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Taking stock of the health of the American patent system, a system in crisis - IPWatchdog.com | Patents & Patent Law

Taking stock of the health of the American patent system, a system in crisis

By Gene Quinn
March 27, 2017

Chief Judge Paul Michel (ret.), at the Newseum on March 27, 2017.

Chief Judge Paul Michel (ret.), at the Newseum on March 27, 2017.

Is the United States reducing the possibility of future innovations by weakening patent rights for short-term gains? That was the question presented during the opening video at LeadershIP 2017, a patent and antitrust policy conference held at the Newseum in Washington, DC, earlier today.

The event opened with a keynote address from Judge Paul Michel, retired Chief Judge of the United States Court of Appeals for the Federal Circuit.

“In our time together today we are going to try and take stock of the health of the American patent system,” Michel began. “It is important to remember that the patent system was founded in the Constitution… and although the world ‘right’ appears many times in the Bill of Rights, in the original Constitution the only ‘right’ mentioned is the patent right.”

Michel identified three separate waves of change that have rocked the patent system over the past several years. First is the creation of post issuance review of patents, ushered in by the America Invents Act (AIA). The second is the quartet of patent eligibility decisions from the United States Supreme Court (i.e., Bilski, Mayo, Myriad and Alice). The third and final wave of change relates to actions being taken by regulatory and competition authorities around the world and in the United States.

“Several years ago, it would have been little exaggeration to say that we are facing a challenge,” Michel explained. “Today we are facing a crisis.”

Judge Michel would go on to explain that the primary purpose of the American patent system is to increase innovation through incentivizing investment. Investors are concerned with three things, Michel explained: “What are the odds of any return of investment, what is the scale of return, what is the time to money.” Investment is being disincentivized by uncertainty created by the aforementioned three waves of changes to the system. We should be looking at the impact on the flow of money, Michel explained.

These waves of changes, although they have been manifestly real and caused tremendous harm to patent rights holders, uncertainty has only become worse. “Before the AIA patent litigation uncertainty was high,” Michel explained. Now after the AIA patent litigation remains slow, even slower, more expensive, more risky and more uncertain than ever. “Then came Bilski and Alice and patent litigation became even more risky and more uncertain,” Michel explained.

Indeed, these changes have done nothing other than create significant disincentive to investors who provide capital – the very lifeblood of innovation. Uncertainty is driving down funding sources, and particularly hard hit are biotechnology firms, Michel explained. Furthermore, based on publicly available sources of information, economists estimate that “patent values have dropped by as much as 60% in the last five years,” Michel said.

Judge Michel did not limit his criticism of changes in the law to changes occurring over the last several years. Pointing to the fact that patent infringement trials are faster, cheaper, and surer overseas, Judge Michel explained that in some countries injunctions are routinely granted. For example, in Germany injunctions are virtually certain, “which causes settlements after a trial,” Michel explained.

In the United States the Patent Trial and Appeal Board, which was created by the AIA, was supposed to lead to faster, cheaper, more efficient administration of validity disputes. Instead, the PTAB has become almost omnipotent, with the Federal Circuit routinely deferring to the agency tribunal, which has become a precursor to patent litigation and thereby extending rather than shortening the timeline of disputes. “The Patent Trial and Appeal Board has become even more important than the district courts because it has become a weigh station,” Michel explained. “It has become a prelude to district court litigation.”

Judge Michel also took aim at the dual standard for interpreting claims used by the USPTO. According to Michel, patent claims have but one meaning – the Philips meaning. Michel went on to explain that he doesn’t understand how a claim can be invalidated under any other standard.

I have to agree. Not using the Philips standard simply means the Patent Office refuses to provide a presumption of validity and is again looking at the claims as if they are doing so in the first instance where the claims are not entitled to any statutory presumption. The problem, of course, is the patents have been issued, 35 U.S.C. 282 requires a presumption of validity for issued patents, the administrative trial process is not an examination, there is no right to amend claims at the PTAB, and patent owners are not entitled to few procedural rights that would even remotely approximate adequate due process. So, patent owners must spend many tens of thousands of dollars (if not more) and spend up to a decade (if not longer) to obtain patents that then are afforded no statutory presumption of validity. How this can make sense to anyone is beyond me.

In any event, Judge Michel wrapped up his keynote presentation saying: “In our society things have to get pretty bad before they get better because politicians lag…” Michel said. “But I think they are beginning to catch on.” Michel went on to explain that industry involvement and engagement will be required in order to see positive pro-patent reforms become a reality.

