Patent Reform: An Analyst’s Perspective of the AIA

By Elena Murphy
September 19, 2016

capitol-storm-cloudsHaving been in the industry for a decade, one can think of changes from the perspective of time.  Back in the early 2000s I have been a witness to the rise of the opportunistic litigation model, where a patent, regardless of quality, was deemed to have value and could be bought and sold assuming that at least a certain amount could be collected asserting it.  Patents were high in presumed value, and easy to license.  In the last five years, another extreme is apparent:  low expectation of value, and a high risk of assertion, almost negating the benefit of doing so.   The two extremes have been apparent and, like any extremes, come with a set of problems.

The America Invents Act (AIA), which had an intent to improve patent system and invention protection, ironically, may lead us to a lower level of invention than before, at least in the industries affected by this legislation.  As we learn from classroom, creating new agencies does not always eliminate the problem the agencies were created to solve.  Sometimes, policies add complexities to a system, already entangled in complexities, making a desired solution less likely.

As the Patent Trial and Appeal Board (PTAB) was created, new review proceedings aimed to invalidate the patents were added, including Inter Parties Review (IPR), Post Grant Review (PGR), and the Transitional Program for Covered Business Method Patents (CBM).  The new system did not replace the previous system, but added to it, bringing new challenges to the IP community.

To see that, we need to ask the right questions:  Have the AIA institutions achieved the intended purpose of their creation?  What are the by-products of operations of these institutions?

The patent reform originally set a goal of eliminating the use of weak, meritless patents, and lowering the cost to the society.

Have we achieved better quality patents?  Have we reduced the burden on the courts and the society by reducing the litigation and societal costs?

Let’s consider some of the key questions and the implications of the new system under AIA.

The fairness question

Perhaps the most challenging to accept is the notion that a tribunal created with a specific purpose of invalidation can be impartial to both the petitioners and the defendants.

The AIA tribunal stands in contrast to the Court system, as their inherent mission is not to evaluate, but to challenge, contest, and invalidate.  In addition, a “winners and losers” system, allowing one party to outspend the other, or to create joinders to outnumber the other, remains very damaging to the inventors, investors and small businesses.

The validity question

How does an inventor, or an investor deal with the fact that the official document they receive from the government of the United States is invalid?  What happens when an investor who paid for the prosecution, filing and maintenance, finds out that it was a mistake…, and the investment he paid for is worth zero with no compensation for time and effort spent on it?

When an official document granted by the government, be it a deed, a treasury bill, or a patent, is declared invalid by the same government which granted it, what happens to the trust in the system and the institutions?

Consider this:  60% of all IPR challenged claims are found unpatentable; and out of instituted claims (which means, well, maybe there is a case here) over 85% are found unpatentable.  CBM statistics are even worse.   Is the message here that over half of the official documents granted by the US Government as patents are actually worthless?

Another example: The monthly average for PTAB petitions are now 141 per month.  It’s nearly 1700 per year. The impression is the government is rushing to invalidate IP assets at a rate of 1700 cases per year. 

So as PTO patent application fees increase, so is the doubt in the mind of an inventor as to the validity of the documents he receives from the PTO.

Complexity of differences in processes and interpretations between the Courts and the AIA institutions

As a result of the new realities, district courts will continue to interpret the language describing the scope and purpose of a patent differently from the way experts at the PTO interpret the same language… Two different standards are created.

In fact the broadest possible interpretations gives little specifics and a lot of room to “execute or to pardon”.   As Justice Breyer noted, the many differences between IPR and court proceedings demonstrate Congress’ desire to design a “hybrid proceeding.”   Perhaps we can observe the statistics over time to see if a duplicate process creates efficiency in the system and lowers costs, which brings us to the next issue.

Cost to the society

According to the USPTO, 1737 petitions for IPR were filed in 2015.   At a rate of 1700 petitions per year, the AIA institutions and costs would continue to grow.  What would the costs be to the society?  Theoretically, the number of invalidations should decline sharply within a few years, and that would be a good sign.

In the meantime, the treble damages are going strong in our courts, and the litigated values for a patent license are still among the highest in the world, continuing to increase expenses and costs.  Simply stated, the purpose of the patent system is to encourage innovation, by encouraging companies to avoid infringement by creating new alternative methods and systems.  However, as we learn from the news, under the AIA rules, the infringer has little incentive to design around.  The new term “Efficient Infringement” refers to the practice of not concerning with potential infringement of a patent or not responding to the potential licensor, until patent infringement litigation has been initiated.  Such practice has been something I have observed as a part of my daily work and can attest to it.

