Fat cats have the patent system perpetually on the brink

By Gene Quinn
September 22, 2015

fat-cat-lobbyistAccording to the New York Times: “The fat cats came to symbolize what many Americans regard as a deeply corrupt campaign finance system riddled with loopholes.” Fat cats not only enjoy the trappings of power, but as the result of generous campaign contributions they have access to politicians that the average person could never obtain, and they can and do influence policy, laws and regulations. Over the last several years the fat cats in the patent industry are giant tech companies that believe they will be better off with substantially weakened patent rights, after all they already control the marketplace so why would they need a government grant of exclusivity? As naive as this short-term thinking is, these fat cats continually push Congress and the Courts in ways that keep the patent system teetering on the brink.

Indeed, despite the overwhelming evidence that a strong patent system fosters higher levels of innovation (see here, here, here, here and here) Congress continues to debate weakening patent rights. In a world where K Street lobbyists and special interests dominate the agenda such irrational, illogical treatment of an issue seems as certain as death and taxes. But who could have predicted that these fat cats would advocate the destruction of the patent system when they themselves have literally spent many billions of dollars acquiring patent portfolios?

Thankfully, patent reform efforts seem to have stalled, at least for now. If patent reform doesn’t move forward it won’t be due to some dramatic awakening in Congress, or to a sudden issue oriented enlightenment. If it stalls patent reform will languish as the result of the inability of major corporations to agree on what needs to be done, which is historically the major cause of patent reform stumbling.

For example, during the legislative debates that ultimately resulted in the America Invents Act (AIA) being signed into law in September 2011, patent reform stalled every year. Congress does not like to take on patent reform unless there is an overwhelming industry consensus because the issue is not one that resonates with voters, so why risk alienating constituencies you may need later for a reelection bid? Indeed, it was not until the Bio/Pharma community supported the AIA along with much of the high tech sector that reform was actually achieved.

Today the Pharmaceutical and Biotechnology industries are demanding that their patents not be challengeable in post grant review, particularly in an inter partes review (IPR) proceeding. This demand, as unrealistic as it is, threatens patent reform efforts, not any particular desire to thoughtfully determine what might actually lead to a better patent system.  The reality seems to be that absent an IPR carve out for biotech and pharmaceutical patents Bio/Pharma will not jump on board and support patent reform. Without Bio/Pharma support patent reform will die and the patent system is safe for the time being.

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But if post grant challenges to bad patents is such an important part of ensuring patent quality, which we have been told repeatedly over the last few years, then why should any particular class or category of patents be except? If IPR is about killing bad patents the process should be agnostic. What this Bio/Pharma demand exposes is the simple truth — most everyone is in favor of IPR as long as their own patents are not challenged. Ironically, the biotech and pharmaceutical industry didn’t have a problem with IPR being used to kill patents when they thought it unlikely anyone would ever challenge one of their patents.

While IPR and the other forms of post grant review were ill conceived from the start, there is no intellectually honest way to argue that they should be unavailable to challenge certain categories of patents. The claim that Hatch-Waxman is a better vehicle to take care of bad pharmaceutical patents is laughably ridiculous. All Hatch-Waxman is good at doing is guaranteeing the survival of patents and that generics will be unable to enter the market.

These new post grant administrative trials are the result of the America Invents Act (AIA), which was dragged across the finish line as the result of heavy lobbying by the pharmaceutical industry. Now the pharmaceutical industry wants a carve out for themselves but doesn’t have a problem if these procedures are available to kill other patents? How hypocritical. Pharma shouldn’t have supported post grant review in the first place, and if they want a fix they should be lobbying for an end to the entire post grant review process. It is self-serving and hypocritical to ask for a carve out applicable only for biotechnology and pharmaceutical patents.

This Bio/Pharma demand for an IPR carve out has surfaced because of the IPR petitions being filed by hedge fund billionaire Kyle Bass, who is challenging pharmaceutical patents, so far unsuccessfully, and shorting the stock of the company owning the challenged patent. Interestingly, the Patent Trial and Appeal Board has so far denied all of the Bass IPR petitions, albeit in what you might very generously characterize as result driven decisions. Whether the PTAB can and will continue to provide cover for the industry remains to be seen. The first two decisions were questionable, and the third decision was indefensible. If the PTAB doesn’t institute at least some of the Bass IPR petitions it will be hard to believe the fix isn’t in, which would only further damage the integrity of the system.

