©2018. Published in Landslide, Vol. 11, No. 1, September/October 2018, by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association or the copyright holder.
Feature
Uncertain Patent Rights and a Weakening U.S. Innovation Economy: A Mixed Legacy on IP Policy
Adam Mossoff
Over the past decade, the U.S. patent system has been under an extensive amount of stress from all branches of the federal government. The Supreme Court has injected a tremendous amount of uncertainty into the patent system with four decisions that severely restricted the patent eligibility of high-tech and biopharmaceutical innovation. Through policy advocacy, investigations, and enforcement actions, the Federal Trade Commission and the Department of Justice’s Antitrust Division destabilized patent licensing generally, and specifically undermined the incentives to create and commercialize patented innovation that is incorporated into technological standards.
Congress contributed to this unfortunate state of affairs in patent policy. Following its enactment of the America Invents Act of 2011 (AIA), widely recognized as the most substantial revision of the patent system in over 150 years, Congress immediately picked up the mantle of patent legislation again. These ongoing policy debates exacerbated the restrictions and limits on patent owners created in the AIA and continued to sow extensive uncertainty for inventors, venture capitalists, and the firms who invest billions in research and development (R&D) to create the new patented innovations that drive the U.S. innovation economy.
In Congress, two members of the House Judiciary Committee served key policy roles in sponsoring intellectual property legislation during this time: longtime Chairman Bob Goodlatte and Representative Darrell Issa, the current Chairman of the Subcommittee on Courts, Intellectual Property, and the Internet. Both Chairman Goodlatte and Representative Issa are retiring this year. There is no doubt they each believe in promoting and securing creativity and innovation as a key to a flourishing innovation economy. This is perhaps best evidenced by their strong commitment to legislative reforms of the copyright system, proposing bills that have secured to artists the fruits of their productive labors, as well as secured the commercial rights of companies in the creative industries that have brought these works to the marketplace.1
Unfortunately, Chairman Goodlatte and Representative Issa have a mixed legacy when it comes to securing patents to inventors and to companies in the innovation industries that bring these inventions to the marketplace. The legislation and policies they have supported over the past decade ultimately have destabilized the reliable and effective patent rights that have served as the key platforms for inventors to create, venture capitalists to invest in, and commercial firms to develop the new innovations that have made modern life a veritable miracle by even mid-twentieth-century standards. The patent system has brought us smartphones, treatments for cancer, and antiviral medicines that address a scourge of humanity for thousands of years, among many others. Whether this essential platform for innovation continues to promote the next generation of high-tech inventions and biopharmaceutical discoveries is currently in doubt.
One reason for this doubt is the changes wrought by the AIA, which was cosponsored in the House by both Chairman Goodlatte and Representative Issa. Among many other changes to the patent system, the AIA created the Patent Trial and Appeal Board (PTAB). In the lead up to the AIA, the PTAB was proposed to be an efficient means by which an error by an examiner in issuing a patent could be quickly and cheaply resolved via administrative hearings that would cancel these mistakenly issued patents.
Unfortunately, the PTAB has proven to be very different in practice from how it was originally conceived by Congress in 2011. This is the case for two reasons. First, the PTAB started holding its administrative hearings and canceling patents in 2012, which was at the moment that the highly misleading, lobbyist-driven “patent troll” and “broken patent system” narratives reached their apex in Washington, D.C. In reality, a relatively small number of bad actors—a number likely comparable to bad actors in any social, legal, or political institution—were exploited for rhetorical advantage to weaken and destabilize the patent system generally.
This narrative fed the second reason the PTAB became different in practice from how it was conceived in theory. The PTAB was an administrative tribunal created without structural limits to do one job, and it sought to do this job at any cost: cancel patents. It adopted a slew of procedural and substantive rules to make it very easy to achieve this goal. The proof is in the pudding: the cancellation rates, which have begun to dip this year, have ranged between 70 percent and almost 100 percent depending on which review program a patent owner is forced into by a petition. This is far more than the approximately 40 percent of patents that are proven to be invalid in a patent infringement lawsuit filed in an Article III court.
