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A responsive patent system requires time and participation: a response to Jay Walker’s IPAS 2018 speech

GUEST COLUMN:

At the IP Awareness Summit held at the Columbia University on November 29 Jay Walker, entrepreneur, prolific inventor, TEDMED curator and founder of Priceline.com, spoke about a “broken” patent system and need for a Constitutional Convention to fix it. In the following response to Walker’s speech, Brenda Pomerance takes a different view. 

 

Improving the Patent System:

Independent Inventors Need Apply

By Brenda Pomerance

At the IP Awareness Summit held by the Center for Intellectual Property Understanding on November 29, 2018 at the Columbia School of Journalism, Jay Walker gave a keynote presentation asserting that the Patent System was irreparably broken for individual inventors lacking “deep pockets.” He based his position on five problems, and called for an entirely redesigned Patent System.

In fact, two of these problems are features, not problems. The existing Patent System can be tweaked to provide individuals with a fairer playing field for the other three problems.

First, clarity: Walker says that patent claims are impossible for him to understand.

Lack of clarity, for laypersons, is due to the need for a claim to only distinguish from the prior art, not to explain how to make an invention and to distinguish that invention from the prior art.  Walker can eliminate his clarity problem by telling his patent attorney to write claims that are essentially a production specification for the invention, but the scope of these claims will be much narrower than is needed. Examiners will love these production specification claims and prosecution will be faster.

Also, the Patent System enables a claim to encompass something that the inventor did not specifically think of when the patent application was filed, if claims are suitably written and there was no discussion of this issue in the prosecution history, but an inventor can relinquish this flexibility via clearer claims that are limited to exactly what the inventor invented.

Second, reliability: Walker says that because so many patents are invalidated, a patent is not a reliable property.

Walker can hugely improve validity by telling his patent attorney to write claims that will survive most litigation challenges (a very high standard), rather than claims that an examiner will allow (a lower standard). But, the inventor will have to (a) do the comprehensive prior art search that litigation defendants do (costing up to $100,000 for the search), then (b) figure out why it would not be obvious-to-try to combine this prior art to arrive at the invention, and finally (c) explain non-obviousness in the disclosure, which requires a detailed in-context understanding of each piece of prior art and vastly more care expended on the background section of a patent application.

An excellent prior art search along with an explanation distinguishing the claims from the prior art will speed up prosecution, but will substantially increase the cost of patent application preparation, possibly making it too costly for shallow pocket individuals.

Third and Fourth, cost and time: Walker says that it is too expensive and takes too long to enforce a patent.

Here are some tweaks to address enforcement cost and time problems:

(A) Require that all prior-art based challenges to a patent be presented in an IPR Request that is filed within nine months (not one year, to reduce gamesmanship of multiple IPR filings) of the lawsuit’s filing, unless plaintiff consents to addressing prior art invalidation in litigation, with a prohibition on staying the lawsuit for the IPR until the IPR Request is granted, and an automatic lawsuit stay after the IPR Request is granted unless the parties agree to concurrent litigation.  During litigation, this would leave mainly inequitable conduct available to invalidate a patent during litigation unless and until defendant negotiates for prior art, perhaps via accelerated discovery or payment.  It requires that the PTAB consider as prior art more than merely printed publications.

(B) If PTAB denies the IPR Request (the current PTAB denial rate is 40%), the patent is presumed valid over prior art against the challenger in all Patent Office and court proceedings.   This will speed up enforcement against defendants who make only small changes but keep infringing to force patent owner to file new lawsuits.

(C) If all claims, asserted in litigation at the time of IPR Request filing, are invalidated in an IPR based on a prior art rejection (references and motivation to combine) that the patent owner was notified of by the patent challenger at least three months prior to the filing of the IPR Request, then the patent owner has to pay the challenger’s attorney fees for preparing and filing (but not prosecuting) the IPR Request.  This encourages defendants to quickly share their most relevant invalidity arguments, and punishes plaintiffs who ignore relevant prior art and waste defendants’ resources in an IPR, but the punishment is limited by not including prosecution costs so as not to be too scary for good faith plaintiffs.

(D) After an IPR Request has been disposed of via denial or an IPR, a deep pocket defendant must begin paying half of the monthly cost of litigation attorney fees for a shallow pocket plaintiff based on redacted attorney invoices.   If the judge or jury finds the defendant is not liable for any infringement damages, then the plaintiff must repay the attorney fee payments.

(E) For a patent that has survived IPR, via IPR Request denial or an IPR, and that a defendant has been shown to infringe, restore the presumption of irreparable damage for patent infringement that was destroyed by eBay v. MercExchange, 547 U.S. 388 (2006), leading to an injunction absent exceptional circumstances, regardless of whether patent owner licenses or practices the patent.

