Bittersweet Milestone: Ten Million Patents Issued in the US, but What Are They Worth?

Last month, the U.S. Patent Office issued patent number 10,000,000. This historic occasion calls for rethinking our patent system and the future of American innovation.

In the past, such an event would have been a cause for celebration, a testimony to our ingenuity. Back then, patents were valuable assets, protecting and incentivizing innovation. A valid patent gave its owner the right to stop infringers in their tracks.  Unfortunately, that is no longer the case.

The ill-conceived patent reform legislation of 2011—the so-called America Invents Act (AIA)—was followed by a series of judicial decisions that devalued patents and made them increasingly difficult to enforce. With the patent system in disarray, inventors may be better off simply keeping their inventions under wraps, rather than seeking patent protection.

Why do we even need patents? Inventors are not obligated to disclose their ideas; they can keep their inventions secret and rely on the protection of the trade secret laws. Trade secrets have one great advantage over patents: so long as they remain secret, they never expire. Had the creator of Coca-Cola patented his formula, the patent would have expired over a century ago. Instead, he chose to keep it secret, and as a result, it is among the most valuable intellectual property assets in the world.

However, such secrecy is generally bad for society. The disclosure of inventions allows innovators to build on each other’s advances, accelerating the progress of science and technology. Therefore, the framers of the U.S. Constitution enshrined the patent clause in Article I Section 8, empowering Congress: “To promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.”

The framers understood that “the progress of science and useful arts” depends on the sharing of novel ideas. A patent is a bargain between an inventor and society, wherein the inventor discloses his or her invention to the public in exchange for a limited monopoly. The very word “patent” comes from the Latin “patere”—to lay open or disclose.  Thus, a patent is the quid-pro-quo for an invention’s disclosure.

Title 35 of U.S. Code defines a patent as the right to exclude others from making, selling, importing, or using a patented invention. The right to exclude others—i.e., to stop others from infringing the patent—can only be enforced by obtaining a court-ordered injunction.

However, in 2006, the Supreme Court, in eBay v. MercExchange, took away the right of a patent owner to obtain an injunction against infringement, unless the patent owner practices the invention itself. Thus, inventors and nonpracticing entities lost the exclusive right to their respective … discoveries” that is the very essence of the patent protection guaranteed them by the Constitution.

It is nothing short of misleading the public by telling inventors that in exchange for their invention disclosure they will receive a limited monopoly, a patent. Most of the time inventors get no monopoly rights whatsoever. At best, after years of litigation, millions of dollars in attorney fees and multiple challenges to their patent validity at the Patent Office, they may get some monetary compensation. But is it worth the hassle?

Other Supreme Court decisions followed the eBay decision, each making our patents weaker, less valuable and more difficult to enforce, putting the patent system in a tailspin. The Octane Fitness decision essentially upended the centuries-old American judicial tradition that each party pays its own legal fees making it easy for judges to make the losing party pay the winning party’s attorney fees. Some judges, such as, for example, in the Southern District of New York, now frivolously apply section 288 of the Patent Code to slap plaintiffs with Octane sanctions. Today, a patent owner who dares to assert his or her patent in court is facing a real possibility of financial ruin from having to pay millions of dollars in Octane sanctions.

The SCOTUS decisions in Alice and Prometheus muddied the waters of patentability making unclear what inventions are even eligible for patent protection. Today, almost every patent, particularly a software patent, is open to an Alice challenge on patentability grounds.

To restore the bargain between society and innovators and incentivize the disclosure of inventions, Congress must immediately pass legislation restoring all patent owners’ right to exclude others, by requiring courts to issue an injunction upon a finding of infringement. Congress must also clarify what subject matter is eligible for patent protection.

The American patent system, which used to be the strongest in the world, has been further weakened by the American Invents Act that deformed the system more than it reformed it. Perhaps, the most egregious provision of the AIA is the introduction of inter partes review (IPR) and other forms of post-grant review, which allow defendants to challenge the validity of the issued patent before the panel of administrative law judges at the Patent Trial and Appeal Board at the USPTO. Drafted and pushed through Congress by special interests, AIA gave infringers a free-get-out-of-jail-card. After having spent tens of thousands of dollars prosecuting the patent at the USPTO, the patent owner is now forced to defend its validity again at the tune of several hundred thousand dollars. With an attrition rate of over 75%, the PTAB was dubbed the “firing squad” by the former Chief Justice of the Court of Appeals for the Federal Circuit. The erosion of patent protection removed the incentive to innovate and the incentive to invest in innovation, thereby threatening the future of American innovation.

To be sure, we need to curb frivolous patent litigation that games and abuses the system. Destroying our patent system to achieve that, is akin to throwing the baby out with the bathwater.

The United States is the most innovative and entrepreneurial country in the world. Abraham Lincoln said that the patent system “added the fuel of interest to the fire of genius.” By watering down that fuel, the Supreme Court and Congress have endangered the future of scientific and technological innovation.  It is now up to Congress to rekindle the flame of innovation by fulfilling its constitutional duty “to promote the progress of science …, by securing for limited times to … inventors the exclusive right to their respective … discoveries.”

Image Source: Deposit Photos.