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Erosion of Patent Rights Will Harm US Economy

UPDATED @ 8:30pm

Patent law has always swung like a pendulum. The law swings between extremes, spending very little time in the middle. It is easy to get caught up with the shifting laws and even easier to start looking at the trees instead of the forrest, worrying where there is really no need to become so distressed.  Lately, however, there has been an ever increasing and significant assaults on patent rights. It is not much of an exaggeration to wonder whether any commercially relevant innovation can be and remain patented. We seem to be back to the days when valid patent claims were those that had not been litigated. Today it is more fair to say valid patent claims are those that haven’t reached the Supreme Court or the Federal Circuit. Ubiquity is now the touchstone of ineligibility, or obviousness, rather than being celebrated for such wide spread adoption.

I am more concerned now than ever that the pendulum has swung so far and has gained so much momentum that it will fly clear from its support base point. I raised this with Ray Niro, the famous patent litigator who was originally called the first patent troll, back in July 2013. Then he told me: “looking at the bright side of things, I believe that the pendulum will swing. I believe it will come back.” I again asked him his thoughts on the matter in another interview approximately 11 months later, Niro said that he thought the pendulum would swing back, but he was far less optimistic.

Niro wen on to say:

[I]t’s going to be a long time and it will take the disaster mode to do it. I think, as the economy tanks, there is less innovation and, as the big companies start to get bitten by these adverse decisions (maybe in the Apple/Samsung wars), you’re going to see the pendulum swing back. When you wreck the patent system and you create a disincentive, now you have big company A suing big company B they’re gonna get—one of them is going to be unhappy. And it’s probably going to be the plaintiff that is unhappy. Well, as they see their portfolios eroded because of split infringement, because of Section 112 definiteness, because of patent eligibility, because of the minuscule damages that they can recover, you’re going to see a backlash at some point and an adjustment. But I think it’s going to take a long time, Gene. I don’t think it’s a matter of months. I think it’s many years before people wake up. I just hope that we haven’t wrecked the country in the process.

And therein lies the problem. Without any legitimate statutory precedent or authority the Supreme Court is wrecking the U.S. economy just as sure as snow is white and water is wet. Unfortunately, a terribly divided Federal Circuit is causing their own brand of destruction. We are entering a dark time for patents; one that will have a significant deleterious effect on the U.S. economy.

While the Supreme Court is assaulting patent rights vis-a-vis patent eligibility, the United States Court of Appeals is assaulting patent rights from a different angle — obviousness. The Federal Circuit has long been infatuated with de novo review, which means that they get to do whatever they want and give absolutely no deference to the district court and/or jury, but lately the Federal Circuit has ratcheted it up a notch.

Recently in a non-precedential opinion in I/P Engine, Inc. v. AOL, Inc. (CAFC, August 15, 2014), a majority of the Federal Circuit panel assigned found all the asserted claims obvious. See Federal Circuit Ignores Jury Finding of Non-obviousness. They declared that no reasonable jury could have determined otherwise. The problem is that EVERY decision maker who had previously reviewed the claims disagreed, as did Judge Chen who dissented. Indeed, the patent examiners that issued the patents in the first place found them patentable and non-obvious, the reexamination examiners who again reviewed the patent claims in question found them patentable and non-obvious, the jury found the asserted claims non-obvious, and the district court reviewing the jury verdict on a JMOL also found the asserted claims non-obvious. There was also specific and direct evidence introduced that would support a jury determining that the asserted claims were non-obvious. In legal terms this means that there was substantial evidence to support the jury finding, but the Federal Circuit ignored it nevertheless.


Truthfully, not only could a reasonable decision maker find the claims to be non-obvious, but EVERY decision maker other than Judges Wallach and Mayer found the asserted claims to be non-obvious. The unreasonable parties seem to be Judges Wallach and Mayer. In fact, a reasonable person might well conclude that when everyone else disagrees they are the ones who are being unreasonable.

