“Some small entities mirror Big Tech and foreign entities’ comments arguing that PTAB institution rules should not change at all. To the casual observer it is certainly confusing. But to those who have tried to launch a tech company in a market saturated by a handful of huge Big Tech monopolies, it is easy to understand.”
Historically, startups bring more new technologies to market and create more new jobs than any other entity type. Investment is critical to any startup, and patents are often the only asset a startup owns to attract that investment. Patents are thus incredibly important for American economic growth and national security.
To risk investing in a startup, early stage investors must believe that their patents will keep big competitors at bay long enough for the startup to get a toehold in the market. If big competitors steal the technology anyway, the investor must believe that defending a patent is reasonable in cost and effort, and the outcome is predictable. Otherwise, investors will put their money elsewhere, thereby starving early stage startups of capital and limiting competition, slowing innovation, and fueling monopolization by incumbents.
The First Two-Hundred Years
For the first 220 years of American innovation, patents easily attracted investment. Based largely on patents, Edison built what became GE, Bell built a telephone company and Google built their search engine. Edison even sold rights to future patents that he had not yet invented.
While patents are critical to early stage investment, business models (sometimes called business methods) are also key to driving innovation. In the 1980s, a startup named Compaq outdid IBM for the PC by driving down prices. Then selling online, Dell outdid Compaq, Micron, Gateway, Apple and many other PC makers. Microsoft outdid all operating systems, becoming a monopolistic juggernaut, and then leveraged their monopoly to steal the market for web browsers, video players and many other technologies. In the 2000s, a startup named Google outdid Microsoft, Motorola, and many others, capturing the phone operating system market by leveraging the market power of their search engine. Only Apple survived the Android onslaught.
In American innovation, startups proliferate around a new technology or business models to challenge incumbents. The proliferation of startups proliferates a multitude of variations. As the market establishes, it consolidates into a few major players through mergers, acquisitions and weak player deaths. This competition in a free market spurs tremendous innovation.
Today, Big Tech Crushes Competition
However, in the last 15 years, there have been few, if any, challengers to Big Tech monopolies.
This damage to American innovation was levied by Big Tech lobbying that weakened patent rights for small competitors, raised taxes on small entities while lowering their own taxes, created laws to shield them from lawsuits, and much more. The result is that Big Tech has captured and privatized huge markets. These markets are magnitudes larger than any markets in history. Big Tech now crushes competition by leveraging these markets against small entrants. They are now monopolies yielding enormous power.
Like a sovereign nation, Big Tech has assumed sovereign power over these markets, including restricting access and forming their own quasi patent systems. Anyone wishing to participate does so at the pleasure of Big Tech. This is enormous leverage over the small entities who rely completely on Big Tech market access for their businesses. If they offend the pleasure of Big Tech, they lose access and lose their business.
Patents were once a bulwark against Big Tech monopolization, but a trifecta of significant changes to patent law allowed Big Tech to capture huge markets perpetuating their monopolies, and enabling them to take sovereign control over these markets.
The trifecta began in 2006 with eBay v. MercExchange, which eliminated injunctive relief. That means if your technology is stolen by Big Tech, or even a phone app on a Big Tech market, you cannot stop them. This insulates Big Tech and those on their markets from the U.S. patent system. Investors know it, so most will not invest in startups competing directly with Big Tech or one of their market participants.
Then in 2013 and 2014, the trifecta was completed with the double whammy of the America Invents Act’s creation of the Patent Trial and Appeal Board (PTAB), which kills 84% of the patents it reviews; and the Supreme Court’s radical interpretation of the word “any” in Section 101 to have an undefined exception called the “abstract idea”, which now kills over 65% of challenged patents.
This trifecta destroyed patent protection for virtually all tech inventions in the hands of a startup. You can’t stop an infringer and if you try, your patent will be invalidated, and you will pay millions for the privilege to try.