Judge Michel is, of course, correct that industry engagement and involvement is necessary in order to turn the tide. Now is not the time to give up hope, although for a variety of reasons it would be easy to do just that. I also believe he is correct when he says that our political leaders, or at least some, are starting to catch on to the damage that has been done in recent years to the U.S. patent system. There are national security issues, significant economic issues, and the future of innovation dominance. These issues in the late 1970s and 1980s lead to political forces swing in a pro-patent direction. Perhaps the same will happen at this moment in history.

The Author

Gene Quinn

Gene Quinn is a Patent Attorney and Editor and founder of IPWatchdog.com. Gene is also a principal lecturer in the PLI Patent Bar Review Course and an attorney with Widerman Malek. Gene’s specialty is in the area of strategic patent consulting, patent application drafting and patent prosecution. He consults with attorneys facing peculiar procedural issues at the Patent Office, advises investors and executives on patent law changes and pending litigation matters, and works with start-up businesses throughout the United States and around the world, primarily dealing with software and computer related innovations. is admitted to practice law in New Hampshire, is a Registered Patent Attorney and is also admitted to practice before the United States Court of Appeals for the Federal Circuit. CLICK HERE to send Gene a message.

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 32 Comments comments.

  1. step back March 27, 2017 3:22 pm

    Gene,

    I fear the “crisis” is much larger and much worse than merely infecting the American patent system.

    Not only are the Justices of SCOTUS scientifically illiterate and tone deaf to the irrationality of their decisions, so too are our politicians,

    When we have the controlling governance majority of our country running in circles and screaming “hoax” with respect to what scientists all around the world are saying (e.g. about pollution, species extinction, climate change, population pressures, etc.), then we have much bigger problem than merely trouble in Mason City (76 trombones).

    http://abcnews.go.com/Entertainment/video/76-trombones-mason-city-35807099

  2. David March 27, 2017 4:51 pm

    I’d be curious to know whether J. Michel believes post-grant patent cancellation is constitutional.

  3. Gene Quinn March 27, 2017 5:22 pm

    David-

    Judge Michel said today that he did not have anything particularly against post grant proceedings per se, but rather the way they are administered. This wasn’t a big piece of his commentary so I didn’t include it because that line could mean many different things and I don’t want to hypothesize what he means by it.

    For example, post grant proceedings are clearly constitutions if reexamination is constitutional (well established it is) if it is viewed as an examination of the patent. Of course, that would require the patent owner to be able to amend claims and in reexam you can exit with more patent claims than you started. So could administrative proceedings be constitutional? I personally think the answer to that question is yes, but my goodness we have a long way (from here to Mars) to go to get there. Either we have an examination process with amendments and more claims a possibility, or we have a challenge where patents MUST be presumed valid (at least that is what the statute says). Right now we have no amendments and no presumption. At every turn it is the worst of all worlds for the patent owner.

    -Gene

  4. Gene Quinn March 27, 2017 5:29 pm

    Step-

    You know me, I am not one to defend SCOTUS. I also agree, generally speaking, that most politicians are unknowledgeable about the patent system and those that are have been marginalized for one reason or another. But allow me to sound a little naive for a minute… I’m not sure things are as bad long term as the tea leaves of the moment might suggest.

    I agree with Judge Michel 100%… things need to get really bad before anything changes. There is some quote to that effect from Winston Churchill that goes something like: Once the American’s try all possible alternatives they will eventually do the right thing. That is the way the system seems to work. Dysfunctional until the end and then we tend to pull up right before complete disaster. Will we do that now? I sure hope so.

    The one thing I keep telling myself when I want to drink to the point of forgetting is this… we’ve seen these problems before. The patent system was bleak, perhaps even more bleak in the 1960s, 1970s and into the very early 1980s… right up until Diehr and Chakrabarty. The tide turned. Then fear that the Japanese would rule the technology world and own all meaningful innovations caused even our political leaders to figure out that the recipe for success was right there in front of them. This next time it should be easier since we saw what those successes brought, and the threat from China, Europe and elsewhere will soon be undeniable. There are both national security and U.S. economic interests at stake, and that should matter the way it ultimately did in the 1980s. Of course, we still need to point out when the emperors are naked and engage or nothing will ever change. Just don’t give up hope.

    -Gene

  5. David March 27, 2017 5:35 pm

    Gene,

    I respectfully disagree. Reexamination is unconstitutional for the same reason IPR is unconstitutional for the same reason PGR is unconstitutional and so forth.

    The differences in procedure are immaterial. What matters from the standpoint of Article III is what happens in the absence of an appeal from the administrative judgment.

