Yesterday IAM held an event in Washington, DC, titled Patent Law and Policy. The first panel discussion of the day was on patent reform, taking a look at what has driven the legislative agenda over the past decade, what has been fixed, what remains to be done and how patent reform could affect patent owners ability to secure maximum monetary value for their rights.
Before anyone gets too worried, it is worth noting that the panel did not seem to hold out high hopes that any patent reform would be enacted during the 114th Congress. In fact, at one point Aaron Cooper, former chief counsel for IP and antitrust on the Senate Judiciary Committee, explained just how difficult it is to get any legislation through both the House and Senate and signed by the President. Notwithstanding, there did seem to be unanimity among the panelists that patent reform is not going to go away even if it does not get enacted during the 114th Congress. The shared sentiment is that if patent reform does not get enacted soon it will be dead this Congressional term, but that it will be back once again in January 2017 at the start of the 115th Congress.p
“The question is getting that balance,” explained Laurie Self, who is Vice President of Government Affairs for Qualcomm. “Our concern is that the Innovation Act… went too far in creating barriers to reasonable enforcement that would make it very difficult, very expensive, for any patent owner to enforce their rights… So what we would prefer to see in terms of patent legislative reform is a narrower, more targeted approach to the problems that have been defined, like the demand letter issue.”
Also on the panel was Phil Johnson, who is Senior Vice President for IP Policy and Strategy with Johnson & Johnson, as well as President of the Intellectual Property Owners Association (IPO). Moderator Andrew Baluch asked Johnson if he could support any patent reform that did not include inter partes review (IPR) reform. Johnson has been an increasingly vocal critic of IPR and how it has been implemented by the United States Patent and Trademark Office (USPTO). The question is not an easy one for Johnson to answer given that he wears many hats, specifically as a VP of Johnson & Johnson, serving as President for IPO, and serving in one capacity or another in a variety of other industry groups and boards.
“For pharma and bio my understanding is that they oppose that bill, and they oppose the bill because they feel that there are not sufficient additional provisions in order to prevent some abuses… and they’re not sufficient provisions in order to ensure that will be a level playing field in IPRs,” Johnson explained. “In particular, they’re upset about the hedge fund use of IPRs.” Johnson would go on to single out the short selling strategy employed by Kyle Bass and others as a particular concern to pharma and bio, explaining that “the reason that that short strategy has worked is because there’s a widespread perception, based on the statistics coming out of IPR that those proceedings are sharply slanted in favor of the challenger.”
Johnson would go out to give statistics about IPR, including 70% of all claims found invalid after institution and in another 15% of cases at least some claims are invalid. “It becomes the IP equivalent of a hanging judge and when you go in front of a hanging judge in the Wild West everybody knows that it’s probably not going to be good for you.”
Returning to the hedge fund short selling strategy, Johnson “the reason that it works is because of a widespread perception that pretty much regardless of the quality of your patent you’re going in front of a tribunal where the cards are stacked against you and for pharma and bio that are highly patent-dependent industries a 72-87% invalidity rate does not work for their business models.” Johnson would later go on to say that these statistics on institute “but in the bio/pharma space I haven’t seen any evidence to suggest that the outcomes are going to be any less favorable to the challenger than.
Given that Johnson has spent so much of his career in the bio/pharma industry it is understandable that he would focus his comments on the industry, but a 72% to 87% invalidity rate doesn’t work for any business model in any industry.
Of course, there is at least a little irony associated with the bio/pharma industry being upset about inter partes review and seeking some kind of a legislative carve out that would insulate their patents from post grant challenges. It is widely known within the industry that one of the primary architects of the America Invents Act (AIA) was Bob Armitage, the former General Counsel for Eli Lilly. After the AIA passed Armitage was invited to speak at virtually every gathering of patent industry professionals because of how intimately involved he was with the drafting of the language of the AIA, and how closely he was involved with lobbying both the industry, and Congress, to help ensure passage of the AIA. At the time post grant challenges were not viewed as a concern for bio/pharma, but now it is clear that they do pose a very real danger, with up to 20% of IPRs filed being related to bio/pharma patents.
Baluch asked Johnson whether the industry just didn’t see that IPRs would be used to challenge their patents. Johnson replied:
I think with hindsight we might say they made the mistake of relying on the Patent Office to promulgate regulations for fair proceedings for both patent owners and to challengers. And they expected, for example, that the same claim instruction standards would be used in IPRs are as used in the courts. They expected that when the law said that a patent owner could file a reply in the institution phase that it wouldn’t be told oh, no, you can’t include new evidence for that reply. They expected that other burdensome presumptions, including things like consideration of objective indicia of nonobvious would be treated the way it is in the courts, and so on. So in the end they expected that the outcome in IPRs would be approximately the same as in the courts and what we have seen is that that absolutely is not the case and, therefore, it’s not that — necessarily that the law was wrong, it’s that I don’t think pharma decisions and bio decisions have been promulgated properly.
As the conversation turned to patent litigation, Johnson cut through the chatter to the heart of the matter. “When I hear people say we don’t trust some of the district courts… they generally mean the Eastern District of Texas, because unless we because unless we mandate what they’re going to do they’re not going to follow this and so we have to have a statute. We can’t leave it to their discretion.”
