Inventors to Senate IP Subcommittee: Venue Hardship, Efficient Infringement, PTAB Crisis

US Inventor Statement

Hearing on Oversight of the United States Patent and Trademark Office
Subcommittee on Intellectual Property
Wednesday, March 13, 2019

US Inventor submits this statement for the record of the Hearing on Oversight of the United States Patent and Trademark Office held by the Subcommittee on Intellectual Property. US Inventor is an advocacy organization of 13,000 inventors, startups and others interested in their success working in Washington and across the U.S. to strengthen patent protection so we can fund our startups to commercialize and license our inventions. We are founded, managed and made up of patented inventors.

We are thankful for the new focus on intellectual property by the U.S. Senate and the re-constituting of this subcommittee for the 116th Congress. It is good to know that Chairman Tillis, Ranking Member Coons, and the member Senators recognize a need for legislation to ensure that our patent system comports with the Constitutional charter to “promote progress in science and the useful arts by securing to inventors…. the exclusive rights to the their….discoveries”.

Overview

Having watched the hearing on March 13 and considered the questions and testimony of the witness, USPTO Director Andrei Iancu, it is clear that the subcommittee and the agency lack understanding of how far the current system is from that Constitutional purpose. We hope that these statements will assist the subcommittee in forming a more accurate understanding of how the U.S. patent system continues to brutally fail inventors.

The patent system has always been a game of kings – now it is a game of gods. Only corporations with billions of dollars, thousands of patents, and dozens of lawyers can participate. Garage inventors, startups and small businesses have been removed. The uniquely American ideal that wealth or political influence is not required to secure a patent right has been lost. From 1790 to 2006 any individual could invent something new, agree to share their knowledge with the public, and obtain an exclusive property right to their invention. That was the bargain that led to the astounding progress of technology in the 19th and 20th centuries when America dominated the world in the production of new technologies.

But in 2006 the Supreme Court ruled in the Ebay decision that inventors no longer have a right to exclude others from using our inventions. Instead, a judge will decide who can use the invention and how much they must pay – a compulsory license, antithetical to free markets and property rights. The bargain was broken. No longer does a free market and contract law govern the rights to our inventions, but paid economists and judges subjectively determine the value of our contributions through complex hypothetical economic models. Rather than setting the terms for the use of our property, we are forced to pay millions of dollars to attorneys and economists to rebut the infringer’s economic analysis of the value of the technology they stole from us. The legal costs are prohibitive, often greater than the valuation of the invention as determined by the court, so inventors are frequently forced to abandon their rights, or to settle for a small fraction of the free market value of our inventions, which often does not even pay our legal costs.

In 2011 Congress passed the America Invents Act (AIA) that further damaged the bargain with inventors. The creation of the Patent Trial and Appeal Board (PTAB) has utterly undermined the reliability of our patent rights. Patents are now be eagerly revoked at any time by the same agency that issued them promising  exclusivity in exchange for publishing the details of our invention. The AIA endowed this tribunal with the power to cancel any patent at any time, regardless of the true quality or economic value of the patent.

Patents that have been thoroughly examined, reexamined, and validated in Article III courts are being revoked by the PTAB. In fact, at least 227 patents have been held valid in Article III courts only to be invalidated by the executive branch agency1. The PTAB has invalidated a shocking 84% of the 2,242 patents it has reviewed2 . In most cases the basis for the PTAB invalidation is a finding that the patent claims fail to meet the requirements of §103 because “it would have been obvious to a person of ordinary skill [to produce] the claimed invention”. This subjective determination often involving hindsight bias has been applied to numerous patents for groundbreaking and commercially valuable inventions, some of which are discussed below.

In 2018 the Supreme Court ruled in Oil States that patents are not property rights, but instead are public franchises like the right to erect a toll bridge. They ruled that a patent is a monopoly granted by the government, so the government is permitted to unilaterally revoke the patent. No judge, jury, or due process is necessary. Considering that the 2016 Cuozzo decision permitted the agency to disregard Article III rules and precedents, the government also has power to change the terms of the patent (for instance by interpreting the claims more broadly than intended by the inventor in order to invalidate the patent). Thus, the government can grant, modify, and invalidate any patent at any time.