The PTAB is Exhibit A for the law of unintended consequences when Congress creates a new administrative agency without structural limits in performing a single job in canceling patents. In 2014, Randall Rader, former Chief Judge of the Federal Circuit, referred to the PTAB as a “patent death squad.” While some may balk at this rather heated rhetoric, then Chief Judge James Smith of the PTAB endorsed it, responding to Judge Rader’s criticism by saying that the PTAB judges “would not be doing what the statute calls on us to do” if we aren’t “death squadding” patents.2
Despite these problems and a search for a legislative solution that would impose some procedural limits on the PTAB, such as the STRONGER Patents Act, Representative Issa has gone in the other direction. He has sponsored legislation that would expand the authority of the PTAB.3
After the AIA was enacted, many thought Congress would refrain from considering more revisions to the patent system. Historically, Congress has enacted major patent legislation every 40–50 years. Alas, these predictions were mistaken. The “patent troll” narrative and ongoing lobbying efforts by large, mainly Silicon Valley–based, high-tech companies spurred more bills that promised more restrictions on patent rights. Representative Issa’s bill to expand the PTAB’s authority to cancel patents is one example. Another example was a bill sponsored by Chairman Goodlatte, and tendentiously titled, the “Innovation Act.” This bill was first introduced in 2013 and was passed overwhelmingly by a vote on the floor of the House. It stalled in the Senate, and its reintroduction in the House in 2015 failed, as the facts about patents and their role in the innovation economy slowly began to replace the “patent troll” rhetoric and junk science statistical claims that had become conventional wisdom in D.C. as a result of lobbying efforts.4
The Innovation Act was touted by its proponents as a type of “tort reform” for patent litigation, as it would have created a series of procedural hurdles in filing patent infringement lawsuits and other so-called litigation “reforms,” such as one-way, mandatory, losing patent owner pays attorney fees of the accused infringer. The problem was that the bill imposed these heavy-handed legal and financial burdens on all patent owners seeking protection of their rights in court against pirates. Representative Issa made this clear in a hearing he held in 2016 on patent litigation where he said that a “plaintiff” and a “troll” are “interchangeable.”5 Thus, he (and others) included as “patent trolls” such patent owners as individual inventors, startups, small businesses, and universities, which are significant sources of new innovation and economic growth, and which are undercapitalized and thus suffer the depredations of “efficient infringement” business strategies.6 Coincidentally, or perhaps not, the same companies engaging in efficient infringement were the ones lobbying Congress about the “patent troll” problem to justify the Innovation Act.7
And that was the rub: bills like the Innovation Act, and the SHIELD Act before that, were supported by over-encompassing rhetorical epithets and deeply misleading statistical claims that condemned all patent owners. As I pointed out a few years ago, famous inventors, such as Thomas Edison and Charles Goodyear, fell within the scope of the condemnatory rhetoric and false statistical claims driving proposed patent legislation.8
Perhaps no one made this problem more obvious than Representative Issa himself. In addition to his casual use of “patent troll” that resulted in condemnations of all patent owners who sue to protect their rights, he repeatedly invoked junk science statistics about the costs of patent litigation, such as the false claim that “patent trolls” cost the U.S. economy $29 billion in 2011.9 The study that produced this allegation has been soundly debunked through rigorous review by peer academics.10 Just one of its many methodological and substantive problems is that in order to reach the $29 billion number, the study’s authors included as so-called “patent trolls” research universities, individual inventors, and even some manufacturing companies that happen to license their technology.11 (Although the two professors did not use the “patent troll” term in their study, Representative Issa used it in repeating their unsound conclusion, and both professors used this epithet in a 2014 op-ed calling on Congress to enact legislation on the basis of their study.12)
Ironically, before joining Congress, Representative Issa was once a patent owner himself.13 Given the many patent infringement lawsuits he filed in the 1990s, he himself would have qualified for the “patent troll” label he invoked two decades later to justify the Innovation Act.14
Unfortunately, the seemingly unending activity on legislation that would radically weaken or eliminate patent rights created ongoing uncertainty for those who rely on patents to produce new high-tech products and biopharmaceutical treatments. The AIA itself was the product of six years of heated policy debate in D.C. The ink was barely dry on the AIA and the PTAB was quickly earning its well-deserved “death squad for patents” moniker when Congress once more went into the breach with bills like the Innovation Act and others. All of these bills restricted or eliminated patent rights, or imposed more legal and financial burdens on all patent owners in licensing their property rights or suing infringers in court. The tenor of the ongoing push for so-called “reform” was so overwhelmingly negative for patent owners that I penned an op-ed in 2015 that called out policymakers in Washington, D.C., for defining “reform” solely in terms of one-sided, unbalanced legislation that blamed patent owners for all the ills in society.15
Some indicators of IP policy and innovation suggest the predictable results of this decade-long negative narrative about patent owners and the ongoing legal uncertainty concerning the nature of the property rights that drive the innovation economy. According to the prominent annual ranking of patent systems around the world by the U.S. Chamber of Commerce, the U.S. patent system has fallen steadily over the past two years from its long-standing first-place position to a 2018 rank of twelfth.16 In terms of the stability and effectiveness of the property rights the United States now provides to innovators, the United States is tied with Italy and ranks behind Ireland, France, Spain, and Singapore, among others. The U.S. Chamber directly links the collapse of the formerly gold standard U.S. patent system to the creation of the PTAB “patent death squad” in the AIA and to the Supreme Court’s decisions that narrowed patent eligibility for high-tech and biopharmaceutical inventions. This ranking is confirmed by anecdotal evidence as well. Today, thought leaders, venture capitalists, and innovators talk at conferences about the U.S. patent system, and the overwhelming theme is the legal uncertainty in these vital property rights.17 This legal uncertainty undermines decisions to invest in and create the new inventions and innovative commercial arrangements that lead to new products and services in the innovation economy.
