Patent Reform: Everything You Need to Know
Patent reform is sometimes used to bring patents in line with international standards, to fix a problem, or if the Supreme Court makes a ruling that changes laws.9 min read
2. Patent Basics
3. The Patent Troll Problem
4. The Bad Patent Problem
5. Potential Future Reforms
What Is Patent Reform?
Patent reform is sometimes used to bring patents in line with international standards, fix a problem, or allow the Supreme Court to make a ruling that changes the laws. Whatever the case may be, it pays to keep track of patent reform if you're an inventor or a business owner. After all, patents in the U.S. are always changing.
The right to intellectual property in America goes back to the Constitution. "The Congress shall have Power To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries." The State Department and U.S. Patent and Trademark Office (USPTO) started issuing patents soon after that. However, the way patents work has changed a lot over the centuries.
While the rules surrounding patents have gone through many revisions, the basics have been the same since the beginning.
- A patent gives the holder a monopoly over the manufacture and sale of the product or process described by the patent. This means no one can make or sell a patented invention unless they have the holder's permission, although it's up to the holder to enforce this.
- As a piece of property, patents can be bought, sold, licensed, traded, transferred, given away, or voided by the holder. This lets an inventor sell or license a patent to a manufacturer and make money without having to run a business. It also lets people start businesses around new inventions and succeed despite the competition.
- Patents have a time limit. Eventually, every patent expires, and from then on, anyone can create and sell the product. Because you file patents publicly, everyone also knows how to create the invention. This happens for two reasons: It encourages inventors to keep inventing and get more patents, and it lets the public enjoy cheap products like generic medicines.
The current patent system is the foundation of the American economy. Venture capitalists and others fund companies and pay for patents because of their monopoly power. Big companies like Pfizer spend billions on research and development to create helpful drugs like the cholesterol-cutting Lipitor, and after they've made billions back thanks to their monopoly, the patent expires and anyone can make the drug for cheap and keep people around the world healthy.
Without this protection, companies would either refuse to innovate or else keep their discoveries and inventions so secret that no one could build on them. This means it's essential for the patent system to work the way it's supposed to.
The Patent Troll Problem
In terms of patent reform, the number one issue is the patent troll. Patent trolls (also known as non-practicing entities or NPEs) are small companies that buy up patents from inventors and companies that aren't using them and then go to court to claim that a product is infringing on their patents. Most of the time they don't even want to win the case. Instead, they ask for a settlement that costs less than the court case would. They also prey on smaller companies and inventors who can't afford to fight back even when they want to. By doing this, patent trolls take advantage of the system that's supposed to protect inventors.
The reason patent trolls can do this is because it's easy and cheap to file a patent lawsuit but expensive, in terms of court and attorney fees, to take part in one. East Texas is a big spot for trolls and the patent lawyers who support them due to loose legal standards. And despite how all the trolls have offices in one spot, they can sue companies anywhere in America since the federal government handles patents. Just recently Google faced an $85 million settlement over push notifications, and comedian Adam Corolla paid a troll that claimed to own podcasting.
Patent trolls are most active with information technology, thanks to how many patents the industry files each year and how easy it is to come up with a vague software patent. The company Innovatio has claimed that everyone using Wi-Fi without paying them violates their patents, and it demands thousands of dollars in licensing fees from coffee shops and hotels. In 1999, the company Eolas sued Microsoft for making a web browser with plugins and settled for millions of dollars. Despite that, a later court ruling voided the company's patent.
However, pharmaceutical companies have the opposite problem. While they patent drugs as fast as they develop them, only a few ever pass all the trials and become FDA-approved. With few patents, expensive treatments, and costly research and development, drug companies prefer patents to be strong and easy to defend.
Patent trolls are a problem, but it's hard to say how big that problem is when they usually settle out of court. You also don't need many trolls to create a big problem. Congress has passed many laws to try to end this abuse, but this causes issues of its own.
When a law takes power away from patent trolls, it can also take power away from honest inventors and businesses who want to protect their intellectual property. This makes more room for people who abuse patents in other ways, like ignoring a cease-and-desist order or stealing an idea. It's a tricky balancing act.
The number of patent cases more than doubled between 2009 and 2012 to 4,731, which looks like a big problem. However, a big part of this increase is due to the America Invents Act (AIA) of 2011. This was a major patent reform law, and in one provision it said that patent infringement plaintiffs must file individually instead of as groups. That alone could explain the new number, and the number of new cases each year has stayed about the same since then.
However, many argue the best parts of the AIA were gone by the time it passed into law, thanks to the lobbying efforts of patent owners. More recent bills like the Innovation Act and PATENT Act could help by adding some of those missing features, but they still haven't passed through Congress.
Another problem is how to define a patent troll. A company created specifically to buy patents and extort money is obvious, but some definitions include every company that files infringement suits and doesn't manufacture or sell its own patents. But that definition is too broad because many inventors create companies to manage their patents and license them out in above-board deals.
Also, many companies will sit on patents without using them to control their competition, which is their right. This definition applies to major corporations like Google and Apple that make good use of many of their patents. Universities are another example of entities that file patents but don't use them to create products.