Director Iancu testified to “improvements” in PTAB rules and guidance at the USPTO, but Senator Hirono rightly asked what is to prevent the next Director from reversing those changes? Every presidential election now risks changes within the PTAB that will improve or destroy patent protections.  Stakeholders know this and it is fueling millions of dollars in political spending to seat the person they want as USPTO Director.  A politically driven revocable public franchise is inherently unreliable, unpredictable and expensive, thus out of reach for ordinary citizens.

During this period of 2006 to 2018, the U.S. patent system flipped from a merit-democratic-property based system to a privilege-elite-franchise based system. The tragedy is that large corporations are inherently non-innovative. There is no substitute for a creative individual exploring for solutions to vexing problems without organizational restraints. Individuals and small businesses have been the source for many, if not most, of the important inventions in history. Our richest source of innovation is vanishing as inventors and investors have come to realize that U.S. patents do not secure the rights to their inventions.

Venue Law Creates Hardship for Inventors

Under the Supreme Court Decision in TC Heartland, inventors must file suit in the headquarters of the company that infringes our invention. When multiple companies infringe, we must file suit in multiple venues. When we live, work, develop, and produce our inventions in a certain district, and even when a large corporation sells knock-offs of our invention in that district, the Supreme Court has said we cannot seek relief at our own local courthouse. Senator Cornyn expressed dismay that Apple was closing stores in the Eastern District of Texas, but this warrants further investigation by the subcommittee. Evidently, Apple believes they are more likely to be held accountable for infringement in EDTX. If the subcommittee will probe this issue in future hearings, they will discover that EDTX is a neutral and fair venue. The gist of the complaint about EDTX boils down to it being more efficient and experienced at resolving patent disputes than other venues. Apple and other large corporations benefit from protracted and costly litigation that fatigues the inventor. Such tactics are less tolerated (though still prevalent) in EDTX. From our perspective, litigation is a last resort because it is often not economically viable. We ask the committee to fully evaluate the concerns raised by Apple and Senator Cornyn, especially the effect of TC Heartland on the ability for inventors to enforce our patent rights.

Efficient Infringement is a Greater Threat Than so-called “Patent Trolls”

The alleged troll problem has been thoroughly dealt with. The Supreme Court in Octane Fitness provided more discretion to district courts to shift fees for abusive litigation. The FTC has stepped up enforcement against frivolous demand letters under the Consumer Protection Act. Several states have passed demand letter reform. And the Federal Rules have raised the pleading requirements. Most of the examples of abuse by patent owners are out of date and had minimal or no negative impact. The Apple example has been addressed above, and Apple is certainly not threatened by patent trolls; with almost a trillion dollar market cap and $200B in cash, they have no problem defending any kind of infringement suit brought against them. The following compares several notorious examples of both types of abuse:

Examples cited of abuse by patent holders3 

  1. David Bloom, Ordrx – Ordrx was a Google venture that went out of business due a patent infringement suit. Ordrx suffered 2 district court cases, 3 PTAB cases, and 1 appeal. Google could have easily funded the defense with their hundreds of billions of dollars in cash.
  2. Austin Meyer, X-Plane – Austin spent hundreds of thousands of dollars defending his suit and prevailed after 4 years. There were 2 district court cases and 1 PTAB case.
  3. Ruth Taylor, Photographer – Ruth was hauled into a patent infringement lawsuit. Rather than settle for $2,500, Electronic Frontier Foundation took her case pro bono and beat the accuser in court.

Examples cited of abuse by infringers:

  1. Josh Malone, Bunch O Balloons – Josh’s invention was copied by Telebrands who flooded the market with knock-offs. The effort to enforce his patents resulted in 4 district court cases, 8 PTAB cases, and 13 appeals, costing over $20M.
  2. Alex Sevrinsky, Paice – Alex invented a torque drive system for hybrid vehicles. The technology was successfully license to Toyota, but Ford, Volkswagon, and Hyundai opted to eliminate his primary patent by filing 26 IPR petitions. The dispute led to 4 district court cases, 44 PTAB cases, and 34 appeals and millions of dollars in legal expense.
  3. Roman Chistyakov, Zond – Roman invented a plasma metal thin film deposition technology used for semiconductors and razor blades. Intel, Toshiba, Fujitsu, GlobalFoundries, Gillette and others gang-tackled Zond with 125 IPR petitions costing them millions of dollars. The PTAB construed Roman’s invention of a plasma “without arcing” to cover prior art plasmas with “a little arcing” and cancelled 10 patents with 371 claims. Zond was growing with over 20 employees at the start.  All are now gone.

