Money, Media, Votes, and Passing H.R. 5874

“eBay allows the infringer to keep what they stole, litigate the patent holder into oblivion, and makes it impossible to valuate a startup for funding. The PTAB and the abstract idea radically increase the invalidation rates of issued patents and the cost of defending them. All in, this trifecta has gutted the patent system.”

https://depositphotos.com/263037972/stock-photo-top-view-wooden-cubes-letters.htmlAll things in Washington are driven by money, media and votes. If you can deliver one or more of those things, you will get the results you want. Engaging in politics with this in mind is key to fixing the broken patent system by passing H.R. 5874, the Restoring American Leadership in Innovation Act (RALIA).

Since no mortal can compete with Big Tech’s big bucks and their control of social media, and the media in general, the only lever remaining is delivering votes back home, or more importantly, delivering those votes to candidates who commit to supporting HR 5874.

The Gutted U.S. Patent System

In the last 15 or so years, congress, the courts and the U.S. Patent and Trademark Office (USPTO) have gutted the patent system. In exchange for campaign contributions, they did it (knowingly or unknowingly) to protect Big Tech by eliminating competition from startups with better technologies.

Big Tech is now untouchable in the market. The unfathomable wealth gained from these monopolies is dumped on Washington DC politicians, who respond with more bad law to perpetuate those same monopolies.

While we were busy destroying our patent system, China strengthened theirs, and that is driving early-stage startup investment from the U.S. to China.  Shenzhen, China, now wears the Silicon Valley crown and stands to take the lead in the next generation of emerging technologies. These technologies are critical to our social, economic, technological and national security. The gutted patent system is becoming a national disaster.

How Did This Happen?

eBay v MercExchange: In 2006, the Supreme Court in eBay v. MercExchange (eBay) established a public interest test used by courts to grant injunctive relief. By judicial fiat, patent rights were transformed from a personal property right to a public right with no public input. To pass the eBay test, the patent holder must show that they have a product on the market capable of replacing the infringer’s product. That sounds like a good idea. After all, if an inventor does not have a product, they can only be seeking monetary damages, so why deny the public of the benefits of an invention? Why not just let the infringer keep selling it?

When naïve market theories are applied to the real world, they function to pick winners and losers, and they break markets. In the real world, if a Big Tech multinational steals an invention from a startup, embeds it into their existing products, and then simply upgrades their customer base with the infringing technology, they saturate the market with the knockoff virtually overnight. Once the market is saturated, the startup is left with no market to sell their product and goes out of business. Once run out of business, the startup cannot overcome the eBay public interest test.

eBay means that if Big Tech steals it, they keep it. Not only is that a powerful incentive to steal patented technology, but it is also a powerful incentive to litigate the startup until they exhaust their funding, so Big Tech wins by access to money alone.

But eBay’s real damage happens long before infringement even starts. Most early-stage startups are not much more than an inventor and a patent. The patent is most often the only real asset, thus it is dominant to valuating the startup. At an early stage, a patent is valued at some fraction of the projected total value of the market that the invention will create. The foundation of any market is a willing buyer and a willing seller who freely negotiate a price. But since eBay, no market can ever exist because after infringement there will be no injunction to create a willing buyer and a willing seller. Instead, economic consultants battle in court to theoretically ascribe an arbitrary value that an English major in a robe orders many years in the future. This leaves investors and startups with no practical way to value a patent, and therefore no practical way to valuate the startup for funding.

Most inventions that would compete with Big Tech for their core technologies require huge upfront investment, but since eBay makes it impossible to value patents, these startups are valuated too low to attract enough funding, and they die in the cradle. That is the real damage of eBay.

Patent Trial and Appeal Board: The America Invents Act of 2011 created the Patent Trial and Appeal Board (PTAB), which is an administrative tribunal within the USPTO tasked with invalidating the very same patents that the USPTO granted. In most cases, the petitioner is a Big Tech multinational or a Chinese corporation that is infringing the patent. A panel of three government lawyers, who receive larger bonuses for invalidating patents, invalidate an extraordinarily huge percentage of the patents they review. The patent owner is burdened with up to $500,000 in costs defending against a single PTAB proceeding, and multiple proceedings can be launched. A PTAB proceeding can burn three years of a patent’s enforceable life, and that time is not returned. It is a guaranteed loss for the patent holder with only a small chance of retaining the patent.

The high risk of invalidation at the PTAB makes patents uninvestible assets.

