Changing the Presumption: Shifting U.S. Patent Policy From a ‘Bad Actor’ to ‘Rational Actor’ Model (Part I of II)

By Gau Bodepudi
January 8, 2020

“Despite hopes for improvement, our patent policy aimed to thwart a bad actor will inevitably fail and cripple our patent system, because it misidentifies the problem with our patent system and is inapposite to sound economic policy.”

https://depositphotos.com/7477730/stock-photo-paradigm-shift.htmlSince the Supreme Court’s Alice decision in 2014, the Judiciary’s development of 101 law has caused such an upheaval, Congress may need to intervene.

In a July 2018 joint position paper entitled “Congress Must Remedy Uncertainty in 35 U.S.C. §101 and Return Balance to the U.S. Patent System,” the American Bar Association’s IP Law section, the IP Owner’s Association, and the American Intellectual Property Law Association contended the “Supreme Court’s jurisprudence has injected significant ambiguity into the eligibility determination . . . .” and there is now “[u]ncertainty about what types of inventions qualify at the most basic level for patenting.”

This ambiguity, however, may be a blessing in disguise. By creating demand for Congress’ intervention, we have an opportunity to change course from the patent policy that has resulted in this mess.

But to turn a corner, Congress needs to first understand the shortcomings of its and the Judiciary’s fundamental assumptions that have created this situation.

For more than a decade, both Congress and the Judiciary have approached patent policy from a foundational presumption: the inherent problem with our patent system stems from a bad actor.

Under a single-minded bad actor presumption, the Judiciary and Congress have framed our patent policy to increase roadblocks for this bad actor, to prevent it from taking advantage of the system.

But this presumption has spawned a policy that is contrary to economic principles, and it has systematically weakened and undermined the U.S. patent system.

Even if Congress manages to fix 101 law, if it fails to correct its and the Judiciary’s foundational shortcomings regarding patent policy for the past decade+, we’re doomed to repeat mistakes of the past.

If, on the other hand, we switch our patent policy principles to a rational actor model, we can begin to understand our patent system from a foundation rooted in economics. More importantly, we can use economic principles to improve our patent system.

Patent Policy Centered Around Deterrence of Patent Troll

Both Congress and the Judiciary have structured U.S. patent policy around one central idea: patent trolls are the root problem of our patent system, and to improve our patent system, we need to deter patent trolls.

According to common belief, patent trolls file lawsuits with no intent to test the merits of a patent, and instead settle a case early for something less than the cost of defense (called “nuisance litigations”). In its 2016 Patent Assertion Entity Study the FTC contended that “[n]uisance infringement litigation… can tax judicial resources and divert attention away from productive business behavior.”

Despite hopes for improvement, our patent policy aimed to thwart a bad actor will inevitably fail and cripple our patent system, because it misidentifies the problem with our patent system and is inapposite to sound economic policy.

Alice 101 Law: Case Study of a Bad Actor Deterrence Policy

The current state of 101 law is a result of patent policy focused on thwarting a bad actor.

101 law originated in the midst of heated anti-patent troll legislative proposals in the House and Senate in 2013. In 2013 alone, legislators in both the House of Representatives and Senate introduced 12 anti-patent troll bills (e.g., Patent Quality Improvement Act, Patent Abuse Reduction Act, Patent Litigation and Innovation Act, Stopping Offensive Use of Patents Act – see a full list here). The Innovation Act, proposed by Representative Goodlatte, even passed in the House in December 2013 by an overwhelming margin.

States even began implementing their own respective anti-trolling legislation. In 2013, Vermont became the first state to enact legislation aimed at combatting patent trolls (Vermont’s Bad Faith Assertions of Patent infringements law), with several others following, including Oregon, Nebraska, and Wisconsin.

At the executive level, President Obama even called for patent reform in his January 2014 State of the Union address, arguing that reform would “allow[] businesses to stay focused on innovation, not costly, needless litigation.”

Senator Leahy, who introduced the Patent Transparency and Improvements Act of 2013, gave his justification and goal for the anti-patent troll legislation:

Against this backdrop of anti-patent troll sentiment, in 2014 the Supreme Court attempted its own solution; the Justices decided Alice, giving judges greater discretion to render “abstract” patents ineligible under 35 USC §101. The Supreme Court didn’t define what was “abstract,” and instead allowed the lower courts to flesh out 101 law.

Alice 101 Law: A Failed Attempt at Bad Actor Deterrence

By any objective measure, the Judiciary’s attempt at patent reform with 101 law has failed.