But why are we even discussing additional patent reform at all? We are barely four years into the AIA regime that ushered in wholesale changes to the patent laws. We are talking about it because there are a few companies that have spent tens of millions of dollars lobbying Congress on this patent issue, which is a tremendous amount of money for what has historically be a legal backwater issue. For better or for worse, patents are no longer in the legal, or political backwater. Recently, we published an article that suggested a possible link between campaign contributions and Conservative Republicans voting for the Innovation Act, which is the House version of patent reform. The optics are terrible. Is it really possible that votes could be so easily influenced by a $1,000 a plate Washington breakfast? Do the merits of legislation mean nothing?

Given how seemingly easy it is to influence important decisions it is no wonder that political outsiders like Donald Trump, Carly Fiorina and Bernie Sanders are doing so well as they attempt to convince voters that they should be the next President. The country seems fed up with both Republicans and Democrats. While it can be difficult to accomplish change given the way the Constitution divides power, people are correctly noticing that nothing ever seems to change. New faces appear in Washington every so often but it remains business as usual. Even casual observers have to recognize that our system seems to be for sale to the highest bidder. K Street lobbyists and special interest groups get the policies their clients pay for regardless of whether it is in the best interest of the nation.

The stark reality of how government operates leaves us with a patent system that will be perpetually on the brink. Giant corporations have become effectively insulated from any consequences associated with stealing patented innovations, yet they continually want more and more help from Congress, which they dress up and roll out as “reform.” Even if they fail this time these companies will return, with more lobbyists demagoguing innovators as inherently evil, Satan practically.

Politics is all a game, and a game that seems better played by K Street lobbyists and special interest groups who prefer a weaker patent system. Congress has given them practically everything they have wanted with respect to the patent system, but they keep coming back for more. When will Congress wake up and realize that they are being played? The lobbyists and special interests always say that what they are asking for this time will solve the problem and without the fix there will be dire consequences. Still, the problems they complain about never seem to go away. The dire consequences seem to happen even when they get the fixes they so desperately demand on Capitol Hill and in the Courts. They just keep coming back asking for more, more, more. A rational person might become suspicious and start asking some difficult questions.

It has become abundantly clear is that some well-funded giant corporations want to dismantle the patent system brick by brick. Congress has so far been complicit, albeit likely unwittingly. This is not to excuse Congress, but when persuasive people have access and provide the means to get reelected (i.e., campaign cash) what do you expect? In a system where money is king and the next election is just around the corner, how can we expect elected officials to exercise independent judgment, at least relative to issues that will not drive voters to the ballot box?

Rather than recognize the critical role patents play in the innovation ecosystem and in the U.S. economy, the patent system will remain teetering on the brink unless and until Congress comes to their collective senses, which seems extraordinarily unlikely. Indeed, Congress seems perpetually poised to flush the patent system down the drain because there are a handful of giant tech corporations that believe they would benefit.

Even as it seems unlikely that Congress will pass devastating patent reform this year, we know that the K Street lobbyists and special interest groups will be back. Resistance seems practically futile. In fact, resistance will become actually futile if those who support a strong patent system are not vigilant and don’t start significantly ramping up their own lobbying efforts.

The Author

Gene Quinn

Gene Quinn is a Patent Attorney and Editor and President & CEO ofIPWatchdog, Inc.. Gene founded IPWatchdog.com in 1999. Gene is also a principal lecturer in the PLI Patent Bar Review Course and Of Counsel to the law firm of Berenato & White, LLC. Gene’s specialty is in the area of strategic patent consulting, patent application drafting and patent prosecution. He consults with attorneys facing peculiar procedural issues at the Patent Office, advises investors and executives on patent law changes and pending litigation matters, and works with start-up businesses throughout the United States and around the world, primarily dealing with software and computer related innovations. is admitted to practice law in New Hampshire, is a Registered Patent Attorney and is also admitted to practice before the United States Court of Appeals for the Federal Circuit. CLICK HERE to send Gene a message.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author as of the time of publication and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 31 Comments comments.

  1. Paul Morinville September 22, 2015 8:33 pm

    Amen.

  2. Pro Se September 22, 2015 8:39 pm

    I authored, prosecuted, and won my patents as a pro se… fast forward, said patents are determined to be highly commercially viable.. I have done extremely well against who’s who of A-list Silicon Valley companies.. I practice my Invention and feel I still operate the most viable version of my technology…

    RPX Corp threatened to file an IPR against me last week, a lone independent Inventor. The day my patents go down, then… and I mean after my patents being used to 102 and 103 junior patent applications in the art.. the day I do down… the entire patent system will take a huge hit…

    BTW: I purchased stock in RPX Corp after their threat.. so lets see them attack a partial owner of the company 🙂

    For every attack is a counter attack.

