A Patent Conversation with Cheryl Milone of Article One Partners

Cheryl Milone, the Founder and CEO of Article One Partners

As is probably apparent to frequent readers of IPWatchdog.com, I keep my ear to the ground and have a number of sources (i.e., friends and colleagues) in the legal community who play a number of different roles in the intellectual property, patent and innovation space. Because I love talking shop, particularly when it relates to policy matters, you can typically find me on the phone or having lunch or drinks with “my sources,” usually several times a week. I don’t go public with where I get information unless it is agreed upon, and these chats help keep me informed and let me work out my thoughts, opinions and get different perspectives on matters.

On February 4, 2010, I had a call with Cheryl Milone, Founder and CEO of Article One Partners. While we don’t chat as much as I would like, we do connect when our schedules permit. This call was coordinated by one of Cheryl’s assistants, so we called into a conference line. During our call a beep was heard and recording of our conversation was inadvertently started. We kept talking and then agreed that some of our conversation might be appropriate for publication. We were talking patent reform, reexamination, patent litigation, improved patent search and IT databases, claim construction and more. You know, talking shop and bouncing ideas off one another. Cheryl agreed that our conversation could be published, and I am just now getting the transcript together for publication.

Cheryl and I first came into contact shortly after I wrote Reexamination Won’t Stop Patent Trolls, which was published November 18, 2008. In that article I mentioned the newly formed Article One Partners, and my belief that paying a “bounty” would not be effective because previously it hadn’t worked very well and lacked proper incentive. Cheryl and I chatted and she told me Article One Partners, named after Article I of the United States Constitution, was different. I thought she made a persuasive case, and figured time would tell. It certainly seems that Article One Partners is different, and is successfully finding prior art in a number of cases, sometimes leading to patent claims being successfully challenged, and sometimes, as in the Singulair reexamination, let better prior art than previously found be considered and leading to stronger patent claims that survived strict scrutiny.

Whatever your opinion of the business model, it is impossible to ignore the fact that Cheryl Milone has turned Article One Partners a major player in the patent research field. Article One is attracting big name members to the Board of Directors, they were the StartUp 2009 winner, they have started a patent quality review blog and Milone was recently invited to the White House to participate in a round-table event, which she talks about in our conversation. So, without further ado, here is my conversation with Cheryl Milone.

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Gene: I’ve been writing more and more about reexaminations and now I guess there’s some reason to suspect that patent reform will at some point pop back up on the radar this late winter or spring. So I have just a couple questions about how useful you think reexamination is versus how useful it could be. One of the things that has always struck me as odd is that so much of potentially the best prior art can’t be brought up during reexamination.

Cheryl: Yes.

Gene: Which I suspect makes it less of an attractive alternative than it otherwise could be.

Cheryl: We don’t have a perfect solution to solving patent quality because there unfortunately is a subjective component to it. To the extent 48% of lower court decisions are overturned on appeal, it evidences that reasonable minds can differ. But in terms of a platform or a process where there is the most efficient look, it’s the worst of all the other bad approaches in a sense. Tweaking it by making certain improvements such as expanding on the evidence that is legally presentable in the forum would be great. But as it is now, it still is a more efficient process than would otherwise be found, for example in litigation. And it’s a more effective use of resources.

On patent reform idea is adding a post grant opposition, or any opposition for that matter, which would take what seems to be the best of re-exam and execute it closer to the inception of a patent. So that makes a lot of sense to me. But with the percentage of invalidity it’s over 70% for inter partes it’s a pretty good platform for parties to test the validity of patents both to show that they are valid, and also to strengthen them. For example, in the case of one of our studies we did on Singulair when we first launched, that collection was produced too late to be available for litigation. So we provided it to the Patent Office. And the Patent Office decided that the patent was valid over it. And it was the opportunity for the public through this platform to add a more comprehensive collection than the Patent Office had seen, providing greater integrity to the value or validity of that patent. So I see it as being a very valuable tool. I don’t think there’s any easy answer, and there’s going to be, if you will, tweaks that could be improved in many ways. But I think reexamination increasingly is seen as a more efficient tool, at least than litigation.