Abstract Idea:  35 USC 101 is the door into the patent system. It defines what is eligible to be patented, provided the invention passes the statutory constructs of patentability – novelty, obviousness, and enablement. Section 101 basically says that any product, process, machine, or composition of matter is patent eligible. In 2014, the Supreme Court in Alice v. CLS Bank (Alice) determined that the word any has an exception called an “abstract idea”, but it did not define the meaning of “abstract idea” thus releasing a demon in the patent system. Since few understand what happens behind the screen of a computer device, the abstract idea demon is most damaging to tech inventions like artificial intelligence, block chain, quantum computing, enterprise security, middleware, and much more. The lack of a cognitive definition has enabled the USPTO to refuse to issue a massive number of patents for legitimate inventions, and the courts to invalidate a huge number of issued patents. While considered abstract ideas here in the United States and therefore not patentable, thousands of the very same inventions have been patented in other countries, like China.

The high risk of invalidation under the “abstract idea” also makes patents uninvestible assets.

eBay allows the infringer to keep what they stole, litigate the patent holder into oblivion, and makes it impossible to valuate a startup for funding. The PTAB and the abstract idea radically increase the invalidation rates of issued patents and the cost of defending them. All in, this trifecta has gutted the patent system delivering the great American innovation engine to China on a silver platter. America is losing its leadership in innovation.

The Restoring American Leadership in Innovation Act

H.R. 5874 simply returns the U.S. patent system to what it was for the first 220 years, and thereby brings back the great American innovation engine to the United States. It does this by eliminating the PTAB and the “abstract idea” entirely.  And, importantly, it restores injunctive relief as a default judgment upon a finding of infringement.

This is not a revolutionary change. It simply returns the patent system to what worked for 220 years of American history. It only sets the patent system back to the same patent system that drove America to become the world’s most innovative and economically successful nation in world history. Every lawmaker should want this.

Surprisingly, (or not surprisingly, depending on how you view Congress) H.R. 5874 is not an easy sell to many lawmakers. There is just too much money in politics, and nobody can compete with the big bucks and media control of Big Tech and China.

Political Undercurrents Drive Votes

To drive change in Washington it takes money, media and votes. Of those things, we can deliver the votes.

Across all political spectrums and parties, there is an undercurrent of things gone haywire. These relate to the pandemic, mandates, lockdowns, censorship, insurrection or January 6 protestors, technology theft, inflation, corruption, irregular elections, crime, massive money printing spending, climate change, as well as many other social issues, and now war overseas coupled with extraordinary and credible threats of nuclear war and the dark clouds of a possible World War III.

Nobody likes this political environment. People feel betrayed, and betrayal is a powerful force to cause people to take action.

Primary Campaigns to Oust Anti-Patent Lawmakers

The best place, and maybe the only place, to influence political change is in primary elections. Those who vote in primary elections are a very small subset of all voters and they control who runs in the general election. Flipping only a couple of hundred votes may win a primary election.

Almost all polls show that the Republican party will take control of the House of Representatives and maybe even the Senate in November. This makes the Republican primaries a higher priority than Democratic primaries.

The effect of a local citizen activist running an issues-based campaign in a primary election is game changing. It can oust an entrenched incumbent because votes can be delivered to the challenger.

Depending on your state, the primary season goes until August. I am happy to help you oust your incumbent representative if that lawmaker is not co-sponsoring H.R. 5874. Please contact me at paul@morinville.net.

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Join the Discussion

12 comments so far.

  • [Avatar for Ed Garman]
    Ed Garman
    April 27, 2022 01:58 pm

    Paul Morinville

    “This decline of seed-stage investment is a long term pattern…”

    You’ve taken one quarter-over-quarter decline and extrapolated that to claim a fifteen year trend since eBay. That’s simply incorrect. Here’s another resource (you may have to supply an email address to download a copy)

    https://files.pitchbook.com/website/files/pdf/Q1_2022_PitchBook_NVCA_Venture_Monitor.pdf

    On page 8 you will see that the number of *seed-stage* investments doubled from 2012 through 2021. And the dollar value of seed and angel investments quintupled over the same time period.

    VCs routinely decline to invest in startups that will compete with entrenched incumbents, whether the startup has patents or not. But they also invest in many sectors (like fintech) that must confront dominant incumbents, again whether the startup has any patents or not. But the simple fact of the matter is that VC investment, including early-stage investment is multiples higher today than it was in 2006 when eBay was decided. That’s not really a debatable point. It would appear that VCs are in fact able to value a startup (patents or no patents) and have been successfully doing so at much higher deal volumes and dollar value than they did 16 years ago.

    I’m pretty sure these busy VCs would disagree with this statement:

    “This leaves investors and startups with no practical way to value a patent, and therefore no practical way to valuate the startup for funding.”