  3. Paul Morinville September 22, 2015 9:18 pm

    Maybe I’ll buy some too. They need a new board.

  4. David September 22, 2015 9:47 pm

    Love him or hate him, the treatment of America’s first true front-running, self-funded candidate by the left, right, and everything-in-between media has become downright bone chilling — and, by proxy, a scathing indictment of the Supreme Court’s Citizens United decision.

    The false polls, the rigged focus groups (F. Luntz?), the incessant declarations from the left/right media that it’s finally “over” – what an irony; D. Trump v. the money men who run the country and control the media. Whatever the political affiliation, it’s become clear that our elected officials aren’t true believers who happen to owe their constituents — they are owned by the corporate sponsors who fund their campaigns. The palpable fear from the oligarchs who gave the RNC Trump kill order(s) is real — it oozes from the TV every time I turn it on. And yet his poll numbers continue to rise.

  5. anonymous September 23, 2015 8:57 am

    Gene, Take a look into the disproportionate number of inventor lead Plaintiffs who have had FTC, IRS and other governmental agencies open investigations, audits, etc. It is no accident that big tech has the govt on speed dial. If they don’t get their way through legislation, bought off Judges and/or the PTAB, then they resort to harassment by governmental agencies. It is very real. Can you say “Atlas Shrugged?”

  6. Edward Heller September 23, 2015 9:06 am

    Gene, simply a great post.

  7. Curious September 23, 2015 9:15 am

    RPX Corp threatened to file an IPR against me last week, a lone independent Inventor.
    Remember, RPX Corp works for their “members” (or whatever they call the people that give RPX money to do their bidding). Regardless, if you are suing people, you should EXPECT that someone will threaten you with an IPR — that is how the game is played these days.

  8. Jack JumpinFlash September 23, 2015 9:19 am

    Back in the 80’s or so, there was a scandal that brought about the moniker the “Keating 5.” see https://en.wikipedia.org/wiki/Keating_Five

    It was about campaign financing and favors done by politicians for their funders. Anyway, Keating was based in California and the Congressmen who was his shills were from elsewhere in the country. At least one of the Congressmen defended his actions as “constituent service.” That phrase struck me as absurd, but I never heard the media or others call him out on that. How can a northeastern congressman call somebody from Arizona his constituent?

    Nothing seems to have changed in the meantime. Doing favors for the voters in your district maybe called constituent service. Doing favors for remote donors is called bribery.

  9. Wes Few September 23, 2015 9:22 am

    It really doesn’t matter because the only companies with the resources to engage in patent litigation are the ones doing the lobbying.

    Also, the ridiculous amount of differing standards and de novo review ensure every case worth the fight (fees < exposure) will not likely get resolved in less than 8-10 years. By then the standards will have changed and the technology likely be obsolete.

  10. A Rational Person September 23, 2015 10:26 am

    Jack@8

    Nothing seems to have changed in the meantime. Doing favors for the voters in your district maybe called constituent service. Doing favors for remote donors is called bribery.

    Not true. Based on Citizens United and its progeny, it appears that for bribery to occur there must also be: (1) an actual sack of money handed over by the “donor” to the elected official and (2) an immediate action taken by the elected official in exchange for the sack of money, no less than 10 seconds after the sack of money is dropped on the elected official’s desk. Also, as far as I can tell, the sack of money must have at least one large dollar sign symbol on it to ensure that the elected official understands that he or she is receiving money from the donor.

    As per the the infinitely “wise” Justice Kennedy in his “brilliant” opinion in Citizens United:

    “We now conclude that independent expenditures, including those made by corporations, do not give rise to corruption or the appearance of corruption.”

  11. Night Writer September 23, 2015 10:51 am

    There are also a lot of academics that just seem to want to tear down the patent system. Lemley and Reich come to mind. What I’ve noticed is that so little of what is said is based on objective numbers. I am afraid it doesn’t look good for the patent system. The big money will keep pouring in and grind down the Quinns. That is how it went for anti-trust law. (And don’t forget that Alice is something that can only be overturned by the SCOTUS. So, we have to live with the fact that any DJ can invalidate the claims of any patent if they don’t like it.)

  12. Night Writer September 23, 2015 10:54 am

    Another thing that is kind of weird is the secondary effects that are happening now. Reich said in the NYTimes op-ed piece that patents were being used by big corporation to crush little companies. But, the AIA and all the other recent legislation is what has made patents so expensive and more out of the reach of the little companies.

    So, now we the effects of the lobbying being used as a reason to get rid of the system. It isn’t looking good.

  13. Night Writer September 23, 2015 11:18 am

    As a final thought, I think the only hope we have is actually documenting the damage that destroying the patent system does to our innovation ecosystem.