Gene: I think that’s true. I think people are finally starting to realize that the odds are really pretty good in reexamination to at least get some of the claims modified, if not invalidated. At least from the defendant’s perspective.

Do you guys have any kind of a sense as to how long reexams are taking to come through to completion?

Cheryl: Well, I think that’s the other area that could be significantly improved. And I think the whole patent bar has a lot of confidence Director Kappos will influence pendency. But I think, and this is antidotal, we haven’t had a second reexamination that we can test. I think the pace of the Singulair reexamination was very reasonable, really a matter of months. That was impressive, actually. But we do hear about some reexaminations where through the appeal process it’s gone on for five to seven years. So again, this is another area that really could be improved.

And it’s interesting, Gene, in speaking to a number of people, I keep hearing that even if it comes up again patent reform is really very difficult an area to have an expectation it’s actually going to pass. What are you hearing?

Gene: I think that’s the prevalent opinion because it keeps coming up over the last five years or more and nothing’s happened. And the issues are thorny and there are people on both sides of the issues. And unless and until some of the major players are willing to take some of the biggest demands off the table, it likely it is not going to happen because that which would benefit the software industry or high tech industry could wind up just totally crippling Pharma and Bio Tech. So when you have big lobbies on both sides of the aisle, it makes it very difficult. Because then it’s not about politics in a Republican versus Democrat way, it’s about politics locally in terms of who are your donors and what is your constituency.

Cheryl: Yes.

Gene: So some of the Senators, particularly for example the ones in California, have got major industries that line up on both sides, and they’re just firing at each other. So it makes it very difficult for them to take a hard stand one way or another. I do have a sense, though, that it may be different this time. I know we always hear that. But at least what I’ve been hearing anecdotally, you know, secondhand from folks close to the issue is that they really seem to think that there’s a chance, at least of getting something. And I think the Patent Office believes they really have to have some kind of reform in order to be able to try and address some of the larger problems, not just reexamination or post grant review. But some of the larger problems at the Patent Office where they need more people and they need more funding and I think they see to some extent all of this coming together.

Cheryl: Yes.

Gene: So I wouldn’t be surprised if there was patent reform, not watered down, but more pinpoint in its changes. Certainly if the damages thing is on the table, then nothing will ever get done.

Cheryl: Yes.

Gene: But I think if you probably remove damages, and there would be some kind of a deal to be done. So where it all shakes out who knows. And to some extent with Congress getting mired at the moment in health care and that just coming to a screeching halt, it may make it more likely that they’ll go to certain secondary things that they simply wouldn’t have done had the debate still be active.

Cheryl: And are you encouraged by the increase in budget for the PTO, I think it was a 23% higher expectation, which was wonderful, than the Patent Office had mentioned. Is that something that’s encouraging to you? And I guess they get to keep their fees, wouldn’t that be nice?

Gene: I think it certainly is. I think that that wouldn’t start to happen until fiscal ’11.

Cheryl: Yes.

Gene: So I think it’s good to see. I wish it could happen sooner rather than later, but it does seem as if it’s going to happen and they’re going to be able to get back on the straight and narrow. The one thing that does worry me, I go back and forth about post-grant review in my mind, and I sort of think I’ve bought into the Kappos view of it. Which people have accused that I’ve been drinking his Kool-Aid or whatever.

Cheryl: It’s highly effective Kool-Aid. I think there’s a tremendous amount of confidence in his abilities and what he can accomplish. I hope they’re fulfilled.

Gene: I do, too. And I think he gets it on a different level. And what he says seems to make a lot of sense. The fear I have is that even with them getting to keep all their fees and having a budget that’s a little slightly north of 2 billion dollars, are they really going to be able to do everything that needs to be done? And particular if then you add on post-grant review. Which would make a lot of sense because the way Kappos is pitching it is he’s saying that I think they’re going to settle on one window right after the patent issues. To some extent it almost sounds like it’s the trademark kind of model, it’s like speak now or forever hold your peace.

