By Kevin E. Noonan —
The anti-patent virus seems to have moved across town in Manhattan, from the 8th Avenue editorial offices of The New York Times to 6th Avenue, from the aristocratic edifice ruled by the Sulzberger family to the business environs of the hardscrabble upstart Aussie, Rupert Murdoch at The Wall Street Journal. The theme (and even some of the rhetoric) are the same, but instead of an erudite academic, we have Peter Huber (below), senior partner of Kellogg, Huber, Hansen, Todd, Evans & Figel and fellow of the Manhattan Institute, giving us his views on what is wrong with the U.S. patent system.
The piece, entitled "Digital Innovators vs. Patent Trolls" and published on Monday, concerns the Supreme Court's consideration of the Microsoft v. i4i appeal, and as has been done elsewhere, attempts to create a dichotomy between productive, innovative companies and non-practicing entities, using the pejorative term "patent troll" to describe them. The dichotomy is false as a general rule (although there are certainly NPEs that aggregate patents from failed companies and assert them; what the piece does not address is the reluctance of some established companies to honor patent rights and license innovation rather than expropriating it, and the extent to which this behavior contributes to the difficulties that cause innovative companies to fail).
Mr. Huber finds significance in the Supreme Court's interest over the past ten years in patent law, after a hiatus that permitted the Court of Appeals for the Federal Circuit (created by Congress to harmonize U.S. patent law) to get its institutional legs under it. What is unmentioned and perhaps forgotten is the motivation for the creation of the Federal Circuit: the difficulties U.S. inventors and companies had at a time when foreign competition was threatening the U.S. economy and preeminence in the world. While one of the two cases Mr. Huber mentions (KSR Int'l Co. v. Teleflex Inc.) involved a perception (created by the lawyers who crafted the certiorari petition) that patents on "obvious" inventions were being improvidently granted, most of the cases under Supreme Court review have involved harmonizing Federal Circuit precedent with other regional courts of appeal on standards for declaratory judgment actions (MedImmune, Inc. v. Genentech, Inc.) and injunctions (eBay Inc. v. MercExchange, L.L.C.), as well as the scope of the appellate court's supervisory role over the U.S. Patent and Trademark Office (Dickenson v. Zurko), and in patent matters having little to do with patent quality, such as the extraterritorial extent of U.S. patents (Microsoft Corp. v. AT&T Corp.), patent exhaustion (Quanta Computer, Inc. v. LG Electronics, Inc.) and how far the statutory safe harbor for preclinical activities protect potential infringers (Merck KGaA v. Integra Lifesciences I, Inc.). Indeed, two cases most clearly exemplifying the differences between the Supreme Court and the Federal Circuit (Warner-Jenkinson Co. v. Hilton Davis Chemical Co. and Festo Corp. v. Shoketsu Kinzoku Kogyo Kabushiki Co.) had to do with the doctrine of equivalents, which actually extends the scope of the patent right beyond the literal meaning of the claims and in which, surprise!, the Supreme Court reversed efforts by the Federal Circuit to limit application of the doctrine in favor of narrower patents.
So while there is the perception that "poor quality" patents are being granted, fueled in large part by big companies who would rather not be bothered respecting the patent rights of small ones, Supreme Court decisions are not the cause of it. Indeed (although Mr. Huber could not have anticipated it), the Supreme Court appeared unimpressed by the idea, advanced by Microsoft, that lay juries should be permitted to overrule the considered opinion of the Patent Office using a preponderance of the evidence standard for invalidity. Although the Court seemed more receptive to the idea in cases where the Office did not consider the art, the Justices also seemed less concerned than Microsoft that juries could understand that the quantum of evidence needed to constitute "clear and convincing" evidence could be less for invalidity arguments based on such unconsidered art.
In places Mr. Huber sings from the same hymnbook used across town at the Times, that examiners are overwhelmed and cannot properly do their jobs, and that it is only in the fire of litigation that the validity of patents can be properly assessed. The force of this argument is blunted, however, by the fact that "only 2% of patents end up in court," and while some of this is due to licensing and settlement rather than litigation, the statistic certainly implies that patents are not clogging court calendars. Mr. Huber seems to think that patent examiners are less skeptical of patentability than judges or juries; in reality, examiners in the Office operate under no presumption of validity, and construe claims as broadly as they can reasonably be construed, which tends to expand the scope of relevant prior art and make it less likely that a patent will be granted.
Ironically, in view of recent charges of ad homimen argument raised by a suggestion that actual experience could be useful in making and assessing arguments about patent quality, Mr. Huber's article advances the argument that one reason patent quality is stifling innovation is that the percentage of patent cases being heard by juries has increased from one in seven in the 1980's to seven in ten today, and in particular that many of those juries sit in the Eastern District of Texas (where "[a] patent is property, good Texans believe in property rights, and that pretty much settles it"). "Masterminds" behind these lawsuits hire lawyers who are "happy to switch from PI to IP," these attorneys being "local" counsel who "supply the neighborly face in the courtroom." Ad hominem, indeed.
Mr. Huber also believes that the fact that the Office is issuing 4,000 patents a week is another indication of poor quality. An alternative explanation is that we live in the most technological age since the Industrial Revolution, that emerging economies in China and India are beginning to seek U.S. patent protection for their inventions, that the Office has hired almost 6,000 examiners in the past 5 years and that the Office spent about 4 years denying patents (the allowance rate shrank from about 60% to about 42%), and that those applicants who weathered that storm are now getting patents allowed; the "bubble" is much more likely to be the result of these forces than that the entire examining corps has decided to "allow, allow, allow" instead of performing their duties substantially as they always have.
The end of Mr. Huber's piece invokes the specter of contingency fee cases, which are relatively rare in patent infringement litigation, and chides "members of the business community" who support patents and has even harsher words for "some conservative pundits [who] applaud the trolls, believing that this is how the market moves private property into the hands of the people who value it the most." The piece ends predictably:
The issue isn't whether intellectual property rights should be enforced, it's whether we have a reliable process for working out who really supplied the intellect. We don't. A system that issues and upholds junk patents will devalue intellectual property much faster than one that scrutinizes patents more carefully and enforces only the good ones.
But the issue is precisely whether intellectual property rights should be enforced or ignored, because there will always be a sector of the business community (although recently it always seems to be the same sector) that will believe (and try to get others to believe) that they are the only repositories of "innovation" and that anyone (especially anyone without their economic resources) who asserts rights in their own inventions is a troll. Once again, it ain't necessarily so.
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