    One thing that is important is employment contracts. The patent system — by and large–allows corporations to have very liberal employment contracts because there is disclosure of material. When patents go, the employment contracts will restrain employees more. Moreover, employees will not be allowed to publish or discuss their results. There will be many silos. That is how it was when I started out in the high-tech innovation sector in the early 1980’s. You could be fired for writing a paper or even discussing your work on a bulletin board (precursor to the Internet.)

    I think we will go back to that.

  14. xtian September 23, 2015 1:20 pm

    AIA IPRs neuter Hatch-Waxman. That’s why Pharma is against IPRs.

  15. Edward Heller September 24, 2015 1:02 pm

    xtian, “AIA IPRs neuter Hatch-Waxman.”

    Please explain.

  16. Gene Quinn September 24, 2015 1:14 pm

    Ed-

    Xtian can chime in, but Hatch-Waxman offers a vehicle for generics to challenge the patent rights held by brand name drug companies. The incentive to file Hatch-Waxman is that the first filer will obtain a 180 day co-exclusivity period if they prevail. Many seem more interested in the reverse payment the pharmaceutical company will provide for giving up the Hatch-Waxman challenge. Since only the first filer can get that benefit it really cuts down on the number of challenges and has worked to virtually ensure that generics do not enter the market before the end of the patent term.

    With IPR what we are seeing is that those who are not the first filer are filing IPRs challenging the drug. If they prevail they can enter the market early, which they otherwise would not be able to do given the reality of Hatch-Waxman. I had not anticipated this, but there are numerous generic manufacturers going around the Hatch-Waxman system to challenge patented drugs directly.

    -Gene

  17. Edward Heller September 24, 2015 3:50 pm

    Gene, I see.

    A generic has no standing to challenge a patent in court until they infringe. That requires that they file an ANDA – which by law is an act of infringement. When they do, they get sued for infringement. In exchange for this expense, they get a 180-day exclusive if they prevail either on validity or on non infringement.

    But, an IPR requires no standing. The generic can file one without filing an ANDA. If they prevail, they can file the ANDA without getting sued by the patent holder for infringement.

    Moreover, given that an IPR strips the patent of a presumption of validity and employs BRI that is designed to read on the prior art, it is a no-brainer that the IPR is the preferred forum of litigating validity everything else being equal.

    Given that anyone can file an IPR, the reverse-payment strategy fails because the patent owner really cannot by protection from validity challenges.

    It is a wonder why Pharma doesn’t file its own action asking that IPRs be declared unconstitutional. They are never going to receive a carve-out by Congress. If IPRs are unfair for Pharma, they are unfair for all because of the lack of standing, no presumption of validity, BRI and because the people making the decision are not Article III judges who have life both appointments and immunity from having their salaries reduced for a reason.

  18. Owen September 24, 2015 6:52 pm

    Suppose the pharma giants really are in favor of a carve-out. The tech companies were already in favor of a carve-out in the AIA creating a clear distinction for the pharma patent rules. Then if Congress is being driven by money from those two, a carve-out should be inevitable.

    But I keep hearing that a carve-out is impossible and Congress will never grant it. Even the sponsors of major legislation who aren’t going to get anything else past Obama this year are willing to let it die a bloody death on carve-out hill.

    So one of the premises must be wrong. Either pharma doesn’t want it, Congress isn’t driven by money, or we could actually get it.

    I’m pretty sure Congress really is driven by money, so that leaves two options. I’m betting pharma doesn’t really want it and is angling for some other larger concession.

  19. Gene Quinn September 24, 2015 8:39 pm

    Owen-

    Congress cannot give Pharma/Bio a carve out without paying for the cost to the Federal government. Goodlatte explained this at the House hearing in June 2015.

    The Federal government is expecting that IPRs will kill at least some drug patents, which will save Medicare money. If they give Pharma/Bio what they want then the bill has to go to a different committee and money needs to be found in the budget.

    Pharma/Bio really does want the carve out, but they can’t get it even with Tech pulling for them. Tech wants the carve out so that Pharma/Bio will support (or at least not object to) the pending patent reform.

    -Gene

  20. Edward Heller September 24, 2015 9:26 pm

    Gene “The Federal government is expecting that IPRs will kill at least some drug patents, which will save Medicare money.”

    I see. So the government apparently IS aware that IPRs are biased against patents, and ARE banking on the lower burdens and BRI to invalidate (some?) drug patents so that old folks can have reduced-priced drugs.

    Obviously, Congress knows that IPRs are not intended to be a “low cost” “alternative” to litigation, which implies a level playing field between the courts and the PTO. Congress obviously knows that IPRs discard the presumption of validity, etc., and what that means to a patent.