(F) Provide a rebuttable presumption that the patented technology is frequently used by all accused products and services of an infringer, and require that damages be based on how often a technology is actually used to provide a product or service, so that rarely used features have relatively small damages awards, while frequently used features can have large damage awards.   The incentive of rebuttal should encourage defendants to provide discovery, instead of the current gamesmanship of withholding discovery.

(G) For a prevailing shallow pocket individual plaintiff, a deep pocket defendant must pay 200% of the plaintiff’s attorney fees absent exceptional circumstances.  This penalizes deep pocket litigants for litigation gamesmanship.

Fifth, price discovery: Walker says that it is difficult to predict what infringement damages will be.

The pre-litigation part of this difficulty is because parties like to keep confidential the cost of licenses and settlements; but confidentiality should be their right.

The litigation part of this difficulty is because defendants are extraordinarily reluctant to provide discovery on what portion of their business infringes and the revenue associated with doing so; D-G above, especially F, will reduce such reluctance.

Conclusion

I agree with Walker that, at present, the enforcement part of the Patent System is hostile towards under-funded individual inventors.  However, the Patent System is still quite viable and can evolve to be friendlier towards individuals. Independent inventors are a fabulous source of ideas and patents reflect the diligence to make the fruits of their ideas available in commerce, which benefits all of us.

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The audio file for Jay Walker’s speech can be found at https://www.ipawarenesssummit.com/recorded-speakers

Brenda Pomerance has almost 30 years of experience in prosecution of approximately 2,000 patents, including Appeal, Ex-parte Re-examination, Reissue, Inter Partes Review and Interference. Clients have included Research in Motion (now Blackberry), MIT, AT&T, Lucent, IBM, Sony and Canon. Ms. Pomerance has represented clients in licensing, in several patent infringement lawsuits and in a software copyright infringement lawsuit. She is a solo patent attorney in the Law Office of Brenda Pomerance in New York City. b.pomerance@verizon.net

Image source: canadaipblog.com

The impact of higher patent licensing hurdles may not be fully understood

Most patent holders would agree that licensing patents for revenue has gone from bad to awful — from difficult less than a decade ago, to virtually impossible today.* 

Determining if the courts and lawmakers have facilitated improvements or simply over-corrected for weaknesses in the patent system largely depends on whom you ask, and when.

While obvious to some, the fairness of the U.S. patent system is no longer apparent to all.

In 1996, the days of the first tech bubble, there was some uncertainty regarding patent validity. Patent licensing was not easy back then, but it was viable and still could be conducted on a business basis. Out-licenses could be negotiated without first filing suit, and significant damages awards were occasionally paid, although not as frequently has some would have us believe. The threat of an injunction that would freeze product sales was still a very potent weapon for those considering enforcement.

Things became very difficult in 2006 (high uncertainty), when injunctions became virtually impossible to obtain and NPEs, the businesses that tended to enforce the best patents most frequently, were characterized as a virulent strain of a disease that needed to be eradicated. Lost in defendants’ anger is that those who enforce valid patents may actually facilitate innovation and competition, and play a positive role in job creation.

Weighing In

Weighing in on whether the over-corrected patent pendulum has finally started to swing back towards the middle are Brian Hinman, Chief IP Executive at Philips, and Ashley Keller, Managing Director at Gerchen Keller Capital. In Balancing Act, in the May Intangible Investor simple-pendulum-suspensionin IAM, they speculate on what it will take to move the patent pendulum more toward the middle where it belongs.

In 2016, with the emergence of an extreme degree of uncertainty, patent licensing became virtually impossible. (Degree of uncertainty licensing can be compared to degree of difficulty” in a gymnastics competition, although their are no bonus points for successfully enforcing an infringed patent.) Of no help was the rise of preemptive, defensive litigation (declaratory judgments), forcing many patent holders to sue first and (maybe) talk later.

Factors responsible for patents’ loss of reliability include the American Invents Act (AIA) which permitted Inter Partes Reviews (IPRs), litigation-like, post-issuance examinations of patents that invalidated many invention rights filed under previous guidelines and slow enforcement. A number of  district court, Court of Appeals for the Federal Circuit (CAFC) and United States Supreme Court cases have gone against patent holders wishing to license for revenue, including the Alice decision, which rendered many software patents and business methods invalid.

Another major set-back is Non-Practicing Entities or NPEs, also known as patent “trolls” or owners who do not commercialize or sell products but hope to generate ROI through royalty payments. All NPEs have been lumped together and have been universally demonized as “black hats” who are the primary source of all that ails the U.S. patent system and that wish to enforce questionable rights and shake down otherwise innocent companies wishing to avoid costly disputes.

