The Inventor Protection Act: Needed Momentum or More Harm than Good?

By Ken Stanwood & Keaton Parekh
September 23, 2018

Recently, the Inventor Protection Act, H.R.6557, was introduced to Congress.  It’s a very well intentioned piece of proposed legislation.  However, it may actually do more harm than good to efforts to strengthen patent rights in the aftermath of the AIA.

We will explain, but first let us say that we firmly support USInventor.org and the efforts they are putting into protecting individual inventors and small innovative companies such as supporting H.R.6557.  Also, we want to express appreciation to Congressman Dana Rohrabacher for authoring and sponsoring this bill but especially for co-sponsoring the Restoring America’s Leadership in Innovation Act, H.R. 6264.  The last time we talked with Congressman Rohrabacher’s office they indicated he was against federalizing legislation regarding patents (or at least the demand letter reform in the TROL Act).  Apparently, he has changed his mind at least somewhat.

Also let us go on the record to say that we support:

  • The TROL Act, R.6370
  • The STRONGER Patents Act, R.5340
  • The Restoring America’s Leadership in Innovation Act, H.R. 6264, sometimes referred to as the Massie-Kaptur Act

We support the basic concepts in H.R.6557, too, but do not agree with the limitation that the benefits should only apply to “inventor-owned patents.”  Such limitation might sound reasonable upon initial consideration.  However, as we specifically address below, this limitation fails to consider the fact that most inventions are created as a work for hire and involve more than one inventor.

We agree with the Findings, except for paragraph (2) of the Findings. [H.R. 6557: SEC. 2. FINDINGS. “(2) Inventors, not employees or investors, are the source of innovation intended by the Constitution (“securing to inventors”) and the Patent Act (“Whoever invents or discovers … may obtain a patent thereof … ).]  The Constitution defines a property right that should not be diluted or damaged and does not disappear if passed from the original owner to a subsequent owner.  Based on our experience most inventions, including all 146 of co-author Ken Stanwood’s issued US patents, are created as work for hire by employees of a company, and most name more than one inventor.  The most vulnerable of those companies, startups, are typically funded by investors who view these property rights, created as works for hire, as an asset of the company that could be monetized if circumstances so warrant.  For further info see “Benefit of the Secondary Patent Market to Startups.”

We have co-founded startups, worked for others, and given advice to still others.  There may be exceptions like Josh Malone and Bunch O Balloons where the person and their company are basically one and the same, but this exception is not an accurate representation of the inventors associated with many small enterprises.  Most startups have technology that is contributed by more than one person, especially as the technology and related products develops over time.  It’s hard to say how many times while advising a startup that we have heard the story that they have great technology that is patent protected, but the inventors never executed assignments of the patents to the company, and now one of the inventors is disgruntled and has left or was pushed out by the other founders or management.  Most investors view these startups as virtually unfundable and the patents as almost worthless.  With “inventor-owned patents,” a rouge inventor can undermine any licensing attempt by the other inventors, and for all practical purposes the company has no rights.  Talking with Josh, even he has assigned his patents over to his company.

Even ignoring such “falling out” scenarios, there are many reasons why employees eventually leave their current employers.  Other employees will then build on the technology, potentially creating continuations-in-part with additional inventors.  With inventor ownership, the rights to the invention become complicated.  Unassigned patents may limit a company’s competitive advantage as these patents are then no longer a meaningful asset as collateral to investors or are useless to fend off competitors.  However, under H.R.6557, getting these necessary assignment from the inventors, or monetizing the patents at dissolution of a startup, eliminates any protections under the bill.  So, the inventors, company, and investors are stuck with a very tough decision – assign the patent ownership to protect the source of funding or retain protection under H.R.6557.  They can’t do both.

And, the targeted problem is not really solved.  Individual inventors will still need to bear significant expenses in defending their patents.  There can still be a validity challenge in court.  We have seen many validity challenges where a patent challenger would allege that dozens of references spanning hundreds of pages were prior art, with a thousand pages of claim charts.  Sometimes some of the references are so far removed from the topic of the claims as to clearly be a tactic employed by an accused infringer for the purpose of causing more work and delays and increasing the patent owners’ expenses.  Additionally, the bill does not address the current section 101 debacle.  So, the inventor may need to defend against patentable subject matter objections.  There must be an infringement analysis of the accused products, and this is not free.  The damages estimation can be simplified under the bill, but it still requires some work.  These efforts could easily add up to millions of dollars against a well-funded infringer.  While the bill does increase the likelihood that a law firm would be willing to help an individual inventor on a contingency basis, there is definitely no guarantee.

