Barack Obama left the patent system in far worse shape than when he entered the presidency. The Patent and Trademark Office (PTO) is controlled by patent critics with an extreme anti-patent bias. Small entities and, particularly, independent inventors, are an endangered species. Investment in innovation is at an all-time low. Productivity growth that results from investment in innovation is at a multi-generational low. As a consequence of extreme mismanagement of the patent system, and its consequent productivity growth declines, economic growth is poor.
The patent system is at the root of economic productivity and growth. The U.S. constitution establishes a system for providing an “exclusive right” for a limited time in order to supply an incentive to invent and discover new things. Socialists on the left and market incumbents on the right never liked the idea of supplying tools for competition, so they have persistently attacked the patent system.
The result of attacks on the patent system has been a concerted critique of key elements for protecting patent rights. These have included enabling the PTO to attack patent validity in a second window, attacking classes of inventions such as software and medical diagnostics, limiting access to the courts, increasing costs of enforcement by several magnitudes and restricting patent remedies. The totality of these attacks on the patent system, enabled in large part by the expenditure of vast sums to influence policy by technology incumbents in order to protect their historic monopoly profits, has been to fundamentally alter a democratized patent system to one that requires substantial capitalization. The net effect has been decline of investment in innovation particularly by small entities that require patents as a key tool for competition.
What can be done?
Actually, the incoming administration can do a great deal to supply equilibrium to a patent system that has been badly injured by misguided policies. First, it must be acknowledged that a patent is a form of private property. This is clearly recognized in a Republican convention platform plank. From this recognition, it is essential to restore patent rights with a strong remedy for infringement, regardless of the identity of the patent holder. In particular, an injunction needs to issue in a finding of an infringed patent. The courts can work out the details of supplying an injunction for a small component in a larger system by appropriately narrowing the injunction. The CAFC needs to move away from an inflexible interpretation of eBay and enable innovators to obtain injunctions in appropriate circumstances. The new administration can greatly influence this change.
Second, anyone should be able to get access to the courts in order to enforce an infringed patent. American courts should allow a patent holder access to a jury in a reasonable time of less than two years. Venue decisions should be decided as a result of a balance of factors that are fair to both sides in a dispute.
Third, the Trump administration must be very clear that legislation involving the patent system must be pro-patent, not the anti-patent legislation designed and bought by tech incumbents to perpetuate their advantages and harm competition.
Fourth, the Trump administration must enforce the antitrust laws. In particular, enforcement against the large tech incumbents needs to promote competition. Someone needs to hold their feet to the fire to obey the law and Trump is the guy to do it. Market entrants need a level playing field supplied by effective antitrust enforcement.
Fifth, the Trump administration needs to clean house at the PTO. Director Lee has appeared more like a fox in charge of the chicken coop than a legitimate manager. CAFC rules need to be applied to examinations involving software patents; some units, with a 20% or less grant rate or frozen due to ineptitude, need to be reorganized.
The PTO needs to become pro-patent again. In order to do so, it needs to be friendly and cooperative, not hostile or disparaging, to patent applicants.
The greatest need for change, of course, needs to occur in the Patent Trial and Appeal Board (PTAB), which has been totally out of control for years and has badly damaged its credibility. The PTAB needs new management with a new set of rules to administer a fair and balanced patent review policy.
The PTAB needs a high bar to establish a patent review institution. Preferably, all patent review institutions should be ordered by Federal District Court judges. This requirement assumes that there is proper standing in order to request a patent review.
Since the presumption of patent validity is paramount, a high standard of clear and convincing evidence should be applied to patents in both Federal District Court and the PTO. Similarly, the Phillips standard should be applied to patent reviews in both the courts and the PTO. Otherwise, there are incoherent outcomes.
The PTAB needs to implement a mechanism to enable amendment of patents that are reviewed in order to adapt the claim language if prior art suggests a need for narrowing claims. Alternatively, a time-efficient claim amendment off-ramp can be instituted. The original language and the legislative history of the AIA were quite clear on this.
Serial challenges to patents must be severely restricted. Abusive patent challengers must pay a patent holder’s attorney’s fees, with challengers required to pay non-refundable scaling fees based on the number of institution requests. The PTAB should not be the compliant pet of big tech companies that have a history of serial infringement.
Patent reviews have been expensive and deadly, illustrating a one-way risk that puts patent holders in peril at limited cost to infringers. This asymmetry has made patents a liability and not an asset.
When patents are expensive and cumbersome to defend, the incentive to invest in innovation is greatly diminished. The consequences of this have included the perverse disincentive by large companies to invest in innovation since they can free ride.
The combination of these elements for the incoming administration to improve the patent system can have dramatic effects of supplying incentives to invent and protect innovation that will have long lasting positive effects on productivity growth. Strong patents promote competition, which is healthy for the economy. Rather than rely only on temporary policy changes, such as short-term tax cuts, these proposed changes to the patent system will stimulate long lasting economic growth.
Evidence shows that strong patent policies – such as those under both Presidents Reagan and Clinton – will result in long-term economic growth. What are we waiting for?