The aforementioned disregard for the factual decisions of the jury and utter disregard of all other decision makers in the chain is problematic. It is even more problematic because this was not an isolated incident. The same exact scenario presented itself in Soverain Software v. Newegg, which the Supreme Court refused to accept. See Soverain v. Newegg: Not An Ordinary Obviousness Dispute. Ever more distressing in the Soverain debacle was the fact that Newegg appealed asking only for a new trial. Soverain responded to the appeal, but the Federal Circuit took it upon themselves to find the asserted claims non-obvious. But Soverain was never afforded the opportunity to present arguments that the asserted claims were non-obvious because a that was not at issue. They lost the claims anyway.

To show just what a mess the Federal Circuit has created, Soverain is now going back to the Federal Circuit in Soverain Software v. Victoria’s Secret, which will be argued at the CAFC on October 10, 2014. Victoria’s Secret is trying to claim that Soverain lost the asserted claims when they lost to Newegg. Soverain, however, made the persuasive argument that Federal Circuit Newegg decision couldn’t have any collateral estoppel effect since the Federal Circuit didn’t provide Soverain with the opportunity to argue non-obviousness. That is, of course, the proper legal determination and perfect evidence of what happens when the Federal Circuit over reaches. To call this a mess doesn’t even scratch the surface. Stay tuned for more coverage of this appeal on IPWatchdog.com in September.

Along these same lines, how could the claims lost by I/P Engine actually be lost as to others? The Federal Circuit for some inexplicable reason made the decision non-precedential, which means it has no binding authority on anyone other than the parties involved. So I/P Engine should be able to sue others on those same claims that they lost without any collateral estoppel. Talk about a complete lack of finality. But this is what you get when the Federal Circuit is more interested in being a super-trial court than an appellate court that limits review to appealable matters.

Unfortunately, from an economic standpoint a restrictive 101 view and an expansive view of obviousness that renders all commercially relevant innovations either patent ineligible or obvious will cost the US industry and economic opportunity. The US became the world home of biotech because laws in the UK (the previous center of gravity) became less favorable compared to the laws in the United States, thanks in no small part to the Supreme Court’s decision in Diamond v. Chakrabarty. While Chakrabarty was a patent eligibility decision we shouldn’t make the mistake of thinking that everything will go back to normal if only the Supreme Court were to discover a clue or Congress were to get involved and do something useful — and yes, I am fully aware of how pollyannaish that last sentence reads.

Still, it is widely known to be true that the Supreme Court’s decision in Diamond v. Chakrabarty was instrumental in the creation of a dynamic and flourishing biotech industry in the United States. “By finding that subject matter derived from nature is eligible for patenting if it is modified by man into something new, useful and unobvious, the Court provided assurance to biotech companies and their investors that emerging technologies are protected by the patent system even if they could not have been foreseen when the system was created 200 years earlier,” explained Jim Greenwood, President and CEO of the Biotechnology Industry Organization, in June 2010 on the 30th anniversary of the decision. 

In Chakrabarty the Supreme Court held that living matter is patentable eligible if it is created by man. The Supreme Court in Chakrabarty explained:

[R]espondent’s micro-organism plainly qualifies as patentable subject matter. His claim is not to a hitherto unknown natural phenomenon, but to a nonnaturally occurring manufacture or composition of matter – a product of human ingenuity…

(emphasis added). This marked the first time that products of genetic engineering could be protected. It was game-changing for the simple reason that companies tend to locate in countries that have hospitable climates for business success. A big part of business success is being able to protect innovative creations so others cannot free ride and copy without having invested time, money and energy themselves. That is why there is a corporate density in countries where patent laws are favorable. This is one reason India, for example, struggles to get anything other than generic pharmaceutical companies.

