Late last month, the United States Supreme Court heard oral arguments in the most consequential case you never heard of.
On the surface, Cuozzo Speed Technologies v. Lee is about whether the Patent Office (PTO) can use a different standard in hearing challenges to a patent’s validity after it’s been granted than the standard used by the federal courts. It’s also about whether the taking of a legal property right (a patent) ought to happen via an administrative hearing, without judicial review.
During oral arguments, Chief Justice John Roberts seemed shocked by the PTO’s system for challenging patents, known as Inter Partes Reviews (IPRs), calling it a “bizarre way … to decide a legal question” and a “very extraordinary animal in legal culture to have two different proceedings addressing the same question that lead to different results.” He was referring to the fact that a patent upheld as valid and infringed by the federal courts can then be taken by the infringing defendant to the PTO’s Patent Trial and Appeal Board (PTAB) and declared invalid!
But the larger issue in Cuozzo is this: Has the U.S. government made it too easy for companies to invalidate the patents of their competitors?
To judge from the evidence, the answer is yes. Of the 4,288 patent challenges brought to PTAB since the September, 2012 inception of these IPRs, nearly 90% have resulted in the cancellation of patent claims. Not surprisingly, 70% of those challenges have been brought by defendants facing patent infringement suits in U.S. district courts.
Whatever else you call this “bizarre” system — BusinessWeek last week called it a “patent death squad” — it’s clearly a great way for infringers to escape the court’s justice. It has also proved to be a lucrative get-rich-quick scheme for financial speculators, who short the stock of a company owning a valuable patent, then file an IPR against that company and watch the stock drop as investors react to being put in the crosshairs of the “patent death squad.”
In truth, the whole system defies logic. Even if you stipulate that there are bad patents that shouldn’t have been issued, is it really believable that 90% of all patents granted are invalid — despite being issued only after careful review by PTO examiners in a process that takes over two years and results in the rejection of half of all patent applications?
If we really believe that 90% of Patent Office output is garbage, then we should just shut the agency down and save everyone all the trouble.
There would be consequences, of course. Without patents and the competitive protections they afford, individuals and companies will not invest the money it takes to develop new cures for disease or create new technological wonders. That’s because they know others will simply copy their inventions with impunity and then sell them at a much lower cost, since it didn’t cost them a dime to develop these in the first place. This is a terrific way to drive the innovators out of any industry.
But before we abolish the Patent Office or allow PTAB to keep killing nearly all patent claims they elect to review, let’s take a moment to imagine a world without patents.
One way to do that is to consider what life would be like had the PTAB “death squad” been around during the past half century killing 90% of patents in those days. For example:
Americans love their cars, but imagine a world without automated traffic lights (1957 Patent No. 2,908,891) or anti-lock brakes (1989 Patent No. 4,836,616) or GPS navigation software (1974 Patent No. 3,789,409) and even EZ Pass automated toll collectors (1983 Patent No. 4,384,288). Nor would we have the on-board vehicle diagnostic software (1981 Patent No. 4,271,402) that allows our cars’ engine, braking, and emission control systems to run smoothly.
But cars are not the only mode of transportation critically dependent upon patented inventions. Would you even board an airplane today if it didn’t have the embedded avionics software required for flying, navigation and communications (1989, Patent No. 4,849,893)?
Health And Medicine
For tens of millions of us, there would be literally no life at all without pacemakers (1962 Patent No. #3,057,356), MRIs (1974 Patent Nos. 3,789,832), and CT scanners (1975 Patent No. 3,922,522) to detect cancers. Nor would we enjoy the whole panoply of other patented medical and diagnostic innovations (many of them software enabled) developed in recent decades.
Commerce And Communications
Imagine shopping without the use of bar codes (1952 Patent No. 2,612,994) on the products you purchase, credit card readers (1991 Patent No. 5,019,696) that enable you to buy those products, or the distribution logistics software that allows for the efficient distribution of goods to a store near you (1996 Patent No. 5,485,369).
How about living or doing business without the Internet? Although the original TCP/IP protocol was not patented, digital packet switching technology (1984 Patent Nos. 4,438,511 and 4,799,258), web browsers, and secure encryption technologies (1980 Patent No. 4,218,582) certainly were, as were the semiconductors the software runs on (1961 Patent No. 2981877). This $3 trillion e-commerce industry would not exist absent the patents that enabled firms like Telenet and Fairchild Semiconductor to profitably commercialize the technologies behind it.
Smartphones? Without patents, there would never have been the earliest iteration of the “pinch, swipe, and zoom” technology that allows you to manipulate text and photos on your smartphone (2003 Patent No. 6507349), let alone the versions later patented by Apple. Nor would we have the newest CIA-midwifed encryption technologies underlying Apple’s iMessage and Facetime, which were invented by defense contractor spinoff VirnetX (four patents, including 2002 Patent No. 6,502,135) and later infringed by Apple, as three federal courts as well as the U.S. Court of Appeals for the Federal Circuit have ruled.
Imagine a world without ATM machines (1974 Patent No. 3,833,885), online banking, computerized accounting, or modern equity markets? The software-enabled world of finance that we depend upon today would never have come into being without patented technology.
Crime And Punishment
But if you want to know how great the cost of a world without patents would truly be, ask the 312 Americans who owe their freedom and even their lives to DNA testing (1995 Patent No. 5,413,908) that exonerated them of crimes for which they had been wrongly convicted. Eighteen of those people had been on death row waiting to be executed when DNA saved them. And tens of thousands of others — roughly 25% have all criminal suspects, according to one National Institute of Justice study — have been cleared thanks to this patented innovation.
Every American has a stake in how the Supreme Court rules on Cuozzo. The real issue is not whether there are some bad patents out there — of course there are, just as there are some bad products, bad schools, bad loans, and bad people.
The issue is whether we want to see new jobs created, new cures discovered, and new growth in the economy. If we do, then let’s not try to improve patent quality by killing 90% of all patents, any more than we would try to eliminate weeds by killing 90% of all plants.
By David Pridham
David Pridham is CEO of the patent advisory Dominion Harbor Group.
The original post can be found here.