Now you see it…

In many ways, patent quality is as elusive as a white rabbit in a magician’s hat. Thanks to case law that is in constant flux and the new post-issuance review proceedings, the validity of a patent – and, in essence, its quality – is easier to undermine than ever. A patent filing that just a few years ago might have appeared to be high quality may now be open to challenge in court or through inter partes review. For some patent owners, it is very much a case of now you see it, now you don’t.

Of all the recent rulings, it is the Supreme Court’s opinions in a string of decisions concerning patent-eligible subject matter that have cast greatest doubt on what should qualify for patent protection and, ultimately, what exactly constitutes a high-quality filing. Cases such as Bilski v Kappos, Mayo Collaborative Services v Prometheus Labs, Association for Molecular Pathology v Myriad Genetics and – most recently and perhaps most controversially – Alice Corp v CLS Bank have transformed the landscape around Section 101, that part of the patent statute concerning patent-eligible subject matter.

For prosecution specialists, the challenge now is to ensure that new patent applications can withstand closer examination under Alice and any post-issuance review that might be filed against them. This may have made the climate tougher for some patent owners and provided fuel for the critics who argue that patent rights have been steadily eroded over the last decade; but it also appears that the US patent system might have reached an inflection point when it comes to patent quality.

While the Supreme Court refines the case law, the US Patent and Trademark Office (USPTO) has also been doubling down on its commitment to improve patent quality. Since she took over as head of the USPTO in 2014 (first as acting director and then as director), Michelle Lee has made this perhaps the defining issue of her time in office. Among other things, she has established the Enhanced Patent Quality Initiative (EPQI) to help drive the agency’s quality quest and appointed the first deputy director for patent quality.

With patent quality at the heart of so many debates around the US patent system, this year we once again asked Ocean Tomo to analyse which law firms have prosecuted the highest-quality patents over the last three years. They did this across four sectors – industrials, healthcare (pharma/bio), consumer electronics and information technology – and also compiled a ranking of the top 20 firms with the best overall score. For any patent owners considering how their service providers stack up against the competition, the rankings are a must-read.

Ocean Tomo’s analysis also provides an opportunity for a broader discussion about how changes in the legal climate and the USPTO’s EPQI are affecting patent quality. With the standing of the US patent system in many ways diminished in the eyes of some patent owners, raising standards would send a powerful message to the global patent community.

Taking a lead

Talk to any number of patent owners in the United States and it is difficult, if not impossible, to find anyone who would disagree with the notion that higher-quality patents are better for the system overall. How this can best be achieved is another matter; but in-house IP executives and private practitioners alike interviewed for this piece all said that they are encouraged by the steps being taken to improve standards.

“The outreach has been genuine and energetic,” claims Jeff Draeger, director of the patent group at Intel. “I am hopeful; there are parts that are beneficial,” agrees Douglas Robinson, Lenovo’s director of patent and trademark prosecution.

In response to feedback from stakeholders, the USPTO is looking to establish programmes focused on data analysis; examiners’ resources, tools and training; and changes to process. In one of the most recent announcements concerning the EPQI in November last year, Lee revealed the launch of a “Clarity of the Record Pilot” designed to yield more detailed reasons as to why a patent is approved or rejected. She also announced that the agency will be taking steps to improve and add consistency to reviews of examiners’ work.

Again, it is hard to find fault with either idea; but to what extent can the USPTO continue to drive down the backlog of patent applications while simultaneously trying to improve quality? The longer an examiner has to review an application, the more rigorous the process should be, resulting in a higher-standard end product. That may not always be the case, and it is fair to say that the USPTO is clearly taking steps that should improve quality without unduly extending the prosecution process. In an interview for this article, Lee contends that speed and quality are “two sides of the same coin”.

Whether it can manage these twin dynamics might be missing the point – the point is that it simply must manage them. As one in-house patent executive observes, it is akin to a company managing both short and longer-term business objectives to drive growth and shareholder return.

Perhaps one key problem for the USPTO when it comes to quality is that, while its changes will most likely take many years to bear fruit, the European Patent Office (EPO) has been winning plaudits for its grants. In the most recent IAM benchmarking survey (issue 72, pages 56 to 73), the EPO led the way in terms of quality over its IP5 peers (the USPTO, the Korean IP Office, China’s State IP Office and the Japan Patent Office (JPO)). EPO granted patents were rated as either “very good” or “excellent” by 60% of corporate respondents; that figure increased to 81% when the “good” category was included. In contrast, just under one-third (32%) of the USPTO’s grants were rated in the top two categories (increasing to 67% when “good” was included), placing the agency third behind the JPO.

Quality in the crosshairs

Since she took over as acting director in 2014 (before being confirmed to the role in 2015), UPSTO Director Michelle Lee has made improving patent quality one of her key targets. As part of those efforts, she has hired the agency’s first deputy director for patent quality in Valencia Martin Wallace and launched the Enhanced Patent Quality Initiative (EPQI), a project designed to improve quality in part through feedback from the patent-owning community. With patent quality such a cornerstone issue for Lee, we asked her why she has placed so much stock in improving grants, how she rates the progress of the EPQI so far and what challenges to this mission remain.

What is meant by ‘patent quality’?

A quality patent is one that is correctly issued in compliance with all the requirements of Title 35 as well as the relevant case law, and one that clearly provides notice of the boundaries of the patented technology.

