Report follows 8 years of setbacks for grassroots innovators.
In December, weeks before the end of President Obama’s second term, his administration released a joint strategic plan on intellectual property enforcement for fiscal years 2017 through 2019. The section on patents, which begins on page 134, reads like a cross between a Monty Python skit and a Soviet-era, propaganda-laden report.
Perhaps the Obama Administration was trying to brainwash the entire industry into believing that the president had been a tremendous defender of the U.S. patent system. That will not be how the Obama years are remembered by innovators and patent owners.
The reality is that the future of American innovation has been forfeited (or at least heavily mortgaged) by a calculated dismantling of the U.S. patent system for the benefit of a handful of politically well-connected companies that helped the president get elected and re-elected. America is left with a patent system that works tremendously well for several dozen well-todo multinational corporations in Silicon Valley but no longer works for anyone else.
The beginning of the section on patents reads: “Patent-intensive industries are a driving force in the U.S. economy. According to a recent Department of Commerce report, the value added by patent-intensive industries in 2014 was $881 billion, which was 5.1 percent of U.S. gross domestic product. Supporting efficient and predictable patent protection policies that promote investments in research and development is key to the continued growth of innovative economies.”
Yes, patent-intensive industries are responsible for a great deal of economic activity in the United States. It is also true that efficient and predictable patent protection policies promote investment and are responsible for the growth of innovative economies. Why, then, did President Obama spend so much of his time in office interjecting uncertainty into the patent system? Let’s walk through some patent “highlights” of the Obama years.
The only certainty in the U.S. patent system is that the law is hopelessly uncertain. Numerous patent examiners working for the U.S. Patent and Trademark Office refuse to issue patents and openly tell patent practitioners and innovators that they will never issue a patent, haven’t issued a patent in years, and nothing they say will matter. These recalcitrant patent examiners proudly proclaim that they ignore rulings from the United States Court of Appeals for the Federal Circuit—and when they are reversed on appeal by the Patent Trial and Appeal Board, rather than issuing a patent, they reopen prosecution to continue to harass applicants.
On top of this, the patent office is unable to control patent examiners who are engaging in widespread time and abuse fraud, according to the Commerce Department’s inspector general. One examiner who was caught submitting more than 700 hours of fraudulent time wasn’t fired or reprimanded; he left the office so that he didn’t receive a negative performance review.
To call the American patent protection process arbitrary and capricious is insulting to those things in our society that are merely arbitrary and capricious.
Patent Trial and Appeal Board
The PTAB has become the most important and influential entity in the patent industry. This group of appointed Article II administrative law judges makes decisions that cannot be reviewed by any Article III court, not even the Supreme Court. The PTAB has increasingly come under fire from the federal circuit for acting in arbitrary and capricious ways, which is almost impossible to do given the extraordinary burden required to demonstrate an agency has acted arbitrarily and capriciously.
The PTAB ignores the statute it is charged with implementing and the legislative history as well. For example, it institutes Covered Business Method challenges against patents that are clearly not business method patents.
The board also refuses to allow patent owners to amend claims challenged in post-grant proceedings, despite a statute that says amendments are allowed and a legislative history that is enormously clear and on point. The patent office has defended the PTAB refusal to allow amendments and the asinine argument that the law allows patent owners to file a motion to amend, but it doesn’t require the board to grant that motion to amend.
The PTAB has also said it does not need to consider timely filed evidence if it doesn’t want to. The PTAB has a perverse incentive to initiate proceedings when multiple challenges are made against the same patent or patent family because those deciding whether to institute will decide the case on the merits, and if they have multiple challenges on the same patent they find it much easier to achieve their work production goals.
PTAB rules and procedures have fundamentally and systematically deprived patent owners of even the most basic due process in what is a thoroughly one-sided proceeding.
During the past six months, the federal circuit has finally started to find at least some software patent claims to be patent eligible. However, several federal circuit judges have never and will never find software patent eligible. At best, the test for patent eligibility is a subjective test, as admitted by the circuit in Enfish v. Microsoft. That means the test is not reproducible and will be panel dependent.
If you get the right panel of judges, you have a chance. If you get the wrong panel of judges, you have no chance as a patent owner or innovator. The only predictability comes after you know who is on the panel, which doesn’t happen until you walk into the courtroom to argue the case. But even then, you can’t be sure. The federal circuit is so horribly overworked that the court seems to be giving very little thoughtful consideration to most cases. Seventy percent to 80 percent of decisions are either one-sentence affirmances or nonprecedential opinions—and the dirty little secret is that nonprecedential opinions are frequently written by staff attorneys, not the judges.
The Supreme Court is openly hostile to patents. It does not understand patent law, does not understand innovation, and is arrogant in its ignorance. Short of removing patents from the Supreme Court jurisdiction, the only thing that could help is legislation that thoroughly overrules all of its recent patent eligibility cases and does away with the judicial exceptions to patent eligibility—which are the Supreme Court’s way of having created a tool that allows it to ignore the statute it is supposed to interpret.
The idea of creating the PTAB came from legislation supported by the Obama Administration and enacted by Congress. The PTAB has run amok, destroying patent value and crippling investment in innovative start-up companies. Patent valuation has been more than cut in half since the enactment of the America Invents Act.
The post-grant procedures of the AIA have been so successful in killing patents, the legislation is even being used to challenge and kill biotech and pharmaceutical patents. Much ink has been spilled about the challenges funded by hedge fund billionaire Kyle Bass, but the biotech and pharmaceutical industry also find themselves being challenged, and losing patents, after being challenged by generic manufacturers. The biotech and pharmaceutical industries supported the AIA and didn’t believe the post-grant procedures would ever be used against their patents. This grave miscalculation will cost the biotech and pharmaceutical industry billions of dollars.
The strategic plan also says: “Without effective mechanisms to protect intellectual property rights, including patents and trade secrets, competitors could simply sit back and copy, rather than invest the time and resources required to invent and innovate. Research and development would be even riskier investments, with little to no assurance that such investments would or could be commercially put into use. Simply put, facilitating efficient and predictable patent protection policies harnesses the drive and ingenuity of our innovators and helps ensure that our economy remains innovative and competitive.”
Yes, large corporations are openly engaging in efficient infringement, which is just a sanitary way of saying they are stealing. With a patent system that has been so thoroughly crushed in the past eight years, patent owners see large corporations simply take their patented innovations, incorporate them into their products or services, and never have to pay a dime. Given how easy it has become to kill patents at the PTAB and how the courts have fundamentally changed the law of what is patent eligible, efficient infringement is a wise business strategy. Why pay for what you can steal without consequence?
The problem is that this wise business strategy is destroying the U.S. innovation economy because it is the individual, the small business, the start-up that innovates—because innovation requires risktaking and dreams. Large entities generally do not take risks; they worry about shareholders and increasing stock prices.
All the while, China is becoming a better place for innovators. It is easier to obtain patent protection in China, and patent owners succeed 80 percent to 100 percent of the time when they bring patent infringement cases there. How long before start-up companies start moving out of the United States and to China?