Center for American Progress Report a Mixed Bag of Recommendations to Obama Administration

    By Kevin E. Noonan --

Rick Weiss gets it when it comes to the value of patents.  "Patents assure an inventor a period of time, generally 20 years, to exclude others from using the invention, in return for a full explication of that invention by the patent holder," he says.  "The assurance that competitors can be blocked from freely copying inventions during this period of exclusivity is a powerful stimulus to capital investment, which is a key enabler of the inventive process."  He also understands that "full and public description" of an invention, the quid pro quo of the patent system, "fuels a faster pace of innovation than would occur through other means of market exclusivity, such as trade secrets, which in turn boosts broad-based economic growth and prosperity."

Which is why Mr. Weiss' Report ("Tackling the Challenge of Patent Reform: Recommendations for the Obama administration and Congress"), authored as the result of a series of roundtable meetings of "expert stakeholders from a wide array of business, legal and academic disciplines," is a little disappointing.  The Report was published by the Center for American Progress and Science Progress and is timely, since the roundtable discussions were held just last October.  Perhaps because of the intentionally competing interests of the stakeholders involved, and the participation of patent academics, the Report does not hew to the realities of the patent system with the faithfulness Mr. Weiss himself evinces in the Report's introductory paragraphs.

For example, while the Report asserts that "the widespread characterization of the PTO as 'broken'" is an overstatement, in the next breath it states that there is "broad consensus today that the U.S. system for protecting intellectual property is burdened with too many patents of questionable quality and validity."  While properly articulating the current conventional wisdom, there is little evidence to back up the claim.  Generally, the patents that are mentioned in this regard are frivolous (methods for playing with cats or swinging on a swing), which are the patent equivalent of a vanity publication.  While déclassé compared with patents for more "serious" technologies, there is no good argument that the patent system is harmed in any way by their having been issued.  Other complaints about "bad" patents tend to be either philosophical (for opponents of human gene patents, for example) or political (by industries that would rather expropriate than license technology developed by others). 

The Report also suffers from accepting the existence of the alphabet soup of government and other groups calling for patent reform as evidence that reform is needed ("where there's smoke, there's got to be fire").  But such uncritical acceptance ignores the potent political forces behind these various groups and reports, as well as ignoring the inability for any such group constituted to investigate whether reform is needed to conclude that it is not.  And the fact that Congress last performed a major rewrite of the patent statute almost 60 years ago disregards major changes in 1984, 1988, 1996, and 2000, all of which adapted U.S. patent law to international trends and treaties and changed in fundamental ways how patents are obtained and enforced.

Turning to the recommendations, those directed towards the Patent Office are the most sound.  There are four:

1.  Solidify the budget, and control revenues and expenses, including:

• Creation of a fee-based fast-track system,
• Demanding that a greater share of patent-processing fees be paid earlier in the examination process,
• Increasing those fees that the PTO is authorized to set,
• Retaining funds left over from prior years, and
• Total and permanent halt to PTO fee diversion.

2.  Hire and retain the best patent staff:

• Make pay competitive,
• Adjust production goals to be more realistic,
• Improve the information infrastructure, including giving examiners access to "outside" experts, and
• Developing objective measures of patent quality, including considering not only the frequency with which patents are improvidently granted, but also how frequently they are improvidently denied.

3.  Improved communication between applicants and the Office:

• Reverse Bush administration practices that limited communication and consultation with stakeholders,
• Seek "early and extensive" input from the public on rules packages,
• Offer better access to the public of PTO management and economic information, especially statistics relating to PTO performance, and
• Open the Public Policy Advisory Committee meetings to the public and webcast them (two things the Office is doing for the first time this Friday; see PTO notice for more details).

4.  Improve the information available to PTO staff:

• Improve electronic information systems for prior art searching, to include trade publications, academic research journals and the like, and
• Encourage "interested" third party "experts" to participate in programs like the "peer-to-patent" program, which the Report recommends be scaled up.