    If, after reexamination, in the absence of an appeal, claims from an issued patent are invalidated, then that administrative procedure is unconstitutional.

    The constitutional fix is simple: de novo review (law) and district court enforcement of the advisory administrative order.

    Arguing that reexamination merely represents a “re-opening” of the examination process is precluded by the fact that the patent has issued. At that stage, it becomes vested private property, and only an Article III court has the constitutional authority to cancel its claims.

    Nonetheless, I believe that at least some of the Article III IPR challengers are only addressing IPR, leaving reexamination for separate challenges. However, the SCOTUS likely knows better. If patent validity is a private right, all forms of post grant review are impacted.

  6. Gene Quinn March 27, 2017 6:13 pm

    David-

    Let me follow up by just saying that I’m not saying that I personally think reexamination is Constitutional, or that it is at all wise for the Patent Office to ever be in the business of taking away property rights that they issued. I believe the Constitutionality of reexamination has been specifically addressed though and, as such, seems settled (based on what I think I know). I personally think the Patent Office not standing behind patents that are supposed to be presumed valid is a huge mistake.

    -Gene

  7. Edward Heller March 27, 2017 7:16 pm

    Gene, the constitutionality of reexaminations was strongly questioned by three judges of the Federal Circuit itself in In re Lockwood (1995), a case that held that validity had a right to a trial by jury. The three judges said the panel decision must be wrong because Patlex (1985) had held that patent rights were public rights in their holding that the patent holder had no 7th Amendment rights to a trial by jury. They flatly stated that Patlex had to have been overturned by the reasoning of the panel.

    Clearly, the issue of constitutionality of reexaminations depended entirely on the holding that patents were public rights, which underpins the holding regarding IPRs in MCM Portfolio LLC.

  8. Edward Heller March 27, 2017 7:18 pm

    Michel wrong In re Lockwood. https://scholar.google.com/scholar_case?case=16456772506534421521&q=in+re+lockwood&hl=en&as_sdt=2006

  9. step back March 27, 2017 7:26 pm

    Gene @4

    I agree that we need to keep shining that spotlight on the wrong doings of public officials, be they President, Congress-critter, administrative agency actor or even Supreme Court judge. They should not be able to simply get away with it by virtue of holding power.

  10. Edward Heller March 27, 2017 7:32 pm

    I would add eBay, the AIA first to file that did a lot more than simply solve the problem of interferences — it killed off the grace period, provided for universal prior art, and failed to get rid of 102(e) — secret prior art still plagues us.

    I would also add killing off the 17years from issue term, 104 that extended the benefits of FTI to WTO and NAFTA countries, publication of application that made 102(e) worse instead of simply repealing it.

    The patent bar needs to be able to sit down and talk, and keep out of the conversation the people who have been working against us since 1980 or so.

  11. Invention Rights March 27, 2017 8:45 pm

    Edward Heller – why was the majority wrong on In re Lockwood? And are you saying the dissenting opinion was correct, or correct in part? The Lockwood case is very confusing.

  12. Edward Heller March 27, 2017 8:53 pm

    Invention rights, Lockwood held patent validity had a 7th Amendment Right. On petition for en banc, the court declined. Three judges dissented from the denial of en banc review because, in their view, Lockwood overturned Patlex.

    The panel, was unanimous. Judge Michel wrote the opinion.

  13. Invention Rights March 28, 2017 12:38 am

    Still confused. I thought it was your position that patents are property subject to 7th Amendment trial by jury. @7 you note that Michel wrote that patent validity has a right to trial by jury. @8 you note that Michel was wrong. Can you further clarify?

  14. Gene Quinn March 28, 2017 8:07 am

    Edward-

    I think you misread Lockwood. First, Lockwood was a nonprecedential case. Second, the link you provide is to Judge Michel’s opinion denying rehearing of a nonprecedential case, which can’t have much precedential value. Third, the opinion also clearly says that Michel believes Patlex is controlling and correct. Fourth, the part of Patlex that seems to be questioned is not the reexamination component, but that a jury trial was refused.

    -Gene

  15. David March 28, 2017 11:04 am

    Gene,

    You can’t have one without the other. If there is a jury trial right, the public rights question is necessarily decided. That is, if there is a jury trial right, then it is a private right, and Patlex is overruled.

    Even if there isn’t a jury trial right, if the dispute was resolved in the courts of equity, then it is also a private right.

    To the extent the MCM decision is overruled, neither Patlex nor Joy will survive.

