Bigger, Badder “Patent Trolls”
When the America Invents Act (AIA) was being pushed through Congress in 2011, proponents of the changes in the patent system claimed it would “help stop patent trolls.” As we will show in this post, instead what it may have done is created “bigger, badder patent trolls.”
The AIA induced change that has the greatest impact on already issued patents is the inter partes review (IPR). It’s also the change that has had the most unintended consequences.
The IPR turns a long-standing principle of America’s patent system on its head.
For many years, the “rules of the game” have been that once a patent has been issued, it is assumed that the patent office did its job right, and that the patent is valid. In 1934 the Supreme Court held, in a unanimous decision, that in patent disputes “there is a presumption of validity, a presumption not to be overthrown except by clear and cogent evidence” (Radio Corp. of Am. v. Radio Engineering Laboratories).
This is a reasonable standard. Once an inventor has invested many thousands of dollars and months or years of time in securing a patent, it’s only reasonable that she should be able to assume the patent is valid: the burden of proof should be on someone seeking to invalidate the patent.
Presumption of patent validity
The IPR in essence does away with the ability of patent owners to assume their patents are valid.
While the federal court system still relies on the “clear and cogent” standard of evidence, anyone, at any time, for any reason, can challenge a patent at the Patent Trial and Appeal Board (PTAB) with an IPR. The PTAB is an administrative court that is part of the US Patent and Trademark Office (USPTO). The PTAB makes its decisions based on a “preponderance of the evidence.”
The difference between “clear and cogent” evidence and a “preponderance of evidence” may sound like a techy – nerdy thing that only a lawyer could love, but it has had enormous impact in the patent world.
In many ways there is as much “art” as “science” in granting patents. While certain facts may be clear, when a patent examiner grants a patent he or she must also use judgment. Different people may have different understandings of whether a particular invention is truly “novel” or not. It’s not always a cut and dried decision on whether a particular piece of “prior art” clearly invalidates an invention. By requiring only a preponderance of the evidence the IPR subjects every already issued patent to being subject to what amounts to a review by another examiner who may have a different opinion that is not necessarily better or more clear than the original examiner’s – it’s just different.
Broadest reasonable interpretation of patent claims
There is another “technicality” in the IPR process that weakens patents. An important part of patent litigation is what’s called “claim construction.” Claim construction is looking at the claims in a patent and clarifying exactly what they mean. The district court interprets the language in a patent’s claims according to their “ordinary and customary meaning.” IPRs instead use the “broadest reasonable interpretation.” Now one might think that the “broadest reasonable interpretation” would be a good thing for patent owners – it means the patent covers more possible products. But in fact it can be a bad thing – because it means that there is more “prior art” that can be used to invalidate a patent. This further weakens patents.
As if these features of the IPR aren’t enough to weaken patents, the Supreme Court has further muddied the waters for patent owners with recent court rulings, most importantly its ruling in Alice v. CLS Bank. The Alice ruling has cast the validity of tens (or even hundreds) of thousands of patents into doubt. The ruling affirms that “abstract ideas” are not patentable, but provides no clear guidelines that can be consistently applied by the district court. Alice has effectively wiped out billions of dollars’ worth of patents.
So far, all of this may make it seem like “big tech” has gotten exactly what they wanted: a weakening of the patent system so they can use other people’s inventions without having to pay for the privilege.
Many VERY smart people pay attention to patents. Many billions of dollars of value are locked up in patents. What the AIA and Supreme Court rulings have done is changed the rules of the game, but they haven’t done away with the game. Not surprisingly, some people have figured out how to adapt to the changes in the rules – in ways not at all anticipated when the rules were changed.
IPRs—Hmm, didn’t see that coming
Unanticipated consequences have been numerous, but two that stand out are that IPRs have been far more numerous than anticipated and have been used in a way that many corporate fans of the AIA never considered. IPRs and Alice are being used in competitor patent disputes in game changing ways.
As a result of bestowing hundreds of millions of dollars a year on both sides of the aisle branded pharma has become accustomed to getting every law they want promoting their corporate welfare initiatives. In a fit of honesty, it was incredible to hear one of the chief architects of the AIA recently state that “[pharma] was fine with how the IPR program was working until pharma patents started to be challenged in IPRs.” Let me get this straight: as long as your ox is not getting gored, you are fine with everyone else’s ox being gored?
Wonder how HP felt—the same HP that dropped out of the Patent Fairness Coalition because it was too soft on patent reform—when four of its patents were recently held invalid under Alice. Perhaps next time significant patent legislation is being considered big companies will want Congress to hear from executives other than the usual list of Google and Cisco bobble heads intent on destroying the patent system.
Goliath v. Goliath
By making it so easy to challenge patents what the IPR has done is to make it very, very difficult to enforce a single patent. A patent owner has no idea if a single patent is enforceable. But some patents DO survive IPRs. Patents DO still have value. It’s just harder to pick which patents will survive all these new challenges.
The solution is obvious. If you want to monetize patents, don’t monetize a single patent – monetize a portfolio of related patents. If you launch a monetization campaign with ten patents, selected for strength, you will have a pretty good chance that at least some of them will survive all the challenges.
What it means is aggregation is now the name of the game. As Michael Friedman of Ocean Tomo recently said on a panel we both sat on, “David versus Goliath is dead. It’s now going to be Goliath versus Goliath.” An individual inventor with one or two good patents isn’t going to have an easy time finding anyone willing to enforce those patents on a contingency basis. He’s going to have to sell them to an aggregator, who can combine them with other patents, and launch a monetization campaign that will have a chance of success.
Smart money is very interested in the patent space right now. There is a general sense that if the patent market hasn’t hit bottom it’s “close enough.”
Many people believe the stock market’s bull run is running out of gas. Many investors are looking for “non-correlated investments,” investments that go up or down independently of trends in the overall market.
The combination of lots of money looking for a home and the patent market hitting bottom means there is a lot of money available to invest in good patents. There will be some consolidation in the industry.
Instead of getting rid of “patent trolls,” what big tech is going to discover is that when patents are enforced against them – and patents will continue to be enforced – the opposition is going to have more weapons (bigger portfolios of patents) and more ammunition (money to finance monetization campaigns).
I’m glad to see that the brakes have been put on the rush to further patent reform. Everyone is best served by going slow and letting the full impact of changes already made play out before making more changes.