For that matter, companies that collect patents and exist to sue others for infringement can serve a good cause, too. They can associate with small companies and pool their resources to protect them from big companies that would otherwise walk all over their IP rights.
The Bad Patent Problem
Another area that's always in need of reform is the problem of bad patent issuing. With 600,000 utility patent applications every year and growing, the USPTO has to do a lot of checking and double-checking to make sure a patent meets the requirements of being specific, new, and unique. But even if less than 1 percent of all patents slip through the cracks and don't get enough attention, that amounts to hundreds or thousands of patents every year.
If the wrong sort of person gets his or her patent approved, it can allow the sort of patent extortion that patent trolls are famous for. A court case can void a bad patent, but it may take a defendant years and thousands of dollars in legal fees to get to that point.
Still, reform is coming to bad patents. A 2014 Supreme Court case, Alice Corp. v. CLS Bank International, ruled that converting an existing idea to a computer program isn't enough of a new idea to get a patent. In this case, escrow accounts existed before, and creating an escrow account program doesn't deserve a separate patent.
Potential Future Reforms
Both the Innovation Act and the PATENT Act would change how things work and add several protections. The specifics are always changing and other bills could affect the law, too, but all the following reforms are on the table:
- The U.S. International Trade Commission (USITC) can injunct infringing imports or stop foreign goods from coming in if they violate a patent. Some in the government suggest the USITC should use the strict standards set by the Supreme Court in eBay v. MecExchange, but others say the USITC is a special case since patent holders often can't get money from an international infringer.
- Some propose that plaintiffs meet heightened pleading requirements for an infringement case. This means being more specific about what patent is being infringed, what the infringing object or process is with names and model numbers, and details on which elements infringe on which patents in which ways. Right now, plaintiffs don't need to offer much information to start a case, which is good for small businesses and inventors but also makes it easy for trolls to abuse the system.
- Along with more specifics about the infringement, some legislation says plaintiffs should offer more information about who really benefits from the court case, such as who really owns a patent, who has a license agreement with the patent holder, and which persons and companies have a financial stake in the case. This is called patent owner transparency. But all that extra paperwork may discourage smaller companies and individuals from defending their rights. It can also mean publishing confidential information, including which companies hold valid patent licenses as trade secrets.
- Shifting the fees and costs of a lawsuit onto the loser is another idea. By making the loser of a case pay the legal costs of both sides, it can encourage good use of patent infringement lawsuits. Letting the defendant add extra parties to the plaintiff side can prevent patent lawyers from creating shell companies to eat the debt and then disappear, but it can also make venture capital firms vulnerable.
- The court will also need a lot of discretion to protect patent holders with honest cases, so assuming the loser should pay in most cases (this is what the Innovation Act suggests) may be going too far. Also, fee shifting only applies to court cases that reach a judgement, so many defendants might settle, even if they could win, just to avoid the risk.
- The discovery period that comes before the trial could also be subject to cost sharing.
- Other proposals want to limit the discovery to core documents or to not start the period until the plaintiff can meet certain requirements, like a "claim construction" order or several preliminary motions. This is because small defendants might not have enough money to deal with a normal discovery period. However, this means small plaintiffs will have to pay extra to get anywhere instead.
- Some argue for stronger customer protections like a customer/end-user stay, at least in certain situations. You can infringe on a patent by using a covered product, but this lets patent trolls go after vulnerable individuals. This reform would let customers stay (or suspend) a lawsuit against them if the manufacturer is also in a lawsuit for the same reason and agrees to let the customer stay. The customers might still get hit by the result of the manufacturer suit, but it lets them focus on other things.
- Demand letters are the notices sent by patent holders to someone who may be infringing, and new rules may add stricter requirements to what qualifies as a valid demand letter. A patent holder should send details about the patent, the infringement, and the suggested compensation. Vague letters with threatening suggestions about legal costs are a classic patent troll tactic, and the PATENT Act for one would let the Federal Trade Commission crack down on this problem.
- "Business methods" are a new class of patent as of 1998. Because of this, examiners make mistakes more often and patent trolls can abuse the system by claiming to invent basic business methods that have been around for decades or longer. That's why reformers propose that this category should get extra reviews and fast-track challenges.
- The Innovation Act would encourage the USPTO to not invalidate existing patents as often.
- Bankruptcy protection for patent licenses can let businesses get back on their feet smoothly even after a massive loss.
Patent law bills also want to spend more money on things like studies, polls, and community outreach programs. These help politicians and policy makers better understand who really benefits from reforms like these and just what shape they should take to help the greatest number of people.
It's a tough job balancing these reforms with the need to protect innovation and the patent system. Patent protection and ending patent fraud are both bipartisan issues, but getting enough votes in congress is difficult. This is especially true when legislators can't decide on which bill is the best fix for the job.
Because of all the changing laws and waiting reforms, it's important to keep track of the state of patent law as an inventor or business owner. That's why UpCounsel helps connect people in need of legal business advice with the top patent lawyers in the business. We only accept the top 5 percent of lawyers, including graduates of Harvard and Yale. If you need advice, post your job today and find out why our site is one of the best in the business.