Cheryl: Yes.

Gene: And it won’t be exactly that, but I think it will be much harder to challenge the patent after it leaves that window. So what it does is then it gives people who want to challenge the opportunity to participate if it matters to them. But in exchange for maybe having a window of uncertainty, there will be a certain settling of the right which then investors could really like. Sort of almost like quieting the title to some extent. So I think that’s an interesting balance. Whether that’s ultimately the language, who knows, but that’s how I’ve heard them articulate it. The question then becomes will the Patent Office have the resources to be able to pull that off.

One of the things, and actually, I’d like to get your thoughts on this. One of the things that I’ve sort of been writing about and kind of suggesting, is that maybe before somebody sues on a patent there ought to be an opportunity for the Patent Office to take a second look at that point in time. Like in the employment area, I know if you have a discrimination claim you have to submit the facts to the Equal Employment Opportunity Commission, and they review it and if they want to take over it they do. And if they don’t then they’ll give you what’s called a “right to sue” letter. And I think a model like that whereas before you actually sue in a patent, maybe the Patent Office ought to have the opportunity to weigh in. Maybe not in any kind of decision making area, but at least to provide their expertise to the district court judge who is going to have no expertise. So then that would allow maybe the directing of resources towards those patents that are deemed valuable enough to actually be enforced.

Cheryl: It’s a great idea, and I would add, of course, to have a component of that review be a citizen’s review. It’s such an easy concept for government right now in the sense of a virtual workforce, because one of the concerns I think that you’re adding with that suggestion is who is going to do that, and who has the capacity. I like, I think as Marshall Phelps wrote in his book, the virtual circle of the public who is burdened with in the case of patents that are granted improperly, who is burdened with monopoly pricing, and then they would be further burdened with the societal cost of litigation. Being able to weigh in at the point of going to litigation to assist the Patent Office, there’s a real virtuous circle in that process. So I would just add that notion. But I think it’s a great idea.

Gene: I think that makes a lot of sense, what you were just saying. Because the idea is that at that point is let’s try and get it right. The Patent Office does the best they can with the limited amount of time they have. But now that it matters, maybe we ought to do whatever we need to do to get it right. Allow interested citizens or companies to submit information and the Patent Office can take a look at it all.

Cheryl: Yes. And you know of course take it one step further, they should be compensated. We have a community of people that are highly engaged in an intellectual exercise. And the community I think is adding tremendous value. And we have as a company paid out $335,000. We have some advisors or community members who are working for us as their sole income, and full time. And that is at this point a small, but important addition to the notion of virtual workforces. And we were really fortunate to be invited to the White House to participate in a forum on modernizing government. And sitting around with the founder of Face Book, and Craig’s List, and Southwest Airlines, I felt like a very small little company. But my contribution to the discussion was really about virtual workforces. And the administration officials, it really resonated with them as one of those take-a-ways that they listed at the end, particular for the government. Even the government employees are part of the public that are subject to inefficiencies. So having the public involved is a great concept.

Gene: I certainly agree with that. I think that makes a lot of sense. One of the things that’s always amazed me, and I would like to get your thoughts on this, too, is–. I shouldn’t say “always.” Let us say increasingly and more and more lately I am having a lot of difficulty understanding how we actually, or why we actually are doing it this way. There is so much prior art out there that nobody could ever possibly find. But at the 11th Hour when it now becomes relevant after companies have spent tens of thousands or maybe even hundreds of thousands of dollars pursuing rights and portfolios and gearing up and so forth, now that it matters, in swoops the SWAT teams from all around the globe to find the one article in a library or a thesis that was only indexed in one particular university and it blows the patent out of the water. And if you go to do a search on the Patent Office website, you can really only search patents going back to 1976.

Cheryl: That’s amazing to me, I know.

