2016 represented a turning point. The damage of a decade of inventor killing reform finally came to light. We now know that we are crushing the greatest economic engine ever invented in our maniacal quest to kill imaginary patent trolls.
Here are just a few highlights of the damage. Patents are invalidated at astronomical rates. Whether it is in the Patent Trial and Appeal Board (PTAB) of the United States Patent and Trademark Office, or in the federal district courts where it seems much commercially valuable innovation is deemed patent ineligible, patents are dropping left and right.
The cost of defending a patent right has skyrocketed. Infringement damages are in free fall. Patent valuations have crashed. There is no longer economic incentive in defending patents so contingency patent litigators and investors have largely left the business. Patent holding companies, the folks that once purchased patents from inventors, now buy large patent portfolios and are not interested in the smaller portfolios of independent inventors or startups. It is now more efficient to steal someone else’s invention than to invent it yourself, or even ask permission and pay a fair licensing fee for the rights. And if you steal it, you keep it, because eBay eliminated injunctive relief, which I will never understand given that a patent is nothing but an exclusive right.
While there isn’t much of a patent system left for inventors and startups, the real damage is bigger than just that. While our government has been killing imaginary patent trolls, China has been strengthening their own patent system. China now leads the world in new patent filings. A huge percentage of venture capital has moved to China as a result. We are giving our economic engine to China.
The good news (that’s a strange way to say it) is that the patent system can’t get much worse. That means if there are changes in 2017 it can only be for the better. Either the patent system will languish as it has and we will kill our economic engine for the next generation, or it will be fixed by a new administration working with Congress (in spite of the courts) and patents will be made great again.
Today, big companies are pushing back. One effort is to end the judicially created exception to patentable subject matter called the “abstract idea” exception. The Supreme Court legislated this exception from the bench and it is a calamity for real innovators because on the cutting edge of new technologies the uninformed, non-technologist always seems to be able to be confused by science and convinced to make decisions that benefit the status quo. I believe legislation fixing the abstract idea will pass on its own merits in the 115th Congress.
But the abstract idea doctrine is not the only issue crippling the patent system. At the very minimum, there are three additional issues that must be fixed if we are going to save our economic engine.
- PTAB procedures are laying waste to property rights by allowing the Executive Branch to both give and take patented property rights like a third world dictator. PTAB panels are invalidating or neutering too many of the patents they see and investment in startups is crashing as a result. While the Patent Office likes to tout misleading statistics that make the problem seem less bad than it really is, increasingly patent owners are being harassed without protections. If the PTAB refuses 4 separate requests to institute a challenge but then grants an identical fifth request the USPTO thinks that corresponds to a 20% institution rate. Of course, what it means is the patent owner has been harassed and the patent challenged until the PTAB said yes. The PTAB must be eliminated.
- Since eBay, injunctive relief is nearly impossible to obtain. Infringers tell us that once they steal a patented invention, they ought to keep it because they have placed a product or service into the stream of commerce. They argue that by stealing the rights from the inventor they have innovated and that the inventor did nothing, which is absurd. That would mean Thomas Edison did nothing worthy of note, and neither do any universities or research laboratories. But with no injunctive relief the government practically encourages theft of patent rights. A fair market value for the patent cannot be determined because there is no incentive to negotiate and no penalty for stealing. If you cannot determine a fair market value, you cannot attract investment at an early stage. This has not only encouraged infringement, but it has reduced capital availability for early stage startups. Injunctive relief must be restored as the default remedy for infringement.
- Venue reform is the current push by the infringer lobby. While their PR campaign is targeted at the Eastern District of Texas (ED TX) because they say the local rules are inventor friendly, it forces inventors to file cases in the headquarters location of the infringer, which drive costs much higher for inventors. The real problem is not where a patent suit is filed – it is that local rules are not uniform. We need standardized rules for all courts. Since it is impossible to know what a patent covers until the claims are defined, standardized rules must restrict filing of invalidity motions until after claim construction, and that includes the ubiquitous motions to dismiss for lack of patent eligible subject matter. How can you know if the claim covers patent eligible subject matter without doing a claim construction? Uniform court rules and mandatory claim construction prior to any dispositive motions or rulings will solve venue issues lobbied for by infringers.
Every time a new patent reform bill moves forward in Congress, the courts create case law eliminating the need to pass the bill. They legislate from the bench to protect their turf. The infringer lobby took advantage of this dynamic and pushed bills that would stimulate response from the courts.
After all, passing legislation the old fashioned way is an inefficient process. A bill has to make it through both the house and the senate and then the president has to sign it into law. All that nonsense forces a lot of debate. Staffers must talk to people, attend panels, fact check, analyze and propose positions. Congress would have been forced to listen to inventors, which is not what the infringer lobby wanted.
I think we should employ this well proven method of changing law. I know this is not how our government is supposed to work, but let’s be pragmatic. We cannot force an unwilling government to follow its own constitutional processes. So, we need to work with what is available.
The courts consider local rules to be their turf. If a bill standardizing local patent rules moves in Congress it will likely trigger the courts into legislative action. If history holds true, the courts will spring into action and legislate from the bench to thwart passage of the overall bill and therefore protect their turf. Using the federal court’s propensity to legislate may be the best way to fix at least one of the issues facing the patent system in 2017 and save our country’s economic engine.