The Report also discusses the pros and cons of converting the Office to a government-owned corporation (like the Post Office), as a way to better compete with the private sector, but concludes that the Office can accomplish its objectives if kept "wholly" within the Federal government.

Finally, the Report recommends that executive management and business skills may be more important for the new Director than legal skills.  What it doesn't say, and what is evident to anyone watching the many failures of the Rogan/Dudas administrations under the former presidency, is that the new Director should understand how the patent process works, to better understand how it is not working (insofar as it is not) and to appreciate the difference between changes that will improve U.S. patents and those that merely improve Office statistics or its image.

As promising as these recommendations are, the Report then sets forth a series of recommendations that seem bizarre.  Citing the "significant threat posed by patent trolls to the integrity and stability of the patent system (a charge that might as well have been written, and may have been, by representatives from the Coalition for Patent Fairness), the Report recommends that the Patent Office should "initiate a study assessing various approaches to understanding and resolving the patent troll issue."  The possible "remedies" proposed include an "awarding of legal fees to successful defendants (a 'losers pay' rule); more strict adherence to Rule 11 requirements (which set the bar height for the filing of patent infringement suits) by the courts; and a requirement that all patent assignments and licenses be registered with the PTO, including ongoing declaration of assignments and licenses to and by the patent-holder's upward and downward affiliates."  The first two of these recommendations are outside the scope of the Patent Office and are entirely inappropriate; they also presuppose that a patent "troll" is imbued with lesser patent rights than a practicing entity, a proposition that has no basis in U.S. patent law.  (Indeed, all the Supreme Court's eBay decision changed in this regard is to require a court to decide whether the balance of the equities and the public interest was served by granting an injunction to a non-practicing entity;  it did not preclude NPEs from having an injunction granted under appropriate circumstances.)

The Report contains a few additional recommendations that are more in keeping with its overall thoughtful and reasonable tone, including changing restriction/election practices to prevent inventions that require "the integrated use of many independent pieces" from being considered to be multiple inventions.  Worksharing and deferred examination are also considered as ways to reduce pendency.  But unfortunately, the Report adheres to discredited notions that continuations are an abuse of the system and recommends that they should be "studied" to determine "whether continuations as practiced today are in keeping with the public policy principles underpinning the patent system."  And it also seems to have missed recent reports that inter partes reexamination has become a robust tool, since the Report characterizes these proceedings as "seldom used and therefore ineffective."

The Report recommends (albeit with much less thorough discussion) that Congress reconsider patent reform legislation, and specifically highlights changing the U.S. to a "first to file" system and "updating" the inequitable conduct doctrine.  With regard to inequitable conduct, the Report envisions concomitantly increasing the burden on applicants to provide the Patent Office with search results and other information on the relevant art, while at the same time protecting such disclosure from being characterized as inequitable conduct unless there was evidence of intentional failure to disclose the art.  Moreover, the inequitable conduct defense would be limited to those cases where at least one claim had been found invalid, presumably on the basis of such uncited prior art.  In addition, the Report recommends that such reform legislation provide avenues for the public to provide art, with commentary to the Office (analogous to "observations" that can be filed in the European Patent Office with regard to pending EPO applications).

The Report also holds applicants accountable for some of the current perceived deficiencies in patent law.  Principal among these is what can kindly be termed applicant overreaching:  presenting claims that are broader than the underlying disclosure.  Of course, like beauty, the correspondence between claim scope and disclosure may be in the eye of the beholder; certainly, it is a question with sufficient complexity and political overtones that calls for restricting "exaggerated claims" may be the province of businesspeople wishing to practice a patented technology and looking for any opportunity to argue that their attempts at designing around are not expressly disclosed in a patent specification.  Just as important as preventing overreaching is the principle that a patentee should not have its patent right unduly proscribed so as to make patent protection less valuable than the patentee is entitled to expect.

