Earlier this week the Obama Administration released a joint strategic plan on intellectual property enforcement for fiscal years 2017 through 2019. The title of the report is Supporting Innovation, Creativity & Enterprise.
It is almost impossible to believe this report is the work product of the Obama Administration. The section on patents, which begins on page 134, reads like a cross between a Monty Python skit and a Soviet era, propaganda laden news report. Perhaps the Obama Administration is trying to rewrite history and brainwash the entire industry into believing that President Obama has been a tremendous defender of the U.S. patent system.
Simply stated, the Obama Administration can write all they want about the importance of the patent system and how patents are critically important for innovation, but the reality is that the future of American innovation has been forfeited (or at least heavily mortgaged) by a calculated, intentional, and willful dismantling of the U.S. patent system for the benefit a handful of politically well connected companies that helped President Obama get elected and then re-elected.
The beginning of the section on patents reads:
Patent-intensive industries are a driving force in the U.S. economy. According to a recent Department of Commerce report, the value added by patent-intensive industries in 2014 was $881 billion, which was 5.1 percent of U.S. gross domestic product. Supporting efficient and predictable patent protection policies that promote investments in research and development is key to the continued growth of innovative economies.
Yes, patent-intensive industries are responsible for a great deal of economic activity in the United States that is certainly true. It is also absolutely true that efficient and predictable patent protection policies promote investment and are responsible for the growth of innovative economies. Why then did President Obama spend so much of his time in office interjecting uncertainty into the patent system? Why was the destruction of the U.S. patent system an agenda item for the Obama Administration?
Let’s walk through some of the patent highlights of the Obama years. This is by no means an exhaustive summary, but a report that touts the importance of efficient and predictable patent protection demands serious question when the Obama Administration spent most of the past 8 years intentionally seeking to change U.S. patent law, weaken patent rights and ultimately destroy the U.S. patent system to the point where China is now a far more favorable jurisdiction for patent protection than is the United States.
The only thing that is certain in the U.S. patent system is that the law is hopelessly uncertain! There are numerous patent examiners working for the U.S. Patent and Trademark Office that refuse to issue patents and openly tell patent practitioners and innovators that they will never issue a patent, haven’t issued a patent in years and nothing they say will matter. These recalcitrant patent examiners proudly proclaim that they ignore the rulings from the United States Court of Appeals for the Federal Circuit, and when they are reversed on appeal by the Patent Trial and Appeal Board rather than issuing a patent they reopen prosecution (see here and here) to continue to harass applicants. This is not made up, this is actually happening.
On top of this, the Patent Office is unable to control patent examiners, who are engaging in widespread time and abuse fraud according to the Commerce Department Inspector General. And one particular examiner who was caught submitting over 700 hours of fraudulent time wasn’t fired or reprimanded, but instead left the Office so that he didn’t receive a negative performance review. These stories about examiner abuses and the inability of the Office to do anything about it sound like fake news, but sadly they are true.
To call the American patent protection process arbitrary and capricious is insulting to those things in our society that are merely arbitrary and capricious. Recalcitrant patent examiners are not arbitrary and capricious; they are willful actors that intentionally seek to harm innovators by denying patent rights regardless of merit. The only thing predictable about this is that innovators get screwed! It isn’t even done efficiently, with innovators having to fight a war of attrition against their government for many years, or even a decade or more before they are finally forced to give up because their meritorious invention that has been protected in other countries can’t get protection in the U.S.
Patent Trial and Appeal Board
The Patent Trial and Appeal Board (PTAB) has become the single most important and influential entity in the patent industry. This group of appointed Article II administrative law judges makes decisions that cannot be reviewed by any Article III court, not even the Supreme Court. The PTAB has increasingly come under fire from the Federal Circuit for acting in arbitrary and capricious ways, which is almost impossible to do given the extraordinary burden required to demonstrate an agency has acted arbitrarily and capriciously. The PTAB ignores the statute they are charged with implementing, and the legislative history too. For example, they institute Covered Business Method (CBM) challenges against patents that are clearly and unambiguously not business method patents. In one case instituting a challenge against a graphical user interface that has been covered by multiple patents in Europe because it is a technological advance and not a business method at all, and in another case instituting a challenge against a security related innovation that restricted access to a wireless device. In that second case the Federal Circuit finally said enough, finding the PTAB was using a definition of CBM patent that would render every patent a CBM patent.
The PTAB also refuses to allow patent owners to amend claims challenged in post grant proceedings despite a statute that says amendments are allowed and a legislative history that is enormously clear and on point. The Patent Office has defended the PTAB refusal to allow amendments and the asinine argument that the law allows patent owners to file a motion to amend but doesn’t require the PTAB to grant that motion to amend. But this blissful statutory ignorance is not confined to motions to amend. The PTAB has also said that they do not need to consider timely filed evidence if they don’t want to, which is breathtaking and almost seems as if it has to be fake news; sadly it is not. The PTAB also has a perverse incentive to initiate proceedings when multiple challenges are made against the same patent or patent family because those deciding whether to institute will decide the case on the merits, and if they have multiple challenges on the same patent they find it much easier to achieve their work production goals.
The PTAB rules and procedures have fundamentally and systematically deprived patent owners of even the most basic due process in what is a thoroughly one-sided proceeding. I suppose this qualifies as efficient and predictable only because the patent owner loses all sense of procedural fairness in order for the PTAB to reach a decision within 12 months (although they statutorily have 18 months to decide). The outcome is almost always the patent is lost, but that kind of predictability in a system based on property rights isn’t at all useful to encourage or incentivize anything.
Finally over the last six months the Federal Circuit has started to find at least some software patent claims to be patent eligible. There are, however, several judges on the Federal Circuit that have never and will never find software patent eligible. At best the test for patent eligibility is a subjective test, as admitted by the Federal Circuit in Enfish v. Microsoft earlier this year. That means the test is no reproducible and will absolutely be panel dependent. If you get the right panel of judges you have a chance. If you get the wrong panel of judges you have absolutely no chance as a patent owner or innovator. The only predictability comes after you know who is on the panel, which doesn’t happen until you walk into the courtroom to argue the case. But even then you can’t be sure. The Federal Circuit is so horribly overworked the Court seems to be giving very little thoughtful consideration to most of the cases. Indeed 70-80% of decisions are either 1-sentence affirmances or nonprecedential opinions, and the dirty little secret is that nonprecedential opinions are frequently written by staff attorneys, not the judges.
As for the Supreme Court, we are back to the days where the only valid patent is one that the Supreme Court hasn’t considered. This Supreme Court is openly hostile to patents. They do not understand patent law, they do not understand innovation, they ask questions that would embarrass any self-respecting technologist (i.e., can’t a second year engineering student code that financial software over a weekend?) and they are arrogant in their ignorance. Short of removing patents from the Supreme Court jurisdiction the only thing that could help is legislation that thoroughly overrules all of their recent patent eligibility cases and does away with the judicial exceptions to patent eligibility, which are just the Supreme Court’s way of having created a tool out of hole cloth that allows them with a straight face to ignore the statute they are supposed to interpret.
The brilliant idea of creating the PTAB came from legislation supported by the Obama Administration and enacted by Congress. The PTAB is run amok; they have destroyed patent value and crippled investment in innovative start-up companies. Patent valuation has been more than cut in half since the enactment of the America Invents Act (AIA). If Congress was trying to slap a ball and chain around the ankle of American innovation they have succeeded beyond their wildest dreams! Indeed, the AIA — particularly the sections creating the post grant procedures — might be among the most successful pieces of legislation ever created. Congress obviously wanted to kill patents and the death of patents (and patent value) has been the result. Mission accomplished!
So successful have the post grant procedures of the AIA been at killing patents it is even being used to challenge, and kill, biotech and pharmaceutical patents. Much ink has been spilled about the challenges funded by hedge fund billionaire Kyle Bass, but the biotech and pharmaceutical industry also find themselves being challenged, and losing patents, after being challenged by generic manufacturers (see here and here, for example). The biotech and pharmaceutical industries supported the AIA and didn’t believe the post grant procedures would ever be used against their patents. The only certainty and predictability here is that this grave miscalculation is going to cost the biotech and pharmaceutical industry many billions of dollars.
The strategic plan also says:
Without effective mechanisms to protect intellectual property rights, including patents and trade secrets, competitors could simply sit back and copy, rather than invest the time and resources required to invent and innovate. Research and development would be even riskier investments, with little to no assurance that such investments would or could be commercially put into use. Simply put, facilitating efficient and predictable patent protection policies harnesses the drive and ingenuity of our innovators and helps ensure that our economy remains innovative and competitive.
True, and that is exactly what is happening. Large corporations are openly engaging in efficient infringement, which is just a sanitary way of saying they are stealing. With a patent system that has been so thoroughly crushed during the Obama Administration patent owners see large corporations simply take their patented innovations, incorporate them into their products or services, and never have to pay a dime. Given how easy it has become to kill patents at the PTAB and how the Courts have fundamentally changed the law of what is patent eligible, efficient infringement is a wise business strategy. Why pay for what you can steal without consequence? The problem is that this wise business strategy is destroying the U.S. innovation economy because it is the individual, the small business, the start-up that innovates because innovation requires risk taking and dreams. Large entities do not take risks; they worry about shareholders and increasing stock prices. So as patent laws have continued to weaken in the United States we see less and less innovation and little or no paradigm shifting innovation.
All the while, China is becoming a better place for innovators. It is easier to obtain patent protection in China, and patent owners succeed 80-100% of the time when they bring patent infringement cases in China. When patent owner succeed they have a 99% likelihood of obtaining a permanent injunction, which is the way is used to be in the United States. Thus, what we are seeing over the last several years is that without question China is becoming a more favorable jurisdiction for innovators, and venture capital is leaving the U.S. for China. That being the case, how long before start-up companies start moving out of the United States and to China?