Yesterday, at the Newseum in Washington, DC, the annual LeadershIP conference was held to discuss patent and antitrust phttp://www.ipwatchdog.com/wp-admin/edit-comments.phpolicy. Typically, the annual LeadershIP conference is held to discuss advanced IP policy issues from an empirical perspective. This year, however, with a new administration in the White House, the focus of the event was on policy advice that would be appropriate for the new Administration.
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. See Taking stock of the health of the American patent system. Judge Michel also moderated the first panel of the day, which addressed IP policy in the Trump Administration, with panelists F. Scott Kieff (Commissioner on the International Trade Commission), Professor Mark Lemley (Stanford Law School), Dan Schneider (Executive Director of the American Conservative Union) and Deanna Tanner Okun (Partner, Adduci, Mastriani & Schaumberg, and Former Chair of the ITC).
Kieff began the panel conversation with his opening thoughts, explaining that if we shift our thinking, our frame of mind as it relates to intellectual property, we can have a large benefit for a very low cost. “If we try very hard to provide direct incentives to inventors to invent or investors to invest… we are going to have to have an immense amount of information,” Kieff explained. Conversely, if government were to get be involved only to the extent of settling the law and allowing private parties the certainty to contract, then little or no information is necessary about the motivations of the parties because everyone will be free to act according to their own preferences.
Likening patent rights to a flashlight being held in a dark room, Kieff explained that if a property right such as a patent can be like a beacon in the dark, which can be found by those who are similarly interested in that asset, then the government does not require massive amounts of data, or to know what is motivating each person. When the benefit is indirect and left to the parties to figure out, the government need only set rules so that those interested in the asset can contract accordingly in an environment of certainty and stability.
Kieff is correct, but unfortunately, the law as it relates to patents is anything but stable or certain, and the government on every level – Judicial, Executive and Legislative branches – has gotten in the way of the private sector achieving private negotiated administration of property rights. See Fixing the patent system (discussing the Coase theorem).
Schneider began his remarks with the Declaration of Independence: “We hold these truths to be self evident, these are powerful, poetic words,” Schneider stated. “Some of my Libertarian friends forget that the government was created to protect our inalienable rights.”
Schneider stated that he began with the Declaration of Independence to drive home the point that these questions are political questions in their nature.
“We’ve polled our CPAC attendees on intellectual property. 13% of attendees did not have an opinion,” Schneider explained. “Of those who did respond, almost 95% of Conservatives believe intellectual property rights should be strengthened. Only 5% thought they were too strong and should be weakened.” Schneider would go on to explain that there is a deeply held belief among Conservatives that property simply should not be taken away by the government without proper recourse. “The thing that most grass roots Conservatives care about is that people don’t trespass on their property,” Schneider explained. “There is this visceral reaction to people taking their stuff without recourse.”
We can argue, perhaps, whether patents are being taken away without proper recourse, but when so few procedural rights are afforded to patent owners at the Patent Trial and Appeal Board, and speed is exalted above all else, including fairness, very real questions are legitimately raised about whether due process of any significant kind is afforded to patent owners in administrative proceedings at the PTAB. What cannot be debated with any sincerity, however, is whether a patent is a property right, although some still do. The statute is clear: “patents shall have the attributes of personal property.” See 35 U.S.C. 261. So too are a long line of Supreme Court cases that equate patents to property rights in land.
The first controversial statement from the panel came from Lemley, who said that if you look at decades of data, the fundamentals of the patent system have been moving along status quo regardless of changes to patent law. Lemley’s point was that patents continue to be applied for and continue to issue in record numbers.
Of course, as much of what Professor Lemley says, the statistics he chooses paint only a partial, and biased picture. Yes, patents continue to be applied for, and patents continue to issue, but in some segments it is practically impossible to obtain patent protection in the U.S., and those segments are areas where the U.S. has historically had a significant technological advantage; namely in software and biotechnology.
The United States Chamber of Commerce has also removed the U.S. as the top jurisdiction in the world in terms of patent protection. The 2017 Chamber report explains:
[T]he patenting environment in the U.S. has continued to be plagued by uncertainty. In fact, digging a bit deeper into the Index results and looking at the results for Category 1: Patents, Related Rights, and Limitations, the U.S. falls from 1st to 10th behind most European economies included in the Index as well as Singapore and Japan.
This doesn’t sound particularly like the fundamentals of the patent system are strong, or moving along just fine, despite what Professor Lemley concludes. The reality is Judge Michel is perfectly correct when he says the American patent system is in crisis, and anyone and everyone who is involved in the industry on a day-to-day basis who is exercising independent, rational, objective thought understands that to be perfectly true. The American patent system is in crisis.
As the discussion of the panel proceeded, it did not take long for yet another controversial, and inaccurate statement, to be made by Professor Lemley. Lemley took issue with patents being described as a property right, saying that discussing intellectual property (i.e., patents), as a property right is a complicated matter because some aspects of the right fit some parts of a property rights regime. Although he didn’t say it, the necessary implication is that there are some aspects (left unidentified) that do not fit with a property rights regime.