Gene: It’s just crazy, and then you add on top of that all the articles and journal articles and so forth, it seems to me that there ought to be a way that if it’s going to be potentially used against somebody to take away rights that they’ve spent many many thousands of dollar to get, shouldn’t they have been at least able to in theory find it before the whole process started? So I wonder, and I know right now the Patent Office doesn’t have enough money to do anything close to what they could be doing. It would be great to have some kind of investment in IT that would then allow a really virtual workforce and people who want to participate, whether it be for pay or whether it be just because they want to. That seems to me to be one of the big hindrances of really having a virtual workforce or a citizen army that’s trying to police things. And it also seems to me to have cultural implications, too, because it seems throughout history whenever there has been a marauding band, the first thing they do is they burn the libraries and destroy the knowledge.

Cheryl: Yes, it’s interesting.

Gene: And it seems like we’re almost doing that to ourselves. We’re not indexing this stuff in the way that any responsible society has previously sought to index their knowledge.

Cheryl: And I think it’s unintentional. I mean I think if we go back in history to the earliest time in the Patent Office, when I used to spend a lot of time there as a junior associate, marveling at how dirty the patents were and how they literally were in the more current version of the historic shoeboxes. They actually put the patents in shoeboxes. It’s just a function of the information age. The level of information flow is so great it is hard to keep up with how to organize it except, except if you throw in the human factor and the knowledge that a human search engine breaks. So I am in complete agreement with you. And that does exist somewhat now, Gene, with Peer-to-Patent. Article ones gives– we have a profit sharing for our community, and one of our highest profit sharing point awards is for anyone at Article One that works with Peer-to-Patent successfully and one of their references is sent on to the Patent Office, if they let us know about that, they earn profit sharing at Article One. And so we are a huge supporter of trying to improve quality as early as possible. And IBM is a huge supporter of Peer-to-Patent. I understand that the program is being reinstated. And so I think there is a place to start. And of course, a community like the Article One community would be delighted to assist. This is one big advantage of Peer-to-Patent, and one of the reasons why I put my own application in to Peer-to-Patent. Hopefully it will get listed soon now that they’re going to be reinstated. But it accelerates prosecution. So you get that added benefit. So perhaps people would want to volunteer for Peer-to-Patent. But perhaps a community like Article One could assist the Patent Office, getting back to the virtual workforce and be compensated for it. So I’m in complete agreement with you.

And the way to do it today, it’s finally very recognizable, is through a virtual workforce model. And you know what? We’ll be giving people in a difficult economy additional income. There’s nothing bad about it.

Gene: No, I don’t think there really is anything bad about it. Aside from just being able to get better results and more settled patents, and so forth, there seems to me to also be a very important cultural aspect, in that this can be used to promote innovation. And one of the things I try and work with folks to do when I’m doing a patent search on the front end to decide whether or not to move forward with an application, is to identify which space are there and available. And if there is any meaningful space, then we can move forward. So it would seem to me that if there were these kind of systems in place that have a better indexing, you would not only raise the quality of the patents and really enable a virtual workforce in citizens, but you would also significantly enhance innovation. Some of the folks that I deal with have really good stuff, and they’re really sophisticated former engineers and computer programmers or what have you. And then there are a lot of folks that are just your typical inventor who has a problem and has invented something, but really what they’ve done is reinvented the same thing every generation has reinvented. And it’s the reinventing that just seems to me to be a terrible waste of time.

Cheryl: Yes.

Gene: And the whole idea is for scientists to stand on the shoulders of the people who come before them. I just wonder whether our patent system really enabling that any more.

Cheryl: Yes. I agree with you. There are a lot of limitations, but it would be nice if the funding and leadership were there to make improvements. As Churchill said, it’s the worse system except compared to all the others. So I think there’s a lot to a great notion of credible contribution to our economy. There are so many proposals out there for improvements. It would be terrific to have, whether it’s through Patent Office initiatives or Congress, agreement on the point that it needs to be improved. And I just hope that that agreement can result in action.


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