How patent quality extremism and money-can-buy-fairness have ruined the U.S. patent system

Patent reformers argue that too many patents can hurt business, and low-quality patents cause problems. Their lobbying activities have successfully persuaded the Congress to pass the AIA, with the primary purpose to raise patent quality standard. In this article, I will show that a high patent quality is responsible for creating a technological crisis in the U.S. In this series I will discuss adverse impacts of high patent quality standard in four aspects: the constitutional purpose, its impacts on different inventors, its adverse impacts on inventive activity intensity as compared with that in several other nations, and U.S. market monopoly achieved by foreign-owned U.S. patents.

I collected data for U.S. patents granted to U.S. individual inventors (including independent inventors, accidental inventors, and some professional inventors) from 1995 to 2015, as compared with U.S. patents granted to U.S. Corporations and foreign corporations in several foreign nations.

Table 1. The Numbers of U.S. Patents Granted to U.S. Corporations, Foreign Corporations and U.S. Individual Inventors from 1995 to 2015.

Data source: USPTO website.

In the period 1995-2015, the total number of patents granted was tripled.  However, the number of patents granted to U.S. individual inventors has decreased even though the technological landscape has moved to a state in favor of creating more inventions. Similarly, other data [not produced here] shows that the share of patent applications originated from the U.S. has steadily reduced from 76.6% to about 48.9% from 1963 to 2016. As in 2015, applications filed by U.S. entities comprise less than half of all patent applications. I must conclude that most inventing activities reflected in the U.S. patent office applications actually took place in foreign nations. Foreign entities use granted U.S. patents to control the U.S. market for their products and services. Moreover, patents granted to the U.S. corporations are often used to protect products made in foreign nations. While I did not have solid data, my experience tells that many U.S. brands were made in foreign nations. So, I estimate that most patents are used by U.S. corporations to protect their products originated from foreign countries. Those patented inventions are actually for protecting foreign production art, foreign employees’ job skills, and tax revenues for foreign governments. My estimate is that only 25% to 50% of those patents granted to U.S. corporations would further U.S. interest in whole.

The data shows that the number of U.S. patents granted to foreign corporations has steadily and rapidly increased by replacing the number of patents for U.S. individual inventors. This is consistent with the foreign patent application number changes from 1963 to 2016.  U.S. trade deficit also greatly increased from 1976 to 2016, with the 2016 figure being $736.79 billion. Among nations that U.S. has trade deficit, I can roughly divide them into two classes: countries having cheap labor costs (e.g., China, Mexico, Vietnam, India, Malaysia etc.) and countries with strong technologies (e.g., Japan, Germany, and France etc.). Those countries with strong-technologies have a large share of U.S. patents in the U.S.  Even those cheap-labor countries such as China and India, technologies are still an important factor.  They must possess minimum technologies to sell their products and services in the U.S. While the data is not a conclusive proof of trade problems, the U.S. trade loss is clearly correlated to technological improvements in those nations. The number of patents granted to each of Japan, Germany and Korean is more than the total number granted to U.S individual inventors, and the total number of patents granted to foreign corporations is more than that granted to U.S. entities. I have to say that this is an extremely bad technological landscape for the U.S. It is a crisis for which little can be done to change. When a patent is granted to a foreign nation, it will control the U.S. market for the whole term.

The above analysis compels me to conclude that U.S. patent office role is repugnant to the constitutional mission. It is primarily responsible for creating this technological crisis. I attribute this crisis to the patent office’s longstanding policy: even-handed high patent quality standard, patent invalidation procedure, high prosecution fees and maintenance fees (while many newly added rules will make the patent system even worse with time). When the patent office applies its rules and procedures to all applicants and all parties in an evenhanded manner, it actually advances their interests. The even-handed “fairness” notion was originated from common law courts. When King of England and his bench decided cases, anything written for cases was law.  Because King owned the land, the King court’s precedent power was beyond questioning. After, the U.S. Constitution granted lawmaking power to the Congress, the U.S. Supreme Court grabbed the power for making law for judges. While a small number of judges in King’s court could manage case laws well, the high-density precedents created by thousands of judges in the U.S. have endless and confusing conflicts. Moreover, the courts, including the U.S. Supreme Court, made law without conducting basic research and without understanding how their holdings affect the nation. To protect the judicial power, courts have focused on what I call misplaced “horizontal fairness”.

According to this horizontal fairness standard, if a rule is set in Google v. Apple, the same rule must be applied to John Doe in Corp v. John Doe. People in favor of natural justice would think that fairness in a civil case must be weighed between the parties in the dispute. Strangely enough, true fairness, dictated by natural justice, is often or even always ignored. In patent cases, the most critical facts are how inventors used personal resources and spent years to overcome difficulties to make inventions, how their inventions benefit society, and how the government breaches the constitutional promise. Common law courts ignored the most critical fairness facts, but focus on the rulings in a bunch of other cases. Common law judges can justify gross injustice often by using technicalities and precedents. This kind of misplaced fairness has been acceptable for centuries in the U.S., despite extremely poor performance in criminal justice, family cases, and pro se cases. It did not hurt the U.S. in a big way until recently.