There is a real concern that many in Congress will see H.R.6557 as a way to do “something” that looks like it is strengthening patents while relieving themselves of the need to consider one of H.R.6370, H.R.5340, and H.R.6264.  The efficient infringer community could actually get behind H.R.6557 to delay any need to discuss the more comprehensive bills.  It may stall these other three bill while doing very little to keep large companies from financially crushing the individual inventor anyway.  Talking with Congressman Rohrabacher before the San Diego screening of Invalidated: The Shredding of the US Patent System, he was hopeful that H.R.6557 would give a meaningful push to the discussion of the topics presented in all the bills.  He’s closer to the situation than we are, so we hope he’s right and we’re wrong.

We need to fix what is wrong with the patent system for everyone, not merely carve out exceptions for a few.  Is H.R.6557 a step in the right direction, gaining momentum for stronger patent property rights for everyone, or will it harm the ability to reach that goal?  We think the answer is clear that H.R. 6557 as written doesn’t do what the patent laws were intended to do – promote progress of innovation/science.  If we start the discussion, though, there will possibly be future versions of the bill where our concerns are addressed.  Such future versions may provide for stronger patent property rights for everyone.

The Author

Ken Stanwood

Ken Stanwood is CTO of WiLAN, Inc. where he oversees WiLAN’s engineering staff. One of his primary responsibilities is running WiLAN’s university technology transfer program which includes helping universities spin out startups. Mr. Stanwood transitioned into his role of CTO after having served as President and CEO of WiLAN Labs, the research and development arm of WiLAN, Inc. which focused on developing solutions to fundamental issues facing next generation wireless communications and cloud computing. Mr. Stanwood has extensive experience in Broadband Wireless technology development including protocol and algorithm development, intellectual property, and standardization. He has been in the communications industry for over 35 years. As an entrepreneur and inventor, he has founded two startups and holds more than 145 issued US patents.

Ken Stanwood

Keaton Parekh is the newly appointed President and CEO of WiLAN. Prior to his appointment, Keaton was the Chief IP Officer of Lumileds, where he built a global IP team and infrastructure and led the successful separation of Lumileds IP functions and assets from its parent Royal Philips. Keaton also held various senior legal and business roles with SanDisk Corporation, Rovi Corporation, and Tessera Technologies. While in private practice, Keaton was a partner at the international law firm of McDermott, Will & Emery where he focused his practice on IP litigation. He began his career as a patent attorney at the NY office of Stroock Stroock & Lavan and the Silicon Valley office of Wilson Sonsini Goodrich & Rosati. Keaton holds a J.D. from Fordham University School of Law, a B.S. in Engineering, and M.S. in Electrical Engineering, from the New Jersey Institute of Technology.

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Discuss this

There are currently 15 Comments comments.

  1. Anon September 23, 2018 12:48 pm

    Bravo.

    As I put previously on this very point, a step backwards is still a step backwards, and the impact to a fundamental patent aspect makes the bill (for me) a non-starter.

  2. Mike September 23, 2018 4:32 pm

    If Rohrabacher, Kaptur, Massie, et al really cared about the inventor community, they would expand §1400(b) to include infringement suits to be brought in judicial districts where inventor research was conducted. I don’t see any work being done to correct the damage by TC Heartland regarding venue where the Supreme Court ruled that “‘reside[nce]’ in §1400(b) refers only to the State of incorporation.” What good is a patent if an inventor cannot feasibly defend it? Sure, this is an issue with the state of the PTAB and IPRs, but it is also an issue with regard to inventors having to deal with inconvenient venue when SOMEONE ELSE infringes on their patent.