However, many of the largest corporations engage similar practices themselves (aka privateers), while decrying other NPE’s.  As a result of the actions of anti-patent proponents — many large patent holders themselves — patents have become even more uncertain, and litigation longer and more costly. NPEs continue to be held responsible for the need for more anti-patent legislation, and have become a sort of obsession for some businesses and lawmakers wishing to re-frame the discussion and absolve many tech companies of serial theft.

According to Patent Progress, “a project of the Computer & Communications Industry Association (CCIA)” that endeavors to limit patents reach, there are six bills currently before Congress that still endeavor to reel-in or otherwise weaken patents and deter enforcement.

Only one piece of patent legislation, the STRONG Act, which is before the Senate, attempts to roll back some of so-called improvements introduced over the past several years, much of which in retrospect looks like an overreaction to a much smaller problem.

Fourteen bills were introduced in the 113th Congress (2013–14) alone to deal with one or more aspects of the patent troll issue. For a list of these and other bills, go here. Computer and Communications Industry Association members include Amazon, Facebook, Google, Microsoft, Red Hat and Samsung.

More and Higher Hurdles

The diagram below, “Patent Licensing: Higher Hurdles for Protecting New Ideas,” is a graphic reminder of the progressive number and nature of impediments added since 1996 that discourage the licensing of U.S. patents. It was prepared by Brody Berman Associates for a client who has given permission for it to be shared. Key court decisions diminishing patent value and creating more uncertainty can be seen in a second slide below.

case2Patent TimeLine

“Risk-Adjusted Theft”

For technology companies the era of the licensing discussion is all but over. Uncertainty has never been greater, nor has hostility to owners offering an invention for license, no matter how good the patents or fair the terms. This leaves no alternative but to litigate.

“Efficient” infringement, a term we are hearing more of lately, is really a kind of risk-adjusted theft. Simply put, the deck is all but stacked against patent licensors (who are now forced to sue) because it is more economically viable today for most businesses to steal what they use than pay for it.

The courts, lawmakers and media will need to start soon if the damage that has been done to patent licensing is to be reversed. The Supreme Court decisions below speak volumes for the imbalance and how far patents have to go to bet back to the middle. It is not so much that Alice made software unpatentable as it rendered most existing business methods and many software patents invalid under the narrower guidelines that the Court established.

If proponents of fewer and lower hurdles feel the system has over-corrected and is doing damage, they had better turn up the volume. The courts, legislators and even most patent holders do not appear to be listening.

casesPatent TimeLine

 

*My gratitude to Irv Rappaport who assisted in writing this article. Irv has served as the head of IP departments at Apple, National Semiconductor and Medtronic, and was a consultant to Intel responsible for suggesting the Intel Inside® campaign. He has served as an expert witness more than 70 cases and is named more than 20 U.S. patents. He also served as a USPTO patent examiner and a U.S. Army officer.

Image source: Brody Berman Associates; tutorvista.com

Silicon Valley: Too Big to Fail, or Too Big Not To?

Am I seeing things or is the innovation capitol becoming less hospitable to really new ideas and strong patents?

Are Silicon Valley’s guiding lights still willing to extend the welcome mat to entrepreneurs that provide potentially disruptive ideas and new business models?

While it may have the ability to periodically re-invent itself, we should not assume that San Francisco Bay Area has the confidence and perspective to avoid the mistakes of Detroit and the U.S. auto industry.

Firmen_im_Silicon_ValleyThe desire to maintain market share and profitability has turned companies once considered radically innovative somewhat mainstream. Some are stockpiling cash that they are uncertain about how to use and parking it off-shore to avoid paying U.S. taxes.

Silicon Valley: too big to fail, or too big not too?, published next week in IAM, uses The Intangible Investor column as a springboard to examine whether tech companies like Apple, Google, Facebook and Cisco are still supportive of new ideas or just managing their position as top dog until someone bigger and badder forces them to yield.

Others’ Inventions

Independent developers and big companies have something in common: they both dislike recognizing others’ inventions. To them patents are considered an impediment as opposed to a potential asset that can provide the leverage to help them succeed. Surely the maze of broad, ill-defined patents can create a minefield that makes legitimate businesses cringe, but without these rights new industries and technologies would be even fewer and further between. Also, capital would likely be even less available for new businesses, some of which, like Apple and H-P, will grow into big ones that employ a lot of people.

Silicon Valley, home to successful tech giants like Intel, Oracle and eBay, appears to be turning more risk averse as it matures and failure becomes more costly. This really should not too much of a surprise. The question is what does it mean for innovation and inventors’ rights, and for investors? At last glance, Apple, for example, was sitting on $140 billion in cash, up from about $20 billion in 2008, with a stock that has lost about $300 per share from its peak. It’s not easy being highly innovative when you are protecting assets and stockpiling cash.

