The unfortunate reality is the United States is no longer the most favorable jurisdiction for innovators. There has been a full assault on patent rights that started at least as early as 2005 when the U.S. Supreme Court issued its decision in eBay v. MercExchange. Encouraged by this success in the courts, which largely ushered in an era of compulsory licensing, the forces that wanted to weaken the patent system to suit their own agenda put their foot on the accelerator. Ever since we have seen proposed legislative change after proposed legislative change, as well as a never ending stream of cases at the Supreme Court and Federal Circuit that continue to weaken patent rights. Innovators are under attack from ever expanding judicial exceptions that render more and more subject matter patent ineligible, and from an ever expanding view of what it means to be obvious. This coupled with fresh new ways to challenge issued patents and concern about a patent litigation explosion that doesn’t exist is leading to extraordinary mischief in the Courts, on Capitol Hill and in the White House.
“The Supreme Court is making national economic policy in Section 101 cases, despite lacking economic expertise, factual information or statutory authority, based on its own decades-to-century-old dicta and unfounded assumptions that seem merely to mirror editorials in certain media that equally lack factual basis,” former Federal Circuit Chief Judge Paul Michel says. “Meanwhile, Congress threatens to micro-manage patent infringement proceedings, abrogating the Federal Rules of Civil Procedure that controlled all civil cases since 1938, interfering with the independence of this co-equal Branch of government, undermining the Separation of Powers and severely restricting the necessary discretion of Federal judges.”
These and other issues will be the focus of a free webinar I am hosting on Thursday, November 13, 2014. The webinar, sponsored by Innography, will take place from 12pm to 1pm Eastern. Joining me will be Judge Michel and Richard Baker, a senior IP licensing executive who is on the Board of LES and is one of the top 300 IP strategists according to IAM Magazine. Judge Michel will provide commentary both about what we are seeing in the Courts and inside the beltway with respect to legislative initiatives ostensibly aimed at “solving” problems. Baker will discuss the implications on the patent brokerage and licensing business of so many patent claims being invalidated as a result of SCOTUS decisions, and will specifically address how things have changed over the past several years.
Patents encourage and protect innovation. That’s undeniable, but it’s naïve to believe that’s all we need to develop the new products that evolve into the industries that bolster the dynamic U.S. economy. Patents, and other forms of intellectual property protection, are a necessary prerequisite, but incentivizing innovation requires more. Just as plants require sunshine, water and nutrients to grow, innovation needs more than simply patent protection to thrive. To thrive innovation requires a climate that is conducive for business success.
Sadly, Capitol Hill is frequently the setting for both grandstanding and pandering, and given the prevailing political and public sentiment it is also frequently a place where businesses find an inhospitable welcome. A recent case in point: Three senior members of Congress (Henry Waxman, Frank Pallone Jr., and Diana DeGette) have started a joint investigation into the pricing of Sovaldi, a breakthrough drug for hepatitis C produced by Gilead Sciences (NASDAQ: GILD). Rather than applaud the health benefits that this drug will deliver, Congress is grilling the company on their pricing decision, striking fear in the investment community, and indirectly undermining the healthcare innovation that is so desperately needed.
Johnson, a strong proponent for patent reform, publicly questioned the need for expanding covered business method (CBM) review, which has long been a pet cause of Shumer’s. Schumer is on record as supporting CBM and wanting to expand the reach of this post grant patent challenge. It is believed Schumer is so invested in CBM because those primarily using CBM are banks and other financial institutions, which is where Schumer receives much of his considerable financial backing and political support. More recently Schumer has also been lobbied by App developers and others who would like CBM review to become available to challenge all software patents.
If the news of resistance on the Senate Judiciary Committee is true the question then turns to whether anyone qualified for the job of Director of the USPTO could be confirmed. Virtually everyone in the industry questioned the wisdom behind expanding CBM review; Phil Johnson was hardly an outlier on that subject. In fact, even Microsoft and Apple broke off from the Google/Cisco high tech collaboration to question the wisdom of expanded CBM review. It was a bad idea to expand CBM. If support for expanding CBM becomes a litmus test then it seems unlikely that a candidate will emerge that is both acceptable to those who adhere to the Google/Cisco orthodoxy and who would also be acceptable to pharma/biotech and the rest of the patent community that needs strong patents and a fully functioning patent system.
Phil Johnson at IPO Inventor of the Year award ceremony, December 10, 2013.
The Washington Post recently reported that the anticipated nomination of Phil Johnson to head the United States Patent and Trademark Office is dead. News of the death of Johnson’s nomination is both a shocking surprise and yet all too predictable in a town that increasingly makes little logical sense. Johnson is extraordinarily qualified, he is willing to take the position, he has seen the patent system from virtually all vantage points, and yet his nomination has stalled after many months of vetting and no legitimate red flags surfacing.
It seems that Johnson’s major flaw may be that he strongly supports the patent system, which is a very sad commentary. In fact, there are some starting to believe that the only candidate that may be acceptable to certain political forces is one who opposes the patent system on a fundamental level. Of course, such a candidate would be unacceptable to a great many other powerful industry interests, so this could mean that the USPTO will indefinitely be without a politically appointed and confirmed leader, at least unless the White House is willing to step up and make a nomination.