    As a result of TC Heartland, in order for legitimate inventors to enforce their patent rights, they must traverse the United States to bring patent actions in each State where infringers are physically established/incorporated – adding innumerous expenditures on top of already exorbitant legal fees, and a major deterrent to incentivizing innovation that goes against the Congressional power “to promote the progress of science and useful arts”. I understand that limiting patent actions to defendant-based judicial districts can help curb forum shopping by “bad actors” flocking to “patent friendly” districts with frivolous lawsuits, but what of legitimate inventors? TC Heartland essentially threw out the baby with the bath water.

    In 2016, S.2733 (The VENUE Act) was introduced to the 114th Congress and provided at least some hope. It sought to amend §1400(b) by allowing actions within judicial districts where “an inventor named on the patent conducted research or development that led to the application for the patent in suit.” Because named inventors on patents are not these so-called “bad actors”, this would help legitimate inventors while still curb bad-actor forum shopping. I vote for Congress to revive this legislation.

    If anyone with clout is listening:
    PLEASE get behind legislation to expand §1400(b) to include judicial districts where inventor research or development was conducted by a named inventor on the patent.

    This would go a long way in support of restoring U.S.-led innovation simply because inventors, universities, and research institutions alike would be able to more feasibly and reasonably defend their patent rights.

  3. Josh Malone September 23, 2018 6:56 pm

    Mike, H.R. 6557 does indeed address venue. Don’t leave patent legislation to big corporations and their professional lobbyists. Real inventors – the ones wasting thousands of dollars on rejected patent applications, the ones not getting licensing deals, the ones getting 0.5% royalties, the ones getting stiffed by their licensees, and the ones getting stabbed in the back by the USPTO attacking the patents that hold our life’s work – have to get involved.

    http://usinventor.org/action

  4. Mike September 23, 2018 11:16 pm

    @Josh:
    Thank you Josh. Two questions for you:

    1. If a patent has joint inventors, and the joint inventors assign the patent to an LLC that is entirely owned by said inventors and no one else, would this patent still fall under the definition of an “inventor-owned patent”? Substituting the definition of “inventor” in 35 USC, Sec. 100 (f) in the Inventor Protection Act’s proposed 35 USC, Sec. 100 (k) would yield this possibility, no?

    2. Does Sec. 330. (b) “Protection From Administrative Proceedings” mean that no IPR can be instituited on an inventor-owned patent unless voluntarily agreed to by the inventor?

    Just want to make sure I’m reading this bill correctly.

  5. Paul Morinville September 24, 2018 1:18 am

    The wealthy classes of patent holders has protected themselves by lobbying (read: bribing) congress, the administration and the courts to make defending patents so expensive and legally complex that only huge players with huge patent portfolios could defend their patents.

    While we disagree with the laws these cronies bought, we are not asking to change the status quo. We do not seek to change the laws that these huge multinationals purchased. No business models need to change. NPE’s and big tech alike can continue as they did.

    We, the PEOPLE WHO THE PATENT SYSTEM IS MEANT TO PROTECT, ask only to have a shadow of a chance to defend our patents and to do that we need to be exempted from those crony laws. We are such a small part of the overall patent economy, this will have no effect on huge corps or NPE’s.

    Yet for some reason NPE’s and huge corps are actively opposed to the Inventor Protection Act even though their business models will be left undisturbed. I wonder what the real reason for their opposition really is.

    PASS THE INVENTOR PROTECTION ACT.

  6. Ken September 24, 2018 8:23 am

    Regarding the LLC issue w/ this: It seems worth noting that the IRS has certain tax provisions that only apply to inventor-owned patents, and it looks like they have interpreted that to indeed cover ownership via LLC (if I’m understanding it correctly). Of course, I realize the IRS is a different agency but perhaps that would at least offer some sort of precedent?

    https://www.journalofaccountancy.com/issues/2005/jul/jointpatentownersandllcs.html

  7. Anon September 24, 2018 11:47 am

    Ken,

    Thanks for the interesting link – very interesting to see how another government agency is viewing the issue.

    However…

    Tax law is its OWN “monster,” and rarely will the arcane twists there be amenable outside of the tax arena for the point being pursued in relation to other arenas of law. Additionally, it appears that the items you reference do not even rise to “law,” as much as they are administrative agency views.

    Tread very carefully.