After five years of 101 case law development we are left in a greater state of confusion and incoherency. To determine whether a claim is ineligible under 101, a judge strips the claims of its limitations, then determines whether the “gist” of the invention is “abstract,” which has yet to be defined. This is the first time in U.S. patent law in which a claim is evaluated without consideration of the actual claim limitations. Next, when a judge determines a “gist” is abstract, the analysis rests on whether the additional limitations are “conventional” (the “inventive concept” determination), which intermingles novelty, non-obviousness, and written description requirements into the patent-eligibility analysis.

The standards for 101 eligibility are so vague and inconsistently applied, even Federal Circuit judges have expressed the gravity of their concern regarding 101 law:

Systemic Policy Trend to Weaken Patent Rights

While the failure of 101 jurisprudence may be the hot-ticket item relating to legislative reform, it is the underlying policy trend behind 101 that is the real failure.

With the ideological belief that bad actors are the cause of our patent problems, both Congress and the Judiciary for more than a decade framed our patent policy as follows:

  • A single-minded goal: thwart these bad actors from taking advantage of the system.
  • The approach: systematically and substantially weaken enforcement rights for all patent holders.
  • The rationale: create more enforcement hurdles for the bad actor, to deter the patent troll from taking advantage of the system.

The table below summarizes some of the decisions and legislation that have been implemented over the past decade+, to illustrate an overall, long-term policy to thwart a bad actor from taking advantage of the system:

The impact of this long-term bad actor deterrence policy has led to a systematic weakening of patent rights over the past decade+. It has simply made it prohibitive for patent holders to enforce their patents in the United States.

Patent holders now contend with serial IPRs and stays in District Court proceedings, inconsistent rulings from multiple judges, and various summary judgment hurdles that allow judges to prevent cases from reaching a jury. Even if a case reaches a jury, efficient infringers are willing to take their chances at jury trial, gambling a jury pool may be biased with the patent troll narrative. And when an infringer loses at trial, they have cover from the Federal Circuit, which has shown a tendency to protect infringers by reversing high damages awards (see VirnetX v. Apple — in Nov. 2019 the Federal Circuit reversed a $500M+ award on damages, which is one of numerous of reversals VirnetX has faced since its initial jury verdict in 2012 confirming infringement). And if a patent holder manages to win all the way through trial and appeal, an infringer still has an opportunity to attempt to reverse the ruling by filing subsequent IPRs (through third party proxies).

This systematic weakening of U.S. patent rights has become so substantial, many of the top law firms now rely on foreign venues to enforce patent rights. They simply won’t take a U.S. patent case without foreign counterparts to enforce in venues that provide injunctive relief.

By framing patent policy around deterring a bad actor, the Judiciary and Congress has engaged in a war of attrition on our patent system, which has undermined the integrity and confidence in U.S. patent law (see Finnavations Case Study).

Moreover, has this bad actor deterrence policy deterred “patent trolling”?  In 2019 patent trolls (a.k.a. NPEs) were responsible for more than 58% of all District Court patent litigation, and the proportion of new litigation attributed to patent trolls increased from 2018 to 2019.

If Congress attempts to rectify 101 law but continues to single-mindedly frame our patent policy around the bad actor, it won’t help. Congress will instead perpetuate the problem, by continuing to implement a patent policy contrary to fundamental economic principles, i.e. one that increases enforcement hurdles for patent holders.

To Be Continued

In Part II, we’ll elaborate on the fundamental economic principles we can use as a framework for patent policy and provide an alternative from the bad actor ideology to a rational actor model, from which we can structure economically-sound patent policy.

Read Part II of this article here.

Image Source: Deposit Photos
Image ID: 7477730
Copyright: bradcalkins 

The Author

Gau Bodepudi

Gau Bodepudi Is the Managing Director at and co-founder of IP EDGE LLC. He has more than 12 years experience in all aspects of patent management and monetization, including strategic prosecution, litigation, licensing, brokering, and portfolio management within various technological fields such as ecommerce, consumer electronics, networking, financial services, mobile communications, and automotive technologies. Mr. Bodepudi also created a patent monetization blog, InvestInIP.com, where he writes on patent reform and policy

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 17 Comments comments.

  1. Curious January 8, 2020 8:35 am

    All the while, the tech-oligopolies of (e.g., Facebook, Google, and Apple) are getting fat on the backs of technology that they “acquired” (without compensation) from other companies because it is far more efficient to infringe a patent than it is to pay a reasonable royalty.

    I find it amusing that so many people (on both the left and the right) are concerned about the ever-increasing power of the tech companies and want to do something to check that power yet these same people eat up the patent troll propaganda pushed by these same companies. Moreover, in response to this propaganda, these people gladly eviscerate a patent system — one of the best tools to keep these companies in check.

