It's not secret that we still desperately need comprehensive patent reform to fix the many, many problems of our patent system. Even as the Supreme Court has spent the past twelve years repeatedly fixing broken parts of patent law one piece at a time (by repeatedly smacking down awful decisions by the Court of Appeals for the Federal Circuit) there's still much more that can, and should, be done. To date, most of these efforts are being blocked by powerful pharmaceutical interests, with some help from short-sighted trial lawyers who fear things like fee shifting (i.e., "loser pays") coming to patent law. With broad bipartisan support for real patent reform, it's really just been a few well-connected organizations that have blocked the whole thing from going through.
But, apparently, those groups have a friend in Senator Chris Coons, who last week introduced a patent reform bill so bad that it would basically wipe out pretty much all of the major gains towards fixing the patent system from the past twelve years. It's that bad. And shame on Senators Tom Cotton, Dick Durbin and Mazie Hirono for co-sponsoring the bill. It's unfathomably bad and would destroy innovation in many parts of the country. You know the bill is going to be bad when it conflates monopoly patent rights with traditional property rights, despite the two being entirely different things:
“Strong rights in property—whether intellectual or tangible—have been a key driver behind U.S. economic might. Eroding such rights would imperil innovation and job growth, so we need to maintain strong patent protections if we want our economy to grow at full speed,” said Senator Cotton. “I’m glad to see my colleagues from both sides of the aisle understand just how important patent rights are to our future. And I believe this bill will make sure intellectual-property rights are treated with the same respect as all our other rights.”
Except, of course, this is not an accurate description of patents at all. When patents are too "strong" they impede and hinder innovation. They slow down, limit, or outright kill important improvements and follow-on innovations. They work on the truly wrong concept that whoever comes up with an idea "first" is best able or equipped to actually successfully execute and bring things to market. They work on the assumption that less competition improves innovation when basically all evidence points in the other direction.
There are so many bad parts in the bill, it's tough to talk about them all. Josh Landau, over at Patent Progress, however has a pretty thorough breakdown. We'll break the problems into two sections ourselves (though, again, there's much more). First up, trying to kill the inter partes review process (IPR). IPR is very much under attack these days which is stupid and unfortunate.
Here's the idea behind the IPR system: sometimes (perhaps frequently!) the US Patent Office makes a big mistake and grants a patent that should not have been granted. This is not a theoretical problem. Studies have shown repeatedly that there has been an explosion in questionable patents approved in the last couple decades. There are lots of reasons for this, many of which we've discussed in previous posts, but hopefully everyone should be able to admit that if a patent that should not have been granted at all under the law, is still granted there is a clear harm to innovators and the public, in that innovators are blocked from innovating -- or are charged an unnecessary fee. There's a real and noticeable problem.
So, implemented back in 2012 under the America Invents Act, the concept behind IPR, is that the validity of a patent can be reviewed by a special tribunal at the US Patent Office to determine if the patent is valid. It's basically a good safety valve on the fact that patent examiners were often under pressure to approve patents just to clear out the docket faster, rather than worrying about whether or not something was truly valid. Seems like a good idea, but trolls and pharma companies hate it so much. The Supreme Court is going to hear a case soon looking at the Constitutionality of the IPR process -- described in the article linked above as determining if the USPTO is "allowed to change its mind."
But the Coons bill, if passed, would do away with the need for SCOTUS to review, because it would basically wipe out the IPR process. Landau summarizes just a few of the changes to the IPR process in this bill:
If a patent claim has ever been IPRed, no one else can ever IPR it again, no matter who they are or if they have totally new art. You can never file multiple petitions against the same patent, even if it has 300 claims. The Patent Office can never revisit a patent once a federal court has. Patent owners can appeal institution of an IPR before the final written decision, but petitioners can’t appeal denial of institution. Only people who have actually been sued can file an IPR. Anyone who financially supports the petitioner becomes a real party in interest. Unlike everywhere else in the Patent Office, you have to prove claims are invalid by clear and convincing evidence using a narrow construction rather than the broadest reasonable interpretation. Patent owners are effectively entitled to amend their claims. Patent owners can, instead of going through IPR, ask to go through an “expedited reexamination,” allowing them to change their claims and have their patent treated as if it was a fresh application. The petitioner isn’t involved in the reexamination, so it’s just the patent owner and the Patent Office
To show just how dumb this would be, Landau uses the example of the infamous podcasting patent troll, Personal Audio. As you may recall, after much effort, EFF was able to help bust the key patent held by Personal Audio, using the IPR process, and protecting tons of podcasters in the process. But would that still work if this bill became law? Not likely.
EFF was never sued by Personal Audio. They couldn’t have filed their IPR at all. The story would end here, even though that patent was invalid.
The requirement that you actually be sued goes too far. A patent owner can wait until people have built up businesses before suing, and in the interim, no one can challenge their patent. An IPR would let me see if the patent is valid before I invest resources in developing my product. Requiring an actual lawsuit before filing an IPR would incentivize patent owners to sit and wait until products are developed and profitable before filing their lawsuits.
