The United States patent system is under assault. The most significant changes to patent system in the past two centuries have been, or are in the process of being made. Congress is considering amending patent law to curtail litigation by nonpracticing entities, or “patent trolls,” as they’re pejoratively known, even though their impact on the patent system is open to debate. President Barack Obama has compared patent trolls to extortionists. And the U.S. Supreme Court ruled against patent owners in five cases this term, overturning five of the six decisions from the U.S. Court of Appeals for the Federal Circuit involving questions of patent law. The question is whether the changes and proposed changes will end up causing irreparable harm to the U.S. patent system that has been an engine of economic growth in our country and in the world for over 200 years.
Congressional efforts to amend the Patent Act have stemmed largely from the (incorrect) perception that so-called patent trolls jeopardize the patent system by extorting settlements from companies and by engaging in other unethical practices. These entities, it is argued, reduce market efficiency and social welfare because their activities impose unwarranted taxes and create disincentives for true innovators, who fear the prospects of litigation. NPEs have also been incorrectly linked to a great increase in patent litigation. A report from the President’s Council of Economic Advisers concluded that there was an explosion of “patent troll litigation” from 2010 until 2012. Putting aside that the report’s conclusion was fundamentally flawed and was completely discredited by a subsequent study by three law professors, supporters of amending the Patent Act in Congress have seized upon it as evidence that the Patent Act needs to be amended, even though it was amended about three years ago.
It is very possible that Congress will enact legislation in the near future that, under the guise reining in patent trolls, also will weaken the rights of other types of patentees. Indeed, previous bills have not clearly defined “patent troll,” and have simply tarred all nonpracticing entities with the broad brush. However, this is a gross oversimplification and may lead to undercut one of the most important stated goals of the patent system — to encourage the advancement of technology.
Contrary to criticism, most types of nonpracticing entities actually do play a constructive role and contribute to technological advances. For example, many prestigious universities may qualify as patent trolls since they do not generally manufacture products but do seek to license and enforce their patents. However, universities are responsible for scientific and technological breakthroughs and provide a valuable source of revenue, which has become more and more important as federal funding has dried up. The patent system should be designed to encourage the creation of patents by universities and other nonprofit research entities. Finally, at least one study has suggested that the historical trend in litigation rates relative to patents granted clearly does not support claims that patent litigation in the past decade has “exploded” above the long term norm. In fact, the per patent rate of litigation was highest in the era before the Civil War and during the subsequent market expansion that started in the 1870s.
While the impact of the proposed legislation is somewhat speculative, the same cannot be said for a number of Supreme Court decisions. The Roberts court has issued a number of opinions that narrow the scope of patentability and limit the enforceability of patent rights. In addition, the court has not been reluctant to become involved in the patent arena or to defer to the “expertise” of the patent judges on the Federal Circuit. Between 1982, when the Federal Circuit was created, and 2005, the high court decided only eight patent cases. Yet the Roberts court has decided around 20.
Prior to the recent term, in which the high court reversed the Federal Circuit on five of six cases, the Roberts court reversed the Federal Circuit nine times, vacated its decision three times, affirmed but changed the applicable standard twice, and affirmed only three times. In addition, Justice Samuel Alito, writing for the majority in a 2014 patent case, stated, “The Federal Circuit’s analysis fundamentally misunderstands what it means to infringe a method patent.” Members of the patent bar described Alito’s language as an unnecessary “slapdown” of the Federal Circuit.
Further, the Roberts court has not been as friendly to the rights of patentees as the Federal Circuit. Roberts court opinions have had a negative impact on patent rights over a dozen times while having a positive effect approximately five times. The Roberts court has ruled against patent owners and raised the standard of patentability in a number of cases prior to the most recent term by among other things holding that patent licensees can challenge the validity of the licensed patents and that that new patents involving correlations between natural phenomena must do more than simply recite the natural correlation and describe how to apply it.
The anti-patent owner trend picked up force this year. The Court, among other things, reversed the Federal Circuit and made it easier to a district court to award attorney’s fees to the prevailing party in a patent case, which is expected to limit the number of cases brought by NPEs. Finally, just before the end of the term in June, the high court ruled against patent holders in three cases making it far more difficult for a patentee to prove that the defendant induced infringement, far easier for a defendant to establish that a patent is invalid and much harder to obtain protection for a business method.
The patent system has served the United States well for over 200 years. It has helped this country become a world leader in many important industries and in economic growth. The evidence and review of the historical record suggests that the patent system is hardly in a state of crisis as many commentators have maintained. The primary core of the anti-patent movement seems to largely consist of industries that would benefit from the royalty-free usage of patented ideas at the expense of small companies and individual inventors. Before this movement gains even further traction, interested parties, and especially Congress, must have a true debate about this crucial issue without resort to name calling. There is simply too much at-risk to proceed in any other way.