The Chakrabarty decision revolutionized the biotechnology industry in the United States.  Chakrabarty was quite clearly the turning point for the biotech industry. “There is no question that the Chakrabarty pivotal decision had a seismic effect on US patent policy, giving birth to a new mode of thinking at the United States Patent and Trademark Office,” then USPTO Director David Kappos explained in 2010 at the 30th anniversary celebration of the birth of the biotech industry. “Not only did this establish a sweeping precedent for future biotechnological discoveries, but it unleashed the opportunity to leverage the life sciences into new industries, new jobs, and new solutions.  By allowing bio-patents to fuel the fire of our creative genius in addressing our most human of problems—advancements in medical therapies started granting families a new lease on life.”

The fact that the biotech industry has flourished in the United States and languished by comparison elsewhere shows the importance of an expansive view of what is patentable subject matter. But it would be naive to draw such a limited conclusion. Had the Supreme Court found genetically modified bacteria to be patent eligible but the Federal Circuit routinely ignored the Patent Office, district court judges and overruled factual findings of juries the outcome would have been quite different. The biotechnology industry flourishes because of patent protection. Patent eligibility is required, but the Federal Circuit upholding patent claims as non-obvious when fact finders have made those determinations is also required because at the end of the day it doesn’t matter why a patent claim is invalid, just that it is invalid.

We will see that happen with biotechnology and software in the U.S. as patent eligibility continues to evaporate and as the Federal Circuit continues to whimsically knock down patents that have been thoroughly vetted through examination, reexamination and multiple litigations. By the time Congress figures it out things will have gotten worse, perhaps catastrophically bad.


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Join the Discussion

28 comments so far.

  • [Avatar for NWPA]
    August 28, 2014 09:22 am

    >these claims are directed to the abstract idea of “solv[ing a]
    >tampering problem and also minimiz[ing] other security
    >risks” during bingo ticket purchases. Appellant’s Br. 10,
    >20. This is similar to the abstract ideas of “risk hedging”
    >during “consumer transactions,” Bilski,
    That from Planet Bingo discussed over at patentlyo.

    The SCOTUS said that the abstract idea was notoriously well known in both Bilski and Alice. Here, they are using the standard that if it is “like” something that is well-known then it counts. It is non-precedential, but it shows the march.

  • [Avatar for NWPA]
    August 28, 2014 09:45 am

    I agree with the predictions in the article that it is going to take some serious pain before the pendulum swings back. The problem I see is that the judges Obama is appointing are completely ignorant of science and technology. They have no frame of reference whatsoever to judge. None.

    I wonder if what might be the impetus is China and Korea. Paradoxically China gets patents. They want to be Korea and see the transformation coming through the patent system. Makes me wonder if China can reform their government, then may we might see innovation move to China and that might be the impetus to change the patent system. We are seeing innovation move to Korea.

    I think everyone should keep in mind Google’s hand in this. Google is awesome. They have defeated many competitors and they often do it with a stealth that everyone should admire or at least be impressed with. They defeated Yahoo in this way. They have defeated the entire print press (taking all their revenue) in this way. Etc. Now, they don’t want patents. They are smart. They have lots of money. They have hired a lot of lobbyist. Google is the engine behind the end of patents.

  • [Avatar for Pro Se]
    Pro Se
    August 29, 2014 10:50 am

    I invented and own a patent covering likely the most valuable line of products in the world. I have successful settlements with more settlements to come. I can tell you that there is no way I can “exclude” others as the law says, and that promise of being able to “exclude others” if you are an individual patent holder is a complete lie.

    In my opinion, patents these days are just a means to get a penny per the $1000 of the real value of a valuable patent. Because every big company knows there is no threat of an independent inventor/patent holder “excluding” them from infringing activity, patents hold no power any more past paying out of spending more in litigation cost.

    Here is the cold hard truth: unless an independent inventor’s owned patent can target 100 defendants whereas they can settle for $300,000 to $75,000 per lawsuit, patents are a waste of time as of now in 2014.

    Most legal professionals are confused by the current state of the patent economy and in my opinion have reverted to being observers of big name litigations and no faith in claims outside of that big money based litigation.

    For instance, I walked through the door of a few firms and they all just couldn’t see the value of my case because they were too consumed by believing only big company related patents hold weight.

