Mixed views among senior US patent market players about whether the pendulum is swinging back 08 Jul 16
As anyone in and around the patent market knows, the ebb and flow of patent rights in the US is often characterised as a pendulum swinging between one side that favours strong patent rights and the other that indicates weaker ones. This binary distinction may have its limitations, but as a way of providing a macro level view of the US and even global market it has many adherents.
The question that some are starting to ask themselves, after years of momentum on the weak side, is to what extent, if any, is the pendulum now starting to swing back towards stronger rights?
Of course picking a particular date or event when the pendulum changes course is impossible. It is almost always a combination of factors - of deals done, of court decisions handed down, legislation passed or not passed – that emerge over time and can be pointed to as signs of acceleration or a change of course.
In terms of the pendulum’s vacillations over the last 20 years many would cite the Court of Appeals for the Federal Circuit’s (CAFC) 1998 decision in State Street as representing the high watermark of the last time the pendulum was on the side of strong rights. Since then the Supreme Court’s 2006 decision in eBay v MercExchange is often given as the point when the pendulum started its arc towards the weaker side, a move which has been accelerated by a succession of decisions from the US’s highest court on what constitutes patent eligible subject matter.
Here’s how’s former CAFC Chief Judge Paul Michel describes the Supreme Court’s recent impact on patent law: “Since eBay [it] has been taking authority away from the Federal Circuit. By rejecting every major decision of the CAFC – except Cuozzo and i4i – the Supreme Court has sharply rebuked the Federal Circuit and upended tests that the CAFC had instituted.” That has led, Michel insists, to a strengthening of SCOTUS’s power at the expense of the CAFC and of Congress.
Ocean Tomo’s James Malackowski and Erich Spangenberg, the founder of IPNav who recently became the director of acquisitions, licensing and strategy at Marathon, both believe that the patent market is beginning to recover. As two of the pioneers of modern IP value creation, the pair made a lot of money while patent rights were at their strongest and have a keen sense of how value is changing. Spangenberg says he sees a rebound in the market globally, adding: “I would not have joined Marathon if I thought we were not at or near the bottom [of the market].”
Last October Malackowski told this blog that he thought the market was in recovery mode and, eight months on, he claims that the momentum is still there. “From our vantage point, the market continues to recover very much along the path we expected,” he says. As evidence he points to patent reform being put on the back burner, an uptick in deal activity and far greater interest about IP rights among Chinese companies.
Russell Binns, the head of AST, which is in the midst of masterminding the Industry Patent Purchase Program (IP3), is also on the pro-recovery side of the fence. Given that AST is currently sifting through patents as part of the IP3, he has a fairly unique viewpoint. On the deals front he says there is a lot of activity, but that prices remain low. “There are still a lot of sellers out there who don’t know how to price their assets,” he comments.
It should be stressed that while the pendulum might have stopped swinging to the weaker side, monetising patents in the US still remains incredibly tough and if a recovery is taking shape there are many who aren’t feeling it. “My view is that even with these recent glimmers, the US patent environment remains grim unless the patent owner has access to ample resources and a willingness to devote them to fighting a multi-year, multi-front, high-risk battle to defend their intellectual property,” Katharine Wolanyk, a principal at Gerchen Keller Capital reflects. “And even that isn’t enough if the patents relate to computer-enabled technology, medical diagnostics, or a financial product or service. I think it will take many more meaningful developments to detect movement toward equilibrium.”
So, with the jury still out on just where the patent pendulum is here are some reasons why it’s swinging back and a few others why it’s yet to change direction.
State Street here we come – three signs that the pendulum is swinging back
The CAFC rules in Enfish v Microsoft. Ever since the Alice decision large parts of the patent owning community have been calling for great clarity on just what is patentable, particularly in terms of computer-implemented inventions. Enfish is by no means a panacea, but is part of a small but growing body of case law that provides some boundaries to Alice. Given the way that some courts have been using Alice to take patent cases off their dockets, the system desperately needs more clarity.
SCOTUS weighs in on Halo/Stryker. This is one of those rare Supreme Court pro-patent decisions, giving greater discretion to district courts in determining willfulness and, therefore, where treble damages might be appropriate. Given the general decline in damages awards in recent years, the decision could be a big boost to patent owners. However, a knock-on effect of the ruling, according to AST’s Binns, could be that it breathes new life into the patent reform debate. “The decision is going to add a lot more cost for companies,” he predicts. “There are going to be long fights and more discovery about who knew what, when and patentees asking for higher settlements.” If Halo/Stryker leads to much higher litigation spends, Binns suggests that operating companies will ramp up their lobbying efforts in Congress and once again demand patent reform that tackles runaway legal costs.
Patent reform is on the back burner. The US election in November has meant that the push for new legislation in Congress has been put on hold. Although it’s highly likely to return in 2017 changes to the system since patent reform was last actively debated – such as falling litigation numbers and the rate of new IPRs plateauing – could help water down proposals and mean that they will not look like the kind of full-scale attack on patent rights that they have previously seemed.
eBay was just the beginning – why the pendulum is yet to change course
Cuozzo v Lee leaves the IPR regime intact. There had been some hopes that the Supreme Court might look critically at the broadest reasonable interpretation (BRI) standard for reviewing patent claims in inter partes reviews (IPRs) and that PTAB decisions might become appealable. In the end, though, nothing changed – SCOTUS confirmed the status quo. For many patent owners the judgment confirmed that the system in the US remain stacked against them.
The Yahoo! patent sale. We don’t yet know how this one is going to turn out so, a few months down the line, this blog might well be conceding that the Yahoo! disposal is a sign of a resurgent market. Most well-informed observers, though, think that Yahoo!’s attempts to sell this portfolio of 3,000 assets face huge hurdles, thanks to Alice, IPRs and a price tag which has been rumoured to be north of $1 billion. The health of the patent deals market is about more than just whether Yahoo! can flog its IP but if it struggles, it will reflect just how far we are from the market’s Nortel heyday.
Which way for China? The state of the Chinese market could in fact be used to support either side of this pendulum debate. The country’s determination to shift to an innovation-led economy rather than just be seen as a giant manufacturing hub is undoubtedly having a profound effect on IP rights. The rise of specialist IP courts has also been met with much approval in the West (thanks to some very high win rates) with several licensing professionals now looking at becoming far more assertive in the country. But the recent travails of Qualcomm which has filed lawsuits against an alleged local Chinese infringer also show the significant challenges that many face. If a licensing giant as savvy as the US tech company can’t establish an effective licensing programme in China, then many others will surely struggle. For all the progress that China has made it is still an IP market of huge uncertainty.
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