    You have to give credit to this tech-oligopolies, they have a far better messaging campaign than inventors. There was a time where inventors were held in great esteem by the public as an example of American ingenuity. These days, however, the same inventors are being denigrated as trolls anytime they actually want to prevent anybody from using their invention.

    I have written this many times before, but the US patent system is essentially dead for solo inventors and small companies. They will likely end up losing money on acquiring/enforcing any patents they obtain for their inventions. As such, to be a rational actor, solo inventors and small companies should avoid the patent system — which is EXACTLY what the likes of Google, Facebook, and Apple want to have happen.

  2. angry dude January 8, 2020 9:41 am

    Well done, Congress, Scotus and CAFC (with a lot of help from USPTO itself) !

    Now the “Rational Actor” behavior for any independent American inventor or small company is to file patent applications in China and NOT in the US

    So who is the bad actor here ??

    I see all the signs of HIGH TREASON on the highest levels of US government

    Selling their own country to China piece by piece… not even selling .. giving it away for free !

    Where is SPECIAL PROSECUTOR ???

  3. Anon January 8, 2020 11:01 am

    Interesting article – and as Curious quickly notes, there remains a “bad actor” to be concerned about with ANY attempt to change patent policy in a “Rational Actor” mode: the Efficient Infringer.

    This is so because the Efficient Infringer may well be considered to BE a “Rational Actor.”

    If – as those that practice that ‘black art’ would have it – patent rights become denigrated from a venerable spot as Personal Private Property rights into some type of mere (public) business economic vehicle ‘right,’ the entire notion of “Efficient Infringement” merely becomes a palatable alternative in which the Founding Fathers notion of “property” (in the particular patent sense of Exclusive) will be lost. What will emerge will be a token shadow of “efficiency” that will cater to well-monied established interests.

  4. Curious January 8, 2020 12:17 pm

    I came across this article reading the paper today:

    https://www.nytimes.com/2020/01/07/technology/sonos-sues-google.html

    It tell how Sonos (a speaker company) shared its designs with Google in order to work better with their music service. Sonos then later discovers that Google has had the designs copied and are selling versions of the speakers themselves.

    I haven’t looked at the patents themselves but the article mentions technology that would appear to be software based. I have little doubt that Google will attempt to argue, during litigation, that these patents are directed to an “abstract idea” (thanks to Alice). They will also argue that the patents are obvious based upon some forced combination of references that no reasonable person could have gleaned the claimed invention (thanks to KSR). Litigation will likely be halted one or multiple times as Google will attempt to take the patents to the killing fields of the PTAB (thanks to the AIA — America Infringes Act). Even if they prevail, it will be difficult for them to enjoin Google from selling the products (thanks to eBay). However, while all this plays out (over many, many, many years), Sonos will have its market share crushed by the tech giants. As the article put it “Google and Amazon each now sell as many speakers in a few months as Sonos sells in one year.” Also, as stated in the article, “They are concerned that Google and Amazon are flooding the market with cheap speakers that they subsidize because they are not merely conduits for music, like Sonos’s devices, but rather another way to sell goods, show ads and collect data.”

    What I find amusing is that the NY Times publishes articles like these, they are more than willing to repeat the patent troll narrative (pushed by the likes of Google) that has caused the weakening of patent rights. They fail to see their own roll in bringing down the patent system through their repeating of big-tech anti-patent propaganda.

    Getting back to Sonos, they had a billion dollars worth of sales last year and they have a substantial patent portfolio as the article mentions that Sonos provided Google a list of about a 100 patents that they believe Google is infringing. This makes it possible for them to survive the likely tens of millions of dollar fight it will take to get a final judgement against Google. However, most companies don’t have the same ability to punch at near Google’s level. Even then, taking Google to court is fraught with peril, as the article points out “[t]he maker of home speakers said Google and Amazon stole its technology and abused their power, but it could only risk suing one.”

  5. angry dude January 8, 2020 1:50 pm

    Curious @4

    Someone formulated the rule of no free lunch (works 100% of the time):

    “When dealing with large company there is no free lunch unless you are that lunch”

    What amazes me is that those largest multinationals like Google, Apple or Amazon always stick together to bully smaller competitor to death, yet they do not really bully each other… it actually makes perfect sense cause they might come out bleeding…
    Yes, googles and amazons sue each other all the time, including for patent infringement.. BUT if some small entity from outside offers one of them to take exclusive license or buy some key patent in order to get injunction against their main competitor… nope, they have their own “code of conduct” – those CEOs are immediately on a phone with each other trying to make little guy to go away or die

    But the hunt is always open on small guys (not so small lately – e.g. Quallcomm)

    This is like real jungle

    Disgusting

  6. angry dude January 8, 2020 2:10 pm

    Curious @4

    So why wouldn’t Google take exclusive license to Sonos’s patent portfolio (or buy them altogether) to get injunction against Amazon or vice versa ?
    This is perfectly legal and this is how patents are supposed to work in the first place … exclusive rights.. the right to exclude… NO ?

