Saturday, April 30, 2016

A Trend at Pat Con: Regulating Patents Earlier

I was thrilled to attend "Pat Con 6" this year at Boston College, thanks to this year's host David Olson, along with Andrew Torrence and David Schwartz.  I noted a trend in several of the papers: many sought, either explicitly or implicitly, to shift back the timeline in which bad patents are kicked out of the system or in which low quality patent assertions are halted––presumably in order to avoid the high costs of litigation and the imposition on consumers and downstream innovation. I suppose we can think of this as "ex ante" versus "ex post" regulation of patents. In theory, this is a way to limit the toxic effects of low quality patents, and low quality patent assertions, on the system. Read more at the jump.

Challenging Patents in Post-Grant Administrative Proceedings

The most obvious example of the ex ante regulation trend is IPRs. The AIA reinvigorated the Patent Office's ability to adjudicate post-issuance challenges to patent validity in administrative proceedings, and in theory provides a cheaper and faster way to do so than the courts. Several papers and an entire panel addressed IPRs and how to make them more effective at weeding out invalid patents, while also remaining fair to patent holders.

Greg Dolin and Irina Manta's new paper, following up on Dolin's prior work on the AIA post-issuance proceedings, critically assesses the AIA's reformulation of the IPR procedures for reviewing patents at the Patent Trial and Appeals Board (PTAB). Dolin and Manta argue the AIA generally made it much easier to invalidate a patent through an administrative challenge, in part because they adopt a "broadest reasonable construction" standard for constructing claims but without (much) room to amend. Their creative argument is that this "retroactive" devaluation of patents effectuated a taking under the Fifth Amendment.

I argue in a response along with Ben Picozzi that this argument is actually too creative and faces many legal hurdles. Dmitry Karshtedt, in his excellent commentary on their paper at PatCon, agreed. But while Ben and I focus on the legal problems with the taking argument, Dmitry's major criticism was simply that it's very hard to know whether any particular patent has been made less valuable because of the possibility of invalidation in an IPR––let alone because of the AIA's creation of new procedures like "broadest reasonable construction." Thus, there is no injury for standing purposes to make a takings argument.

Dmitry's point is compelling. Initial statistics do suggest that IPRs (and CBMs) have higher invalidation rates than in district courts. But is this even true? And is "broadest reasonable construction" the culprit? As Scott Kamholz, who has just completed several years of service as an Administrative Patent Judge on the PTAB, put it at the IPR panel: "I want someone to show me how broadest reasonable construction review is different from ordinary meaning review." We will see what the Supreme Court has to say about the impact and legal implications of BRC when it decides Cuozzo.

State Laws Prohibiting "Bad Faith" Patent Assertions

Another example of the focus on "ex ante" regulation were several papers, including Charles Duan and Kerry Sheehan at Public Knowledge and my own, addressing the new state laws that prohibit bringing a patent assertion in "bad faith". The state laws (most modeled on Vermont's) make it possible for "targets" of patent assertions ("Vermont persons") to go to state court and obtain damages and injunctions as soon as a "demand letter" is sent. "Demand letter" is defined broadly as a "letter, e-mail, or other communication asserting or claiming that the target has engaged in patent infringement."  This includes situations where the patentee is a long way off from filing a lawsuit or does not intend to file one at all. So, in theory, users of allegedly infringing technologies can take advantage of the state laws to nip a patent dispute in the bud.

I have strong views on this and will blog about it separately to avoid boring those uninterested in the vagaries of preemption and "arising under" jurisdiction. Suffice to say, I disagree with Duan and Sheehan, as well as other academics writing on the subject like Paul Gugliuzza. In my view, the new laws are preempted based on Supreme Court precedent under the IP Clause itself.

Standing for End Users in Declaratory Judgment Actions

Of course the new state laws are not the only way to proactively challenge patent assertions before getting sued. For example, another option is to take the step of filing a declaratory judgment in federal court, seeking to have the court formally invalidate the patent or declare it not infringed. (Invalidating a federal patent is something state courts cannot do. 28 U.S.C. § 1338 clarifies that "[n]o State court shall have jurisdiction over any claim for relief arising under any Act of Congress relating to patents, plant variety protection, or copyrights.")

However, as Gaia Bernstein discussed in a plenary talk on her masterful paper, The End User's Predicament: Standing in Patent Litigation, "end users"––which she defines as "parties that use patented technology for personal consumption and in business"––who get "hauled into patent disputes" face significant challenges in accessing federal courts to challenge a patent's validity. Bernstein's major proposal is to relax standing standards in patent declaratory judgment actions in order enable earlier challenges to patent validity in federal court.

Can We Go Back Farther?

Weeding out invalid patents in administrative proceedings and deterring meritless patent assertions does some good work by keeping patent disputes out of the courts and improving the bargaining position of small businesses in the patent hold-up game. But several other PatCon projects raised the prospect of addressing these problems at an even earlier stage.

Improving Applicants' Incentives to Draft High Quality Patents

For example, in his paper, "Loser Pays" in Patent Examination, Neel U. Sukhatme argues that we should create incentives for patent applicants themselves to improve the quality of their applications by forcing unsuccessful patent applicants to pay higher application fees, thereby subsidizing successful applicants. By importing the "loser pays" concept from litigation, Sukhatme argues, we can create "an efficiency-enhancing chilling effect that disincentives weak applications and improves application quality."

Sukhatme's project nicely compliments R. Polk Wagner's analysis several years ago in Understanding Patent-Quality Mechanisms. In Wanger's view circa 2009, bad incentives on the part of applicants (as well as PTO examiners) was a root cause of the problem of low patent quality. Low patent quality, Wagner wrote, "is supported by a series of powerful incentives, including incentives that encourage patentees to draft patent applications that effectively obscure the true scope of the invention and its relationship to the prior art." Sukhatme's suggestion to require applicants to pay for their drafting failures follows Wagner's advice for improving patent quality: ensure that patentees have "strong, unequivocal incentives to seek patents that clearly meet the standards of patentability, that are explained in the context of the prior art, and that draw clear and unambiguous lines around their subject matter[.]"  So maybe we're making Progress.

In all it was a great conference (and the cake was really, really good). Thanks to David Olson and the other PatCon founders for organizing.  

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