The late Supreme Court Justice Antonin Scalia used to say that it wasn’t his job to strike down stupid laws, just those that are unconstitutional. While there is disagreement about the constitutionality of the Patent Trials and Appeals Board (PTAB), there is near universal agreement that President Obama’s Patent Office intentionally skewed the PTAB to be hostile to inventors.
There clearly is a need for action to protect our historically strong patent system from abuse, and Congress will have to make changes to the current law if we are to stop harming patent holders.
The value of a strong patent system to the American economy is not at issue. IP intensive companies account for almost 58 million jobs and about 38 percent of the Gross Domestic Product. Overwhelmingly, those who invest in small business say that a major factor in their decision is the ability to secure a patent.
Yet, a series of actions by Congress and the courts have caused the U.S. to fall out the Top 10 in the world for patent protection. One major reason for this fall from grace can be put squarely on the shoulders of the PTAB, the death panel for patent holders. As part of the America Invents Act of 2011, the PTAB was sold as a less expensive, non-judicial alternative. It instead has become a weapon of plaintiffs’ lawyers to shake down inventors whose efforts fuel our economy.
Three problems quickly became apparent after the PTAB was established. First, the standard of proof to challenge a patent was unreasonably lowered. Second, limits on who could bring a challenge were removed as well as how many times a patent could be challenged. Finally, the Director of the Patent Office was permitted to pack the PTAB with judges who shared her views.
President Obama’s hand-picked appointee saw patents as costly nuisances rather than as property. The result: 8 out of 10 patents under PTAB review have been thrown out, giving PTAB the nickname, “The Patent Death Squad.” In comparison, when the federal courts have reviewed patent validity, only about 4 out of 10 patents have been found lacking.
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Now for the good news. The newly appointed Director of the Patent Office, Andrei Iancu, has made it clear that he is charting a new course. Speaking to the U.S. Chamber of Commerce, Director Iancu said that “as a nation, we cannot continue down the same path if we want to maintain our global economic leadership,” calling for an innovation-friendly approach that recognizes that IP protection is the key for sustained economic growth.
We have to hope it is not too late. Investors are now flocking to China which, ironically, is creating a more attractive environment for its own domestic patent holders. In a weird way, China may better understand the economic value of property rights than we do.
While Director Iancu’s new approach is greatly welcomed, reversing the damage done to our patent system will require strong corrective legislation. In the recent immigration case, newly appointed Justice Neil Gorsuch made it clear in his majority opinion that it is Congress’ job, not his, to provide the specifics about how a statute is to operate, noting that “vague laws … can invite the exercise of arbitrary power.” Fortunately, the STRONGER Patents Act provides the right remedy and is supported with bipartisan sponsors in both the House and Senate.
The STRONGER Patents Act brings patent challenges back into balance in a number of ways. Burden of proof standards will be the same as found in federal courts, requiring “clear and convincing evidence” before a patent is invalidated. A patent will be interpreted under the “ordinary meaning” standard, not the vague “broadest reasonable interpretation” standard, utilized by the Patent Office today. It will also eliminate “double dipping” where a case is brought in federal court after a review has begun under the PTAB.
Very importantly, the legislation requires a patent challenger to have some valid reason to do so, such as being accused of infringing the patent. The STRONGER Patents Act thus ends the well-documented abuse of the PTAB to extort settlement payments from patent owners. It’s a classic Godfather scenario in which petitioners make offers to patent owners “they can’t refuse,” unless they decide to face the “patent death squad.” Even worse are examples of hedge fund managers who filed petitions merely to manipulate the market, profiting from the understandable drop in stock value of companies whose primary assets are patents hauled before the PTAB tribunal. Obama’s appointee to run the Patent Office permitted all of these practices, which were clearly not intended nor wanted by Congress.
The Patent Office is supposed to fund itself by charging user fees. Unfortunately, Congressional Appropriators have raided these fees to fund other programs, creating application backlogs. The STRONGER Act mercifully stops that practice.
The bill also tackles the bad actors known as “patent trolls”, the charlatans of the plaintiffs’ bar who masquerade as aggrieved patent holders. The bill gives new tools to the Federal Trade Commission (FTC) in order to go after these patent trolls.
In addition to a remarkably diverse group of Republicans and Democrats in the House and Senate, the STRONGER Patents Act boasts the endorsement of a broad array of groups, including universities, the biotechnology industry and conservative groups like the American Conservative Union.
A few years ago, conservatives were divided on how to strengthen the patent system. Through trial and error, the path has become clear to all. The STRONGER Patents Act enacts conservative reforms and builds on the Trump agenda of cutting taxes and regulations in order to encourage innovation and investment in the U.S. economy, while at the same time protecting a vital Constitutional right.
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