Within the next few months, Congress is likely to make another attempt at passing patent “reform” legislation, purportedly aimed at stopping abusive litigation. Before the lobbying machines get fired up, though, let’s look at what happened with the last round of so-called “patent reform” that Congress passed less than four years ago.
The America Invents Act of 2011 (AIA) tried to tackle some of the same problems that critics complain about today: “Low-quality” patents and fly-by-night opportunists. The AIA created several new proceedings at the Patent and Trademark Office to challenge the validity of a patent after it has been granted. These included the “post-grant,” “inter partes” and “covered business method” review programs.
Each of these programs is slightly different, but all of them were supposedly designed to create a faster and less expensive alternative to the courts for identifying patents that shouldn’t have been granted in the first place. In practice, however, the “reforms” have spawned their own wave of abusive behavior, and they are tying legitimate inventors and innovators in legal knots.
I recently published an issue paper and conducted a detailed study of these proceedings, and the findings shocked me. Companies are being forced to re-litigate their patents, sometimes two or three times. Each of these challenges can drag on as long as 27 months, and the outlook for inventors is grim.
As of November 20, 2014, for example, the Patent Trials and Appeals Board had ordered new trials for patents in 78% of the petitions it received for an inter partes review. Of the cases that went to trial, 77% resulted in every claim being cancelled. Out of 1,962 claims before the Board, 80% were declared invalid.
These numbers are staggering. It’s not as if patent examiners are rubber-stamps for every application that crosses their desks. Getting a patent is an arduous process that usually involves grueling debates between applicants and examiners, and it routinely takes two years or longer.
Furthermore, double-jeopardy is common. In the first 18 months after the inter partes review program was launched, the PTO received 1,400 petitions for review. About one-fifth of those proceedings involved multiple petitions by the same company over the same patent.
Some companies have had to keep defending themselves at the Patent Office even AFTER having successfully defended their patents in court.
Take the amazing case of VirnetX, which accused Apple of infringing its patents on virtual private networks. Apple argued in court that the VirnetX patents were invalid, but the court upheld the patents and ordered Apple to pay $368 million for infringing them.
While Apple was appealing that verdict, an entirely unrelated company called New Bay Capital LLC petitioned the Patent and Trademark Office for a review of VirnetX’s patents. In an attempt to shake down VirnetX, New Bay offered to drop its petition if VirnetX paid it $37 million – approximately 10% of its judgment against Apple. New Bay abandoned its petition before the proceedings even got underway — but not before VirnetX’s shares plunged in value.
That wasn’t even the end of the story. Yet another company, RPX Corp., filed seven more review requests at the Patent Office against VirnetX. The Patent Trials and Appeals Board concluded that Apple and RPX were related, and that both of them were too late to ask for a review of VirnetX’s patent. If the timing had been just slightly different, though, VirnetX might still be defending itself.
By creating more opportunities to challenge issued patents, Congress has also created more opportunities for abusive legal maneuvering, and these abuses are undermining legitimate patent rights. This is the opposite of what patent legislation should accomplish. Instead of clearing a path for innovation, through our supposed “reforms,” we have created a host of new legal risks that are likely to inhibit it.
More often than not, the beneficiaries are deep-pocketed corporations that have an advantage in almost any legal battle. There’s a reason for that advantage: their lobbyists invariably have a big hand in creating new loopholes.
Now, the “reformers” who pushed hard last year for legislation plan a new push this year. Republican leaders and President Obama see patent legislation as one of the few issues they can agree on. But the lesson here is that no legislation is cost-free, and that even well-intentioned laws can have serious unintended costs. Congress should tread very, very carefully.