Patent Reform: The Plight of Today’s Innovator

Are today’s US Patents a bait and switch for innovators of tomorrow’s crucial technologies? Are we sacrificing the future investment in U.S. innovation in a mania to stop abusive patent enforcement by trolls? Is all this mania to stop patent trolls destroying  the future of US innovation?

On April 11, 2012 a report by the U.S. Commerce Department revealed “that intellectual property (IP)-intensive industries support at least 40 million jobs and contribute more than $5 trillion dollars to, or 34.8 percent of, U.S. gross domestic product (GDP).” Moreover, “Every job in some way produces, supplies, consumes, or relies on innovation”, said the director of the United States Patent Office (USPTO) and Secretary of Commerce David Kappos. “America needs to continue investing in a high quality and appropriately balanced intellectual property system that will promote innovative, open and competitive markets while helping to ensure that the U.S. private sector remains America’s innovative engine”. There’s no doubt IP is of critical importance to our economy.

The idea of issuing intellectual property rights in the United States to innovators of new and useful arts goes back to the U.S. Constitution. Article One, section eight, clause eight states, “The Congress shall have power… To promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries”.

In fleeing a country where “kings and queens” controlled all real wealth, the United States’ founding fathers architected a nation where common people with little means could have a chance at economic success. This idea was personified in the Constitution with the phrase explaining the right to “life, liberty and the pursuit of happiness.”  I believe our founding fathers recognized that to prevent a country of concentrated wealth and power, like that from which they had fled, common people needed a competitive starting point. One where they could use their wits, imagination, and creativity to  gain a competitive starting point. And so a patent system that issues intellectual property rights was created within the original Constitution.

Patents are an agreement between the innovator and the federal government. Encouraging innovators to take risk, both in time and money, to advance new and useful arts, the innovator discloses how a new invention works and in return the government provides a limited-time monopoly that excludes others from practicing the innovation. After the patent term expires, the technology enters the public domain and is free for anyone to use.

This promise, almost 230 years later, between the federal government and innovator is expressed today on the website of the USPTO – the United States Patent Office. The right conferred by the patent grant is, in the language of the statute and of the grant itself, “the right to exclude others from making, using, offering for sale, or selling” the invention in the United States or “importing” the invention into the United States. What is granted is not the right to make, use, offer for sale, sell or import, but the right to exclude others from those actions. Once a patent is issued, the patentee must enforce the patent without aid of the USPTO.

Contrary to what the USPTO promises i.e., the right to “exclude others” in return for disclosing new inventions, today’s patent reform laws have all but eliminated any timely or cost effective enforcement of patent rights for innovators.

The erosion of innovator’s rights began in 2006, when the Supreme Court took up eBay v. MercExchange. The Court decided that in order to be granted an injunction, a patent holder is required to demonstrate that (1) it has suffered an irreparable injury; (2) the remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) considering the balance of hardships between the parties, a remedy in equity is warranted; and (4) the public interest would not be disserved by a permanent injunction.

What does this mean for the patent holder? The limitations on when the court will allow an injunction have become so specific that it makes it almost impossible to get an injunction against an infringer.

This precedent has made it more difficult to achieve timely and fair settlement agreements between patent holders and infringers. Furthermore, this precedent has created the opportunity for infringing entities to take advantage of the time it takes to appeal a case to the Federal Circuit. Injunctive relief is a way in which patent holders can induce infringing companies into settlement. Since injunctions are no longer a viable remedy, infringing companies have more incentive to “wait it out.” Moreover, the extra time infringing parties now have allows them to challenge more jury awards on appeal, as an alternative to settling. The dramatic increase in these appeals caused Randy Raider, Chief Justice of the appellate court that hears patent appeals, the Court of Appeals for the Fifth Circuit (CAFC) to focus on damages and reform of damages. He is attempting to reign in excessive jury damages awards.

When damages awards started being challenged in the Federal Circuit at a higher rate, this lengthened the time of resolution for patent holders significantly. It takes two to three years at the district court for a patent trial. After trial it takes half of a year to receive a judgment. Yet, a challenge at the Federal Circuit adds another year to the timeline. If the Federal Circuit orders a remand for a damages hearing at the district court, patent holders are looking at a total of five to seven years.

In 2011, the Leahy-Smith America Invents Act (AIA) was passed by Congress and signed into law by President Barack Obama. The AIA created a system of Inter Partes Reviews or IPRs. Now, IPRs allow anyone to challenge a patent in a special court called the Patent Trial and Appeal Board. As a patent holder asserting infringement, it’s now almost certain that an accused infringer is going to file an IPR. Furthermore, each IPR costs about $500,000 to $1,000,0000 to defend per patent. Still, the IPR is not conducted under the same standard that the patent was originally granted. (Large companies know that a small inventor or company will run out of money in the fight to protect its patent.)

When a patent is granted, the patent examiner must be someone who is skilled in the art. The Patent Board on the other hand assigns three administrative judges, none of whom must to be skilled in the art. Moreover, these judges do not use the same standards used by the USPTO. They use what’s called the “broadest reasonable interpretation” or BRI. The BRI allows the prior art to be scrutinized under a much broader interpretation than was allowed by the US Patent Office, the initial examiner of the patent. The result of this system has caused the IPR to become a tool for companies who are accused of infringement to add even more costs to patent enforcement. You’re almost certain to get an IPR filed against your patent’s if you enforce them against another company.

The time and cost of enforcing patent rights over the last ten years has increased so much that it has all but created a complete stand still in the patent licensing business for small innovators and even many large firms. IPRs have made it unaffordable for independent, small patent holders to enforce their patents.

In order to acquire a patent, one must disclose how the invention works. The level at which this disclosure is made makes it so that anyone who is skilled in that art can appropriate the invention. In return for this disclosure, the patentee is supposed to receive a twenty-year monopoly allowing it to exclude others from practicing the invention.  However, today, with it, taking 5-10 years to enforce a resolution, what is that patent worth? Should the patent system provide certain rights for original patentees and perhaps more limited rights for those who acquire patents?   

In order to even begin to fix the patent system, it’s worth considering a few simple solutions. First, effective injunctive relief should be reinstated for the patent holder. If the government is truly worried about patent trolls, then it might make sense to limit available injunctive relief as a remedy to those who originally patent the disputed technology. Furthermore, the IPR process should only be available to those who are accused of infringing the disputed technology. Transaction costs are too high when anyone is allowed to challenge a patented technology, in an expensive-to-defend proceeding that uses a different standard than the USPTO did when it initially assigned the patent. Moreover, if someone wants to challenge a patent at any time, perhaps the patent holder should be able to modify claims during the IPR process, the goal being to create better patents, rather than just kill patents that are found to have flaws. Finally, there should be a unified standard of review across the USPTO and PTAB.
Shouldn’t we strive for a patent system that issues a more perfected patent from the beginning? How can patent holders count on their rights if the patent office issues flawed patents ab initio? Stopping patent trolls is a worthy concern, however, we cannot continue to eliminate practical and reasonable protection for those innovators who are so crucial to our thriving economy.

Eric Parker is a J.D. candidate, 2017, at NYU School of Law.