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Aug. 14, 2017

Carpet bombing not the way to improve patent system

Invention and innovation, in turn, depend critically on adequate incentives to invest, because most invention is very risky and very expensive.

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By Paul R. Michel
Not all the developments in recent years with respect to the patent system have harmed investment and made the system less efficient. In fact, many complaints are now summarily dismissed for failing to meet the new requirement of fact-pleading the new rules and the Supreme Court decisions in Bell Atlantic v. Twombly and Ashcroft v. Iqbal instituted. Many patents are now being invalidated as indefinite before trial under the Supreme Court's decision in Nautilus, Inc. v. Biosig Instruments, Inc. And, fee-shifting against parties advancing "exceptionally weak claims" is now quite common as trial judges implement the Supreme Court mandate of Octane Fitness, LLC v. ICON Health & Fitness, Inc. Discovery limits under the new Rules of Civil Procedure are reducing costs to both plaintiffs and defendants.

In my estimation, then, the court system has demonstrated great capability to combat the true "patent trolls." That makes the overreach by the Patent and Trade Office Director and the Patent Trial Appeal Board all the more regrettable.

Overreach, however, has not been limited to the PTO and PTAB. I consider that eligibility for patenting (assuming all other "conditions of patentability" are met) to have been resolved by the Congress as a matter of national economic policy in Section 101 of the Patent Act. That section very clearly provides that "any machine" is eligible. But in Alice Corp. Pty. Ltd. v. CLS Bank Int'l, the Supreme Court effectively contradicted Congress' mandate, holding that only those machines it deems eligibility shall be so. If the patent claiming a machine is deemed too reliant on an "abstract idea", then it is ineligible, per the Court, regardless what the statute provides.

Certainly, one can agree that a claim to E=mc2 would not be valid and perhaps not even eligible. But there are no such patent claims. But to hold that if a claim "is directed to" an abstract idea (whatever that means) it is ineligible despite claiming a "machine", as Congress explicitly allows, seems highly inappropriate as an apparent invasion of the Constitutional prerogatives of the Legislative Branch. Further, the Court implies its cases are a permissible exercise of judicial power under Article III because Congress have not legislatively abrogated them. That seems a stretch to me.

Even worse, the Mayo Collaborative Services v. Prometheus Laboratories, Inc. decision has cast a dark cloud of doubtful validity over many thousands of important patents in the health sciences. That is choking off funding for biotech firms just when they are on the cusp of breakthrough discoveries that would revolutionize human health and longevity.

It almost appears to me as if Congress is unaware of all these recent developments and still thinks that "trolls" are the biggest problem in the patent system. That is clearly not so. Yes, there are still some frivolous suits, but not many, as they have been deterred by those very developments, including the American Invents Act itself. That is why the incidence of frivolity found by the courts as so small.

The AIA's creation of Inter partes reviews was a very constructive step, even though I find fault with some aspects of its implementation by the PTO. They serve as a huge deterrent to dubious assertions, as does the new fee-shifting regime. In this and many other ways the AIA properly set the policies for patenting and patent reviews. But, it is a very different thing for Congress to attempt to micro-manage the details of an ongoing patent suit. Only the judge presiding over that case has the expertise and experience to realistically and competently do so.

Therefore, as much as I support the AIA, I cannot support legislation such as the Innovation Act introduced in past Congresses. In view of all the developments of the past few years, to pile on still more patent "reform" at this juncture when the system is still reeling from the destabilizing and degrading effects of recent interventions by all three branches seems inappropriate. It can only further weaken the investment incentives that have already been seriously diminished.

In the current circumstance, patience is a signal virtue, as developments continue to unfold. For example, much has been speculated about the future practical effects of the recent Supreme Court decision in TC Heartland LLC v. Kraft Food Group Brands LLC. Realistically, it is too soon to know. Surely, there will be fewer cases in Eastern Texas and more in the district courts in California, Chicago, Wilmington, New York and elsewhere.

That is a good thing. But only time will reveal if further adjustments of venue law are needed and appropriate. Much will depend on exactly how the lower courts interpret the statutory phrase "regular and established place of business." That cannot be predicted.

The same can be said about damages law. It continues to undergo significant changes. Important improvements have been instituted by the courts. Whether there will be a useful role for Congress is as yet unclear. I doubt it, but one cannot be sure from what is visible at present. As to "loser pays" proposals, application of Octane Fitness by the trial courts has tripled the incidence of fee-shifting, so again, it is questionable whether Congressional action is ripe or appropriate, much less necessary.

If I might suggest an improvement in the dialogue among all parties interested in the patent system, it would be to use more accurate terminology. The epithet "troll" is meaningless as an accepted definition is impossible to state. "Patent assertion entities" suffers the same deficiency. In fact, so does the phrase "bad patents." Patents are neither bad nor good. As legal instruments, they are only valid or invalid under the terms of the Patent Act.

As a national asset, the patent system needs balance -- balance between the interests of applicants and petitioners, between plaintiffs and defendants, between giant corporations and start-ups, between "tech" and bio/pharma, between and among hundreds of different industries. The system has to serve all interests reasonably well. If any one interest is given all it prefers, then the balance is destroyed.

Sure, if I were a counsel at Google or a similar Silicon Valley company, I would want the weakest patent enforcement as possible. Same if I were a lawyer at Target or a similar retail giant. But such a parochial viewpoint does not deserve adoption if it harms American competitiveness or economic growth. The national interest requires balancing the interests of all participants in the system.

The problem is simply put: if in the interest of further combatting the relatively few system abusers, we further dismantle the system itself, our country will be committing economic suicide. Instead, the three branches need to improve the operation of the system with surgical strikes, best done by the courts for the most part, not carpet bomb it into oblivion.

Foreign competitors must be watching in astonishment to observe us continually weakening our patent system. But, they have not been idle. They have enlarged eligibility to take advantage of our shrinking it. They have assured injunctive relief as the norm, while we have largely blocked it. They have made enforcement suits faster, surer and cheaper than here. They have given equal treatment to U. S. companies, of late, even China.

One consequence is that American multi-nationals are now increasingly preferring to enforce first in Europe, particularly Germany, or even in China. That is a sad state of affairs for some of our most successful companies to encounter.

Paul R. Michel is a former Chief Judge of the U.S. Court of Appeals for the Federal Circuit. This commentary is excerpted from his recent testimony to the House Judiciary Committee's Subcommittee on Courts, Intellectual Property, and the Internet.

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