    We all know why… oligopoly… or even duopoly in this case.. based not on exclusive patent rights but on market dominance in not just one particular field but on all of the adjacent fields (and not so adjacent lately – Amazon now wants to feed us too – see Wholefoods) and political influence

    Congress, break them up already .. please…

    This is not Standard Oil situation … not even AT&T – this is much much worse

  7. Model 101 January 8, 2020 5:38 pm

    Face it…the silicon valley billions are stolen from inventors. The crooks in DC are also thieves. If 101 is made retroactive say goodbye to stock record highs. Where can you find justice? Nowhere!

  8. angry dude January 8, 2020 9:05 pm

    Model 101@7

    I’ve been saying this for many years: the record-high stock valuations of few SV giants are built on the back of small US patent holders
    This is not just 101 – you gotta be complete self-destructive idiot to start enforcing your US patent – any patent, hardware or software, doesn’t even matter, in the current anti-patent and anti-inventor climate.
    So SV (and China) can use USPTO website as free public library

  9. Anon January 9, 2020 6:39 am

    angry dude,

    Your last comment touches upon something that I have been saying for years.

    In relation to the original Quid Pro Quo, the USPTO was to be an open public library — but only for GRANTED patents.

    The existence of that library is tied to an additional sense of the word “promote.” That sense is the “information spreading” sense.

    Our system was corrupted a bit by international players seeking comity between different sovereigns.

    Mind you, comity in and of itself may not be a bad thing. And certainly, in the sense that other sovereigns have had a different model of Quid Pro Quo, there will be a bit of “gnashing of gears” at any intersection of Sovereignty.

    Our Sovereign’s original Quid Pro Quo** was the exchange of placing one’s innovation into the public library in exchange for making the inchoate personal right into a full legal property right.

    Other Sovereigns’ Quid Pro Quo has been the exchange of revealing your innovation merely for the chance of obtaining a patent.

    There is a certain sense of forced publication in the US “being ok” when one seeks both US and foreign patent protection, because — by the choice of the patentee — seeking foreign protection means acquiescing to the different Quid Pro Quo.

    The option remains (and b>should be the default for most filers) of non-publication. With a non-publication request, not only is the original US Quid Pro Quo preserved, but one may change their minds and revoke that status at a later date (for example, one may later decide – within certain time limits – to engage in foreign filings).

    Certainly as well, I “get” a subtle tone in that enforcement degradation has an impact on the “public library” meme. But I would posit that the library meme does not fit well into any violation of (original) Quid Pro Quo by way of enforcement deficiencies.

    Perhaps the larger article here should expand its focus from “bad actor” (propaganda) to “bad patent” (propaganda), in that patents themselves have been demonized (as the weapons of bad actors), and that any enforcement has been portrayed as “bad.” This has been a major (But not only) thrust of the Efficient Infringers. Of course, an unenforceable right is no right at all. I “get” that the Quid Pro Quo may be attacked from multiple angles.

    ** an original thrust of mine in regards to the change in US Quid Pro Quo was the devastating effect on the examination process. When the bulk of examination “relieved the burden” of timely and efficient examination such that GOOD and quick examination kept the pipeline of innovation moving to minimize any “trap” of “secret art” emerging with patent rights, examiners got lazy really quick. The Quid Pro Quo deal was broken, since the “government side” of the deal was being obtained at 18 months, regardless of the government fulfilling their side of the deal.

    In such an instance, a “just say no” attitude flourished (why buy the cow if you are getting the milk for free?) and examination time (in several tracks of examination: regular, RCE’s, and appeals) all went to hell, and the backlog bloated. We saw degradation not just in time of examination, but in quality. And we are still suffering from those effects.

  10. TFCFM January 9, 2020 10:21 am

    GB: “Both Congress and the Judiciary have structured U.S. patent policy around one central idea: patent trolls are the root problem of our patent system, and to improve our patent system, we need to deter patent trolls.

    I call “bogey-man.”