Hacker’s Mantra

The hacker’s mantra heard often around Facebook, “Move fast and break things,” may be turning into more style than substance. A pre-IPO valuation of $100 billion will tend to do that. “Move fast and break the bank,” may be more like it.

What happens to companies that rely on inventions that were once disruptive? They tend to get careful and want to hold onto what they have created and manage their success and minimize risk. Good for profits; not so good for next generation technologies, or investors.

The area south of San Francisco extending to San Jose was once mostly about transistors, bold hardware engineering and innovative marketing. Today the engineers have been supplanted with e-commerce pioneers and software programmers. The drive to breakaway and start your own business, while seemingly easier now, is waning in the face of increased costs, competition and time pressure to succeed. Weaker patents and a less reliable patent system do not help.

* * *

Silicon Valley remains one of the most dynamic places for innovation. Unfortunately, it may take a recessionary cycle or two, another tech bubble, or cheaper real estate, to get its mojo back.

Illustration sources: toutapp.com; mashedreport.com

“Patent Failure” Fails to Recognize Danger of Too Much Repair

A Reply to Professors Bessen and Meurer’s Book About the Difficulty of Perfecting the Patent System

By Roya Ghafele and Benjamin Gibert

The publication of Patent Failure: How Judges, Bureaucrats and Lawyers Put Innovators at Risk (Princeton University Press, 2008) by James Bessen and Michael Meurer challenged the conventional wisdom on the relationship between patents and innovation.

The authors basically posit that the poor boundary definitions of patents result in over-litigation. Arguing that the costs of litigation create disincentives for innovators, Bessen and Meurer suggest that the IP system has fundamentally failed as a system of property rights for public firms in the USA. Industry analysts and public commentators have jumped on the findings to justify various positions in patent reform debates. Patrick Anderson and Joff Wild have already responded to some of the shortcomings in the Patent Failure study, particularly with regard to the interplay between infringement suits, stock prices and NPEs.

Assessing the Damage

Bessen and Meurer have clearly taken a leaf from their own book. The conclusion that badly defined patent scope results in costly litigation is based on narrow definitions of patent trolls, public firms, high-technology industries and litigation costs. While this narrow scope is necessary to make their analysis feasible, the accompanying qualifications to their conclusions seem to have been lost in the ensuing storm. Patents do still provide incentives to individual inventors and to the chemical and pharmaceutical industries. They are also likely to provide positive incentives for private firms operating in multiple sectors. Yet, round after round of Chinese whispers has morphed the study into a declaration that the patent system is fundamentally broken, rather than an exploration of where it is challenged, why it faces problems and how we can solve them.

That major high-technology firms supported the study, which concluded that patents on software are too abstract and ill-defined, naturally raises some questions. It is not surprising that major software patent infringers would welcome a declaration of a broken patent system. However, regardless of funding, these types of studies still fulfill important roles: 1) they encourage debate on the efficacy of the current IP system; 2) they identify avenues for possible reform. Perhaps it is here that Bessen and Meurer have the most to offer.

Specialized courts such as the Federal Circuit have expanded their influence over patent law in the past twenty years. Whether or not this means patents no longer work, it is important to recognize this development and understand its impact in the USA. Identifying detailed mechanisms to render patent claims more transparent and improve patent search is another welcome contribution. Yet the suggestion that increased patent fees can reduce the number of patent applications may come at the cost of locking out smaller innovators and gearing the patent system towards large corporate actors.

No Easy Solutions

While the economic and philosophic underpinnings of Patent Failure are easy to follow and coherent, there seems to be less reflection about the possible consequences of their recommendations. Other suggestions, such as exemptions from infringement repayments when technology is invented independently from the patent owner, seem useful on the surface but may prove extremely difficult to implement in practice.

Perhaps Bessen and Meurer’s most important contribution is simply the idea that the patent system must recognize the limits of its grasp, regardless of whether we currently know how to set those limits. By recognizing these limits we can start to understand how national institutions can support patent law to fuel innovation in an era of new challenges and opportunities.

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Dr. Roya Ghafele is the Director of Oxfirst Limited, a boutique consulting firm focusing on the economics of innovation and IP. Within the University of Oxford, she holds Fellowships at the Said Business School, the Oxford Intellectual Property Research Centre and St. Cross College. Dr. Ghafele worked as an Economist with the U.N.’s World Intellectual Property Organization (WIPO) and the Organization for Economic Cooperation and Development (OECD).  After having toured for five years as a ballet dancer she began her career in 2000 with McKinsey & Company. Dr. Ghafele is a consultant to Brody Berman Associates. roya.ghafele@oxfirst.com

Benjamin Gibert is a Research Associate with Oxfirst Ltd. Prior to joining the firm he was a research Associate in the University of Oxford where he graduated with distinction from Oxford and from Warwick University.
benjamin.gibert@oxfirst.com


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