Recent reversals by the U.S. Supreme Court and the impact of the America Invents Act of 2012, which created the Inter Partes Review process, are threatening to erode public confidence in the U.S. Patent system and could lead to the export of key technology industries from the U.S.
That was the most important takeaway from the New IP Business Models: Innovation or Commoditization conference yesterday in Palo Alto sponsored by the law firm Sterne, Kessler, Goldstein, Fox P.L.L.C. and the Thomson Reuters Legal Executive Institute.
Congress is currently working on several pieces of patent reform legislation that would among other things mandate the awarding of attorney fees to the prevailing party, allow those financing litigation to be held liable for such fees, require higher pleading standards and limit discovery until after claims construction.
Meanwhile, the Supreme Court in several recent decisions including Alice v. CLS Bank has eliminated or reduced patent eligible subject matter in a number of high-profile and important technologies, including software, business methods, algorithms, social media, biotechnology and personal medicine. In addition, the IPR process has given infringement defendants more ways to defeat patents and provided an incentive for litigation.
“If we don’t see some protections [of patent rights] we’re going to see whole industries moving overseas,” said Kevin Rivette, managing partner of 3LP Advisors LLC in Palo Alto, Calif.
Robert Taylor, the owner and founder of RPT Legal Strategies PC in San Francisco, said similar trends caused the electronics and automotive industries to move overseas in the 1970s and 1980s. “We won’t know the impact of what’s going on now for a generation.”
To be sure, attitudes toward signing licensing agreements have been evolving for years. Litigation, which was once a last resort and usually seen as boorish behavior, has become the norm and even good business practice for public companies because of the growing importance of IP on companies’ bottom-lines.
“There’s no incentive to settle anymore because with litigation the worst that can happen is you have to pay what you could have settled for,” said Hans Sauer, the deputy general counsel for intellectual property at the Biotechnology Industry Organization and a professor at Georgetown University School of Law, during a panel discussion at the conference.
The problem has become so acute that some plaintiffs attorneys are starting to question whether it’s worth it to take up patent cases anymore.
“The pendulum has swung so far to the defendant side that we’re not going to have anymore plaintiffs,” said Ray Niro, a partner with Niro, Haller & Niro in Chicago.
“I was at a recent conference where [Susman Godfrey partner] Steve Susman, one of the most prominent plaintiffs’ attorneys in the business, said he was thinking about not taking anymore patent cases,” Niro said. “We’re also seriously considering not taking on any more patent cases. But is that going to be good for innovation in this country?”
Sauer and Niro’s remarks were echoed by Matthew Lynde, an expert witness in patent lawsuits and a vice president of Cornerstone Research in San Francisco.
“I’m alarmed at what the Supreme Court is doing,” Lynde said. “We want to promote useful arts. It takes a lot of investment to discover something like penicillin and it has to be rewarded.”
The panelists agreed that if the Supreme Court was asked to rule on whether or not penicillin was patentable it would probably rule that it wasn’t.
The panelists generally blamed changes to the patent system on the influence of the anti-patent troll movement.
“The Patent Troll meme is the most successful political meme out there,” said Todd Dickinson, a partner with Novak Druce Connolly Bove + Quigg LLP in Washington, D.C.
Dickinson said it’s similar in its effectiveness to the Harry and Louise ads that helped scuttle President Clinton’s health care reform legislation in the 1990s.
“It’s gotten away from them,” Dickinson said, referring to the anti-troll movement. “Public confidence in the patent system is eroding.”
For his part, Paul Michel, the retired Chief Judge for the U.S. Court of Appeals for the Federal Circuit, blamed Congress for responding to an anti-troll movement that has overstated a problem.
“The myth is every main street business is being strangled by patent trolls,” Judge Michel said.
Judge Michel noted that Congress in the lead up to the America Invents Act often cited the problem of demand letters sent by so-called patent trolls to shakedown potential infringers.
Of the thousands demand letters lawmakers pointed to, only two were found to be abusive, Judge Michel said.
Morover, Judge Michel said the AIA, which was supposedly aimed at lowering costs, speeding up the process and reducing abusive behavior, has instead created a new layer of cost with the IPR process.
While IPRs are touted as a 12 month process, Judge Michel said in reality they take more like 3 years. It takes six months to bring an IPR petition to the Patent Trial and Appeals Board and then the PTAB has 12 to 18 months to decide.
That doesn’t even cover the time it will take for the inevitable appeals of these decisions before the district courts, he said.
“Congress majors in overcorrection,” he said.
Judge Michel was equally dismissive of the Supreme Court, saying it seems every bit as influenced by the disingenuous anti-patent troll rhetoric as Congress.
Moreover, he said the Supreme Court has been unwilling to provide guidance on what is required to make a technology patentable. “They only seem to focus on what they don’t like.”
Furthermore, he said the Supreme Court seems to believe that the Federal Circuit has been “insubordinate” and “incompetent.”
“The CAFC was too internally fractured,” which created competing rulings and set the stage for high court reviews, Judge Michel said. “The Federal Circuit has some responsibility for the increase in certs granted by the Supreme Court. The Federal Circuit could regain some credibility by being more unified,” he said.
The Thomson Reuters Legal Executive Institute is planning another New IP Business Models: Innovation or Commoditization conference in New York on October 8.
To reach the reporter responsible for this story please contact Dan Lonkevich at 707 318-7899 or at email@example.com