Richard Lloyd

Earlier this week we held our third annual Patent Law and Policy event in Washington DC. With the approach to patents in the new administration slowly taking shape, the Supreme Court continuing to have its say in key areas, the PTAB celebrating five years of activity and investors in the patent space grappling with the culture of uncertainty, there was a huge amount for panelists and delegates to discuss.

One of our keynote speakers was Senator Chris Coons, a member of the Senate Judiciary Committee, the author of the STRONGER Patents Act and one of the relatively few US legislators who demonstrates a keen understanding of the importance of strong IP rights to an innovation economy. In an engaging speech he called for Congress to take action to strengthen patent rights in the US. Here’s a part of what he had to say:

After the AIA, and after the Supreme Court’s many decisions, there have been calls for Congress to take a step back, to let the dust settle before meddling any further, and in some instances, these calls for restraint were prudent.  

I was opposed to several of the patent reform efforts in the last two Congresses because they seemed to further accelerate the direction that both the Supreme Court and the AIA were taking the patent system without due account for what had already happened.

I disagree, however, with those calling for Congress to stay out of the way entirely. Congress, in my view, is institutionally best situated to take account of the impact of each of these Supreme Court cases, as well as to consider whether all parts of the AIA are functioning as intended.

Courts look at each case in front of them. We rely on them to make the best decision based on the facts, precedent, and law. In contrast, Congress has the ability—and I think the duty—to take a step back, view everything holistically, and evaluate whether systemic changes need to be made.

Congress is designed, in other words: To be able to see the forest for the trees; to hear from a wide variety of stakeholders—solo inventors, companies, universities, academics, economists, and others—in order to gain understanding of the overall patent landscape.

In my survey of that landscape, I have serious concerns about where the patent system is heading. The warning signs are apparent: The US patent system was ranked 10th worldwide by the US Chamber of Commerce.  Until this year, it was always ranked first. Census data released late last year found that in 2014, the creation of new startups was at or near a 40-year low, and I’m hearing more and more anecdotes about investors asking if a patent portfolio includes patents in China and Europe because those are viewed as necessary for getting effective enforcement against infringement.

No one actor may have decided to take us down this path intentionally. But due to the intended and unintended consequences of many changes, we are now in a place where I think it is important for Congress, having surveyed the resultant landscape, to act. 

Take the post-issuance proceedings at the Patent Trial and Appeal Board [PTAB], created by the America Invents Act, for example. Five years since these proceedings have been up and running, it is not surprising that we are seeing some unintended consequences. These proceedings promised to be “more efficient” but frequently have led to duplication in PTAB and district courts.

These proceedings promised to provide “faster” checks on the validity of patents. But some have questioned whether this speed comes at the expense of due process protections for patent holders, many of whom relied on patents to justify significant R&D expenditures.

Perhaps most significantly, I do not think it was apparent when the AIA passed just how disruptive these proceedings would prove to the ability of inventors today to rely on patents to attract investment and pursue their ideas. But with statistics showing that an inter partes review is instituted on 70% of challenged patents, it is easy to understand why investors—business people with an eye towards the bottom line—are skeptical of investing in such a risky asset.

I have introduced a bill, the STRONGER Patents Act, with the bipartisan support of Senators Cotton, Durbin, and Hirono, to help reestablish the legal certainty that makes it possible for patent rights to support significant investment in research and development. I won’t go through all of the provisions, but I will briefly note that the bill proposes a number of changes to the post-issuance proceedings to address unintended consequences including: Aligning the PTAB standards with the district courts, to increase efficiency and fairness, and strengthening estoppels so that the promise of “streamlining” cases becomes more of a reality.

Additionally, the bill addresses the eBay case I mentioned earlier. It would effectively reverse that case and restore patent rights to being treated like other property rights, where violations can be remedied by injunctions. This would help to resurrect a vibrant market in patents and ensure that innovators are appropriately compensated for their contributions.

While STRONGER is a good first step, there is more that needs to be addressed. For example, the Supreme Court’s recent cases on patent eligible subject matter:  I think it is troubling that these cases call into question whether patents should be awarded at all in some of the most vibrant areas of the economy.

I think it’s hard to dispute that certain innovations technologies need to fall on the “patentable” side of the line—like diagnostic methods. Some analysts have put the average cost of developing a diagnostic method at around $40 million.  It’s hard to imagine sustaining these kinds of R&D dollars without reliable patent protection.

Besides medical diagnostics, I would also add computer-implemented inventions and isolated natural products as areas where the incentives provided by patents are necessary. We have to get this right. Already there is evidence that Europe and China are granting patents where the US is not. We risk losing the investment capital that will follow and our competitive edge.

So, in sum, I believe that if you take a step back and look where the US patent system is today compared to ten years ago, you have to conclude that it has been considerably weakened, to the detriment of our innovation economy. I made the point earlier that Congress is institutionally situated to make this kind of assessment and take action, 

Yet I also recognise that making legislative changes is, in reality, easier said than done. Change is easiest to enact when there is consensus. Consensus, especially on contentious issues, is often maddeningly difficult to achieve. I don’t believe patent law should be one of these contentious issues. It’s hard to imagine anyone seriously disputing policies that promote innovation and progress.

There nonetheless remain a chorus of voices that question the value of a patent system and which seem dedicated to continuing its dismantling, bit by bit. To them, I recommend considering the work of an economist at Stanford, Stephen Haber, who has outlined the historic correlations between strong patents and successful innovative countries in his paper “Patents and the Wealth of Nations,” and I would ask them to consider why China is taking steps to strengthen its patent system while we are weakening ours.

I hope that my colleagues and I will be able to reach a consensus on strengthening the patent system before the signs of America’s decline in innovation become too glaring to ignore. I believe we owe it to our innovators and entrepreneurs to work together to take action before that happens. For my part, I am committed to working on these issues. They are too important to our country’s economic and innovative success for me not to.