Whereas potential infringers of a patent might at one time have taken a license or pro-actively, today those same potential infringers will not act until a patentee initiates litigation.  This, in fact leads to increasing the number of enforcements, opportunistic contractual arrangements, and decreasing the desire to re-invent.

In April 2016 New York Law Journal published the article where attorneys, including Former Director of the U.S. Patent and Trademark Office, David Kappos, discuss the weakening of patent rights, stating that we have experienced approximately 20 years of strengthening patent rights followed by 10 years of weakening them.  “By all accounts, our country seems to recognize the importance to its economic success of IP creation and licensing. In 2013, the U.S. Bureau of Economic Analysis retroactively reclassified the treatment of R&D as an investment rather than an expense, immediately raising U.S. GDP by approximately 3 percent and setting the stage for future increases. The U.S. historically enjoys the largest positive balance of payments for intellectual property licensing of any country, as measured by the International Monetary Fund.”   That was the high period for the strength of the patent system.

For some the last five years brought strategic advantages.  For others – a change in business model.  It seems intuitive that in the global economy, when the trust in government and the system is more important than ever, a strong patent rights system is key to economic success.  So it is important to keep an eye on the factual achievements of the current AIA institutions and measure them against the original goals.

The Author

Elena Murphy

Elena Murphy is currently a Lead Analyst, working with Intellectual Property for over ten years. She has an MBA with emphasis on Finance, Accredited Valuation Analyst Certification, and Master Analyst in Financial Forensics Certification. She is a member of the National Association of Valuation Analysts and the past member of the Licensing Executives Society. Elena has over eight years of financial, analytical and transactional experience. Her track record spans valuation and pricing of intellectual property assets and opportunities to business development and negotiations. She has been supporting the IP licensing organizations through research, patent review and valuation, and negotiation support for both acquisition and sales side of business.

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 2 Comments comments.

  1. staff September 21, 2016 1:21 pm

    ‘The America Invents Act (AIA), which had an intent to improve patent system’

    We disagree -at least in part. We believe the large multinationals who drafted the bill never had any doubt about the true affects of it. They knew it would effectively destroy the patent system for inventors and their small competitors. That was their intent from the start. The rank and file of Congress followed their colleagues who they trusted. That trust was violated. We sincerely hope they will never do so again on any matter of such great importance to America’s economy.

    For our position and the changes we advocate (the rest of the truth) to truly reform the patent system, or to join our effort, please visit us at https://aminventorsforjustice.wordpress.com/category/our-position/
    or, contact us at aifj@mail.com

  2. Edward Heller September 21, 2016 5:12 pm

    Perhaps the most challenging to accept is the notion that a tribunal created with a specific purpose of invalidation can be impartial to both the petitioners and the defendants.

    The AIA tribunal stands in contrast to the Court system, as their inherent mission is not to evaluate, but to challenge, contest, and invalidate.

    While no one in the patent office would agree that the mission of the IPR system is to invalidate patents, it remains that is their sole function. And given that is their sole function, it is hard to imagine that the PTAB can remain impartial.

    There is a thing we have in English/American law that is fundamental to the protection of liberty and that is called due process. The most essential aspect of due process is that the trier of fact be unbiased and neutral. This requirement of due process was first laid down in English law and the Magna Carta

    No free man shall be taken or imprisoned, or dispossessed or outlawed or exiled or in any way ruined, nor will we go or send against him except by the lawful judgement of his peers or by the law of the land.

    http://www.historytoday.com/ralph-v-turner/meaning-magna-carta-1215

    Until the mid-1800s, all criminal cases and all civil cases involving property were tried to juries. In the mid-1800s in England, in civil cases, and in the United States in equity cases, juries became optional because litigants were satisfied that judges were impartial, receiving lifetime appointments, etc.

    But in the United States, we had the constitutional guarantees of a trial by jury both for criminal cases and for civil cases to the extent such a right to jury trial existed at common law.

    Assigning the trial of patent cases to the PTAB presents obvious due process problems in that the trier of fact is not guaranteed to be impartial. This is not a matter of procedural due process, but of fundamental due process – guaranteed to all Englishmen and to all Americans since the Magna Carta.

    The author here therefore raises an excellent point. There is no correcting the issue of impartiality by procedural reform. The trial of validity of an issued patent can never be fair and provide due process so long as the trier of fact, the PTAB, are not Article III judges. Furthermore, we Americans specifically have a right to have a trial by jury before our patents are invalidated because we had such a right at common law.

    IPRs must end.