A sensible response: Do not rush to pass a bill

By Judge Paul Michel
January 6, 2015

slow-down-signThe new Congress will either upgrade or degrade America’s patent rights system, our primary engine of economic growth and job creation, when it resumes efforts at “patent reform.”  Although some manufacturing that was off-shored is returning, our economy remains an innovation-driven one.  Patents incentivize the repeated investments needed for R & D, invention, and commercialization of new products by assuring a reasonable return on these inherently risky investments  If these incentives fade, so will the investments, for money managers have many other options

What creates the incentives in the first place is the value of patents, but their market value depends on the owner’s ability to get courts to enforce them.  Patents cannot enforce themselves.

And, in commerce, there is no honor system, so every licensing transaction takes place in the shadow of the courthouse even when no infringement suit has been filed.  It is the realistic threat that suit can be filed and succeed that convinces those using others’ technology to take a license.  The potential to enforce patents in court drives the entire system.

Proponents of proposed legislation admit that they want to deter and burden such suits.  Led by 20 Silicon Valley IT giants, these companies demand legislation that would make suing more expensive, more difficult, slower and less certain.  But the principal deficiency in the enforcement system at present is that suing is too expensive, too difficult, too slow and too uncertain.  The justification offered for aggravating these ills is that the IT companies are being forced to spend considerable money defending suits that they assert are mostly frivolous, taxing innovation and diverting funds from innovation to wasteful litigation. To be sure there are some such suits.  But they must not be the majority because courts rarely find infringement suits to be frivolous.  I estimate they constitute less than 10%.  Adjudicated frivolity is less than 1% of all suits filed, although  a large majority settle before trial, so the real percentage is unknown.  In any event, as everyone can see IT innovation is astonishingly rapid and profits at these companies are at historic highs.

These 20 companies, out of America’s 30,000 with at least 100 employees, have lobbied so hard for so long and spent so much on PR and campaign contributions that their narrative of a broken litigation system is widely accepted on Capitol Hill and even at the White House.  As a result, patent rights may become unenforceable by all but the richest corporations when suing becomes unaffordable for nearly everyone else.  Who would suffer?  Start-ups , small and mid-sized companies that innovate, universities, research institutes, independent inventors and many large companies that license technology.  Who would benefit and by how much?  Anyone vulnerable to being sued for infringement, particularly the 20 IT companies pushing for the legislation.  They would save some on defense costs, but not much.  As a matter of basic cost-benefit analysis, such “reforms” seem unjustified, if not outright absurd.

Does that mean nothing can be done about those suits that are in fact baseless or otherwise abusive?  No, much can be done and is being done now by the courts themselves.  Under recent Supreme Court decisions, many suits are being dismissed at the outset, many bad patents are being invalidated, and legal fees are being shifted onto the losing party as never before.  Also, expensive discovery is being curtailed by the Judicial Conference.  So are vague Complaints that fail to detail the infringements asserted and to fully inform defendants of the claims brought against them.

Meanwhile, bad patents are being invalidated in large numbers by the Patent and Trademark Office under review proceedings created by the America Invents Act, in effect now for two years.  Since these proceedings take about a year and a half to conclude, their full impact is just beginning to be felt.  In most pending suits, stays are imposed while the asserted patents undergo reviews at the patent office.  Therefore, defendants are receiving significant relief already.  Is still more needed?  I doubt it, but if so, let the 20 companies prove it, rather than merely say it.

The sensible response to all these new and evolving circumstances is not a rush to pass a bill, but a pause to evaluate the rapidly changing situation.  Many expert leaders, including the former PTO Director David Kappos, have so suggested.  So far Congress does not seem to be listening, but they should.  The future of our economy and present job creation depend on a well functioning patent enforcement regime.  Let’s make it more efficient, not eviscerate or hobble it.

With so much at stake for so many, it is time for the vast majority of companies to speak up.  And concerned citizens,too

The Author

Judge Paul Michel

Judge Paul Michel became a private citizen on June 1, 2010 for the first time since he graduated from law school at the University of Virginia in 1966. Upon graduating from law school he became an Assistant District Attorney in Philadelphia, thus embarking upon the career of a public servant from 1966 to his retirement from the United States Court of Appeals for the Federal Circuit in 2010. Michel served on the Federal Circuit, which is the main patent appeals court in the United States, from 1988 to 2010, serving as Chief Judge from 2004 to 2010.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 3 Comments comments.

  1. Curious January 6, 2015 10:36 am

    But the principal deficiency in the enforcement system at present is that suing is too expensive, too difficult, too slow and too uncertain.

    Amen. Frankly, I don’t see how a small entity can afford to enforce their intellectual property in today’s environment. While many of the supposed “reforms” have been characterized as anti-troll, they are simply anti-patent. Notably, they are indiscriminate as to “good” patent enforcement behavior or “bad” patent enforcement behavior.

    These 20 companies, out of America’s 30,000 with at least 100 employees, have lobbied so hard for so long and spent so much on PR and campaign contributions that their narrative of a broken litigation system is widely accepted on Capitol Hill and even at the White House
    It is simply a business decision on their part. These 20 companies are at a much higher risk against patent suits since many of these companies were built by leveraging other people’s technology. Without much IP of their own making, they are very vulnerable to patent lawsuits. They are simply doing what a prudent businessman would do in their shoes.

    However, what is good for a handful of businesses is not necessarily good for the country. U.S. Patents are what protects innovating U.S. businesses from competition (both domestic and international). China (among others) would love to have a weakened U.S. patent system because it would allow them entry into the US market on many patented products.

  2. Rob February 8, 2015 1:36 pm

    It may be prudent to cement boot your competition, we don’t want or allow that I either.
    By what percentage it’s the bottom line of the big 20 hurt by patent litigation? I can’t shed any tears for them and their profits.
    Allow all to be prudent in business.

  3. Rob February 8, 2015 2:14 pm

    It may be prudent to cement boot your competition, we don’t want or allow that either.
    By what percentage is the bottom line of the big 20 hurt by patent litigation? I can’t shed any tears for them and their profits.
    Allow all to be prudent in business.