State of the Patent System and Required Legislation

State of the Patent System and Required Legislation

Our U.S. patent system no longer encourages investment in new technologies.

Patents are now liabilities for inventors. Our USPTO discourages the creation of new technologies by enabling big corporations to crush startups and inventors.

Congress must act to stop this damage to our economic engine and the American Dream.

Eliminate the Patent Trial and Appeals Board (PTAB)

The PTAB is a tribunal within the U.S. Patent and Trademark Office (USPTO) that treats issued patents as a public right, not a property right. PTAB’s invalidate at least one claim in more than 95% of the ISSUED patents reviewed rendering most patents valueless for funding at an early stage. Invalidating just one claim can neuter the enforceability of the entire patent. Big corporations are filing multiple PTAB procedures on the same patent driving the cost of defending it into millions of dollars and scaring investors. The PTAB must be eliminated so patents can attract investment at early stages.

Eliminate the “Abstract Idea” Exception to Patentable Subject Matter

Supreme Court decisions changed the meaning of "patentable subject matter" by creating three exceptions to patentable subject matter: abstract ideas, natural phenomena, and laws of nature.

The abstract idea exception is creating chaos by failing to define what is or is not an abstract idea. Today what is patentable is completely in the eye of the beholder and often different branches of government come to different conclusions on the validity of the same patent.

Abstract idea exceptions mean patents have virtually no value in valuations of early stage startups.

Restore Injunctions and Injunctive Relief

Injunctive relief was the default judgment for infringement for over 200 years serving as a strong deterrent to patent infringement, and was the basis for projecting the future value of a patent at the earliest stages. Patents are critical to attracting investment to commercialize technology.

In 2006 a Supreme Court decision, eBay v. MercExchange effectively eliminated injunctive relief. Investors cannot project the future value of a patent, and as a result investment in patents has dropped. With the most powerful deterrent now removed, "efficient infringement" exists.

End Track I Examination in the USPTO

Track I examination was created to speed examination in exchange for additional fees. While marketed as a tool for small entities to get patent protection faster, most small entities cannot afford the higher fees. Big corporations can, and are the primary users of Track I examination.

Return to "First-to-Invent" from "First-to-File"

First-to-invent changing into a first-to-file system created the opportunity for unscrupulous people to steal inventions by filing for patent protection ahead of the actual inventor. Inventors must now file for patent protection as soon as possible before disclosing it to anyone to determine the invention’s viability, marketability or costs. This adds upfront costs for unproven inventions to the people least able to afford it. First-to-file is discouraging inventors to the point of abandoning the patent system.

While we have damaged our patent system, China has strengthened theirs. Today, China leads the world in new patent filings. Large amounts of venture capital that once fueled early stage startups in the U.S. have moved to China. As a result, startups are fleeing to China.

Congress must act to correct this damage to allow the U.S. to succeed in the modern innovative world.

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State of the Patent System and Required Legislation

For the last 11 years, the U.S. has weakened its patent system to the point that today, patents are liabilities for inventors and startups, and patents are no longer effective at attracting capital to commercialize new technologies.  Congress must act to correct this damage.

Strip the Patent Trial and Appeals Board (PTAB) of All Authority over Issued Patents

The PTAB is an administrative tribunal within the U.S. Patent and Trademark Office (USPTO).  It primarily reviews legitimately issued patents under three distinct procedures: Inter Partes Review (IPR), Post Grant Review (PGR), and Covered Business Method Review (CBM).  PTAB procedures render most patents valueless for funding at an early stage.  PTAB’s invalidate at least one claim in more than 95% of the patents reviewed.   Invalidating just one claim can neuter the enforceability of the entire patent thus destroying it.  An inventor’s cost in defending a patent against a PTAB procedure starts at around $500,000 and burns up to five years of the patent’s life.  Big corporations are “gang tackling” small inventors by filing multiple PTAB procedures on the same patent, which often drives the cost of defending a patent into the multiple millions of dollars.