Finally, the Report notes with approval judicial action to "correct" the perceived "worst" abuses of the current patent regime, including the Supreme Court's decisions in eBay Inc. v. MercExchange, L.L.C.; Quanta Computer, Inc. v. LG Electronics, Inc.; MedImmune, Inc. v. Genentech, Inc.; and KSR Int'l Co. v. Teleflex Inc., as well as Federal Circuit decisions including SanDisk Corp. v. STMicroelectronics, Inc. and In re Bilski.  The Report also notes that procedural and jurisdictional decisions in the 5th Circuit, such as In re Volkswagen, may be correcting the "venue" problems addressed in the proposed legislation that failed in the last Congress.  But the Report accepts the IT industry's contentions that damages awards are out of line, citing the example of a patented semiconductor component and whether infringement damages should be calculated based on the price of the semiconductor component or the laptop of which it is a (crucial) part.

"The time is ripe for positive change in the U.S. patent system," Mr. Weiss (at right) states in his conclusion.  Would that he had presented any compelling evidence that this assertion is actually so.  For a little historical perspective, consider the following:

While we have focused attention on the appropriate standard to be applied by the courts, it must be remembered that the primary responsibility for sifting out unpatentable material lies in the Patent Office.  To await litigation is -- for all practical purposes -- to debilitate the patent system.  We have observed a notorious difference between the standards applied by the Patent Office and by the courts.  While many reasons can be adduced to explain the discrepancy, one may well be the free rein often exercised by Examiners in their use of the concept of "invention."  In this connection we note that the Patent Office is confronted with a most difficult task.  Almost 100,000 applications for patents are filed each year.  Of these, about 50,000 are granted and the backlog now runs well over 200,000.  1965 Annual Report of the Commissioner of Patents 13-14.  This is itself a compelling reason for the Commissioner to strictly adhere to the 1952 Act as interpreted here.  This would, we believe, not only expedite disposition but bring about a closer concurrence between administrative and judicial precedent.  n10

n10  The President has appointed a Commission on the Patent System.  Executive Order No. 11215, 30 Fed. Reg. 4661 (April 10, 1965).  It is hoped that its studies may develop more efficient administrative procedures and techniques that will further expedite dispositions and at the same time insure the strict application of appropriate tests of patentability.

This quote is taken from the Supreme Court's decision in Graham v. John Deere Co., from 1966.  It would be good for everyone, including Congress, to remember the adage plus ça change, plus c'est la même chose when assessing the pressing need for patent reform.

For a discussion of other reports from the Science Progress Patent Reform 101 series, please see:
• "Science Progress Article Addresses Global Patent Protection," January 28, 2009
• "Science Progress Tackles Patent Reform," January 21, 2009

Comments

[Patrick]

While Mr. Weiss' suggestion that the courts should play a role in setting standards for the USPTO is laudable on its face, as seen in the entire KSR debacle, merely because a court sets a standard does not mean it has introduced clarity. Kevin hit it right on the nose with the quote from Graham.

[Art Paul Diamond]

Kevin: "Generally, the patents that are mentioned in this regard are frivolous (methods for playing with cats or swinging on a swing), which are the patent equivalent of a vanity publication."

This bit of rhetoric on the part of patent bulls has become even more of a red herring than the swing patent itself.

Regardless of whether the swing patent had any impact on the US economy, the point of the swing patent is that its issuance pointed to a deep systematic flaw in our patent system. To some extent, that flaw has been addressed by the Supreme Court in KSR (although anyone who doubts that the swing patent was also anticipated needs to have their head examined). Now what remains is for the PTO and the courts to apply KSR diligently.

"Other complaints about "bad" patents tend to be either philosophical (for opponents of human gene patents, for example) or political (by industries that would rather expropriate than license technology developed by others)."

In fact, Kevin, anyone who keeps up with public commentary on bad patents (see, e.g., the PatentlyO blog or various threads on this blog) knows that the complaints are neither philosophical or political.