    I am getting approached by several “aggregators” to sell my portfolio, but no, I worked for them and they are mine, but as of 2014, I’ve stopped inventing. I’ve been lucky enough to get something out of my portfolio, but I feel sorry for many of the people coming up with genuine new ideas that have no clue that for them, the dream of having “exclusive rights” to their idea is a destroyed concept.

    Getting a so-called “valuable patent” in today’s climate is harder than winning the lotto.

  • [Avatar for Paulanne Chelf]
    Paulanne Chelf
    August 29, 2014 11:35 am

    Gene, I’d like to suggest an additional topic for your webinar, and that is your take on what (we) patent practitioners should be doing about the erosion of the patent system. Thanks.

  • [Avatar for Anon]
    August 29, 2014 01:30 pm

    To Pro Se’s point at 3 – the answer is stronger patents. Some have advocated weaker patents because of perceived deficiencies in the examination process, but such creates a death spiral and defeats the very purpose and reason why the patent office exists.

  • [Avatar for NWPA]
    August 29, 2014 01:46 pm

    @#3 Pro Se:

    I think it is going to take some serious pain before Congress acts to fix the patent system. It is remarkable that so many people (software engineers) are not acting in their own best interest.

    Google is taking patents down and their history is one of stealth winning. Microsoft should be very afraid of Google and the patent system should be too.

  • [Avatar for NWPA]
    August 29, 2014 04:19 pm

    You should update the comment section of your blog. You have great articles, and it would great if there more people interacting in the comment section.

  • [Avatar for Paul Morinville]
    Paul Morinville
    August 29, 2014 06:12 pm

    Pro Se, I’m an inventor too and I’m in the same boat. Find me in LinkedIn and send me a note.

  • [Avatar for Jina]
    August 29, 2014 08:40 pm

    no worries, 3 simple strategy tweaks (for software practioners):

    1) for existing/pending U.S. patents – seek/expect no more than ~$50k/patent

    2) abandon future U.S. patents and instead move to other jurisdictions (SKorea, Germany, future EU unified, Canada, )

    3) don’t rely solely on the patents but also manufacture the software

  • [Avatar for Frankly]
    August 29, 2014 09:06 pm

    Reading the various articles about Sovereign on this site shows a number of statements that are made as fact with no basis. For example, the assertion that “0 3” in the CompuServe message makes it obvious that no product identifier was used is quite simple to disprove.

    Anyone who has written software for a long enough period knows that substituting codes for complex items was commonplace in the pre-mouse keyboard dominated era. If an application was required to remember a unique choice, internal to the software, the item would have to be remembered as a unique identifier.

    Without a substitute code, errors would abound as users would be required to accurately type a long unique identifier. Further, any substitute code would typically be “forgotten” as soon as the screen disappeared as the next time the item occurred (e.g. database search on last name instead of first) the item would likely be presented as part of a different sized list in a different position.

    In short any system that is required to remember choices is required to remember each choice with a unique identifier. This is fundamental and obvious.

  • [Avatar for John Jtin]
    John Jtin
    August 29, 2014 09:16 pm

    Reading the various articles about Sovereign on this site shows a number of statements that are made as fact with no basis. For example, the assertion that “0 3” in the CompuServe message makes it obvious that no product identifier was used is quite simple to disprove.

    Anyone who has written software for a long enough period knows that substituting codes for complex items was commonplace in the pre-mouse keyboard dominated era. If an application was required to remember a unique choice, internal to the software, the item would have to be remembered as a unique identifier.

    Without a substitute code, errors would abound as users would be required to accurately type a long unique identifier. Further, any substitute code would typically be “forgotten” as soon as the screen disappeared as the next time the item occurred (e.g. database search on last name instead of first) the item would likely be presented as part of a different sized list in a different position.

    In short any system that is required to remember choices is required to remember each choice with a unique identifier. This is fundamental and obvious in my opinion.

