Patent Persecution

“Patent prosecution” describes the interaction between applicants and their representatives, and a patent office with regard to a patent, or an application for a patent. (source: Wikipedia). It is a well-known term of art commonly used in the IP community.

“Patent persecution” on the other hand, describes the activities among various actors currently dismantling the US patent system, block by block. It is a recent phenomenon and seems to know no boundaries. (source: read the news!)

It sure looks these days like we’ve gone all the way from patent “pro” to “per- secution” …

I have written a few times lately about how the recent combination of court cases, post grant review procedures (mostly IPR) and legislative action have made securing, licensing and enforcing patents rights much more difficult. What started a few years ago as a push to curb allegedly abusive patent litigation by a few bad actors (and get rid of a few patent trolls along the way) has snowballed over time into a real frontal attack on all patent owners, with the the small American inventor as collateral damage. Making life more difficult for more small inventors would seem to be the last thing we want to do, as the number of patent filings by individual inventors since 2000 (relative to Corporate Owners and Other Organizations) has already plummeted from 14% to 6% (source: USPTO).

A patent, we should remind ourselves, is a legal monopoly granted by the federal government in exchange for making an invention public. Once it is issued, it entitles its owner to exclude anyone to practice the protected invention in the country for 20 years from the date the application was filed. Nowhere does the law say that the inventor has to practice the invention, the same way no law requires that you have built the house you currently own in order to kick trespassers off your property. Actually, there is a large body of research showing that only about 10% of patents in circulation around the world are actually practiced by their current owners. This in turn has enabled a huge and vibrant market whereby inventors have, for centuries, licensed or assigned their exclusive rights to others for consideration, usually money.

Let’s not forget either that patents rights in the US are protected under the Constitution (art 1, Section 8) which states that: “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.” A patent is therefore a federally issued property right created by the Constitution. The US Patent Act in turn implements and details this right and delegates to the USPTO the authority to review and allow patent applications.

When someone practices an invention without the patent owner permission, it is breaching the law (i.e. infringing) and the only option for the patent owner, whether it be the original inventor or someone who acquired those rights, is to ask the infringer to stop, request it to take a license or, if it cannot do otherwise, assert those patents in court. There is nothing illegitimate, wrong on unsavory with exercising that constitutional right and most patent owners only use this option as a last resort, as it is both the least effective and the most expensive way to secure a license from an infringer who doesn’t want to engage in a reasonable discussion.

Unfortunately, the dominant narrative nowadays is that anyone engaging in patent litigation is bad, and NPEs who acquired rights from the original owners are in essence despicable. Very little is said about repeat infringers who just take a “sue me” attitude… There is an increasing gap between such narrative and the market reality. Indeed, while patent litigation has significantly decreased in 2014 from previous years, the latest trends indicate that the various forces at work see no respite in their efforts despite having largely won the battle.

Three recent phenomena reflect this current tendency and the come from both the judicial and legislative branches. First, despite the one-two punch combination of several Supreme Court cases and the devastation the Inter Partes Review tornado has left in its path by invalidating about 3 out of 4 patents it has reviewed so far, the US Congress has seen no reason to back off. At a time when our elected officials should be hitting 4th of July BBQs and other fund raising activities, they keep introducing new legislation to gnaw a bit more at patent rights, a subject matter they are not particularly known (or expected) to be experts on. As of today, there are no fewer than SIX different bills (yes, that is 6!) on Capitol Hill aiming at taking another shot at how to “reform” the patent system. Of these 6, at least 4 are resolutely anti patent owners, whether those are small inventors or NPEs. Two of these bills, the “Innovation Act” (H.R. 9) and the “PATENT Act” (S.1137) have recently cleared the House and Senate Committees respectively and are poised to be submitted for a full vote soon. Despite mounting opposition by several respected academics and associations representing innovators, the White House has signaled that it would pass either into law.

Both bills would have a chilling effect in terms of patent owners. Among other things, it would make it prohibitively expensive for them to enforce their rights if they ended up losing their case, by making them pay the other party’s legal fees -which can amount to millions. This will make it even harder for American inventors with limited resources to benefit from the fruit of their labor and foreign companies, for ones, will be able to import infringing goods into the US market with no fear of the consequences.

Second, the US Federal Courts have been literally feasting on the Supreme Court decision in Alice issued a year ago which opened the door to invalidating software patents on the basis that they simply implement “abstract ideas” and are therefore not worth of patent protection. Recent statistics show that after a year, out of 106 cases it has reviewed under Alice, Federal Courts have ruled against the patent owner 76 times, a whopping 71.7% rate. Since a large sector of the US innovation engine is based on software, one can only scratch one’s head while contemplating this systematic demolition of the legal protection for one of the most strategic area of the US economy. Meanwhile, the Chinese Patent Office (SIPO) has recently declared a Chinese patent owned by Alibaba –which would clearly be considered invalid under the new test in the US after Alice- to be perfectly valid. This means in practical terms that Alibaba can now practice a similar patent in the US that would be owned by say Amazon without having to worry about paying any licensing fee, while Amazon on the other hand is now excluded from the Chinese market (remember, China courts can issue injunctions) or will have to pay Alibaba hefty licensing fees if it wants to practice the same invention in China. And we did this to ourselves!

Third (and this is the real kicker), the system is currently perceived as so biased against patent owners that it has given rise to a new kind of patent trolls. The latest “get rich quick” scheme now involves shorting the stock of large pharmaceutical companies (who rely heavily on patent protection) and then immediately file an Inter Partes Review against their flagship patents (e.g. the patent covering Lipitor). Since everyone knows that the tribunal who hears those challenges (the PTAB) is invalidating all the patents it sees at a rate of 75-80% (including in pharma), the market predictably reacts by selling off the stock of that company and the “IPR Trolls” pocket millions in a matter of days… So far, hedge fund owner Kyle Bass has successfully employed that tactic about fifteen times. Not surprisingly, others are following into his footsteps. But rest assured; Congress is now considering yet another piece of legislation to curb what it sees as “abusive patent litigation”… And here we go again!

Yes indeed, the patent system is broken; but this wasn’t really the case until recently and it is the so called “fix” that actually did it. Persecution rarely leads to happy endings.