  8. anony September 24, 2018 12:16 pm

    @Paul Morinville, agree that passing HR 6557 may be a step in the right direction, but do not agree that passing HR 6557 will have no effect on huge corps or NPEs.

    Standing against HR 6557 is throwing the baby out with the bathwater and serves the interests of the efficient infringers. While it would be nice to have the benefits of HR 6557 apply to all patents instead of just to inventor owned patents, it would still be better for the benefits of HR 6557 to apply to at least some patents than to none at all. Arguably, the passage of HR 6557 could be the first step towards regaining these benefits for all patents and that if we are unwilling to take this first step, then the journey will never even get started. The arguments presented by the article above could easily be a ploy by efficient infringer sympathizers to prevent changing the current state of affairs.

    Additionally, a collateral benefit of HR 6557 could be that the natural persons named on a patent can regain their rights for valuable patents. For example, a company that wants to enforce a valuable patent could reassign the patent back to the original inventors to strengthen the enforceability of the patent under HR 6557. This is arguably and improvement over the current problem of inventors getting too little for their efforts after being required to assign all rights and interests to their inventions in exchange for employment.

  9. Ken September 24, 2018 1:53 pm

    “For example, a company that wants to enforce a valuable patent could reassign the patent back to the original inventors to strengthen the enforceability of the patent…”

    This kind of thing makes me nervous…I’d want to see some pretty strict safeguards that inventor-employees wouldn’t be in effect “coerced” (via employment agreements) into simply aiding their employers by being the nominal “enforcers” FOR THEM without retaining some autonomy of decisionmaking and/or a commensurate financial stake.

    I’m all for treating all patents as the property they should be (alienable and all), BUT if we are going for half a loaf, make sure it doesn’t do the target population any HARM – by putting them in complicated situations that they don’t have to deal with currently.

  10. angry dude September 24, 2018 1:58 pm

    No sane inventor with family, kids and some possessions (house etc) will ever want to file a patent infringement lawsuit against multi-billion dollar corp in his own name (I did once and it was totally insane)
    It HAS to be an LLC or Corp represented by attorney(s) with all legal due diligence bs attached
    This is the only way to protect inventor’s livelihood from being destroyed
    – they’ll go after you trying to bankrupt you, they always do
    Just watch the movie “Flash of genius” – its all in there and that guy was extremely lucky, he wouldn’t make it in today’s environment

    Inventor-owned patent ??? Thanks … by no thanks

    I want an LLC (with some non-inventor investors – business partners) holding my patent AND contingency patent litigators. Period.

  11. Anon September 24, 2018 2:35 pm

    anony,

    I could not disagree with you more in regards to your comment of: “Standing against HR 6557 is throwing the baby out with the bathwater and serves the interests of the efficient infringers

    The situation is quite the reverse — for reasons that I provided in detail on earlier threads on this topic.

  12. Mike September 24, 2018 3:55 pm

    I spoke with Josh Malone. And he’s right. The Inventor Protection Act needs to be passed. I’m calling my representatives.

    True, Anon might have a good point that a property’s value should remain the same no matter its owner. And I am all for this ideal. Although legal ideals and principles are great things to pursue, in reality, however, reaching such utopia would require an undoing that doesn’t seem feasible. The fact is: The game has already started, and the efficient infringers are winning. If we want to win, we will have to play the game. Not the game we want to play. But the game that we HAVE to play, because right now it is being played WITHOUT US and the score is being run up while we are still trying to decide if we want to put on a uniform.

    SCOTUS has already ruled against the inventor community in so many instances, and overturning their “law” on patents is like overturning Roe v Wade — your and your clients’ patents will expire before that ever happens. So these referees already have it against us. Meanwhile, the AIA touchdown already happened, and the Oil States instant replay didn’t reverse the call. Issues with 5th amendment due process and takings and the appointments clause might help overturn the play, and maybe only for some, but the infringers have been complaining about uncalled penalties against patent holders for the last two quarters, so I don’t see the refs wanting to go out of their way to look at it again, unless there is something, ahem, “significantly more”.

    I don’t know about you, but I’m not going to sit here and let my patents expire waiting for justices to die or retire and then cross my fingers yet again for them to say my private property is a government franchise.

