Guest Post by Greg Reilly: Forcing Patent Applicants to Internalize Costs from Overclaiming

Guest post by Greg Reilly (IIT Chicago-Kent College of Law), whose work on patent "forum selling" and patent discovery has previously been featured on this blog.

Conventional wisdom is that patent prosecutors should obtain the broadest possible claim scope or, more precisely, should obtain at least one claim that is as broad as the U.S. Patent and Trademark Office examiner will allow while also hedging with other, narrower claims. A new paper by Oskar Liivak (Cornell), Overclaiming Is Criminal, provocatively argues that this standard practice is not just sub-optimal or improper, but is in fact illegal under federal law – “it is a felony to willfully overclaim in a patent application.” Liivak’s paper is a crucial contribution to the debate over improving patent quality, highlighting the need to alter the patent applicant’s and patent prosecutor’s incentives, not just attempt to improve the Patent Office’s performance.

Liivak’s legal argument is virtually air-tight, and I am sympathetic to his policy concerns, though the practical impact of his proposal is less certain because of the difficulty of identifying “willful overclaiming.” In any event, criminal sanctions are not the only way to alter the incentives of applicants and prosecutors to ensure that they internalize costs from overclaiming. Another possibility is restricting claim amendments in Patent Office post-issuance proceedings, an issue currently before the en banc Federal Circuit in In re Aqua Products, Inc. (More after the jump.)

The appeal of Professor Liivak’s argument lies in its simplicity. A patent applicant swears an oath that he or she invented the subject matter claimed in the patent (with wording variations pre- and post-America Invents Act addressed by Liivak). A well-known federal statute, 18 U.S.C. § 1001, makes it a felony to provide false statements to the federal government, including federal agencies like the Patent Office. Therefore, a patent applicant who knowingly claims subject matter that is different from or greater than what he or she invented makes a felonious false statement to the government, while a patent prosecutor who knowingly prosecutes such an application aids and abets the felony.

The rub of Liivvak’s argument is that statements must be “knowingly and willfully” false to violate the statute. How often do patent applicants “knowingly and willfully” overclaim? Or, at least, how often can this be proven? Liivak is optimistic based on his analysis of the statute and its existing interpretations, but I am not as sure. Applicants certainly write claims in general, vague, or ambiguous language to maximize future flexibility. And that flexibility is later used by the applicant, subsequent owners, and patent litigators to read the patent as covering products different than the patentee’s actual contribution. But that seems different than making a false statement of claim coverage during prosecution.

As Liivak recognizes, the goal of overclaiming is to “make claims to the future” that will cover products not yet known at the time of prosecution. The applicant during prosecution may use broad, vague, or ambiguous language to lay the groundwork for a later arguably false statement of claim scope after the new technology is developed, but the applicant normally lacks sufficient information during prosecution to falsely tell the government that its patent covers the new technology before it is even developed. For example, an applicant who invented an apple does not normally tell the Patent Office that it invented both apples and oranges. Rather, it tells the government that it invented an apple, but describes the apple at a high enough level of generality to provide an option down the road to assert the claim against some subsequently developed fruit. Because all inventions can honestly be defined at varying levels of generality, the required “knowing and willful” false statement seems missing.

Regardless, the real contribution of Liivak’s paper is highlighting the importance of adjusting patent applicant’s and prosecutor’s incentives to improve patent quality, rather than just focusing on improving the Patent Office’s performance. As it stands, maximizing claim scope is virtually costless for patent applicants. If the examiner rejects a broad claim, the patent applicant can amend the claim to narrow it. And the applicant can use continuation practice to obtain a patent on narrower claims in the short-term while continuing to prosecute broader claims in the long-term. Once issued, the presumption of validity mitigates the risk that broad claims will be invalidated and, even if they are, most applicants have hedged their bets by also including narrower claims. In any event, accused infringers have incentives to focus more on non-infringement than invalidity in litigation, making broader claims more valuable and less risky.

For these reasons, a patent prosecutor zealously representing his or her client rightfully seeks to maximize the applicant’s advantage under governing law by maximizing claim scope. The key, then, is to adjust the legal scheme to impose costs that would deter a self-interested patent applicant/prosecutor from overclaiming. That is the policy goal behind Liivak’s call to recognize the criminality of overclaiming, though the deterrent effect of this approach depends, in part, on enforcement levels that are uncertain for the reasons explained above.

More broadly, Liivak’s paper demonstrates the need to explore other ways to impose costs on applicants from overclaiming. For that reason, Liivak’s paper is relevant to the pending Federal Circuit case In re Aqua Products, Inc., which is scheduled for en banc oral argument on December 9, 2016. Aqua Products challenges the Patent Office’s restrictive approach to claim amendments in inter partes review, where motions to amend claims are almost never granted. Aqua Products involves complicated and debatable questions of statutory interpretation and administrative deference. But, as a policy matter, the Patent Office’s restrictive approach to amendments is consistent with Liivak’s broader point about the need to alter patent applicant’s incentives to deter overclaiming and improve patent quality.

An important reason that overclaiming has been virtually costless for applicants is that claim amendments have been freely available in both initial examination and reexamination. If a broad claim is rejected, the applicant can simply amend and narrow the claim, losing nothing but a marginal amount of time and money. Perhaps this makes sense in initial examination, which occurs early in the life of the invention when uncertainty is greatest. But it makes much less sense to give the applicant a second opportunity at liberal amendment in post-issuance proceedings like IPR. On the other hand, restricting amendments imposes a real cost from overclaiming on applicants – the risk that broad claims will be cancelled in IPR and other post-issuance proceedings, where the presumption of validity does not apply.

Contrary to the suggestions of some in the patent community, restricting amendments in post-issuance proceedings is not unfair to patentees (except possibly to those who obtained patents before the AIA changed the calculus, though I doubt it). To be sure, restricting claim amendments in IPR and other post-issuance proceedings, just like Liivak’s call to criminalize overclaiming, alters the status quo and forces applicants to determine whether the benefits of maximizing claim scope are worth the potential costs of cancellation or criminal sanctions. As such, it is less favorable to patentees, patent prosecutors, and patent rights. Whether this is desirable is debatable as a question of public policy – I, like Liivak, tend to believe it is – but it has nothing to do with fairness.

To the contrary, Liivak’s paper demonstrates how the status quo has been excessively favorable to patent applicants and prosecutors when it comes to broad claiming. They have been freed of the need to weigh the potential risks and benefits of their conduct. By contrast, most other regulated entities and their attorneys must weigh the benefits of a potential course of conduct against the risk that it will be deemed illegal, without a redo if they make the wrong choice. For example, Liivak notes how tax lawyers and their clients must weigh the benefits of a tax planning strategy against the risk that it will be labeled illegal tax evasion, without the opportunity to escape the consequences of their choice by amending their strategy if it is deemed overly aggressive. Liivak makes a persuasive case that the time has come to treat patent applicants and prosecutors like everyone else by forcing them to internalize costs from overclaiming. This might be through the criminal sanctions that Liivak suggests, the restrictive approach to post-issuance claim amendments at issue in Aqua Products, or some other mechanism.