Several weeks ago Internet Association President Michael Beckerman sent a letter to President Elect Donald Trump and the Trump Transition Team. The Internet Association is made up of companies that are by and large openly hostile to the U.S. patent system and innovators. The letter touched upon issues ranging from copyright safe harbors under the Digital Millennium Copyright Act (DMCA) to recommended reforms to the Electronic Communications Privacy Act (ECPA) to open access to the Internet and, of course, patent reform. I will confine my comments (see below) to the Internet Association’s patent reform commentary.
With this in mind I thought the best way to provide my thoughts and comments would be in the format of comments from the peanut gallery, or perhaps as a patent law equivalent to Mystery Science Theater 3000, which I do from time to time. In order to differentiate my thoughts/comments from comments of the Internet Association, my comments are italicized, colored, indented and tagged with the IPWatchdog logo.
IA LETTER: Patent law remains an area of intense litigation and uncertainty due to entities often referred to as patent trolls, which cost our economy tens of billions of dollars per year. These entities incite high-cost, baseless litigation, which diverts resources from productive business research and development.
MY TAKE: Not that it should come as any surprise to anyone who follows the patent reform debate, but what the Internet Association says here is simply false. First, just recently the Federal Trade Commission released its much anticipated report on Patent Assertion Entities and concluded: “In the Commission’s view, a label like ‘patent troll’ is unhelpful because it invites pre-judgment about the societal impact of patent assertion activity without an understand of the underlying business model that fuels such activity.” Second, it is a complete lie that patent owners cost the economy tens of billions of dollars per year. This figure has been thoroughly and completely debunked, yet the infringer lobby that prides itself on efficient infringement (i.e., stealing rights without paying for them) continues to use figures that even the authors of the original study no longer support. In a nutshell, the way the “billions of dollars” estimate is erroneously arrived as it by conflating “costs” with “transfers.” The acquisition of rights through a license is not an economic cost as if it were a zero sum game, and neither is the payment of damages for having chosen to trample the rights of the property owner in the first place. If the Internet Association is reduced to relying on name-calling (which even the FTC says is unhelpful) and bogus statistics without any economic justification, obviously their case for reform is very weak — which it is.
IA LETTER: Opportunistic patent trolls have exploited the lack of reasonable venue law to shop for favorable forums and force defendants, including small and independent inventors, to litigate in distant venues unrelated to the case in question. This is especially true in the Eastern District of Texas… Local rules disadvantaging defendants, disproportionate win rates, unreasonable damage awards, and expansive, inequitable discovery practices attract trolls to East Texas.
MY TAKE: Again, name-calling using the term “patent trolls” does nothing other than show the Internet Association is out of touch with current understanding of the nuances of the patent marketplace. If the FTC study commissioned to trash patent trolls refuses to do so that should be a sign to everyone that the patent troll narrative is fiction, which is it. Furthermore, the infringer lobby would love nothing more than to end patent litigation in the Eastern District of Texas. It has nothing to do with the fact that damage awards are unreasonably high, because the truth is the Eastern District of Texas has not for a very long time been the pro-patent venue that the infringers have made it out to be. Yes, verdicts can be quite high, but those large verdicts are very few and far between. In many cases the patent owners win nothing, and in many other cases the patent owners win little. Patent Owners who swing for the fences, for big verdicts or bust, like the Eastern District of Texas. Defendants don’t like the Eastern District of Texas because the local rules and practice in the court actually give patent owners a fair procedural chance. It is very difficult, if not practically impossible, for infringers to win in the Eastern District on motion before trial. So patent owners actually get their day in court the way it is supposed to be and infringers in the Internet Association don’t like that. They would prefer that the Eastern District become inhospitable to patent owners like so many other federal districts across the country.
IA LETTER: Necessary reforms include… clarifying in statute the standard for fee shifting in extraordinary cases, which will ensure that trolls who bring meritless cases cannot shield themselves entirely from responsibility.
IA LETTER: [R]ecent cases including Enfish, LLC v. Microsoft Corp. and McRo v. Bandai Namco Games have provided clarification on patentable software. Calls to weaken the Alice decision or Section 101 are misguided and unnecessary as the courts clarify software patentability.
MY TAKE: It is important to tackle these two thoughts together because it shows the hypocritical convenience with which the Internet Association operates. With respect to fee shifting they want clarifying legislation because it is not enough for the courts to clarify the law as the law evolves. In the next breath, however, they have the audacity to say that no clarifying legislation is required with respect to patent eligibility because the courts are starting to provide clarity. To call this intellectually dishonest doesn’t begin to scratch the surface.