Today, patent litigation is a game of big numbers and big money. Only huge patent portfolios owned by very rich entities and corporations can be enforced, while a patent in the hands of a startup is a liability. This has killed tech startups in the cradle by encouraging rampant infringement.
With no startups challenging Big Tech for their core technologies (who also have the advantage of enforcing their own patents), Big Tech monopolized.
Steps to Stabilization
USPTO Director Iancu appears to understand the inequity posed by Big Tech monopolies and has taken steps to correct what he can. First, he established new USPTO guidance attempting to define the undefinable “abstract idea” under Section 101.
And recently, the USPTO requested comments on the rules that guide the decision to institute a PTAB procedure.
If the abstract idea is defined and PTAB institution rates are reduced, there will be fewer invalidated patents. This would help stabilize the patent system and thereby improve investment in early stage startups with technologies that challenge the dominance of Big Tech. In the end, Big Tech’s hold on their captured markets and their monopolies would be broken. America would once again have free markets and tech innovation would increase.
In the comments on PTAB institution rules, it is understandable that Big Tech (here, here, here) and foreign entities (here, here) promote high PTAB institution rates including multiple attacks. After all, high PTAB institution rates mean more invalidated patents. While high PTAB institution rates significantly harm American innovation, it helps Big Tech and foreign entities.
It is not surprising that most small entities believe that the institution rules are unfair and should be reined in because it denies due process and takes property; they allow unending serial attacks; they deny adjudication in an Article III court even when the case is pending; they prohibitively raise costs and years to patent litigation; the PTAB invalidates 84% of the patents it reviews; and in the end, the rules make it difficult, if not impossible, to fund a startup that challenges Big Tech.
A Seeming Contradiction Explained
What is surprising is that not all small entities agree. Some small entities mirror Big Tech and foreign entities’ comments arguing that institution rules should not change at all. They want the mess to stay the same.
To the casual observer it is certainly confusing. But to those who have tried to launch a tech company in a market saturated by a handful of huge Big Tech monopolies, it is easy to understand.
The key to understanding this contradiction is in the business models. The operating environment of the market is, for many, completely controlled by Big Tech. Big Tech monopolies restrict access to their huge markets and protect those on the markets using a quasi-patent system. One advantage is that small entities selling on these markets do not need the U.S. patent system – they get one from Big Tech. Neither Big Tech nor the phone app companies find the U.S. patent system useful. In fact, it is a threat to their business models.
When you read the comments to the USPTO request for comments, almost uniformly, the small entities that argue to keep institution rates high are phone app companies or companies that leverage Big Tech markets in some other way to sell their products. They do the bidding of Big Tech in most cases willingly because they benefit from it in the operating environment created by Big Tech.
However, certainly there are those who disagree with the party line. But they can’t say it publicly because if they step out of line, Big Tech can remove them from their markets, which means the death of their company. Even if Big Tech does not explicitly threaten these companies, it is certainly implied. Many companies have been ejected from Big Tech markets for reasons unknown because they are hidden behind nondisclosure agreements signed to join a market and enforced when the company is removed.
Those who commented in the USPTO request for comments to limit PTAB institution decisions largely do not participate in Big Tech markets. Many do not have tech products and others have technologies that compete with Big Tech core technologies.
Congress Must Step In
The USPTO and Congress must seek to understand how the different business models perceive the value of the U.S. patent system and why this forms their contradictory opinions.
The USPTO and Congress must decide what is best for America – is it better for American innovation to encourage quasi-sovereign Big Tech monopolies with absolute control over the largest markets ever created? Or is it better to recreate free markets that are accessible by anyone without control by Big Tech monopolies?
America needs the latter, which is easily accomplished by reversing the trifecta that destroyed the patent system for small entities. Patents would once again earn injunctive relief and would not be easy to invalidate nor prohibitively costly to defend. Small entities could challenge Big Tech in a free market and break up their monopolies. American innovation would again rule the world.
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Author: tashatuvangoAuthor tashatuvango
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