Legislation to Kill the US Patent System

Multi-National Corporations Killing the U.S. Patent System

The Patent Act of 1790 granted patents to “he, she, or they”.  At a time when women and blacks could not own property, both could own patents… and both did.  In 1809, Mary Kies became the first woman patentee with an invention for weaving straw hats.  In 1821, Thomas L. Jennings became the first black patentee by inventing a method of dry scouring clothes.  During the 1800’s, some 3,300 women inventors patented 4,196 inventions.  Since 1790, the U.S. Patent System has leveled the playing field for all, and fueled the greatest economic growth in the history of man.

Today, the U.S. Patent System is under a full frontal assault by the largest multi-national corporations on the planet.  The attack is ostensibly directed at the fictitious problem of “Patent Trolls”.  The storyline is that these trolls are rich investors who buy up patents and provide no societal value, but still extort billions of dollars from small businesses.  However, as you will see, it is really an attack on the U.S. Patent System in general with the intent of killing it for those same small businesses they allege are harmed by it.  Sounds unbelievable, but keep reading.

A productive patent system creates an environment where inventions attract people and capital to build businesses thereby fueling the economy, creating jobs and dynamically expanding innovation for all of us.  In such a system, a patent, standing on its own, is capable of attracting capital investment; a patent functions as an investment grade asset.

Conversely, a system where a patent is incapable of attracting capital investment cannot return value to the inventor and instead creates incentive to secret new inventions, which hobbles innovation, slows job growth, and harms the economy.

Over the last decade, our government has damaged the investment grade value of patents in several critical ways. 

• The “exclusive right” to an invention was eliminated by the Supreme Court in eBay v. MercExchange.  This means an inventor cannot exclude others from the invention.  If they steal it, they keep it.  Not only is injunctive relief the very purpose of a patent, it is a 223-year-old precedent enshrined in the US Constitution and black letter law.  It is a major motivating reason that potential infringers would license a patent before they build products on the patent.  Without it, infringers are incentivized to steal patents and litigate excessively when caught, as has become the case.

• The presumption that a patent is valid is also a major motivating reason that a potential infringer would license the invention and then build a product.  The Supreme Court weakened the presumption of validity in both KSR v. Teleflex and Bilski v Kappos.  Then, the America Invents Act added new Post-Issuance Procedures (PIP) to invalidate patents which are executed through the executive branch of government (separate and distinct from existing procedures executed through the judicial branch) using the lowest level of evidence, different standards of review, and opposite burdens of proof.  These procedures eliminate the presumption of validity altogether.  

• In 2011, the America Invents Act (AIA) also forced patent suits against similarly situated infringers to be filed separately.  Independent of that, courts typically reassign patent cases to jurisdictions closest to the infringer.  When taken together, an inventor risks managing dozens of suits in multiple jurisdictions each requiring local counsel and each with potential to produce conflicting decisions on the validity of the patent. 

• A patent can take ten or more years of examination at the United States Patent and Trademark Office (USPTO) before it is allowed.  This extraordinarily long delay encourages potential infringers to strip inventions right from the USPTO website, incorporate the inventions into the company’s current product offerings and saturate the market long before an inventor has an enforceable asset.  Careers are made in less time.  Companies are started up and go public in less time.  Once the market is saturated, it is often impossible to leverage the patent to retake the market. 

When you add all this up, it is a frolicking playground for those who would infringe.  Most corporations are well capitalized and set up for litigation.  Inventors are neither.  In the current system, an invention can easily be invalidated and an inventor can be litigated into oblivion.  The deck is stacked significantly against the inventor and these risks act together to inhibit investment in patented technologies.

Today, patent rights are the weakest they have ever been in the 223 years of our patent system.  Because of the high risk of invalidation and the extensive time and money required to enforce patent rights, patents are often sold to wealthy investors who specialize in converting patents into cash – the so called patent trolls.  

If there is a patent troll problem, it is created by a weak patent system.  However, a recent GAO report required by the AIA (as well as other scholarly studies like www.npedata.com for one) show there is no patent troll problem in the first place – it is fiction created by large multi-national corporations who suffer the consequences of infringement and wish to steal inventions without consequences.

To understand this phenomenon, it is necessary to understand how patent holders think.  As an inventor with dozens of patents and pending patents, I have sat in many discussions with multiple law firms, investors and industry experts related to licensing my patents.  These discussions center on minimizing risk in a very high-risk environment.  If you sue a large multi-national, you will likely enter perpetual litigation with a high risk of invalidation – that’s a bad plan.  If you sue multiple midsized companies, you risk multiple suits in multiple jurisdictions hiring local counsel in each jurisdiction at very high cost, extreme complications, and significant risk of multiple conflicting decisions from different courts – that’s also a bad plan.  However, if you sue smaller companies or end users, that risk drops substantially because they do not have the resources or sophistication to carry on an extended suit and are much more likely to settle. 