    The efficient infringers already hold Congress by the balls. But Congress is slowly starting to hear the other side of the story. They need to hear from all inventors.

    It’s raining, the grass is wet, and the football has dirt all over it. If we want a dog in this fight, we have to reach down and get our hands dirty. You’re not going to score a touchdown without touching the ball — what you see on the field is the only game being played.

    You can call your representatives and interact with the game being played on the field, or you can retreat, flipping burgers at the concession stand. When you are on your deathbed, which life will you regret living?

    The squeaky wheel gets the grease. So go here and find out how you can start squeaking:

    http://usinventor.org/action

  13. KenS September 24, 2018 9:14 pm

    Great dialog everyone! I do want to point out that the comments from “Ken” are not from the author Ken

  14. angry dude September 24, 2018 9:28 pm

    Ken @9

    Dude,

    this is an ugly situation you describe and an absolute NO GO as far as I can see

    No corporation or LLC can force their employee to initiate patent litigation against business competitor in employee’s own name
    It HAS to be done in corp name and represented by corp attorneys. Period.

  15. Pro Say September 25, 2018 12:24 pm

    Mike @ 12: Agree with you completely.

    We independent inventors are getting killed in the courts and PTO.

    Killed.

    If we don’t all stand and fight together — and do so now — we are all going to fall apart.

    Idealism doesn’t do any of us any good once our patents have expired.

    Leaving us all with nothing to show for our many years of hard work.

    Here once again is the priority letter I sent to my representative; for anyone who would like some ideas of what to say:

    The Honorable Ms. xxxxxxxx
    (street address)
    Phone: xxxxxxxxxx
    Fax: xxxxxxxxxxxx

    6:47pm Wednesday evening

    Dear Ms. xxxxxxxx,

    I’m asking if you would be willing to help my fellow untold 1,000’s of current and future independent inventors throughout the country by joining your colleagues in co-sponsoring and supporting H.R. 6557, The Inventor Protection Act (attached).

    Since the startling eBay vs MerkExchange Supreme Court 2006 decision, our nation’s independent inventors have been subjected to repeated beat-downs by the courts and the patent office; to the point that it has become virtually impossible to earn a living from our inventions.

    It’s not right. It’s not fair. It’s not American.

    We’re not, “patent trolls” (whatever that derogatory, discriminatory, undefined term means). We don’t buy up the patents of others for the purpose of suing operating companies.

    We are the inventors.

    Throughout our country’s 200+ year history, our inventors have played a critically important role in our intellectual and world economic leadership (even our great Abraham Lincoln was an inventor). We used to be the world’s patent leader.

    But no longer.

    As the U.S. Chamber of Commerce reports, the U.S. Patent System has fallen to 12th Place in the Chamber Global IP Index for 2018.

    That’s how bad things have gotten.

    As Mr. Rohrabacher’s official statement concerning H.R. 6557 makes clear:

    “Innovation is the engine for America’s future prosperity. The continued efforts of inventors enable our country to maintain leadership in the global economy. The United States Constitution specifically secures for inventors the exclusive right to their discoveries, but, unfortunately, legal protections for those rights are on the decline. Too often we see multinational corporations stealing the property of those who do not have the resources to defend themselves, then tying up inventors in endless reviews and litigation. Worse, the system is now structured to make it economically worthwhile for those corporations to pursue this strategy. The founders of this nation rightly understood that property rights, including to one’s writings and discoveries, are essential to liberty and economic prosperity. That is why they were written into the Constitution.”

    As the rest of the world moves forward with patent protections, our country continues to move backwards. Year after year after year.

    China is eating our lunch.

    H.R. 6557 would restore confidence in patent rights and draw capital investment back to small disruptive businesses built on the ingenuity of independent American inventors.

    Which would generate many 1,000’s of new, high-paying American jobs / year.

    Please give me a call if you would like to discuss this further; or if you’d like to set up an appointment for us to meet.

    Protecting our current – and future – 1,000’s of independent inventors is of the greatest importance.

    What would Abraham Lincoln do?

    Thank you for considering supporting this critically important bill.

    We sure need you and your colleagues’ help.

    Sincerely,
    ________________
    (print name)
    Independent Inventor
    (address)
    (phone)