Next, EFF would have to identify the “real party in interest” for the IPR. After the STRONGER Patents Act, that includes anyone who:directly or through an affiliate, subsidiary, or proxy, makes a financial contribution to the preparation for, or conduct during, an inter partes review on behalf of the petitioner
So, did you donate to EFF during the past 4 years? Congratulations, you’re now a real party in interest to the podcasting IPR.
That means that you can’t challenge the patent in court if you’re ever sued. It also means that if you were sued on the patent more than 1 year ago, then EFF would have been prevented from filing the IPR. It means that, if EFF failed to name you in their petition as a real party in interest, the patent owner can ask for the petition to be denied because of that failure. And it means that anyone else you contribute to winds up prevented from challenging the validity of the patent anywhere (including in court.)
And it doesn’t stop there. If I’m a startup developing new technology and I file an IPR, any VC who funds me during the process is a real party in interest. If that VC then funds another company, that company can no longer file an IPR or challenge the validity of the patent. VCs will be wary of funding anyone who’s filed an IPR as a result, and startups who have to choose between an IPR and funding are going to pick funding.
Even more bizarre is taking away the adversarial nature of an appeal. One of the key problems with today's patent system is the total lack of an adversarial interest in determining if a patent was valid. If you only ever hear from one side of a debate, you're likely to identify much more with that side. But here, Coons is trying to shift the system to vastly limit any sort of adversarial process:
And let’s assume, as happened in real life, that the PTAB decided that there was a reasonable likelihood EFF would invalidate at least one of Personal Audio’s patent’s claims. The PTAB would decide to institute the IPR.
At which point the STRONGER Patents Act gives the patent owner to appeal the institution if there were procedural defects (like failing to name all the real parties in interest, being filed after a year from a lawsuit, or—new to the STRONGER Patents Act—if someone else had previously challenged the claim.) They can appeal even though the patent owner had every opportunity to point these defects out before the decision on institution was made.
But for some reason it doesn’t give the petitioner the right to appeal a denial if the denial was made for a procedural defect. You can only appeal if the patent is determined likely to be invalid. Seems “balanced,” doesn’t it?
Those supporting this bill want the world to believe that any challenge to a patent's validity is a de facto problem that needs to be stopped. The reality, though, is that getting rid of bad patents quickly is a key part of our patent system today, that is quite frequently a big part of why bad patents are getting thrown out and some patent trolls have struggled.
Oh and then there's this bit of total nonsense:
The STRONGER Patents Act also creates a new procedure, called the “expedited IPR reexamination.” This is itself a misnomer, because the “inter partes” in IPR means “between parties,” and the expedited reexamination explicitly does not include the petitioner, only the patent owner.
But setting aside the deceptive labeling, the expedited reexamination means that when an IPR is instituted, instead of actually responding to the IPR, the patent owner can simply request to cancel all their claims, file amended claims, and request a new examination of their patent. In this examination, it goes back to a regular patent examiner. The petitioner is totally cut out of the process.
So Personal Audio could simply go through reexamination, add some meaningless limitations to their claim, and come back with their patent. And by this point, it’s probably been more than a year since Personal Audio sued Adam Carolla, which means that EFF and Carolla are barred from challenging the new claims. (And if it hasn’t been more than a year, well, if it gets instituted then they can just request another expedited reexamination to keep running out the clock.)
This is bad, bad stuff. The IPR process is relatively new, but already quite important, and this bill would effectively wipe it out in its infancy.
The second major problem with the bill is that it basically targets a bunch of the Supreme Court rulings from the past few years that have helped massively fix problems with the patent system. Rather than applauding this and pushing SCOTUS to continue to clean up these messes, it often goes the other way. Here's Landau again, talking about how it would effectively reject SCOTUS's ruling in eBay v. Mercexchange -- one of the earlier patent cases the Supreme Court took in this new century to smack down CAFC and bring back some sanity. This is the case that says maybe, even if there's infringement, the optimal solution should NOT be a total injunction against the entire product:
For example, § 106 of the bill “restores the presumption of injunctive relief upon a finding that a patent is valid and infringed.” In 2005, the Supreme Court decided the opposite in the eBay v. MercExchange case. The FTC’s 2003 “To Promote Innovation” Report highlighted the reasons why an automatic rule in favor of injunctions harms innovation and the economy, in particular noting that because injunctions typically issue after a product has been designed and manufacture has begun, injunctions put patent owners in a position to demand a “supra-competitive royalty rate.”
The Coons bill would bring us back to the world in which a patent troll who patented a lug nut on a car could get an injunction on the entire car. That forces the manufacturer to choose between halting production on the entire vehicle until they can redesign and reorganize their manufacturing process (an incredibly expensive process) or paying the troll more than their lug nut’s technical value justifies. That’s not promoting innovation, or the economy—in fact, it’s the opposite.
There's much more in there as well, most of which is covered by Landau. EFF also has a great blog post on how problematic this bill is, noting that it seems peculiarly designed to drive innovation overseas.
This bill is dangerous. It takes the past fifteen years or so of a gradual march towards fixing a very broken patent system... and gets rid of nearly all of it.