    Nonetheless, ex parte reexamination would remain largely unaffected as consent now addresses Article III concerns.

  16. Edward Heller March 28, 2017 12:57 pm

    Gene, from the case: “(4) Lockwood’s petition for writ of mandamus is granted. The district court is directed to reinstate Lockwood’s jury demand.

    (5) American’s letter request for a precedential order deciding the petition for writ of mandamus is granted.”

    The panel opinion holds that validity has Seventh Amendment right. It was the dissent to denial by the court take the issue en banc of Judge Nies, Judge Archer and Judge Plager that asserted that the reason the court needed to take the case en banc was because the panel decision, authored by Judge Michel, had to be incorrect because the court had previously held in Patlex that patents were public rights in public rights could not have a right to a trial by jury.

    Judge Michel then, and Judge Michel now, is fully on board with the idea that patent validity has a right to a trial by jury.

    Furthermore, even though Lockwood was vacated by the Supreme Court as moved when Lockwood withdrew his request for a jury trial, the Federal Circuit in a number of subsequent cases still followed Lockwood.

  17. Edward Heller March 28, 2017 12:59 pm

    I am sorry Invention Rights, but my post eight should have read “Judge Michel wrote” Lockwood. Of course Judge Michel believes that patents have a Seventh Amendment right to a jury trial.

  18. Edward Heller March 28, 2017 1:04 pm

    David, you and I both know that the Federal Circuit wants you have it both ways – that patent validity both has a Seventh Amendment right to a trial by jury (Lockwood) and does not have a Seventh Amendment right to a trial by jury (Patlex).

    It was quite clear to me during oral argument that the court was quite willing to overruled Lockwood to preserve IPRs. They (Judge Dyk) actually said that. So they recognize tension between Lockwood and Patlex. They simply do not want to address it.

  19. Edward Heller March 28, 2017 1:21 pm

    No. 16-712
    Title:
    Oil States Energy Services, LLC, Petitioner
    v.
    Greene’s Energy Group, LLC, et al.

    Feb 27 2017 Response Requested from Michelle K. Lee, Director, Patent and Trademark Office. (Due March 29, 2017)
    Mar 22 2017 Order extending time to file response to petition to and including April 28, 2017.

  20. David March 28, 2017 1:53 pm

    I agree. Patlex was a political decision, elevating the pragmatism of a sleepy little backwater administrative mechanism called reexamination over Article III of the US Constitution. Well, the intellectual foundation laid by the CAFC in Patlex allowing that sleepy little administrative mechanism to live another day has – some 30 years later – spawned an absurdly powerful administrative court that is on the cusp of taking over the US patent system.

    My guess is that J. Newman had no idea about the slippery slope she was creating when she wrote the Patlex opinion. Her incessant dissents regarding PTAB power tend to support that view.

  21. Gene Quinn March 28, 2017 2:05 pm

    Edward @16-

    I see that I misread some of the text of Lockwood, attributing some comments that were in the dissent to the majority.

    It appears that reexamination is only discussed in the dissent, not in the majority opinion in Lockwood. So I’m not sure that you can read Lockwood to support the proposition that Judge Michel believes reexamination is unconstitutional and that all validity challenges must occur in Article III courts. It seems to me that Judge Michel says that Lockwood would have a right to a jury determination of facts surrounding validity in district court if infringement were an issue, and he on behalf of the majority wrote that they saw no reason to take the right to a jury trial away simply because the infringement component of the case in district court was mooted and thereby transformed the case into a DJ action.

    I don’t specifically know what Judge Michel thinks about the constitutionality of reexamination or constitutionality of post-grant challenges. I do know that yesterday he said that he doesn’t necessarily have a problem with the concept of post grant review, just a problem with the way they have been carried out in practice.

    -Gene

  22. Tiburon March 28, 2017 2:22 pm

    Gene @ 8:

    You may as well start to drink. The difference between now and the 60’s/70’s is that today at the largest anti-patent player (Google) has both the resources and incentive to continue to dismantle. $83B of cash after debt stripped out and growing at $49m per day. By the end of this week they’ll have made enough profits (not revenues) to more than fund necessary lobbying until the end of Trump’s term (be it 4 or 8 years). All of pharma put together can’t compete.

  23. Edward Heller March 28, 2017 2:44 pm

    Gene, how would you think the Supreme Court would answer the question of whether Congress (or even a Court) had the power to assign the trial of an issue that had a Seventh Amendment right to a court of equity or to an administrative tribunal?

    Well the answer is obvious, is it not? Case after case has answered that question in only one way. Dairy Queen, Beacon Theaters, and Granfinancieara all come to mind.