Similarly, this year, the United States dropped out of the top 10 in the Bloomberg Innovation Index ranking of innovation economies around the globe.18 Unlike the U.S. Chamber’s ranking, which examines only the stability and effectiveness of a country’s patent system, the Bloomberg Innovation Index measures simply the sources of innovative activity, such as university R&D. Although one should be careful about inferring causation from correlation, this is one more data point of a growing number of indicators showing that, as patent rights have become less reliable and less effective, this correlates with drops in R&D in key technology sectors. And lest anyone forget, historical and economic studies overwhelmingly show a positive correlation between reliable patent rights and economic growth, contrary to the assertions about the lack of such evidence by academics and lobbyists today.19
As further confirmation of the unfortunately mixed legacy on IP policy by Chairman Goodlatte and Representative Issa, other government officials and congresspersons are now talking about the value of the patent system and breaking explicitly with the policies embraced in Congress and in agencies for the past decade. The recently confirmed Director of the U.S. Patent and Trademark Office, Andrei Iancu, is speaking about the importance of reestablishing the “reliable patents” once secured to inventors and companies by the U.S. patent system.20 This is a welcome change from Michelle Lee, the prior Director, who constantly spoke of creating more and more quality controls and additional processes in order to eliminate the “bad patents” that stymie innovation.21 Similarly, Assistant Attorney General Makan Delrahim, the recently appointed head of the Antitrust Division of the Department of Justice, has also broken with the one-sided policy rhetoric of his predecessors in explicitly recognizing the key importance of reliable and stable patents in driving innovation, especially in the development of technological standards.22 Lastly, the bipartisan STRONGER Patents Act has been introduced in both the Senate and the House, which would bring much-needed reforms to the PTAB in reining in this administrative tribunal by compelling it to respect basic precepts of due process and the rule of law.23
These are notable changes in rhetoric and policy if only because they represent such a significant break from the past rhetoric, policies, legislation, and bills of the past 10 years. In fact, neither Chairman Goodlatte nor Representative Issa is a sponsor of the version of the STRONGER Patents Act that was introduced in the House in March 2018, nor are they sponsors of other recently introduced bills that also seek to reestablish reliable and effective property rights in patented innovation.24 This is unfortunate, if only because they are retiring this year and their sponsorship of this important legislation to fix the structural flaws in the PTAB (as it was created in the AIA) would have been an excellent confirmation of their obvious belief in supporting the innovators and creators that are the driving force of the U.S. innovation economy.
Endnotes
1. See, e.g., Music Modernization Act, H.R. 5447, 115th Cong. (2018).
2. Ryan Davis, PTAB’s “Death Squad” Label Not Totally Off-Base, Chief Says, Law360 (Aug. 14, 2014), https://www.law360.com/articles/567550/ptab-s-death-squad-label-not-totally-off-base-chief-says.
3. Stopping the Offensive Use of Patents (STOP) Act, H.R. 2766, 113th Cong. (2013).
4. Adam Mossoff, Repetition of Junk Science & Epithets Does Not Make Them True, IPWatchdog (Nov. 19, 2015), http://www.ipwatchdog.com/2015/11/19/repetition-of-make-them-true/id=63302/.
5. Gene Quinn & Steve Brachmann, Congressman Issa Calls Patent Trolls and Plaintiffs Interchangeable during ITC Hearing, IPWatchdog (Apr. 17, 2016), http://www.ipwatchdog.com/2016/04/17/congressman-issa-calls-patent-trolls-plaintiffs-interchangeable-itc/id=68376/.
