The team is joined by Guest Kats Rosie Burbidge, Stephen Jones, Mathilde Parvis, and Eibhlin Vardy, and by InternKats Verónica Rodríguez Arguijo, Hayleigh Bosher, Tian Lu and Cecilia Sbrolli.

Wednesday, 7 January 2009

Why do bad things happen to good patents?

Never one to miss the chance to sample something unfamiliar to him, the IPKat has been sampling the website of the Innovation Alliance -- a US-based body whose tagline ("Improving Patent Quality * Improving Innovation") suggests that it is endowed with unimpeachable aims. The Alliance's principles tell us a good deal more:

"An Innovation Ecosystem Drives the American Economy [the IPKat doesn't want to be pedantic, but innovation is not the sole driver: and it can be an expensive and wasteful ecosystem in some sectors too ...]

Our nation’s economic strength is dependent upon a thriving community of research institutions, entrepreneurial companies of all sizes, and venture capital firms interacting together. To support this innovation ecosystem, we must maintain a patent system that protects both emerging companies, whose business models are patent dependent, and focus on developing inventions that enable new products and services but don’t engage in manufacturing, and larger organizations that seek relief from frivolous litigation.

Patent Reform Must be Targeted and Balanced for the Innovation Ecosystem to Thrive

Maintaining a strong patent system that supports innovative enterprises of all sizes and business models requires targeted, balanced reform as opposed to the massive restructuring of a functioning system that has served us well for decades [good point: but the bits that work the best are the bits that are the least newsworthy]. Changes to our patent laws should be narrowly focused on
* Improving patent quality [agreed -- though this term sadly has no single generally accepted definition];
* Enhancing certainty [this can't be sufficiently emphasised -- and even a well-known and generally accepted concept such as the need for non-obviousness can have a hugely destabilising impact on the level of certainty that investers expect] and
* Preserving market-based valuations of patents.
Patent reform measures should not disadvantage emerging, pro-innovation, patent-dependent businesses and their surrounding ecosystem.

Patent Reform Should Focus on Improved Patent Quality

The patent system is not fundamentally broken or in need of sweeping reform but can and should be improved through a legislative focus on improving patent quality. Frivolous litigation can be reduced through improving patent quality by
* Fully funding the U.S. Patent and Trademark Office (USPTO) [if only ... (sigh!)];
* Allowing the USPTO to retain all of its user fees;
* Encouraging the USPTO to invest in additional human and other resources [Kats, perhaps?]; and
* Revising metrics for USPTO examiners’ compensation to encourage and reward quality of examination, not quantity of applications reviewed [is it clear whether the one need exclude the other?].

The Current Law Regarding the Determination of a Patent’s Value is Appropriate

Existing law concerning the determination of a patent’s value and calculation of damages when a patent has been infringed provides courts appropriate flexibility to reach a fair conclusion on damages assessment [the Kats wonder how many European or Asian readers would agree with this assertion, at least so far as it refers to damages]. Maintaining that flexibility is critical for small companies and licensors to be able to protect their patents against larger, well-financed competitors.

Creating an Administrative Post-Grant Opposition Procedure Would Add Uncertainty and Bureaucracy

The creation of a broad post-grant opposition procedure would lead to greater bureaucracy, less certainty, further delay in securing a valid patent, and expose emerging companies to unmeritorious or commercially motivated challenges by deep-pocketed rivals [isn't the uncertainty there anyway, if the validity of a patent that can't be opposed post-grant can still be challenged in court? And if the USPTO is fully-funded and allowed to keep all its fees, perhaps dealing with post-grant oppositions would be a fun job for successful and experienced examiners before they hang up their nit-picking devices for good ...].

Inventors Must Continue to Have the Ability to Amend Pending Patent Applications

Proposals to limit the ability of applicants to amend pending patent applications (continuation applications) are overly restrictive, disadvantage smaller innovators, and may result in increased litigation [don't those restrictive proposals also promote greater certainty and reduce the risk of greater bureaucracy ...?].

