Fat cats have the patent system perpetually on the brink

According 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.

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.