When the common law nations and civil code nations compete on international trade battles, the common law nations are often in a losing position. The fairness standard could not help American corporations fare well in civil-code nations. It caused damages to U.S. national interest in a way few people notice. The patent office uses all patent rules in an even-handed manner to all applicants. So, it treats corporate applicants and U.S. individual applicants in the same way: entering frivolous rejections, using one-way bias high patent quality standard, giving the same opportunity to demand inter-party review (by paying $23,000), and affording the same opportunity to defend a challenge to patents (which would consume hundreds of thousands of dollars of attorney fees). Nobody can question those rules.  However, this money-can-buy fairness practices have distorted technological landscape. Frivolous rejections can force individual inventors to abandon their applications, but do not affect giant foreign corporations; outrageous fees and maintenance fees can discourage individual inventors, but will not affect foreign corporations; and the right of harassment can be used by all corporations but not U.S. independent inventors.

The patent office policies result in successive replacement of U.S. inventors by foreign corporations for years. The patent office practices have damaged U.S. interest in many ways. The data shows a comparative loss of U.S. individual inventors. When the policy is more favorable to foreign corporations, it would help foreign corporations take more patents to control the U.S. market. U.S. corporations are unable to withstand technological competition. Besides, many U.S. corporations also promote foreign interests. Excessive fees and costs and maintenance fees discourage individual inventors, but do not discourage corporations from all over the world from applying to U.S. patents. When the patent office uses bias patent quality to enter repeated rejections, it cannot deter big corporations from trying, but force individual inventors to give up.  After the AIA enactment, more individual inventors will give up, and therefore more technological spaces will be taken by foreign corporations. When corporations initiate harassment invalidation actions against U.S. individual inventors, they would force U.S. individual inventors to abandon patents, thereby resulting in opening up of the U.S. market once protected by invalided patents. Since the U.S. corporations are unable to maintain trade balance, more of the technological space would be most probably taken by foreign corporations. Even if market shares are taken by both foreign corporations and U.S. corporations, the U.S. still suffer a loss because many U.S. corporations use the new market to further foreign interest. Also, a good number of U.S. independent inventors will abandon their patents after they are unable to license out their inventions or sell their patents. This will also give more free spaces to foreign corporations and increase their patent shares in the U.S. The patent office allows any corporations to challenge patents owned by U.S. inventors, it encourages all corporations from infringing U.S. patents. When a patent owned by foreign corporation and a patent owned by individual inventor collide in their protection scopes, it is certain the patent office will kill the patent owned by the U.S. individual inventor in an interference proceeding. If a business venture requires both foreign-owned patents and patents owned by U.S. individual inventors, the patent office will certainly kill those patents owned by individual inventors. When the common-law philosophy lacks natural fairness, the world figures out how to use it to harm the U.S. interest in every area of law and in every kind of business opportunities. In the technological field, it has reached to a point that no matter what is done, foreign patents share will continue increasing rapidly. This will result in a market protected for foreign corporations.  With each day passing, the technological landscape will become worse and worse for the U.S.

The data shows the patent office does more in helping foreign corporations to control the U.S. market than strengthening U.S. inventive entities. It does more to protect foreign manufacture basis, increase foreign worker skills, and increase tax revenue for foreign governments than do things to further U.S. interest. It does too little to help U.S. inventors in starting up domestic business. The Congress should review the patent office performance in both unwise policies and leadership. Future leaders must understand that when technological system is in such a state, it cannot be changed by using any even-handed measures. It needs to use measures that must be tailored to help the U.S. inventors. The leaders must understand that intentions are real technologies for solving real problems and inventions are things of inventive creation, but not widgets that anyone can make. Inventing and patenting should not be controlled by large sums of money. If the patent office leaders fail understand those basic principles, and manage inventions using methods for managing fungible articles, the U.S. will never be able to arrest the spiral process by which it loses its technological advantages. As long as it runs patent office as a money game, the patent office will always be a corporate extension for furthering illegal purposes such as achieving monopoly. When U.S. market has been locked by a huge number of foreign-own patents, it can do every little to change. The last thing the patent office should do is to eliminate the only a few patents of reminding independent inventors, and give the entire technological spaces to foreign entities and U.S. corporations aligned with foreign interests.

I could not find information to determine whether the patent office has alerted the Congress of the national technological crisis that should be obvious many years ago.  The data should have alerted Congress of the serious consequence of enacting the AIA.  With this crisis, the patent office is still busy with running trials to invalidate patents and writing opinions for denying patents. The Congress should establish its own thinking tanker to conduct complete investigation. Any attempt to further reduce patent number will only add insult to injury. The patent filing data for Japan, South Korean, and China suggests that the U.S. had a huge margin to expand its national invention capacity. The only way to reverse this technological crisis is to include the entire population in the would-be-inventor pool. If U.S. inventors create new grounds for new technologies and drive technologies in multiple new directions, foreign patents will lose controlling force in the U.S. technological market.  That is the only way for the U.S. to regain control over the future technology. The Congress must kill the two biggest enemies: patent quality extremism and money-can-buy privileges.

CLICK to CONTINUE READING… In the next article, I will show how the high patent quality standard has caused the U.S. to quickly lose technological advantages.