As you probably know, patent reform legislation is moving again. Bills in both the House and Senate have been passed out of committee with bipartisan support and are moving to their respective chamber floors. We are cautiously optimistic we could see a patent reform bill signed into law in 2015. However, some issues remain unsettled and they must be addressed in order for patent reform legislation to be effective in fighting the patent troll problem. We’ll be breaking down these issue areas for you in separate blog posts - they concern Inter-Partes Review (or “preserving the ability to more affordably challenge the validity of a patent outside the court”), venue (or “dealing with the Eastern District of Texas”), pleadings (or “including basic information in the plaintiff's initial complaint”), and discovery (or “limit unnecessary fishing expeditions for evidence before the validity and scope of the case has been determined”).
Patent trolls rely on two tools: low-quality, impossible-to-understand patents and the outrageous costs of patent litigation. Proposed legislation in the House (Innovation Act) and Senate (PATENT Act) would address the second problem by leveling the playing field and giving defendants a meaningful chance to defend themselves. Yet, throughout the legislative process, we have expressed concern that the bills fail to do anything to improve patent quality. In an unwelcome development, certain proposed legislative changes would actually further weaken patent quality.
As part of the last update to patent law, 2011’s America Invents Act, Congress created a procedure called inter partes review (IPR). IPRs allow a party to challenge a patent’s validity at the Patent Office instead of in court. These proceedings were designed to move quickly, within a year, and are considerably cheaper than litigation. While IPRs remain too expensive for most small startups (with legal fees, an IPR can easily cost upward of $250,000), they represent smart policy that helps rid the system of bad patents. So far the procedure has been successful.
Despite this, reform opponents—the biotechnology and pharmaceutical industries, in particular—are demanding major changes that would upend the IPR program in exchange for their support for patent reform legislation. They allege that IPR proceedings are unfair to patent holders. They wrongly allege that the program has resulted in “overly high” invalidation rates, and that these rates reflect underlying defects in the proceedings.
But as Professor (and former White House advisor) Colleen Chien recently noted the bogeyman of overly high invalidation rates is wildly exaggerated.
To understand this numbers game, you first have to understand a bit about how patents work. The heart of any patent is a series of claims. Patent claims should spell out exactly what a patent covers and the claims–usually at least upwards of 10, sometimes more than 100 per patent–are what define the metes and bounds of the patent. When a patent owner alleges that its patent is infringed, it is essentially saying that certain claims are infringed. Likewise, when a patent’s validity is challenged either in court or at the Patent Office (where IPRs take place), the party challenging the patent is asserting that certain claims are invalid.
Next you need to understand a bit about the Patent Office’s IPR process. First, it was specifically designed to protect a patent holder from frivolous attacks. A party challenging a patent’s validity needs to put forward its entire case at the very outset and essentially ask the Patent Office to take up the challenge. (This is the opposite of litigation, where a party claiming infringement or challenging a patent can actually use the legal system to prove out its case as the litigation progresses.) In fact, the law requires that the Patent Office only institute IPRs when a “reasonable likelihood” that one or more of a patent’s claims are invalid. This weeds out frivolous claims and weak challenges at the outset. The process also uses an “estoppel provision” that prevents a patent challenger from later making arguments in a court appeal that it made—or could have made—at the Patent Office. In other words, the challenger can’t get two bites at the apple. If the litigation system likewise protected startups and other defendants from frivolous challenges in the same way that IPR does for patent holders, we would not have the huge patent troll problem we have today.
Now, back to the numbers. Certain groups—again, largely the pharmaceutical and biotechnology industries—have claimed that IPRs are “patent death squads,” citing data that purport to show that patents are invalidated by IPRs at an overly high rate. And while it might be true that about about 80 percent of patent challenges that result in a full IPR proceeding (up to and including a final ruling) have at least one claim invalidated, that statistic is seriously misleading. For starters, this statistic excludes the very large number of cases that the Patent Office has declined to hear. The Patent Office has instituted IPRs in only approximately 47 percent of patent challenges to date, meaning about 53 percent of patent challenges were not instituted, dismissed, or settled. By declining to institute a proceeding, the Patent Office gold-plates a patent and renders it basically immune from any further challenge.
First, about half of the claims that the Patent Office actually reviews are settled or dropped by the parties. Moreover, of all claims that the Patent Office reviews, only 24 percent are invalidated (again, these are claims, not entire patents). And most of these patents are still partially—or largely—valid, even if some claims have been thrown out. And all the others have been “gold-plated.” So the Patent Office has actually gold-plated far more patent claims than it has invalidated.
IPRs are good for the patent system and there’s no evidence that they are unfair. To the contrary, the Patent Office has been widely praised for the quality and timeliness of its work. And nearly every decision by the PTO Board has been affirmed when appealed in the courts.
In sum, it is clear that the IPR process is working; in fact, it’s working quite well. And, notably, it’s being used very effectively by the tech industry, the industry that faces the biggest patent troll threats. In fact, over 60 percent of petitions are being filed on computer or electrical based patents, while less than 10 percent are on biotechnology and pharmaceutical patents.
Congress has worked hard to balance the needs of all industries that use the patent system, and proposed language in the House and Senate has been narrowly tailored to address only the worst actors and behavior (specifically, abusive litigation by patent trolls) while preserving the rights of patent holders to enforce valid claims. That balance is now threatened by the insistence of certain industry sectors that changes be made to the IPR process. These proposals would change the claim construction standard that has been used by the Patent Office for decades in order to make it harder to invalidate claims. The Senate bill goes even further: it would establish a presumption of validity for patents that are challenged in IPR that does not currently exist. Those changes threaten to severely weaken the effectiveness of IPR proceedings for everyone.
We should not further open up negotiations that weaken IPR—or carve out whole industries from using the procedure at all—merely to appease opponents of patent reform. Successful patent reform legislation must be comprehensive in scope and must produce a level playing field for all innovators. It must also do nothing to weaken patent quality. So it must ensure that the Patent Office’s IPR proceedings remain a viable, efficient, and effective tool to rid the system of bad patents.