The problem with patent law, according to Lemely, is that there is no independent invention defense. The problem with not having an independent invention defense, according to Lemely, is that people who invent themselves couldn’t possibly find out about what others have invented because these inventions lay in unpublished patent applications at the Patent Office. “You have people who genuinely tried not to infringe,” Lemley said.
And there was the false statement. Kieff merely responded: “And so it begins.”
Of course, the problem with Lemley’s argument is it is simply untrue and built entirely on a false premise. If you believe those who infringe genuinely are trying not to infringe you might be tempted to believe Lemley, but when you build an argument on something that is provably false, the entire argument tumbles like a house of cards.
In fact, those who infringe do nothing of the sort. In many major corporations patent searches are simply not done, and in fact reading the patents or patent applications of competitors is strictly forbidden. Furthermore, when these infringer companies are notified that they are engaging in activities that infringe the rights of patent owners they do not attempt to engage in licensing talks or any kind of due diligence, which you would expect from those who are genuinely trying not to infringe, as Lemley suggests. Instead, the infringer companies simply throw away the letters they receive. Indeed, in-house corporate attorneys speaking at industry events are practically giddy as they explain that they simply “circular file” letters they receive from patent owners, or laugh when they say that they don’t infringe valid patents.
While Professor Lemley is entitled to his opinion, and he is an excellent and formidable attorney that no one should ever take for granted, he is not entitled to his own facts. Deliberate disdain for patent property is a purposeful business model driving mega-tech IT incumbents. This business model is called “efficient infringement.” Efficient infringement is a cold-hearted business calculation whereby businesses decide it will be cheaper to steal patented technology than to license it and pay a fair royalty to the innovator, which they would do if they were genuinely trying not to infringe as Professor Lemley suggests.
Large entities realize there are a certain number of patent owners that are simply not going to assert their patents for one reason or another, frequently because they don’t have the money to do so. Then there is another group of those that will assert their patents but will not win. The efficient infringement calculation progresses to realize that there is only a small group of those who are likely to assert patents and prevail, thanks to all the hurdles put in place (i.e., patent eligibility challenges, the PTAB, etc.). The calculation further recognizes that even if a patent owner prevails a permanent injunction is virtually impossible to obtain as the result of the Supreme Court’s decision in eBay v. MerchExchange, and damages are likely to be minimal thanks to a continual judicial erosion in damages available to vindicate valid patent rights that have been adjudicated to be infringed.
During the panel Lemley also disagreed with Judge Michel that the patent system is in crisis, noting that the uncertainty to the extent it exists is a patent litigation matter, and patent litigation is only a very small part of the overall system. This allows him to come to the conclusion that changes to the law do not greatly impact the system. According to Lemley, so much of why people get patents relates to considerations other than litigation. Lemley is correct, but he misses the critical point, which is that the value of a patent is tied directly to the likelihood that it could be enforced in litigation. An exclusive right without the ability to be enforced isn’t much of a right, and is worth very little as it turns out. So as patents have become less likely to be patent eligible, and as patents have become so much easier to challenge and therefore much more vulnerable, the entire corpus of issued patents have been dramatically impacted by a series of self-inflicted wounds that have rather stupidly forfeited the American advantage. (For more on patent valuation please see my free webinar on Thursday, March 30, 2017).
The inconvenient truth is America no longer fuels the fire of creative genius with the patent system.
China, on the other hand, is open for business and starting next week both software and business methods will be patent eligible in China. Germany is also open for business, where an injunction is routinely given to victorious patent owners, which as Judge Michel explains, frequently leads to settlements after a verdict. The United Kingdom is also open for business and is the top jurisdiction in the world for patent protection according to the U.S. Chamber of Commerce; tied for first with Switzerland, Sweden, Germany and France. The United States is tied for 10th with Hungary. If that doesn’t put everything into perspective what will?
“There is a presumption somehow that patents are not good; that strong enforceable patents are really just monopolies,” Schneider explained. “If government officials believed patents are good you’d see a different outcome.”
Perhaps there is some reason for hope. According to Deanna Tanner Okun, there is reason to believe that the Trump Administration will be pro-enforcement, which would be good for patent owners.
“Here is someone who believes in enforcement and believes in protecting U.S. rights,” said Tanner Okun, speaking of U.S. Trade Representative nominee Robert Lighthizer. “I look at this and I see opportunity… there is a lot of room for positive things to happen.”
She would later wrap up the panel asking about the message America is sending overseas with our actions at home. She lamented the fact that we are losing sight that the reason we have capital come into the United States is because we have strong intellectual property rights. “What message does it send to economies abroad,” asked Tanner Okun. “If signals coming out of the U.S. are going the wrong way that sends the wrong message.”
Indeed it does.