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.
On July 3, 2014, I had the opportunity to interview Judge Michel, former Chief Judge of the United States Court of Appeals for the Federal Circuit. The interview took place at the University Club in Washington, DC. Our conversation was wide ranging, dealing with all the pressing issues of the moment in the patent world. In part 1 of the interview Judge Michel explained exactly why the Supreme Court’s decision in Alice v. CLS Bankwas terrible, saying that he thought the decision would lead to “total chaos” because there is no repeatable, predictable test that can be objectively applied.
In part 2 of the interview, which appears below, we continue our discussion of Alice, but focus on how the Supreme Court is importing considerations that historically (and correctly) are matters of obviousness under 35 U.S.C. 103.
QUINN: Well, I know one of the things that we’ve talked about in the past as a concern is with all these decisions patents have gotten a lot longer, a lot more difficult to read, and really almost in some ways hide the innovation. And it’s not necessarily a conscious “I want to hide it,” sometimes it may be, but patents from 50, 60 years ago used to be a couple pages long and that included the drawings. What do you think the Alice decision is going to do to the complexity of patent applications moving forward?
MICHEL: Well, it’s hard to imagine that it will encourage shorter or simpler applications. But I don’t really know. I can’t predict. And part of what worries me is the extent of the harm is difficult to gauge. I think there will be harm. My concern is that it’s likely to be massive harm. But it can be equally argued that the harm will be very small because really nobody knows. So we’re taking a huge gamble here where nobody knows what the risks and harms can be. Also consider this you talk about the stability of property regimes in the law, how about the right of a property owner as to who’s going to decide things? In our lawsuit where you sued me if I claim your patent’s invalid as obvious I’ve got to prove it. I’ve got to prove it to an elevated burden with admissible evidence to a jury. But in a 101 matter it looks to me like there’s no role for the jury it’s all going to be up to the district judge to decide whether to invalidate the patent by declaring it ineligible. So there’s a lurking issue here of right to jury trial because the Supreme Court has now shifted the center of gravity of an invalidity case from the trial and the jury to a pretrial motion with no jury and probably very limited factual records.
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.
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.
The US patent system has a storied history: written into the Constitution by Madison; the Patent Act itself written by Jefferson; and, requested to be passed in Washington’s first State of the Union speech. As a former speech writer for the Commissioner back in 1985, I had the fun task of finding little interesting factotums about the US patent system to add some flavor to whatever audience the Commissioner was addressing. Such facts might include: local inventors, known statewide innovative companies, or just interesting moments in the course of the system and its contribution to the development of the then brand new United States.
Some fun stuff: Abraham Lincoln reckoned that, along with the invention of the printing press and Columbus discovery of America, the US patent system was among the three most important events in the history of the world. Of the 4 faces on Mt. Rushmore, 3 are inventors (Roosevelt is the exception); but, only Lincoln got a patent. The British burned pretty much everything in Washington that mattered in 1812; except, the Patent Office, around which they placed a guard. And so it goes.
Why am I resorting to the emotional heart strings; because the current round of patent reform is an existential threat to the US patent system. If these proposals pass, we will be left with a very, very expensive registration system in which the Fortune 50, and no one else, will be able to participate. In case no one has noticed, the Fortune 50 do not innovate (with few exceptions, it is those who will become the Fortune 50 that do the innovating) and so, the system ceases to exist. Let me explain.
Editorial Note: This article is a portion of a larger work by Andrew Baluch titled Patent Reform 2014, modified here for purposes of publication on IPWatchdog.com. Baluch’s article is a comprehensive review of pending legislation developments in Congress, the Executive Branch, the Courts and the States. For more specifically on fee-shifting please also see Will Fee Shifting Solve the Patent Troll Problem?
U.S. patent litigation has followed the centuries-old “American Rule” under which each party to a litigation pays its own legal fees and costs, regardless whether it wins or loses the litigation. A narrow exception exists in patent cases, but only in “exceptional cases” under 35 U.S.C. § 285, such as where the losing party engaged in litigation misconduct, or if the patent was fraudulently procured, or if the losing party raised arguments that were both objectively baseless and made in bad faith.
Despite the long tradition of litigants paying their own legal fees and costs, Congress has shown interest in changing the playing field and deviating from the American Rule in patent cases. This comes at a time when the U.S. Supreme Court is already considering two cases that relate to the definition of “exceptional cases” in § 285 that may well alter how this existing exception to the American Rule is applied in practice.
What follows is discussion of various legislative proposals relative to fee-shifting, as well as a brief discussion of the two cases currently pending before the Supreme Court.
The United States Patent and Trademark Office has recently released the latest information about the number of post grant trial proceedings that have been initiated. The clear, resounding verdict is that post grant administrative trials are extraordinarily popular. In fact, they are far more popular than Congress anticipated they would be at the time the America Invents Act (AIA) was passed.
Scott McKeown, a partner with Oblon Spivak who co-chairs the firm’s Post Grant practice group and is the primary author of the Patents Post Grant Blog, recently posted his analysis of the latest post grant trial statistics announced by the Patent Trial and Appeals Board (PTAB). See March 2014 Update to PTAB Trial Statistics. Here is what the chart looks like:
According to McKeown these numbers are significant because they are significantly higher than the numbers originally anticipated by Congress, showing that the industry finds these administrative trials to be extremely useful, even more so than predicted. His article explains: “These numbers are well beyond the 281 filing limit per year Congress envisioned…”
EDITORIAL NOTE: The following article has been posted as an online petition you may sign by visiting IndependentInventorsofAmerica.org. On Friday the United States Senate held additional hearings and seem poised to act relatively quickly on the Senate version of patent reform. For information about how to directly contact your U.S. Senators please see Senators of the 113th Congress.
We represent independent inventors and small patent-based businesses across the country and we are against any patent legislation that includes provisions of the Innovation Act (H.R. 3309) and the many variations and additions under consideration in the Senate. This legislation will levy grave harm upon independent inventors and small patent-based businesses, as well as the investors we need to help commercialize new technologies and to protect our inventions.
The American patent system is a trade between an inventor and society. An inventor discloses an invention for all to see and build upon, and the government grants and protects for the inventor an exclusive right to the invention for a short period. The American patent system was intended to enable anyone, regardless of economic status, race or gender, to profit from the invention of something new and valuable. This system has worked as intended for over 200 years, fueling the creation of the greatest economy in the world.
There is a new entry into the patent reform debate. The Main Street Patent Coalition is a national coalition of organizations that says they are dedicated to stopping patent abuse by so-called patent trolls. The Main Street Patent Coalition is encouraging Congress to pass what they call “common sense patent reform legislation.”
The Main Street Patent Coalition members include: the National Restaurant Association, the National Retail Federation, the American Hotel and Lodging Association, the National Grocers Association, the International Franchiser Association, the Application Developers Alliance, the National Association of Realtors, the Retail Industry Leaders Association, the National Council of Chain Restaurants, the American Association of Advertising Agencies and the American Gaming Association. These trade associations say they want Congress to give small businesses a fighting chance against the growing threat of patent trolls.
The Main Street Patent Coalition claims they represent the small business community at large, which has to make you wonder. On their homepage they talk about an innovative, family owned and privately held company named White Castle. According to the LA Time, White Castle has 9,600 employees. How exactly is that a small business? Answer: White Castle is not a small business, at least if you concern yourself with the way the Small Business Administration defines small business. To be a “small business” you have to have no more than 500 employees. Clearly the Main Street Patent Coalition recent press release Small Main Street Businesses Launch Patent Reform Coalitioncarries a misleading, if not false, title.