This extreme high-risk environment, as has been recently created in the patent system, is driving inventors to sell to investors and those investors to pursue small companies and end users to manage risk.  This is the root cause of the so-called patent troll problem.

Cynically, no provisions in any of the current legislation (HR 3309 and the Senate bills) are directed to fix the fictitious problem of patent trolls.  Instead, the considerable damage of these provisions is levied on the U.S. Patent System in general and individual inventors and small businesses specifically.

• Patent Term Adjustment.   The new law would eliminate any patent term adjustment for a delay created by a request for continued examination (RCE) or an appeal.  These delays are USPTO generated and would unfairly reduce the patent term of a large number of issued and pending patents – some by a decade or more.

• Shrinking Post Grant Review (PGR) Estoppel.  (A PGR is one of the post issuance procedures discussed previously.)  The purported purpose of a PGR is to decrease the cost of litigation and to speed the process for both parties.   Under the current law, a PGR prohibits the petitioner from later arguing “any ground that the petitioner raised or reasonably could have raised during that post-grant review.”  The new law would strike “reasonably could have raised”.  This will allow a petitioner to argue any ground that could have been raised, but was not, in other post issuance proceedings and/or in court, thereby allowing daisy-chained defenses adding massive unnecessary cost and further perpetuating litigation.

• Loser-Pay.  From the perspective of a patent holder, litigation is already very expensive, highly risky and skewed unfairly in the favor of the infringer.  Loser pay will eliminate patent protection for most smaller inventions.  This is because smaller inventions do not generate enough money in licenses to balance the increased risk of paying millions in additional legal costs if the patent holder loses.  Smaller inventions make up the majority of inventions by individual inventors and small businesses, so loser pays harms them directly while providing yet another advantage to large multi-national infringers. 

• Enhanced Pleadings and Limited Discovery.  HR 3309 and other bills have a provision that dictates enhanced pleadings requiring that the plaintiff produce substantially more information, and a provision limiting discovery prior to claim construction.  Patent suits are among the most complicated and detailed with a plethora of variables.  The trial judge is the closest to the case and legislating how that judge manages the case will damage the trial judge’s ability to bring a fair solution.  What’s more, both of these changes affect the inventor negatively and the multi-national infringer positively, thus stacking the deck even further against the inventor.

• Collecting fees from non-plaintiffs.  HR 3309 and other bills have a provision that allows prevailing accused infringers to collect legal fees from non-plaintiffs who have an interest in the case (for example, investors).  Few investors are willing to accept the risk of losing their personal assets in the event that the business fails.  Not surprisingly, this provision will have a chilling effect on investment in patents and patent-based businesses across the board. 

To address the real problem, we must strengthen the investment value patents – not weaken it as currently proposed legislation intends to do.   This will enable inventors to get the capital they need to practice and protect their inventions.  It will return value to inventors for sharing their inventions so others can build upon it, thus driving innovation.  It will dramatically cut litigation costs and time for all parties so that we can all get back to work and put our efforts into innovation just like we used to do.  It will create much needed jobs and improve our economic competitiveness at home and abroad.

Four things must be done to fix the real problem in the U.S. Patent System:
• We must reinstate the “exclusive right” guaranteed in the Constitution, black letter law and 223 years of precedent, which was judicially eliminated in eBay v. MercExchange. 

• We must eliminate the judicially created “abstract idea” category of subject matter eligibility and instead invalidate junk patents on the other statutory conditions of patentability like obviousness and anticipation. 

• We must eliminate all Post-Issuance Procedures to reinstate the presumption that a patent is valid.

• And finally, we must fully fund the PTO with all of the fees it earns so that it can do its job.

It is appalling that the shrill and baseless arguments made by large multi-national infringers has been able to affect law and influence courts to weaken the U.S. Patent System to the point it is now.  The U.S. Patent System is a major part of the American story and American identity.  It has enabled common people to compete on par with large corporations for the market created by an invention.  It has propelled women and minorities to the highest social and economic levels in our society.  It has driven the greatest economic engine ever devised by man. 

The U.S. Patent System is the heart and soul of America. 

Now the same multi-nationals leverage the chaos they themselves have created to pass legislation fatal to inventors and small businesses.  If Congress makes even small changes damaging to the value of patents any further while patents are as weak as they are now, there will be no patent system except that which remains for large multi-national corporation to attack smaller companies.

It is time we stand up to the moneyed multi-nationals and rebuild our national treasure.

Paul Morinville
La Porte, IN
[email protected]