It is already too late, but we still have time

Judge Kathleen O’Malley (CAFC) and David Kappos, at the Newseum, April 10, 2018. Panel discussion “The Great Patent Debate Continues”, with Chief Judge Paul Michel (ret.), Gary Lauder, Jamie Simpson.

Earlier this morning the annual LeadershIP symposium was held at the Newseum in Washington, DC. Moderating the first panel was Judge Kathleen O’Malley of the United States Court of Appeals for the Federal Circuit.

“It is surprising that we continue to make the same mistakes that we have made over the last several hundred years,” said Judge O’Malley as she opened the panel, which included Chief Judge Paul Michel (CAFC, ret.), David Kappos (former Director of the USPTO), venture capitalist Gary Lauder, Managing Director of Lauder Partners, and Jamie Simpson, USPTO Detailee to the Senate Judiciary Committee for Senate Christopher Coons.

Judge O’Malley would go on to explain that throughout history the swing of the pendulum that is the U.S. patent system has swung from over emphasis on patent quality, to then allowing too much to be patented, only to repeat all over again.

“The point of the patent system is to incentivize investors, as much as it is to incentivize inventors,” explained Judge Michel. “The tilt of the pendulum has shifted dramatically.” Explaining that investment capital is truly mobile and on a global level today, “if the incentives are better in China that is where the money will go.” Michel also explained the undeniable reality that those with money are also only interested in a return on investment, which means that if there are better options for return in movies or other investment vehicles that is where focus will shift.

He is right. It is hardly surprising that investors have shifted away from paradigm shifting innovations that required proprietary protections (i.e., patents).

“Every light on the panel is blinking red,” Michel explained, as he talked about the U.S. falling out of the top 10 patent jurisdictions in the world, and the double to triple invalidation rate at the Patent Trial and Appeal Board when compared with federal district court, which suggests the procedures and processes of the PTAB are flawed.

Michel also went on to discuss the “double whammy” of the “vague, inconsistent, irrational standards of the Alice/Mayo standard.” Michel pointed out that there are potentially many thousands of patents that exist “under a cloud” because of the Alice/Mayo standard, and that uncertainty is not helpful for business. Again, Michel is absolutely correct.

Gary Lauder (L) and Chief Judge Paul Michel (CAFC ret.)

Michel went on to mention that he has reason to know that some attorneys are advising defendants who know they are infringing patents that the time to money for patent owners is now at least doubled from four years to about eight years, and defendants can string along patent owners. “Many in Congress continues to believe the problem in the industry is trolls, it is not.”

“The biggest problem is the patent that doesn’t get issued,” Kappos explained. “The patient that doesn’t get cured… The pendulum has definitely swung too far…. Quality just isn’t about not issuing patents that shouldn’t be issued, but quickly issuing patents that should be issued.”

Historically the philosophy discussed by Kappos was the rationale by leaders of the Patent Office. More damage is done by burying deserving innovations and denying patents than by making a mistake here and there and issuing a patent that shouldn’t be issued. That philosophy has not been in favor for much of the last 15+ years.

“The truth is most entrepreneurs to don’t realize how useless the patents they have are,” Lauder said. “My hope is we can fix things before they realize how hopeless things are.”

“Most of the technologies relating to human health sciences have been hit most hard,” Michel said. “And if you look at it from the size of companies the small companies have been hit unusually hard. And startups are the canary in the coal mine… In 2014, more startups died than were formed for the first time in American history.” Startups are more important than more established companies because they are responsible for job growth, the more likely to create disruptive innovation. According to Michel, a rationale policy would be to advantage startups and small companies, not to strangle them.

Judge O’Malley would go on to ask Lauder, the resident venture capitalist on the panel, “is there less funding for life sciences startups because of [patent eligibility concerns]?”

“Most definitely,” Lauder explained. “Medical diagnostic companies, as well as companies developing new drugs… I do investments in that field and it is a problem.”

“If companies were to lobby to allow for more polluting most people would think that is unethical,” Lauder explained. But there are people lobbying to make it more difficult for companies to come up with cures that allow for the creation of cures that save lives, which Lauder says he finds “equally unethical.” Lauder hopes that others start to look at the problem in the same way. That would indeed be a big step forward.

As the conversation moved toward discussing the PTAB and PTAB rules and procedures, O’Malley, explained that the statute and rules seem to be geared toward allowing for amendments to allow for the fixing of patents that shouldn’t have issued quite as broadly, and to getting rid of those patents that couldn’t be saved. “But the emphasis seems to be on getting rid of as many patents as possible,” O’Malley said.

“I thought I gave them a pretty good road map in Aqua Products, but that portion didn’t get a majority,” O’Malley said, to laughter in the audience.

As the discussion turned to Oil States, and property rights, Lauder talked about the importance of property rights for investors, and how a decision that says the wrong things or goes the wrong directions could go the wrong way could be “devastating.”

“If you want to see the effects of not having clear title just go to Cuba, where you see there hasn’t been anything built in the private sector since 1959,” Lauder explained.

To end the discussion, about what we do and when the industry must respond, Lauder gave one of his characteristically brilliant, pithy quotes: “It is already too late, but we still have time.” He explained that the best time to fix a problem is yesterday, but since we didn’t do that we need to do it immediately before any more damage is done.

From a venue in sight of the Capitol building one can only hope the message from the panel will reach those with decision making capacity. While those who are skeptical certainly have reason to be doubtful, there is an optimism behind the scenes and a hope that has not existed in recent years. Where that leads and how soon is anyone’s guess.