The new Innovation Act is making the rounds in Congress, and the news is full of heated debate on patent trolls and litigation. However, while these are clearly important issues, they can, and do, draw attention away from the core issue facing the US patent system: patent quality.
Uncertainty surrounding patent validity is at the heart of high litigation rates and the constant calls for reform. This level of turmoil and uncertainty would be harmful to any market. If the US patent system can reach a state where there is a reasonable assurance that any newly granted patent is valid, then the motivation to test everything in court rather than engaging in a normal transaction market will fall away. As a result other issues facing the market would also be mitigated.
We are seeing some steps in the right direction. One area of positive progress is the addition of the Patent Trial and Appeal Board overseeing IPRs and other post grant review proceedings. The rapid growth in filings for these new procedures is an indication that the system was ready to start addressing its long standing problems. The USPTO originally estimated that there would be 420 IPRs filed in 2013, 450 in 2014. Based on our database, the reality has far exceeded those expectations, with 514 cases in 2013 and 1,310 in 2014. Looking at the first two months of 2015 growth rates in IPR filings show no signs of abating
The US is not alone in trying to improve the post grant review process. Japan reformed its own patent law in May 2014 to set up a new post-grant review process allowing any party to file a patent opposition within 6 months of patent issuance. We would not be surprised to see other countries fall into line.
Post-grant review proceedings can do a lot of good in terms of removing bad patents from the system, narrowing patents to the appropriate scope, and firmly assuring the validity of any patent that makes it through intact. However, there remain some concerns that should be taken into account when analyzing the benefits of the PTAB and its trial proceedings.
Figure 1 clearly indicates the tremendous growth in the post-grant review system. But that growth is perhaps disproportionately driven by top filers. In both 2013 and 2014 almost a quarter of all IPRs were filed by the top ten petitioners that year.
Among those top petitioners are many names you would expect to see including Apple, Samsung, Google, and Microsoft. However, having the system driven by a few major players is not necessarily beneficial, as it can leave behind smaller but still important actors.
While IPRs are much faster and less expensive than litigation in district court, they are by no means cheap. On average an IPR costs less than $350,000 without appeal, while litigation can cost on average $1.7 million through the end of discovery or $2.8 million through a trial. However, for a small startup or an operating company $350,000 can still be a major portion of their budget, or even significantly beyond their means, even if it is more affordable than the alternative.
There are a number of systemic issues for small inventors inherent in the post grant review process. For a major patent holder, whether an operating company or otherwise, losing a single patent or even ten to post grant review is a setback, but generally not an insurmountable one. However, for an individual inventor or small company holding perhaps a single or small number of patents key to their business model, a single invalidation or even a narrowing of the scope for a key patent can be crippling. Even if their patent holds up after PTAB review, the costs of the review process could sink a new organization.
The patent system is designed to make sure that all IP owners, from the Apples of the world all the way down to startup founders and solo inventors, can reap the rewards of their innovations. Currently, companies both small and large have concerns about asserting patents for their rightful licensing fees due to the constant risk of invalidation. Litigation flies back and forth as patent holders try to assert their rights, creating a burden on the system and innovation.
The solution? It’s not about post-grant review. IPRs are one solution to the issues we already have. A better future depends on improved pre issuance procedures so that current issues do not persist. A newly granted patent should be a trustworthy, low risk asset like any other, not a magnet for validity challenges.
The USPTO is taking positive steps towards addressing issues with the pre issuance window. They held two roundtables in April and December 2014 on the use of crowdsourcing and third-party preissuance submissions to identify prior art. The White House appointed Christopher Wong as a Presidential Innovation Fellow working on Crowdsourcing at the USPTO. Solutions like crowdsourcing can provide the information that examiners need to assess patentability, but without the time consuming individual search process. It also can help find difficult to locate art tucked away in specific technical journals, old product manuals, or foreign languages. To supplement these exploratory approaches Michelle Lee also launched a major USPTO patent quality initiative with Valencia Martin-Wallace as Deputy Commissioner for Patent Quality.
The US patent system still has a long way to go until it reaches genuine maturity. While the value of patents and other intangible assets in the modern global economy is widely recognized, we are still far away from a fully developed transaction market for IP. As the global economy becomes increasingly knowledge and services based, these assets are more critical than ever. In the knowledge economy, solid licensable patents are what guarantee that economic contributors such as inventors are rewarded for their work, and more importantly encouraged to keep contributing.
Ideally in the long term there should be a high level of confidence that any patent issued by the USPTO is valid and will stand up to review. When that is the case then the system can truly develop. The purchase, sale, and licensing of assets can become routine and patent holders can profit from the inventions they own without constant threat of litigation.
To get there, the solution is twofold. Despite the handful of concerns pointed out in this article, post grant review is a crucial piece of the puzzle. Even with top quality new patents being granted cleaning up the assets already in the system is essential. But a true long term solution rests with pre issuance reform. Examiners need to be able to thoroughly search global prior art covering cutting edge technologies in an efficient manner. Through crowdsourcing and other solutions we are moving in the right direction, but at the end of the day, the key is to make sure future patents do not face current validity issues.