  • [Avatar for step back]
    step back
    August 30, 2014 08:48 am


    You make it sound as if findings of obviousness and nonobviousness are merely co-equal flip sides of a same coin.

    They are not.
    One is an affirmation of an already held, private property right.
    The other is a deprivation by state action of a held private property right. Once the USPTO issues a patent, the owner of that patent holds a presumed-valid property right.

    The US Constitution has a thing or two to say about state takings of private property rights:

    … nor [shall any person] be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.

    –5th forgotten amendment

    The CAFC it seems, has granted itself autocratic power to take away private property rights without jury trial or other procedurally due processes of law. And no one objects. How sad. Sheep we have become.

  • [Avatar for Anon]
    August 30, 2014 10:28 am

    Have you seen a parent that has to take a kid’s toy away for abusing it? Well, that’s what is happening with Patents. All of those who were greedy and decided to take whacks at small businesses and extort licensing settlement with predatory litigation tactics deserve to be reaching for the PANIC button as shown in this article. Do you really believe that you could go around causing harm to businesses with broad / vague patents and impose your extortion on them and not have some sort of backlash eventually? This article proves that KARMA is real and you quite obviously deserve to be spanked for all of the ‘trolls’ that the lawyers helped become a major nuisance in america.

    Of course GQ is going to say “You don’t know what you’re talking about” because that’s the typical patent attorney way of saying “You’re right, but I’m smarter than you”.

    Let Karma be served… let innovation come back to life and let the liberty bell ring. You deserved this panic that is coming.

  • [Avatar for wow]
    August 30, 2014 05:29 pm


    what exactly is a strong patent? Im guessing strong means enabling?

  • [Avatar for wow]
    August 30, 2014 09:26 pm

    “It is not much of an exaggeration to wonder whether any commercially relevant innovation can be and remain patented.”

    true and governments seem to be okay with this.

  • [Avatar for Benny]
    August 31, 2014 02:54 am

    stronger patents are really the responsibility of the applicant – a strong patent requires an innovative invention first and foremost. I think what you want is less weak patents. At least in the field of hardware/mechanics, the USPTO seems to have a loose finger on the trigger when it comes to granting patents which get caught in the “obvious/ineligible” trap later. This is a problem, like damp, that should be dealt with at the source.

  • [Avatar for NWPA]
    September 1, 2014 08:37 am

    anon @13: All of those who were greedy and decided to take whacks at small businesses and extort licensing settlement with predatory litigation tactics deserve to be reaching for the PANIC button as shown in this article.

    Anon I think there is some truth to that. But, you know there is a flip side to this. In that many people have lost respect for patents and don’t care if you did it first and have a patent. Also, most of the changes I’ve seen make prosecution harder for the PTO and less predictable.

    To my mind, we have shot off our own foot.

  • [Avatar for Anon]
    September 1, 2014 11:02 am

    Anon at 13 is not this Anon.

    wow, strong patent rights means strong enforcement – the parts of the patent system that are being eroded.

    I would think that would be obvious – and I would also think that meeting the requirements to earn that patent right (such as enablement) would go without saying.

  • [Avatar for Anon]
    September 1, 2014 11:03 am

    caught in filter – please release

  • [Avatar for American Cowboy]
    American Cowboy
    September 2, 2014 10:35 am

    The last time the pendulum started swinging against patents was around the time of WW1, and it continued for 60 years until Congress created the Fed.Cir.

    Unfortunately, if that time frame is repeated, we’ll all be dead and buried before it swings back.

  • [Avatar for Anon]
    September 2, 2014 12:49 pm

    American Cowboy,

    I imagine that I can forgive you for one important pendulum swing (given as our Court is also ignoring it): the 1952 Act.

    I would also point out that the time frame of anti-patent sentiment did not peak until later than WW1 – during the 1940’s.

    Thus the pendulum cycle can be seen to be greatly reduced from your 60 year mode to a more hopeful 10 year mode.