A Texas court found Hyundai liable for infringement of USPN 5,367,627 and awarded $34 million in damages. Claim 1 of that patent was obvious and unpatentable when the PTO issued the claim. It's obvious and unpatentable now.

I can point out your brushing aside of these basic facts because I keep a close eye on what has been issued and what is being issued. But it makes me wonder how much other misleading information is in the post. I simply stopped reading after the mischaracterization.

[Kevin E. Noonan]

Dear Art:

Your comment raises some important issues that I’m happy to address.

When I say the issue is philosophy or politics, I mean this: there are on the order of 2 million patents in force at the moment. And there are (as you rightly note) howls of protest on the blogosphere and elsewhere that there are a spate of “bad” patents amongst those 2 million. My question is simple - if that were true, then where are the statistics that back up the assertions? Where are the thousands of patents being invalidated, by re-examination or in litigation? Where are the scholarly articles assessing why these patents are “bad”? If there are so many, it should be easy to survey extant patents and illustrate why and how the Office has done such a bad job. But whenever anyone talks about a “bad” patent, all we get are the cats and the PB&J sandwich patents.

The portion of the commentators on Patently-O making these assertions are no support for the argument about “bad” patents - there tends to be conclusory statements that this or that patent is invalid, but little analysis. And the same is true for commentors on our blog - lots of heat and little light.

Now, I agree that there are patents that have been improvidently granted - I cannot see how it could be otherwise, being a product of human activity. Even if the Office hadn’t hired 6,000 inexperienced new examiners over the past 5 years, and even if attrition didn’t rob the Office of examiners just when they had become experienced enough to avoid the kinds of errors that might lead to improvidently-granted patents, it would be shocking if some percentage of issued patents did not have at least one claim where reasonable people could differ on its validity. Paradoxically, these “new” examiners are more likely to refuse to grant a claim that should be allowed (since the PTO doesn’t track this statistic) than they are to grant a claim that they should not (which the Office actively works to avoid). And according to Mark Lemley, the more experienced an examiner becomes, the more likely it is that s/he will grant a claim that is invalid (although I have my doubts about that claim).

The existence of patent claims that should not have been granted is even more likely since the arbiters of what the claims mean - ultimately, the CAFC judges - are no part of the process of having the claims granted, and whether a claim is valid or not depends on the scope of the claim as it is construed. But even under these circumstances, the echo when the question is posed regarding all these “bad” patents is deafening.

To clarify, when I say philosophical, I should have added the following consideration. Is a patent a “bad” patent if it has at least one claim that is overbroad or otherwise invalid, or if it does not have at least one claim that is valid? The number of “bad” patents that exist will vary widely depending on how you answer that question.

In the interest of having everyone on the same page, here is claim 1 of USP 5,367,627:

1. A computerized method of selling parts for particular equipment specified by a customer, comprising the steps of:

a) receiving information identifying a customer's parts requirements for the equipment, comprising the step of receiving equipment application information, comprising an identification of the equipment with which one or more parts are to be used;

b) electronically specifying information identifying a plurality of parts and specifications for the parts;

c) gathering parts-related information for one or more parts within the plurality of parts which meets the customer's requirements, comprising the step of electronically associating at least one of the parts within the plurality of parts with the received equipment application information; and

d) receiving the gathered parts-related information and compiling the parts-related information into a proposal meeting the customer's requirements.

On its face, the patent cites 10 U.S patents (are they all invalid, too?) and other references. The $34 million represented a 2% royalty; the damages award did not include enhanced damages for willfulness nor did the non-practicing plaintiff obtain an injunction. I could not find an appeal to the CAFC, and I note from my research that Hyundai also lost a $25M verdict to Texas Instruments. Was that patent invalid for obviousness too?