The Key is Vigorous Pre-Grant Review, Not Sweeping Litigation Alteration

Fundamental alteration of litigation practice can have have a tremendous impact on thinly capitalized, emerging companies that have fueled the nation’s economic growth and which – across industries – rely heavily on intellectual property rights to attract venture capital, grow businesses and enter markets dominated by large players. A patent process that focuses on rigorous review prior to the granting of an application will better limit patent abuse than extensive litigation reform that could inadvertently disadvantage new market entrants and innovators" [But there, again, ...].

Despite his anxiety and/or cynicism regarding various issues listed above, the IPKat agrees that the existing system deserves more respect than the root-and-branch radical restructurers advocate, and that there's a lot to be said for better quality patents. Merpel is not however convinced that better patents will cause less uncertainty and litigation than bad ones. In her opinion, the factor that triggers attacks on validity is not the quality of the patent but the view of the business challenging it as to what might happen to that business, in commercial terms, if the patent was allowed to stand. This is why plenty of good patents get challenged too.

Pre-grant review here
Post-grant review here
Hugh Grant review here
Hugh Grant and cats here


Justin Watts said...

"Enhancing certainty" is so often cited as an obvious benefit that I wonder whether anyone stops to question whether in fact it would further the purpose of the patent system. Of course in any particular dispute parties will want certainty, but the purpose of the patent system does not lie in its disputes. If everything in patent law were certain, then the patent world would be divided into valueless invalid and uninfringed patents on the one hand and valuable valid and infringed patents on the other. At present we have a continuum between the two. The uncertainty in the present system means that cases are assessed and priced on probability. Development work that produces results on the margin between inventive and non-inventive can be priced by the market, regarding the patent at a level that reflects its probabilistic status. In a certain patent world, the market would price it at a 0 or 100% level. In other words, the uncertainty that lawyers find so unattractive actually helps reduce ex ante risk in development investments by reducing the variability of the return. Since the purpose of the patent system is to reward innovation, increasing ex ante risk by promoting certainty is in fact counterproductive.

On the other hand, it is also clear that a patent system wholly devoid of certainty will do nothing for investment incentives.

Thus certainty is important, but there is an optimal level above which increased certainty decreases welfare. It is at least conceivable that we are already operating at or above the optimal point. A call for enhanced certainty is understandable from lawyers whose focus is on existing disputes, and who want to be able to advise clients of what the outcome will be; and obviously it is understandably attractive to tribunals faced with the responsibility for the ultimate decision. It may not, however, promote the underlying purpose of the system or operate in the interests of patentees or society as a whole. To date I believe too little attention has been given to determining the optimal level of certainty and, if we are not there already, how one legislates to adjust that up, or down, the certainty currently provided by the system.

Anonymous said...

Interesting and well written the comments of the last poster and a refreshing re-examination of the issue of legal certainty. Indeed absolute certainty in any such endeavour is an impossibility. There are so many variables: did the examiner grant a valid patent satisfying all of the requirements of the law, was all the relevant state of the art found, were any errors made in drafting the application, were all relevant arguments and evidence brought forward before a decision was reached, are there any uncertainties in the science of the underlying research on which the patent is based? All of this applies, even without considering that in many cases an assessment of whether or not a particular legal requirement is satisfied can be a subjective affair and even if the accepted tests for a particular legal requirement are followed in the examination procedure or court proceedings, these are subject to change (one only has to look at the issue of software patents to see this process in action).

The result is that, as in economics, chaos theory creeps in and the outcome is impossible to predict with absolute certainty. Consequently, the continuum of legal certainty (or rather lack of it in an absolute sense) is in no danger. I think the term "legal certainty" is being used incorrectly to define harominsation (which should ensure that the same agreed legal tests are applied in assessing compliance with the law for all cases, but which can still change over time) and predictability (which is not the same as certainty). It is a combined problem of political correctness (the mantra of legal certainty is rarely challenged) and of inappropriate and confusing nomenclature.

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