  24. Eric Berend March 28, 2017 3:11 pm

    There’s not much I can add to the esteemed Chief Judge’s observations; as an inventor I deeply appreciate his attention, time and energy in working to help redress the distortions and wrongs perpetrated upon the U.S. patent system by special interests; and, in the public interest.

    This is also an appropriate place to express gratitude for the tireless work and advocacy of Gene in support of the patent practitioner community, and inventors, as well. Thank you, Mr. Quinn. If, as you point out, there is something of a pendulum effect that swings from patent favoritism to antagonism and back towards favoritism, in U.S. jurisprudence; then, future patentees and practitioners will look back at your work as a vital part of holding the line, at the nadir of their fortunes.

  25. Gene Quinn March 28, 2017 3:34 pm

    Thanks for the kind words Eric.

  26. Gene Quinn March 28, 2017 3:40 pm

    Edward-

    The short answer to your question is I have no idea. How can anyone predict the Supreme Court? Perhaps we will get an opportunity to seriously consider these issues again in light of the new PTAB and the recent discussion about whether patents are a public right, a private right or maybe a mixed hybrid, if the Court takes Oil States.

    As a side note, generally the way I predict what the Supreme Court will do is to first determine what I think is correct and then predict they will do close to 180 degrees opposite. Only in the extreme case where there are significant countervailing factors (i.e., they just decided Octane Fitness so they had to decide Halo the way they did) do I deviate.

    As for whether old precedent matters to SCOTUS, it seems to me that they have no problem overruling old cases and then specifically saying they have overruled nothing and everything remains perfectly consistent. You know… getting in touch with their inner Monty Python.

    -Gene

  27. IPdude March 28, 2017 5:34 pm

    Gene,

    Not directly related to this article, but an article addressing how Facebook is currently outright stealing innovations made by Snapchat would be very good illustration of how a broken patent system allows for the big whale to swallow the smaller whale, in this case, because there is no recourse. Snap has seen its stock price hit hard as a result of the IP theft. It will be interesting to see if Snapchat snaps back and sues Facebook for patent infringement (from what understand Snap has patented the technology that has been stolen).

  28. step back March 28, 2017 6:15 pm

    Gene @26,

    Honestly, do you really think the SCOTeti have the ingenuity to on their own come up spontaneously with that bizarre Alice/Mayo framework test?

    I for one very much doubt it.

    Like pretty much everything else, the out-of-nowhere Alice/Mayo test probably came out of committee as the brainchild of one and probably many more of the so-called “friends” of the court. It is the “friends” who will decide what SCOTUS does next. And you thought you live in a democracy. 🙁

  29. Gene Quinn March 28, 2017 6:41 pm

    Step-

    A year (or maybe several years) ago the NY Times did an article on how the Supremes were relying more and more on amicus briefs for facts. That is obviously inappropriate since those facts are not on the record and haven’t been vetted, but it is happening. We see it in our area so I have no doubt it goes on in others as the NYT suggested. So you are correct, the “friends” will decide how the Supremes rule next, almost as if they are puppets.

    As far as who wants to take ownership if Alice/Mayo… I don’t know that anyone can take ownership of Mayo. That clearly overrules generations of law and ignores the statute and even the DOJ told them not to do it that way. So my issue with what you say would be that had they listened to anyone other than themselves I don’t know that they could have screwed it up as bad. Mayo was a special kind of incompetent and now we are left with it as if it is infallible.

    Translation: I think only the SCOTeti could screw something up as badly as Mayo. Corollary: Building on a rotten foundation leads to nothing but a mess (see Alice).

    -Gene

  30. Gene Quinn March 28, 2017 7:31 pm

    IP Dude-

    I’ll see what I can come up with. I’ve heard rumblings along these lines, but I haven’t had time to look into anything myself.

    -Gene

  31. Anon March 28, 2017 9:01 pm

    Gene @ 29,

    All the more reason for the path for Congress to employ jurisdiction stripping of the non-original jurisdiction of patent appeals.

    (and yes, the usual caveat applies: Congress needs to create a new and untainted Article III court in order to preserve Marbury, and to avoid the brow-beaten CAFC)

  32. staff May 1, 2017 3:48 pm

    ‘Today we are facing a crisis’

    We agree. Inventors and small entities no longer have a fair shot at commercializing our inventions. It is now too hard, slow and expensive for us to get and enforce patents for our inventions. The patent system is now a sport of kings, if not thieves.

    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
    or, contact us at aifj@mail.com