    This is a lot worse than I thought.

  21. Night Writer September 24, 2015 9:58 pm

    >>Pharma/Bio really does want the carve out, but they can’t get it even with Tech pulling for them. Tech wants the carve out so that Pharma/Bio will support (or at least not object to) the pending patent reform.

    I didn’t realize now the Congress sees this as a budget issue. Scary. I had some experience with this about 5 or 6 years ago and the tech people did not want a bifurcation with pharma. Now I guess things have changed. It’s getting weirder and weirder.

  22. Anon September 25, 2015 8:35 am

    Owen,

    The world is a lot more nuanced than the logic you attempt to use at your post at 8.

    Too overt an action by Congress kowtowing to the Big Corps (be those Big Corps Big Data or Big Drug), and they risk a backlash from those like Gene and I that may ignite public opinion to what is going on (and who in the end are the ones getting screwed).

    Bottom line is that what works best for innovation are strong patent rights, easily enforced. Such brings clarity and predictability in business dealings and it is an offshoot of the weakening of patents and the morass of confusing “rules” that the litigation beast is fed.

  23. Anon September 25, 2015 9:33 am

    (SOPA/PIPA internet backlash comes to mind)

  24. xtian September 25, 2015 1:18 pm

    Also what incentive is there for a generic to file an AIA? We all assume that a generic will use an AIA proceeding rather than ANDA litigation. However, as most noted, the incentive for the generic to challenge under Hatch-Waxman is the grant of 180 day generic exclusivity. Most economists observe that the first priced generic is just under the price of the brand for those 180 days. Thereafter, when the 2nd, third and fourth generic file, the price drops precipitously. Good for the consumer, but not an incentive for a generic.

    Based on this, why would a generic incur the cost (albeit smaller than litigation, but a cost nonetheless) to invalidate a patent under the AIA and open the door for other generic players to immediate commoditize the market?

    All one must do is look at Teva’s earnings (before its purchase of Actavis’s generic division) – half came from Capoxone, Teva’s one branded drug. The other half of revenues came from the 100’s of generic drugs its produces. (My numbers may be off, but you get the idea).

    The cost of pharmaceutical innovation (and a copy thereof) cannot survive on a commodity-priced diet.

  25. xtian September 25, 2015 1:30 pm

    Gene – Many seem more interested in the reverse payment the pharmaceutical company will provide for giving up the Hatch-Waxman challenge.

    I believe the FTC has been and continues to be on a terror RE reverse payments. And, the facts that occurred in Cephalon and Teva just don’t occur anymore. Despite the FTC announcement of a settlement in 2015, the fact is the ANDAs for Provigil were file way back in 2003 (i think). The industry knew that bags of cash are bad way before this settlement, and you will notice that the FTC hasn’t had any success with later in time brand-generic settlements.

    One final note, wouldn’t the generic’s desire for reverse payment be evidence that there is little financial incentive to produce generic drugs, i.e., that the system itself is flawed?

  26. Owen September 25, 2015 2:54 pm

    “Congress cannot give Pharma/Bio a carve out without paying for the cost to the Federal government.”

    Interesting thought. Thanks for explaining, Gene.

  27. ThomK September 26, 2015 1:17 pm

    Great post, Gene. I see a lot about “patent trolls” but very little about “IP Pirates”. As you say, strong patent rights are the underpinning of innovation and investment.

  28. Edward Heller September 26, 2015 1:37 pm

    xtian, but if a generic really wants the 180 day exclusive, then all they have to do is file both an ANDA and an IPR.

    Why does Pharma find this wrong?

  29. xtian September 28, 2015 9:29 am

    @Edward – IPRs and ANDAs = two bites with different teeth at the same apple.

    ANDAs are a race to the Office of Generic Drugs. First filed get the 180 days exclusivity. Some have postulated (other FDA-patent related blogs) that if the IPR moves too fast, the patent is held invalid, and the generic drug has yet to be approved and marketed, the first generic may forfeit its 180 days.

  30. Edward Heller September 29, 2015 10:04 am

    xtian, but if the use of the IPR makes obtaining the 180-day exclusive uncertain because of timing – the IPR is decided before the ANDA is approved — then there is less incentive for generics to file ANDA’s in the first place. This seems to be a point in favor of Pharma, not against.

  31. Anon October 6, 2015 6:41 am

    Mr. Heller at 30 – you forgot to include the price of that “less incentive” is a filed IPR and the loss by Pharma of the underlying patent.

    Most definitely NOT a point in favor of Pharma.