They want clarifying legislation with respect to fee shifting because their members are infringers who engage in efficient infringement, which is a business calculation that winds up with them intentionally and consciously deciding to infringe patents rather than take a license. So their members will be open to fee shifting given their efficient infringement business model, so they want legislative relief to protect them from their decision to steal. On the other hand, where innovators want clarity on patent eligibility and a clear statement from Congress that software is patent eligible, which is something the Supreme Court has refused to say, the Internet Association says no legislation is needed. Apparently they like the murky mess and the fact that innovators have no certainty.
Make no mistake, murky mess is exactly what the law of software patent eligibility is today. Yes, in recent months there have been strides forward — finally — but the Federal Circuit has acknowledged that the test created by the Supreme Court is subjective and not reproducible. In Enfish, one of the cases cited by the Internet Association, the Federal Circuit explained that the law has developed into a matching endeavor. You determine which case the instant claims are most like and then based on whether that case resulted in patent eligible claims or patent ineligible claims you work backward with the analysis. Furthermore, the Federal Circuit also said in Enfish that they do not have to labor to define the critical term — “abstract idea” — because the Supreme Court said they did not have to labor to define the term in Alice. Thus, courts and patent examiners are left to apply the abstract idea doctrine without any definition of what is and what is not an abstract idea. This ridiculously uncertain test, which seems the best the Supreme Court and Federal Circuit can do, de facto demonstrates there is a serious problem that demands legislative clarity.
To put it simply, the fact that there have been improvements in recent months does not mean the situation is good. Innovators deserve better than a “we know it when we see it” subjective standard. Given the ubiquity of software and the prevalence of software related innovation the U.S. economy demands certainty.
IA LETTER: The USPTO must continue to identify and implement changes it outlined in its Enhanced Patent Quality Initiative…
MY TAKE: The USPTO patent quality initiative has until this point been code for “patent applicants and patent practitioners are to blame for the problems of the Patent Office and the patent system.” To some extent the quality initiative has also felt like it has been an effort to encourage the quicker rejection of patent applications. The Office will tell you otherwise, but the Office also steadfastly refuses to acknowledge that there are an unacceptably high number of patent examiners who are simply refusing to do their jobs. We have seen instances were examiners submit hundreds of hours of fraudulent time sheets, we have seen the Commerce Department Inspector General discuss widespread examiner abuses, we know that examiners in Technology Center 3600 tell patent practitioners that they haven’t allowed an application since Alice and they are not about to start now no matter what amendments are offered or arguments made. See Where Patent Applications Go to Die. In short, the USPTO has a well documented problem with certain recalcitrant patent examiners and they are either unwilling or incapable of doing anything about it. The Office should suspend the quality initiative until such time as the political will exists to do something about examiners who are gaming the system and/or who are poorly doing their jobs. See Steps to Address Low Quality Examination.
IA LETTER: Misguided efforts to weaken access to redress options such as IPR at a time when low-quality patents continue to fuel patent trolls will harm our innovation economy and inflame the very problems that policymakers sought to mitigate through modernizations of the U.S. patent system.
MY TAKE: Again with the name calling, which should immediately tell the reader something about the strength of the argument being made by the Internet Association. Second, claims of widespread and run-away patent litigation are unfounded. In fact, there is a downward trend in patent litigation. As for weakening IPRs, post grant proceedings were ill conceived to begin with and never should have been adopted. Post grant administrative trials put the Patent Office in the position of arms dealer. Innovators spend many tens of thousands of dollars and the better part of a decade getting a patent and if it turns out to be commercially viable the Patent Office no longer stands behind the patent and instead sells the right to challenge the patent, which causes the patent owner to now have to spend many hundreds of thousands of dollars (or more) to defend the patent. And as bad an idea as IPRs are, no one is seriously talking about doing away with them, just making them procedurally fair — like actually affording the patent owner due process, following the statute and giving the patent owner the right to amend claims, and acknowledging that there is a problem when there is a financial incentive for judges to institute IPRs when multiple challenges are filed against the same patent. By and through their decisions and actions the PTAB has destroyed the value of patents in America. Substantial regulatory reform of the PTAB and IPR and CBM practice is required.
IA LETTER: Developing a competitive U.S. tax regime for intellectual property (IP) will encourage companies to onshore IP that is currently held outside the US, helping attract more jobs and encourage domestic innovation. An “IP box” or “innovation box” would provide a globally competitive tax rate on profits derived from intellectual property, expanding the corporate tax base.
MY TAKE: This is actually a brilliant idea. As Bernard Knight wrote: “Many countries have enacted a patent box regime in order to spur innovation and create domestic manufacturing jobs. Simply stated, a patent box regime provides a lower tax rate on income from the exploitation of patented goods than for other income… A patent box regime can incentivize both domestic and foreign manufacturers to set up manufacturing in a country to take advantage of a lower tax rate on profits derived from intellectual property.” This should be a no-brainer. Given the tremendous potential benefit to all patent owners the Internet Association would be smart to support this as a stand alone piece of legislation rather than hold this single good idea hostage to all the other truly awful ideas it has recommended.