    There is zero reason (including none provided in this article) to believe the US Supreme Court (never mind Congress, which had nothing to do with the Alice decision)_was trying to “stick it to” patent trolls. The question of what subject matter is patentable and what is not long preceded the Alice v. CLS decision, and the patent eligibility test (such as it is) derived from Alice and related cases is not remotely directed specifically at “patent trolls.”

    If you dislike the “bogey-man” analogy, then the “blog author with a hammer who believes all things with which he disagrees are nails” is equally apt. Given the “Part I of II” designation, I will wait with bated breath the provision of troll-hunting-evidence (blatant misstatement of current law is not “evidence” of anything, by the way) to support the author’s delusions in Part II.

    Luckily, all of the paranoid, the dishonest, and the honest can agree that the Congress should set to work on the important policy of deciding which subject matter should, and should not, be eligible for patenting.

  11. mike January 9, 2020 11:46 am

    I would love to see this “bad actor/rational actor” expanded across all administrative agencies. The rules and investigations required to comply with everything from income tax reporting, food stamps, disability insurance, student loan forgiveness, unemployment insurance, construction permits, and almost anything else government at any level regulates places huge social and economic burdens usually on those least able to afford it. The more desperately you need welfare, for example, the more hours, miles, energy and humiliation you are required to endure to receive it. The truly bad actors can easily navigate their way through the labyrinth – the truly deserving are left worse off than they started.

  12. angry dude January 9, 2020 11:52 am

    Anon @9

    This is all insignificant

    The significant part is inventor’s choice to make invention public (via patenting route) vs keeping it a trade secret (if it can be kept a secret for a while)

    I got my US patent allowed after first office action (with all original claims plus 12 new claims) so there wouldn’t be much of a difference if I chose non-publication option: once patent is officially granted it is published for everyone in the world to see.

    I tried to enforce it once – just before AIA kicked in… very frustrating experience to put it politely…
    BUT since I knew exactly what was coming I kept my US patent (and most of my money) intact so I still have it – other people and companies don’t

    Well… we’ll see where and when the current “patent mess” ends. It has to end somehow…
    It simply HAS TO

  13. Gautham Bodepudi January 9, 2020 12:35 pm

    Anon @9,

    Good point re “bad patent” propaganda.

  14. Curious January 9, 2020 1:08 pm

    There is zero reason (including none provided in this article) to believe the US Supreme Court (never mind Congress, which had nothing to do with the Alice decision)_was trying to “stick it to” patent trolls.
    Oh please. Let’s stick our collective heads into the sands. If you think Congress wasn’t thinking about patent trolls when they created the American Infringes Act (AIA), then you are more delusional than normal.

    As for the Supreme Court, perhaps you should read this article as a refresher:
    https://www.ipwatchdog.com/2016/04/25/supreme-court-oral-arguments-cuozzo-speed-technologies-v-lee/id=68611/

    The question of what subject matter is patentable and what is not long preceded the Alice v. CLS decision, and the patent eligibility test (such as it is) derived from Alice and related cases is not remotely directed specifically at “patent trolls.”
    In your naivety, you are apparently incapable of recognizing how one legal issue (i.e., patent eligibility) can be co-opted by the judiciary for another purpose (i.e., to address the so-called patent troll issue). The fact that judicial meddling, I mean judicial (re-)interpretation of the plain language of 35 USC 101, pre-dated “patent trolls” doesn’t mean that it cannot be co-opted for that purpose.

    Congress should set to work on the important policy of deciding which subject matter should, and should not, be eligible for patenting.
    Congress did — many decades ago in response to judicial meddling. It is a shame that they have to go through the same process again.

  15. Anon January 9, 2020 8:42 pm

    To your last point, Curious, I had taken our friend TFCFM to task at his first misrepresentation of the history of patent eligibility.

    He is incorrigible when it comes to treating this topic with any sense of inte11ectual honesty.

  16. Model 101 January 10, 2020 10:17 am

    No 101 reform patent bill, ever. Hearings in DC were worthless. 400 cases no evidence… 1000 patents dead…Silicon Valley laughing….

  17. angry dude January 10, 2020 2:52 pm

    Model 101 @16

    And what if they fix 101?
    Will it fix US Patent System ?

    Certainly NO – ask Josh Malone, he spent 8-figures defending his patent WITHOUT 101 ever mentioned (perhaps they didn’t want to sound like complete clinical idiots proclaiming Bunch-o-Balloons an “abstract concept” in front of a public, but they tried just about anything else instead…)

    And Josh is (could very well be) just a collateral damage in this open hunt on small patent holders (he won by sheer luck and good timing just before TC Heartland kicked in) – SV couldn’t care less about Bunch-o-Balloons