(On the substantive validity issue, you may be right - I don’t have the technical background to judge. But since this case was decided in 2008, after KSR, and Hyundai didn’t bother to appeal, maybe they don’t share your certainty.)

So I’m sorry you stopped reading. I will not blindly defend the patent system when (if) it goes seriously off the rails, but I won’t excoriate it based on anecdotal, unsupported, politically and economically motivated attacks that lack evidentiary support.

Thanks for the comment.

[Art Paul Diamond]

"Is a patent a “bad” patent if it has at least one claim that is overbroad or otherwise invalid"

Yes.

You also ask: "My question is simple - if that were true, then where are the statistics that back up the assertions?"

That statistics lie in the fact that it is frightfully easy to find patents that are invalid. Every week. I recall some time ago a biotech patent that issued that was "front paged" here, for reasons that are mysterious. Apparently, it was a "big deal." And the first claim was very poorly drafted and ridiculously broad. But that fact went un-noted (except in the comments, where it was reluctantly agreed that it might have issues).

"whenever anyone talks about a “bad” patent, all we get are the cats and the PB&J sandwich patents"

But Kevin: that's false. I just cited an awful patent that had nothing to do with cats or PB&J patents. In fact, you wrote: "On the substantive validity issue, you may be right - I don’t have the technical background to judge."

Can I ask what "technical" background you need to assess this patent? What part of the claim do you not understand? Maybe you come from a different class background than I do. I once worked at a job where I sold parts to people. And I was using computers to organize things long before this patent was filed.

[Kevin E. Noonan]

Dear Art:

We differ fundamentally on the premises of the argument. I think is very unlikely that any patent will issue that does not have at least one claim that turns out to be invalid. This is because the drafter and the examiner will never be certain to know all the prior art. Different examiners will be more or less likely to grant broad claims or narrow claims, and in any event whether a claim turns out to be valid or not will depend on how its terms are construed. So if your position is that one invalid claim makes a bad patent, then you will find many more bad patents than I do.

Even so, I am curious at your estimation of the frequency of bad patents. 1%? 5%? 10%? If you believe it is a greater figure, then please back up that claim with more than your anecdotal belief that it is so easy to find "bad" patents, even using your definition. But frankly, except for perhaps air traffic controllers, what area of human endeavor has 1-5% error rates? And then take into account the complexities of new technology and the semantic limitations of describing it?

The claim you reference from our pages was this one:

1. A composition comprising:
(a) a first nucleic acid which
(i) comprises between 5 and 100 nucleotides, of SEQ ID NO: 1 or a complement thereof, and
(ii) decreases the level of a POSH mRNA and/or a POSH polypeptide when introduced into a cell, and
(b) a pharmaceutically acceptable excipient.

Now, as we discussed at the time, not the greatest claim ever written. But there were other claims in that patent, such as these:

3. The composition of claim 1, wherein the first nucleic acid comprises between 15 and 30 consecutive nucleotides of SEQ ID NO: 1 or a complement thereof.

4. The composition of claim 3, further comprising a second nucleic acid that hybridizes to the first nucleic acid under physiological conditions to form a double stranded nucleic acid.

5. The composition of claim 4, wherein the first and second nucleic acids are ribonucleic acids.

These claims, particularly claim 5, should be valid. So we return to our difference between what constitutes "bad" patents.

Getting back to the patent you cited, did the patentee assert this claim? Was Hyundai adjudged to infringe it? If there were narrower claims that were asserted and that were the basis of the infringement, then what is the point (besides the philosophical one) of citing it? And if claim 1 was the basis of Hyundai's liability, why wasn't that judgment appealed? Post KSR, wouldn't it make sense to try to invalidate it at the CAFC (if it were so obvious)?

Finally, without contradicting your recollection, I have had the experience of having clients make similar statements regarding such claims. But I have never had the experience of having any of my clients be able to find the art they thought would invalidate the claim. If your recollection is better, perhaps you would care to share it with the rest of us?

Thanks for the comment.