  • [Avatar for Paul Morinville]
    Paul Morinville
    April 22, 2022 11:34 am

    Ed Garmin, From the first page of the study you cite: “Deal stage
    Deal activity in all stages except seed is up in Q1’21: While deal activity for seed-stage rounds is down in Q1’21 compared to Q4’20, deal activity for Series A and later rounds all show quarterly increases in Q1’21”

    This decline of seed-stage investment is a long term pattern except for phone apps that run on Big Tech infrastructure, and other things that do not compete with Big Tech.

    This is the problem with the trifecta. Early stage (seed stage) investment that is the most important to bring disruptive technologies into the market. That is the point where the startup has no real assets except patents. After the startup builds a product, gets customers, etc, there are other assets that become more important than the patent and these firms get funding. But to get there requires seed-stage funding first. Without it the startup does not start up.

    I can tell you from first hand experience that if you are seed stage startup and planning to enter the market with technology that competes with Big Tech, investors will tell you they will not invest because the patents cannot be enforced, and if the technology is successful, Big Tech is certain to steal it and kill the startup.

    This is a true fact. And it is shown in your own presented document.

  • [Avatar for Ed Garman]
    Ed Garman
    April 22, 2022 11:23 am

    Paul Morinville – You may be conflating “Venture Capital” with “Private Equity” or even hedge fund investment. The Appendix to the PWC report explains what is included in the study.

  • [Avatar for Paul Morinville]
    Paul Morinville
    April 20, 2022 02:25 pm

    Ed Garmin, venture capital is not early stage funding. For the most part, the bulk of VC funding is directed to mezzanine rounds, M&A and to take public firms private. Whats left is not early stage funding. Those seed stage VC funds left us in the early 2000s. Those that still invest in early stage are mostly invested in phone apps and other tech that runs on Big Tech infrastructure. No VC money is put towards tech that would compete with Big Tech because it is a foolish investment. If you breakdown VC funding by stage and technology, you will see that. But just throwing out that VC funding is up, so therefore all is OK is a dolt’s argument.

  • [Avatar for Ed Garman]
    Ed Garman
    April 20, 2022 01:48 pm

    Since 2006, when eBay was decided, annual venture capital investment in the US has increased fivefold according to PWC. (page 4)

    https://www.pwc.com/us/en/moneytree-report/assets/pwc-money-tree-report-q1-21.pdf

  • [Avatar for Ed Garman]
    Ed Garman
    April 15, 2022 10:16 am

    Paul Morinville

    The table on the bottom of page 30 makes it clear there is no statistically significant difference in the estimated bonus amount whether a trial is instituted or not. The author admits it, but then moves the goalposts.

    And not surprisingly, the regression coefficients for instituted | not instituted are broadly consistent with the actual institution rates suggesting the logical explanation that ALJs who work on a lot of trials are paid based on “Decisional Units” that is, extra work.

    By the way, the reversed | remanded | vacated rate for this set of trials was 14%. The author is implying that a pecuniary bias creates an incentive for the PTAB to institute questionable trials. The CAFC appears to disagree.

  • [Avatar for Paul Morinville]
    Paul Morinville
    April 14, 2022 04:29 pm

    Ed Garman, perhaps you have not read this. If you have and believe it is inaccurate, please make your case. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3871108

  • [Avatar for Ed Garman]
    Ed Garman
    April 14, 2022 03:18 pm

    There’s no real basis for this assertion: “ A panel of three government lawyers, who receive larger bonuses for invalidating patents…”

    https://www.rpxcorp.com/intelligence/blog/new-data-undermine-claims-of-institutional-bias-at-the-ptab/

  • [Avatar for Patdad]
    Patdad
    April 14, 2022 09:59 am

    Well said, and very true.

  • [Avatar for John White]
    John White
    April 14, 2022 08:42 am

    Excellent article Paul! Should be read by everyone in the patent realm. It is simply true. Sad, but true. This is a chance to right the ship. Let’s not let it slip away.

  • [Avatar for Pro Say]
    Pro Say
    April 13, 2022 03:57 pm

    My fellow Inventors, last week I both spoke to and follow-up wrote to my area Representative about becoming a co-sponsor of H.R. 5874.

    She was very interested in hearing about the problems that have faced us since eBay; saying that she would give co-sponsorship serious consideration.

    Please contact your representative. They want to hear from us.

    Our cause is just.

  • [Avatar for Night Writer]
    Night Writer
    April 13, 2022 03:36 pm

    This would be awesome if it actually was passed. I suspect that those 100’s of billions of dollars of profits will prevent this from ever being voted on.

    Sadly, our patent system won’t be reformed until we are a clear second to China.