penetration of national markets.

  • [Avatar for Anon]
    Anon
    April 19, 2014 11:19 am

    NWPA,

    This again brings me back to a concern that I have voiced several times. There is a taking when the granted patent right is reduced and returned to the executive branch agency for further review. That taking is one of the rights that belong to the bundle or property sticks that a patent grant provides: the presumption of validity.

    I have striven in past dialogues to separate and maintain the separation in any discussion between this particular stick in the bundle and any “final adjudication” on the overall validity of the grant itself. I do this because a separate and distinct legal point is at issue. The decision to grant an IPR is itself an executive branch decision that is not appeal-able to an Article III court. It is that very decision – in and of itself – that raises the specter of being unconstitutional – something that even Congress cannot simply write into patent law. This is a very nuanced position, and one that can easily be obscured, and that is why I repeatedly emphasize the fact that is a legal quandary all of its own accord. The law has been written far too vaguely for my appreciation of due process at the pivotal point of that decision to allow an IPR to proceed and to strip a granted patent of one of the rights in that bundle. Come what may, at that point in time, the patentee has lost something of value – and is at the minimum forced to spend money in defense of a right already granted and on a playing field that he does not enjoy all of the rights previously granted to him.

    My sense of justice – no matter the final result on a case by case basis – is offended as a matter of pure law.

  • [Avatar for NWPA]
    NWPA
    April 19, 2014 11:06 am

    Be clear about that too. I write patents for start-ups. Big corp starts using what they do. Start-up writes letter to corp. Corp. files IPR. Start-up needs $500K to go back and get their patent again. Really it is like a registration system now. Pay <$20,000 to register, then when you enforce you need $500,000 to fight the IPR.

    What really bothers me — Mr. White– (and by the way, thank you for the course that I took and passed the registration examination the first time) is that they are proposing more legislation when we don't even know what affect the AIA is going to have on the patent system. That will take at least another 3 or more years to figure out, but this giant new hurdle of the IPR (I know there was inter-parte re-examination, but that typically wasn't so bad for a number of reasons), is going to have a massive effect on the patent system.

  • [Avatar for NWPA]
    NWPA
    April 19, 2014 10:40 am

    One thing left out of this is that when you file for infringement, you can expect to go back to the PTO for an IPR. So, your start-up needs another $500,000 just to get out of the PTO. So, a patent that can be enforced now costs $500,000.

  • [Avatar for Anon]
    Anon
    April 19, 2014 09:55 am

    Joachim

    I think you missed (just a little) with your statement of “companies don’t have to worry about patents in the USA

    Law – is tripping you up, once again. Patent law is – and remains – a strictly territorial matter. There is no world patent system per se.

  • [Avatar for angry dude]
    angry dude
    April 19, 2014 09:34 am

    Benny,

    as I told you before, there is no clear right or wrong with the current patent litigation system:
    if you are 100% right in your (attorney’s) opinion then I would give you at the very best a 80% chance of winning patent jury trial as a patent plaintiff

    And if you are (well capitalized) patent troll with a junk patent and no clear-cut infringement then you have at worst 80% chance of losing, and still a 20% chance of winning or reaching a favorable settlement

    Bottom line: patent litigation is already like a bad joke – if you are undercapitalized party, but now they want to make it a farce

    thanks but no thanks

  • [Avatar for Benny]
    Benny
    April 19, 2014 08:20 am

    Item 3 – fee shifting – “if they make a mis-step…”. You mean, if you make a mistake. The inventor and patent holder is not typically a law school graduate, if his attorney gets it wrong, the inventor would be left holding the invoice.

  • [Avatar for step back]
    step back
    April 19, 2014 08:08 am

    Gene: a hall pass release from spam jail please ?

  • [Avatar for step back]
    step back
    April 19, 2014 07:59 am

    Joachim,

    So you are suggesting that various foreign companies and governments have good reason to want the US patent system to fall apart (become weaker) while their own domestic patent systems become stronger and that certain US Senators / Judges are helping the foreigners with their master plan (perhaps for personal but traitorous gains)?

    http://bclawreview.org/files/2013/11/02_hubbard.pdf

  • [Avatar for Joachim Martillo]
    Joachim Martillo
    April 19, 2014 04:01 am

    Suppose China develops a strong patent system, or patents are strongly enforced in the EU. Then the US government will have created a world such that under GATT European and Chinese companies don’t have to worry about patents in the USA, but European and Chinese companies can use their patent systems to protect their home markets. The world patent system must be uniformly enforced, or USA companies will lose out to foreign competition both inside and outside the USA.

  • [Avatar for Paul Morinville]
    Paul Morinville
    April 18, 2014 12:26 pm

    Did Versata appeal the CBM? I heard they did a while back but haven’t heard much since. Perhaps there is a chance the the CAFC will find an administration court extinguishing property rights unconstitutional.

  • [Avatar for Bemused]
    Bemused
    April 18, 2014 11:15 am

    John,

    Great article but I fear the US patent system has already been destroyed. The IPR kill rate for patents is so off the charts that not a single patent has much (any) chance of being enforced. Do you know when the system will change back to what it was designed to do (i.e. protect innovators)? When the big US tech companies start realizing that foreign competitors are coming into the US and willfully ripping off their products/ideas/inventions and then invalidating IP protection through the IPR process.

    Bemused.

  • [Avatar for angry dude]
    angry dude
    April 18, 2014 10:19 am

    Excellent description of proposed changes to patent laws
    Item 4 – going after all interested parties including inventors and investors is particularly asinine:
    it’s called “piercing corporate veil” – a big taboo in this country
    I guess inventors and their investors are now enemies of the state and humanity

    As for suggestions at the end – it is pretty obvious that some kind of government-assisted arbitration is necessary before lawsuit is launched and parties are buried in legal costs, and USPTO is the best place to do it (with CAFC being occasionally involved, but no Scotus please !)
    Small claims patent court would help a lot too, if damages are in 5 or low 6 figures
    But these are all impossible dreams – when congress critters read from scripts written in corporate boardrooms