Johnson was direct in his criticism, but not unique. There is great frustration in the industry with the Eastern District of Texas. Indeed, I find it particularly troublesome that reforms that are being discussed will apply to all 94 federal district courts in potentially draconian ways when the real problem is one particular federal district court located in a remote part of Texas. It seems to me that the current approach to patent litigation reform is to punish all patent owners because the Eastern District of Texas allows certain patent owners to get away with activities that would not be tolerated in the great majority of the other 93 federal district courts. I’m also concerned by the changes, many of which seemed directly aimed at the Eastern District, because as Johnson alluded, the Eastern District seems to do what they want and will predictably find ways to circumvent the spirit, if not the letter, of any patent litigation reforms that do eventually become enacted.
The real problem as Johnson sees it is one of judge shopping, as he calls it. He explained:
Right now the Eastern District has different rules than pretty much anywhere else and as I understand it under the standing Order… all patent cases that are filed in Marshall are assigned to Judge Gilstrap, 100% of them. So essentially what plaintiffs are being told is if you file in Marshall you’ll get Judge Gilstrap and Judge Gilstrap has an overwhelming number of patent cases compared to any other judge in the country. I think he may have 1300 or 1400 cases, maybe more than that. He may have as many as 15-20% of all patent cases filed. I think we could agree, and this is without commenting on Judge Gilstrap himself or what he does as a judge, but I think we could agree that in our judicial system two things I think have always been evident. First of all, a plaintiff may have the right to choose where the case is brought, if not who the judge is who hears the case. Number two… no single judge should have a disproportionate percentage of patent cases. You should have those cases spread around so you have the development of different ideas, which can add to the law… as we do everywhere else.
One of the other interesting aspects of this panel was that Gail Levine, who is Vice President of IP and Public Policy for Verizon, said that it was her opinion that all of the changes to the patent system over the last several years have undeniably lead to a patent right that is far stronger than it once was. As she said that I was struck both by how utterly ridiculous the comment was, and by how no one on the panel pushed back. Reasonable minds may disagree on whether patent reform has been good or bad, and whether the Supreme Court has pursued the proper path with respect to patent eligibility, but there can be no reasonable disagreement on the issue of patent strength. Patents are simply not as strong as they were 5 years ago, period. Anyone who says otherwise is either unfamiliar with the issues or they are intentionally misrepresenting reality in order to forward a particular agenda. Levine is certainly familiar with the issues, so I have to conclude she is misrepresenting reality in order to forward some vision of the patent system favored by her employer.
At the end of the segment time was reserved for questions. I was recognized and followed up on Levine’s comment.
QUINN: Not to beat up on you, Gail, but you said that you thought that the changes made over the last number of years is strengthening the patent, which is pretty undeniable not the case, both between the Supreme Court and the Federal Circuit and the legislation. And then you went elaborate on your answer talking about innovation. I think where people on both sides fundamentally disagree is with the definition of innovation. So I would like to ask you what your definition of innovation is because it seems to me that people on the other side that are trying to get more reform and more change define innovation as a new product that goes into the market and fundamentally and totally ignore all of the real work and think it is an illegitimate business model to invest and engage in research and development, which would then make people like the Wright brothers and Thomas Edison and so many others patent trolls and illegitimate. I don’t think that true but I would be interested to know how you specifically define innovation.
LEVINE: That’s a good question and it’s not my definition of innovation, it’s something through the Federal Trade Commission’s advocacy on this issue… The point of the patent system in view of the Federal Trade Commission and others has always been to promote innovation. Patents are an important part of that system. Patents, as you were saying a moment ago, are the prospect of getting patent rights to be enforceable are an important stimulus to the kind of R&D and important for research that can drive innovation. But we also have to make sure that another kind of innovation is not foreclosed by patent rights and that is innovation where products are brought to market, follow-on innovation, right, so the FTC, Federal Trade Commission, has always been very careful to say that the point of the patent system is to promote innovation not exclusively by stimulating innovation that leads to the prospect of patent rights but also in the innovation that lasts for — also for conduct that happens after that patent is granted because what we need to happen — careful with all aspects of the ecosystem, not just one piece of it. So when I talk about innovation I’m talking about the Federal Trade Commission’s definition of it.
The answer seemed to be a bit of a dodge. To many on the anti-patent side of the equation innovation does not occur until a product is put in the hands of a consumer. In fact, a distinction is sometimes made between an invention and an innovation. Indeed, several years ago Suzanne Michel, who is Senior Patent Counsel for Google, explained, “until a product is put in the hands of consumer it is still an invention, not an innovation.” What does that even mean? It is a not so subtle attempt to say that the underlying invention isn’t important, what is important is the product or service in the hands of the consumer. Never mind that the product or service could never have been achieved without the underlying invention. Frankly, this invention verses innovation distinction is a way for the infringer lobby to justify ignoring (i.e., stealing) patent rights as they take the research and development of others to make money for themselves.
To answer my own question, Merriam-Webster’s dictionary defines innovation in this way: “1: the introduction of something new; 2: a new idea, method, or device: novelty.” Thus, it is rather clear that innovation is NOT about products in the hands of consumers. Innovation is about advance. The patent system was set up to foster that advance and recognized research and development as an important endeavor. Whether the often extremely costly business of engaging in research and development will remain a viable business has a lot to do with whether anti-patent reforms are enacted and the Supreme Court continues to be the “no patent for you” court.