6. Dana Rohrabacher, Patent “Reform” Is Killing the Right to Invent, Wash. Times, Mar. 1, 2015, https://www.washingtontimes.com/news/2015/mar/1/dana-rohrabacher-patent-reform-is-killing-the-righ/.
7. Joe Nocera, The Patent Troll Smokescreen, N.Y. Times, Oct. 23, 2015, https://www.nytimes.com/2015/10/24/opinion/the-patent-troll-smokescreen.html.
8. Adam Mossoff, Patent Licensing and Secondary Markets in the Nineteenth Century, 22 Geo. Mason L. Rev. 959 (2015).
9. Press Release, House of Representatives Judiciary Comm., Goodlatte, DeFazio, Issa, Nadler, Smith, Lofgren, Eshoo Introduce Patent Litigation Reform Bill (Feb. 15, 2015), https://judiciary.house.gov/press-release/goodlatte-defazio-issa-nadler-smith-lofgren-eshoo-introduce-patent-litigation-reform-bill/.
10. See, e.g., David L. Schwartz & Jay P. Kesan, Analyzing the Role of Non-Practicing Entities in the Patent System, 99 Cornell L. Rev. 425 (2014).
11. Mossoff, Repetition of Junk Science, supra note 4.
12. Michael J. Meurer & James Bessen, Congress Needs to Rein in Patent Trolls, Bos. Globe, Nov. 4, 2014, https://www.bostonglobe.com/opinion/2014/11/04/congress-needs-rein-patent-trolls/BSuITBqcU11mtYIrqSK6yO/story.html.
13. Steve Brachmann & Gene Quinn, Is Congressman Darrell Issa a Patent Troll?, IPWatchdog (July 10, 2017), http://www.ipwatchdog.com/2017/07/10/congressman-darrell-issa-patent-troll/id=85496/.
14. Adam Mossoff & Mark Schultz, Don’t Pull Up the Ladder: Congressional Inventors Should Oppose Weakening Patents, IPWatchdog (June 10, 2015), http://www.ipwatchdog.com/2015/06/10/congressional-inventors-should-oppose-weakening-patents/id=58525/.
15. Adam Mossoff, Weighing the Patent System: It Is Time to Confront the Bias against Patent Owners in Patent “Reform” Legislation, Wash. Times, Mar. 24, 2016, https://www.washingtontimes.com/news/2016/mar/24/adam-mossoff-weighing-the-patent-system/.
16. Glob. Innovation Policy Ctr., International IP Index (6th ed. 2018), http://www.theglobalipcenter.com/wp-content/uploads/2018/02/GIPC_IP_Index_2018.pdf.
17. Kevin Madigan, An Ever-Weakening Patent System Is Threatening the Future of American Innovation, Ctr. for Protection Intell. Prop. (Apr. 28, 2017), https://cpip.gmu.edu/2017/04/28/an-ever-weakening-patent-system-is-threatening-the-future-of-american-innovation/.
18. Michelle Jamrisko & Wei Lu, The U.S. Drops Out of the Top 10 in Innovation Ranking, Bloomberg Tech. (Jan. 22, 2018), https://www.bloomberg.com/news/articles/2018-01-22/south-korea-tops-global-innovation-ranking-again-as-u-s-falls.
19. Stephen Haber, Patents and the Wealth of Nations, 23 Geo. Mason L. Rev. 811 (2016).
20. Andrei Iancu, Remarks at U.S. Chamber of Commerce Patent Policy Conference (Apr. 11, 2018), https://www.uspto.gov/about-us/news-updates/remarks-director-andrei-iancu-us-chamber-commerce-patent-policy-conference.
21. Gene Quinn & Steve Brachmann, Michelle Lee’s Views on Patent Quality Out of Touch with Reality Facing Patent Applications, IPWatchdog (Feb. 2, 2017), http://www.ipwatchdog.com/2017/02/02/michelle-lees-patent-quality-reality/id=77158/.
22. Devlin Hartline, Letter to Antitrust Chief Applauds DOJ’s New Evidence-Based Approach to IP Enforcement, Ctr. for Protection Intell. Prop. (Feb. 13, 2018), https://cpip.gmu.edu/2018/02/13/letter-to-antitrust-chief-applauds-dojs-new-evidence-based-approach-to-ip-enforcement/.
23. Support Technology and Research for Our Nation’s Growth and Economic Resilience (STRONGER) Patents Act of 2017, S. 1390, 115th Cong.
24. See, e.g., Restoring America’s Leadership in Innovation Act of 2018, H.R. 6264, 115th Cong.