See:  http://www.postgranthq.com/statistics/

Eliminate the “Abstract Idea” Exception to Patentable Subject Matter

Title 35 USC is the governing law on patents.  It defines the requirements of obtaining a patent, among other things.  Within 35 USC, Section 101 is effectively the door into the patent system by defining what is considered patentable subject matter.  The Supreme Court has created three exceptions to patentable subject matter: abstract ideas, natural phenomena, and laws of nature.

The abstract idea exception has thrown the meaning of patentable subject matter into chaos by failing to define what is or is not an abstract idea and has conflated analysis of other provisions in patent law into Section 101 analysis.  Due to this confusion, it is no longer known what inventions are patentable subject matter.  Today, different branches of government and different courts come to different conclusions on the validity of the same patent.

Under the abstract idea exception, some USPTO examination groups reject patent applications at rates above 90%, PTAB procedures invalidate over 90% of challenged patents, and trial courts invalidate 54%.  These extremely high invalidation rates and the resulting confusion have impaired funding of patent based startups by devaluing patent assets – often the sole asset owned by many startups.

See http://www.bilskiblog.com/blog/2017/04/alicestorm-update-for-q1-2017.html

Restore Injunctive Relief as it Existed for over 200 Years

The Constitution defines a patent as nothing but an “exclusive Right”, therefore injunctive relief was the default judgement upon a finding of infringement for over 200 years.  As a practical matter, injunctive relief served both as a strong deterrent to patent infringement, and as the basis for projecting the future value of a patent at the earliest stages of commercialization.  Establishment of that future value is critical to attracting investment to commercialize patented technology.

In 2006 a Supreme Court decision called eBay v. MercExchange effectively eliminated injunctive relief by requiring an impossibly difficult test to prove injunctive relief is in the public interest.  Because of eBay,, courts now impose a forced license at an arbitrary value with no relation to the market of the invention.  Investors cannot project the future value of a patent as a result.  The net of eBay is to encourage infringement and to devalue patents in funding startup companies.

See:  https://en.wikipedia.org/wiki/EBay_Inc._v._MercExchange%2C_L.L.C.

See:  http://www.ipwatchdog.com/2015/06/18/no-permanent-injunction-threat-leads-refusal-to-deal/id=58845/

Make Track 1 Examination Work for Inventors

Accelerated examination was created to speed examination in exchange for additional fees.  While marketed as a tool for small entities to get patent protection faster thus helping to attract funding to startups, it has the opposite effect.  Most small entities cannot afford the higher fees.  However big corporations can and the primary users of accelerated examination are big corporations.  The net effect is to sap examination resources from smaller entities in favor of big corporations.  There are unfortunate side effects to examiners first learning about new technologies from just a handful of big corporate applicants.  First it injects a technology bias into the minds of examiners that acts to devalue other technologies.  Second, the regular applications of smaller entities are judged under the sieve of hindsight because accelerated applications are examined first, but were invented as long as ten years after the regular applications of smaller entities, which are evaluated later.

See: https://www.washingtonpost.com/business/capitalbusiness/google-has-gotten-more-fast-track-patents-than-any-other-company/2014/10/26/b39334b4-594f-11e4-b812-38518ae74c67_story.html?utm_term=.d8e9b42e2028

Get Rid of First Inventor to File as Written and Replace With a US Innovation Friendly Platform

The Constitution grants the right for a patent to be pursued by an inventor. No one paid a bigger price for the AIA First Inventor to File changes than US inventors. Though the AIA legislation may have helped coordinate the United States with other patent systems in countries around the world, those pursuing patents here in the US have had their rights reduced.

See this article for more information:  http://www.ipwatchdog.com/2016/03/26/patent-laws-harming-children-americas-innovative-future/id=67465/

Overall, today’s patent system no longer encourages investment in new technologies.  It actually discourages the creation of new technologies by enabling big corporations to bully startups and inventors.  Congress must act to stop this damage to our economic engine and the American Dream.

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