  • [Avatar for American Cowboy]
    American Cowboy
    September 2, 2014 01:40 pm

    Anon, I respectfully disagree. The 1952 Act may have changed behavior in the Patent Office, but I don’t think the courts were any more hospitable to patents than Scotus taught them to be in the 1940’s.

  • [Avatar for Anon]
    September 2, 2014 04:40 pm

    Ah, I see your point American Cowboy – you want the Courts to actually follow the law, and not make up their own, while I was counting as a pendulum swing the fact that Congress (the lethargic beast that it is) did actually stir and rebuff the Courts.

    Only if someone believes that the government structure should not be a tri-partite checks and balances system and believes that the Courts rest above and separate from the law would acquiesce to the notion that the pendulum must only be measured by the judiciary.

    (not sure why I have this feeling that I am preaching to the choir…)

  • [Avatar for American Cowboy]
    American Cowboy
    September 3, 2014 09:39 am

    Years ago, I heard a definition of what “the law” is: The law is a prediction of how a court will decide a case. Sounds pretty cynical, but essentially it is correct. To a certain extent people’s everyday behavior is guided by what they think they can get away with without adverse consequences (convictions, sheriff’s sales, etc.) and whether to impose those adverse consequences is decided by courts, not Congress.

  • [Avatar for Rich Purtell]
    Rich Purtell
    September 3, 2014 09:28 pm

    Interesting discussion. I am an HVAC controls engineer and while I respect the value of patents and the protection of intellectual property rights, I see a need for more sharing within the building automation industry in order to reduce costs AND INCREASE profitability for us controls engineers. This may seem counter-intuitive, but hear me out.

    I do a lot of one-off design for HVAC control applications. I might put quite a bit of time and effort into developing control logic, graphics, etc, for a system. The reality is that it is hard to get building owners to pay for the whole shot for such an engineering effort. So I hope to recover costs by using the engineering effort again, slightly adapted, for another project.

    At age 50 I got into the computer world back with Fortran, Commodore 64, and what I had was a Texas Instruments TI-99/4A. Back in the day programmers did a lot of code sharing on BBS’s (Bulletin Board Services). But this kind of sharing activity is not very popular now, even among dealers for the same HVAC control brands.

    Sharing can be a win-win. By sharing “intellectual property”, something that took some effort but probably NOT worth an effort to patent or copyright, we pool our resources. The programmers and solution providers can save engineering costs and be more profitable, AND the end users can save money also.

    So think about this from another direction. Sometimes we can get into a childish “It’s mine, I don’t want to share!” mindset to the point where it hurts ourselves, and everyone else too.

  • [Avatar for Benny]
    September 4, 2014 11:09 am

    Engineers share vast knowledge – including code snippets – on forums and in trade journals. Why do we share freely rather than monetize?
    Because the opportunity to profit from monopolizing an original design doesn’t always exist.
    Engineers, on the whole, take pride in sharing their professional expertise with their peers, but where a business opportunity can be realized from bringing the design to market, no one is going to leave cash on the table.

  • [Avatar for Rich Purtell]
    Rich Purtell
    September 4, 2014 09:36 pm

    Benny: I don’t know your profession or specialty but you are completely incorrect about the building automation field. Manufacturer’s did a lot more to set up dealer networks for sharing of programs, etc. 25 years ago and now such effort is near non-existent. I don’t blame the manufacturers. American Auto-Matrix did this a while ago and I posted a lot of programs to the group, but very few other programmers did it.
    Your last sentence seems to indicate that you completely missed my primary point. Through sharing of knowledge, we are not “leaving cash on the table.” The opposite, secretive behavior is what is actually leaving cash on the table, because we are re-inventing the wheel and not being paid enough to re-invent the wheel.

  • [Avatar for Eric P. Mirabel]
    Eric P. Mirabel
    September 6, 2014 03:37 am

    The Webinar was really well presented and informative. Great job and kudos to you guys.

    Regarding patents losing their value, that’s what I’ve been whining about since 2012, BEFORE Prometheus, Mayo, Alice, Akamai, see my video: