Suffice it to say that 2016 has been an interesting year. The political climate is much different than one year ago amidst a growing tide of nationalism abroad and populism here in the United States. Throw in a massive migration crisis stemming from the Middle East, a slew of unexpected celebrity passings and the fact that the Chicago Cubs are lovable losers no more, and we’re about to wind down a year which seems nearly mythological in stature.
Activities in the realm of intellectual property were comparatively much more stable, for better and for worse. The judicial branch of the U.S. government continued to issue court decisions having major impacts on a patent system which is supposedly governed by the legislative branch. Recent changes made to the U.S. patent system which have been wrought by that legislative branch continue to frustrate stakeholders in the system. The usual suspects in America’s tech sector maintained their lead in obtaining U.S. patent grants.
Personally, this writer has greatly enjoyed how 2016 has progressed in terms of his own area of reporting. A transition from coverage of patent and tech matters only into the worlds of trademark and copyright have provided a much wider view of the way that a strong system of intellectual property protection can help many various business prospects thrive when managed effectively. Despite this larger IP focus, we’ve continued our coverage of the Companies We Follow, featuring many of the largest movers in the tech sector, as well as our Evolution of Technology series which tells the stories of how some of the world’s most important inventions have been developed.
As we turn the page onward to 2017, it’s a good time to take another look at some of the major trends shaping the IP and technology landscape in the United States and abroad. From increasing competition with an Asian powerhouse to the continuation of a misleading narrative about patent system abuses, the past year leaves us with many important narratives to consider for the year ahead.
China, U.S. IP Systems Move in Opposite Directions
Who knew that a country ruled by a de facto communist regime could be so effective at taking a share of the global innovation market away from the leader of the free world? But that’s exactly what we’re seeing play out between China and the United States. Part of it is that the Chinese government is recognizing, to its credit, that it’s good business to issue patents for software and other technologies which are derided as unpatentable by parties in the U.S. In late October, China’s patent office unveiled new patent examination guidelines which make it clear that software and business method inventions are patentable. Given a very high winning percentage for plaintiffs in Beijing’s IP court, more foreign entities are deciding to duke out patent infringement cases in Chinese courts rather than American ones. 2015 global patent totals released this year by the World Intellectual Property Organization (WIPO) shows that China received more than one million patent applications that year, more than one-third of all patent applications filed across the globe. About 96 percent of those patent applications are domestic office only, meaning they have no legal weight in the U.S. and other jurisdictions, but it also means that the Chinese market will likely see those innovations first.
China’s growing innovation regime is also being buoyed by increasing investments in scientific infrastructure, such as building the world’s largest radio telescope and the world’s largest supercollider. And yet, foreign entities should be wary of a few red flags surrounding China’s dismissive attitudes toward non-domestic firms. This year, Qualcomm Inc. (NASDAQ:QCOM) began taking legal actions outside of a rectification plan forced upon the company by Chinese courts which found Qualcomm guilty of abusive patent licensing activities; Qualcomm’s actions with the U.S. International Trade Commission (ITC) and foreign courts indicate that the company finds the rectification plan too restrictive. However, seeing as the President-elect has seen success in Chinese courts involving recent IP litigation, it’s possible that United States leadership might have a better grasp on the value of strong IP protection here in the domestic market.
Reduced Patent Litigation Numbers Doesn’t Fit Patent Reform Narrative
Much has been made in recent years over the seemingly large number of patent infringement lawsuits filed in the U.S. and some have used the argument that increased litigation levels is reason to push for patent system reform. However, those arguments are facing a statistical problem which is found in regular intellectual property litigation reports issued by Lex Machina. Although patent infringement cases rose through 2015, a downward trend in the number of such cases filed was already noticeable by the end of 2016’s first quarter. With the end of 2016’s second quarter, the first half of this year saw some of the lowest patent litigation activity since the enactment of the America Invents Act (AIA) of 2011, a law which inflates patent litigation numbers because it ended the ability of a plaintiff to file a single action against multiple defendants.
Among the cases filed through 2016, the preference for the U.S. District Court for the Eastern District of Texas (E.D. Tex.) among plaintiffs remained clear. The fact that the district court seeing about one-third of U.S. patent infringement lawsuits is also the source of nearly 10 percent of U.S. judicial emergencies caused by vacant judgeships further consolidates U.S. judicial power over patent case decisions into a few hands. In mid-December, the U.S. Supreme Court decided to grant certiorari in TC Heartland LLC v. Kraft Food Brands Group LLC, a case which could impact E.D. Tex.’s jurisdiction over patent infringement actions.
The Misleading “Patent Troll” Narrative Continues to Hold Sway
The dreaded “patent troll” loomed large as the U.S. patent system’s boogeyman throughout 2016 as a large number of media publications continued to lash out at a villain that, for the most part, just isn’t there. In May, the academic peer-reviewed journal Science published a most unscientific article calling for changes to U.S. patent policy to weed out trolls from the litigation process. Seeing as trolls typically abuse the demand letter process and don’t actually go to trial, it would seem such a filter isn’t actually needed. Ars Technica has been one of the most egregious of such offenders and time after time it’s clear to see that Ars and other tech publications like to smear non-practicing entities (NPEs) and patent assertion entities (PAEs) with the patent troll label.
A study released by the U.S. Federal Trade Commission (FTC) on PAE business models actually went a long way in addressing patent troll nonsense. The study, which defined the models employed by NPEs and PAEs, called the patent troll label unhelpful as it’s a prejudicial term regarding the societal impact of patent assertion activity. And yet, it’s as if major business publications are only interested in reporting headlines which confirm their own perception of the truth. How else does one reconcile the FTC’s view on “patent troll” being an unhelpful label with Fortune’s coverage of the PAE study as being harsh on patent trolls?
It’s not that patent trolls don’t exist. Indeed, one notable patent troll was back in media headlines this May when the U.S. Securities and Exchange Commission (SEC) filed loan fraud charges against Jay Mac Rust, a Texas lawyer targeted by multiple state attorneys general for abusive demand letter practices regarding computer architecture patents asserted against small businesses. But concrete examples of such trolls are so few and far between. And yet important voices on Capitol Hill, including patent owners such as Rep. Darrell Issa (R-CA), have major problems discerning plaintiffs legitimately asserting their patent rights from patent trolls.
Frustrations with PTAB Boil Over to the Federal Circuit
Over the course of 2016, vitriol aimed at the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board (PTAB) grew at a steady clip. In March, a panel member at a hearing conducted by the U.S. Senate Committee on Small Business and Entrepreneurship called PTAB a “killing field” for patents, doing a good job of taking property rights away from legitimate owners. The situation hasn’t been helped much by the U.S. Supreme Court which issued a decision this June in Cuozzo Speed Technologies, LLC v. Lee which upheld PTAB’s broadest reasonable interpretation of claims and held that the board’s decisions in inter partes review (IPR) proceedings weren’t judicially reviewable.
By the end of the year, some PTAB abuses were finally being curbed thanks to a decision issued by the U.S. Court of Appeals for the Federal Circuit (Fed. Cir.) in Unwired Planet, LLC v. Google, Inc. Fed. Cir. found that PTAB improperly instituted a covered business method (CBM) review on a patent that was directed at managing location information among wireless communication devices, a technology which isn’t specifically directed at managing a financial product or service and thus isn’t eligible for a CBM proceeding.
Congress hasn’t decided to take a legislative response to this specific problem but the willingness to address problems at PTAB might exist on Capitol Hill. This September, the Financial CHOICE Act was introduced to the U.S. House of Representatives. The bill contains provisions that would allow parties to cases being handled by in-house tribunals of the SEC to file a civil action and bring the action out of the SEC. Given the fact that such provisions stem from criticisms of the SEC’s in-house trial process, it’s possible that growing criticism of PTAB’s administrative courts could cause a similar reaction in our federal legislature.