I am on record supporting the nomination of Phil Johnson, and simultaneously pointing out that the proffered rationale used by his detractors is factually false. Those suggesting Phil Johnson hasn’t been supportive of patent reform efforts are simply misinformed. In fact, you would be hard pressed to find anyone in the private sector who has been more supportive of patent reform over the last 8 to 10 years. In fact, Johnson was a strong supporter of the American Invents Act (AIA), which has been one of President Obama’s signature accomplishments. Johnson was also a strong supporter of fee-shifting legislation. Stay tuned more on Johnson’s support of patent reform efforts in the coming days and weeks.
In her prepared remarks, Lee substantively will begin by saying she is pleased that Congress approved “a FY 2015 appropriation bill that provides USPTO with the authority to spend anticipated fee collections as estimated by the Congressional Budget Office.” Sadly, this is something to be thankful for as odd as it seems. While significant user fees are generated by the USPTO, without the approval of Congress the USPTO cannot keep and spend the funds collected. Lee explained that by being granted permission to keep and use collected user fees the Office will “continue reducing the patent application backlog, shortening patent pendency, improving patent quality, enhancing patent administrative appeal and post-grant processes, fine tuning trademark operations, expanding our international efforts and investing in our information technology (IT) infrastructure.”
Congress is moving forward with at least some patent reform efforts this year, taking up the Targeting Rogue and Opaque Letters Act of 2014, which is scheduled to be marked up in the House Commerce, Manufacturing, and Trade Subcommittee on July 10, 2014. This Subcommittee is a subcommittee of the House Energy and Commerce Committee. This draft of the bill is as it existed earlier this week.
This draft legislation — creatively dubbed the TROL Act — addresses the sending of abusive and bad faith patent demand letters by clarifying that such activity may violate the Federal Trade Commission Act and authorizing that agency and state attorneys general to bring actions to stop the abusive behavior, among other things.
The writing has been on the walls for some time, as the Senate Judiciary Committee has repeatedly failed to produce a revised version of S. 1720, the Senate version of patent reform. Over the past several months an announcement would come that the Senate Judiciary Committee would be releasing a Managers’ Amendment to the pending legislation, only to have that postponed time after time. Today, Senator Patrick Leahy (D-VT) announced what many have been expecting for weeks, namely that patent reform would be tabled due to lack of consensus. But Leahy’s announcement went further, noting that not only would the Committee not release the long awaited updated version of the bill, but that patent reform would be removed from the Committee calendar altogether.
While Senator Leahy said that he hopes to be able to return to patent reform this year, the legislative calendar does not look good. Now removed from the Committee calendar patent reform seems to dead for this Congress.
No vote will be taken on the Senate version of patent reform until the next draft is released and voted on by the Judiciary Committee, which doesn’t seem likely to happen anytime soon. Then if the Senate does pass patent reform it is guaranteed to be different than the version passed by the House of Representatives. Ordinarily one might suspect that would lead to a Conference between the House and Senate, but Judiciary bills are rarely, if ever, sent to Conference. That means even if the Senate passes patent reform the bill would bounce back to the House, and we could see an ensuing game of ping-pong, with greatly intensified lobbying by both sides. All the while legislative days are dwindling, and useful legislative days in advance of the November election are even more limited. Indeed, with this announcement today it seems that patent reform is now dead for 2014. The only hope proponents have is that patent reform will sneak back in a lame duck session of Congress, but I believe that hope to be somewhat far-fetched.
Critics of the patent system, and specifically the critics of software patents, would have the United States forfeit the future in favor of something that has never worked. Curtailing patent rights has never worked to produce more innovation anywhere it has been tried. So why would we try such an experiment in the United States when it hasn’t ever worked anywhere ever? Unfortunately, it seems that many of our leaders in Washington, DC, are listening to those who have fanned the flames and worked exceptionally hard to create an unhealthy anti-patent climate.
Newsflash — innovators are not evil. The fact that this even needs to be said shows just how far we have come and how pervasive the anti-patent climate has become. Rather than celebrate innovation day after day like the drone of a metronome we hear how patents are evil and how they stifle innovation. But if you actually look through the rhetoric you notice that those claims are made with zero supporting evidence, but that is because all of the available objective evidence directly contradicts the growing orthodoxy.
Once upon a time the United States celebrated innovators, and gave them a meaningful opportunity to reap the deserved reward from their hard work and ingenuity. Today, we vilify innovators as evil all because there are a handful of bad actors that engage in abusive patent litigation tactics. Of course, these tactics have nothing to do with patents substantively and everything to do with the fact that these bad actors are allowed to manipulate the judicial process and exploit inefficiencies in the litigation system that are wholly unrelated to the substance of a patent.
In Brooks Furniture Mfg., Inc. v. Du tailier Int’l, Inc., 393 F. 3d 1378 (2005), the United States Court of Appeals for the Federal Circuit held that “[a] case may be deemed exceptional” under § 285 only in two situations: (1) “when there has been some material inappropriate conduct,” or (2) when the litigation is both “brought in subjective bad faith” and “objectively baseless.” The question put before the Supreme Court was whether the Brooks Furniture framework is consistent with the statutory text.
In unanimous decisions delivered by Justice Sotomayor, the Supreme Court ruled that the Brooks Furniture framework was too restrictive and inconsistent with the text of § 285. With Octane Fitness the Supreme Court makes it easier for district courts to sanction plaintiffs for bringing meritless patent infringement suits, while Highmark makes it more difficult for the Federal Circuit to reverse district court decisions under the statute. Both cases were closely watched as both the private sector and Congress have been making efforts to quash the dramatic uptick in patent cases filed by non-practicing entities.