We are in contact with dozens of more inventors plagued by efficient infringement, which has imposed on them immense financial, personal, and emotional hardship. We urge the subcommittee to hold a hearing to investigate efficient infringement and invite inventors destroyed by it to testify.

PTAB Crisis Continues

We were disappointed to hear Director Iancu urge a wait-and-see approach with respect to the PTAB. While his vision for encouraging invention and changes to the rules are to be applauded, there has been no practical improvement for inventors hauled into the PTAB. There are a host of issues that remain to be “fixed”, and it is far from clear that the scheme can be salvaged at all. We urge the subcommittee to hold a hearing with inventor witnesses to address these serious problems that preclude the possibility of securing to inventors the exclusive rights to our discoveries:

  1. Inventors cannot afford $450K to defend our patents at the PTAB4
  2. Inventors cannot invest in research and development when there is an 85% chance of losing our patents in the PTAB
  3. There is no contingency representation and no investment available for the PTAB, and because of the PTAB, very few will take infringement cases in an Article III court
  4. The USPTO should never undermine, criticize, or challenge a patent once issued. The purpose of the USPTO is to grant patents, not cancel them or degrade their value.
  5. PTAB has proven susceptible to agency capture, wherein inventor rights fluctuate depending on who is selected to run the agency every four years, and PTAB judges are hired by regular PTAB customers
  6. The PTAB cannot be faster, cheaper, and equivalent to district court; something must be sacrificed. In fact, our experience is that PTAB is slower, costlier, and not equivalent to district courts.  If the PTAB were a faster, cheaper, alternative to district courts inventors would voluntarily consent to the reviews
  7. Inventors should have the right to a jury trial to decide the validity of our property rights; it is impossible to truly resolve the question of validity without the due process provided by an independent judiciary and jury to decide factual disputes such as obviousness
  8. The PTAB has cancelled over 2,000 patents applying the incorrect BRI claim construction; those patents might be valid had they been construed properly
  9. Even after the claim construction rule change, the PTAB continues to apply the wrong claim construction to proceedings that commenced prior to November of 2018
  10. Even following the updates to the Trial Practice Guide, the PTAB continues to institute review of patents that previously passed reexaminations and district court challenges (see for example IPR2018-01597, IPR2018-00482)
  11. Even following the updates to the Trial Practice Guide, the PTAB continues to permit gang-tackling and filing of multiple petitions against a single patent (see for example IPR2018-01008, IPR2018-01009, IPR2018-01010, IPR2018-01011, IPR2018-01012, IPR2018-01014)
  12. Even following the updates to the Trial Practice Guide, the PTAB continues to allow related parties to file petitions after the one year time bar (see for example IPR2018-01597, IPR2018-01186)

The record as whole over the past 6 years of PTAB operations demonstrates that it is very difficult if not impossible for the agency to handle the weighty responsibility for deciding the ownership of a trillion dollars in intellectual property assets. Rather than waving off these problems in hopes that they have been cured, the subcommittee should seriously dig into these issues and develop a legislative solution that restores confidence in the reliability of an issued patent so that inventors can fully engage their resources and creativity to solving the problems of our modern world.

Conclusion

These are incredibly important issues for inventors and for our nation. We hope that we can constructively participate and convey the interests and experience of inventors of the 50 states to the subcommittee. We are available and at your service.

1 https://www.usinventor.org/2018/10/11/ptab-overruling-courts/

2 https://docketnavigator.com search for patents shows 1,893 patents with a final determination of “unpatentable” and 2,242 patents with a final determination of either “unpatentable” or “not unpatentable”

3 https://www.eff.org/document/letter-andre-iancu-director-us-patent-and-trademark-office

4 Average legal cost of post-grant review proceedings through appeal according to 2017 AIPLA Report of the Economic Survey