Why is the USPTO so focused on improving the quality of the patents it issues?

Strong patents are increasingly important to innovation and economic development, particularly as our country continues to move towards a knowledge-based economy. A recent research paper, “The Bright Side of Patents” by USPTO Edison Scholar Deepak Hegde and co-authors Joan Farre-Mensa and Alexander Ljungqvist, documented the valuable role that patents play in the growth of start-ups. The study found that approval of a start-up’s first patent application increases its employment growth by 36% and sales growth by 51%, on average, over the next five years.

Additionally, participants in the innovation economy need to be able to make informed decisions about what is covered by a patent and what is not, so that they can most efficiently and effectively allocate their limited R&D resources and efforts. For example, it is important to be able to decide accurately whether to license the patented technology, how to design around the patent to avoid infringement and when to settle or fight in litigation. Patents with clear claims and clear prosecution records make arriving at these decisions easier, and give the public confidence that they have arrived at the right decision.

Finally, the timing is right for other reasons too. Pursuant to the Leahy-Smith America Invents Act of 2011, the USPTO has better control over its finances because it can now set its own fees and has worked with Congress in recent years to keep all of the fees collected. This empowers us to focus even more intently on patent quality as well as other longer-term projects such as deep investments in our IT infrastructure.

We owe it to the American public to produce the highest-quality patents possible – the public has been asking for it and we know it is the right thing to focus on, now and in the long run.

What has been the response so far from stakeholders to the EPQI?

I have been very encouraged by the positive responses we have received from a wide cross-section of the public. This enthusiasm and engagement first became clear at our two-day Patent Quality Summit last year, which 1,500 participants joined in person or via video conferencing. At the summit and through a subsequent request for comments, the USPTO asked a broad cross-section of the public – including patent applicants, litigants, litigators, prosecutors, in-house counsel, licensors, licensees, academics and a former jurist – what the agency could do to further enhance the quality of patents issued. We welcomed input on everything, from big to small, from IT improvements to process, procedure and even policy changes on how to enhance patent quality. We also asked our examiners the same question.

In response to our request for input, the agency received over 1,200 comments and chose to focus initially on about a dozen initiatives, while continuing to be open to input on these initiatives as well as other issues related to patent quality.

What are some of the challenges that the EPQI faces if it is to achieve its goals?

Many of our initial programmes growing out of our EPQI focus on improving clarity of the prosecution record. I think there’s a good reason for that. Conceptually, it is difficult to translate the increasingly complex technology springing from the minds of our inventors in clear language within the four corners of a patent.

As with any multifaceted problem, there is no one-size-fits-all solution. So our approach to improve quality must also be multifaceted, flexible and creative.

Some of our initial work includes identifying what we’re already doing as best practices and institutionalising those practices. After all, we have examiners who have grappled with these issues for years. This is an important piece of our Clarity of the Record Pilot. Through the Clarity of the Record Pilot, volunteer examiners work interactively with members of our Patent Quality Department. The examiners receive training on the benefits of a clear record and best practices to achieve clarity of the record. Additionally, we are creating listening sessions for the examiners to provide feedback on what is and isn’t working, and to share new ideas. This pilot is now ongoing and my team and I are very excited about it.

But this isn’t all we are doing. Our multifaceted approach also includes learning from our rich data to best identify trends, areas for improvements and next steps. This is why we are working to centralise all of our quality review efforts and data in a single, uniform system. This will allow us to record and use all of the reviews that we’re already doing, through our quality assurance and our supervisory examiners, and to use big data techniques to identify trends and problem areas at much more granular levels.

We have also asked our stakeholders to tell us about topics they think are worthy of a ‘deep dive’ analysis by our team – not about any particular application, but general topics warranting investigation by the agency. The comment period here just closed and we’re currently sorting through the over 70 suggestions received.

On patent quality metrics, last year we retired the use of our old ‘composite’ metric and have started to publish the underlying inputs. In early March, we hope to get input from the public on this change, whether it is more helpful than the old composite metrics and how we might further improve the efficacy of our patent quality metrics.

We are also increasing training for all examiners. For example, over the past six months, we have conducted corps-wide training on the requirements of an enabling disclosure under 35 USC § 112(a). We are now beginning training on indefiniteness under Section 112(b) and how our examiners should provide explanations in the record of why a claim is unclear. That training will run through March.

So in sum, we are approaching a multifaceted challenge from every possible angle, with a focus on producing the best possible work product now and into the future.

To what extent is there an inherent tension between processing applications faster (and continuing to reduce the backlog of applications) and ensuring that granted patents are of the highest quality?

There is a cost to society if we issue a patent (or claim) that should not have issued – just as there is a cost to society if we don’t issue a patent (or claim) that should have issued. So I don’t agree that there’s an inherent tension there. They are two sides of the same coin.

We must find the right balance, however, because both processing speed and quality are important to the IP community; but of course improved quality takes time.

When can we expect to see the full results of the EPQI?

We have embarked on an unprecedented quest for quality during my time as director of the USPTO and we will continue to do so. While some of the results from this quest will occur in the near term, others will require a longer-term commitment.

The goals I have laid out for the USPTO on quality are ambitious. Addressing quality is not a one-and-done matter. Instead, it is an iterative process and an ongoing initiative. As I know from my experience in the corporate world, any company that produces a truly top-quality product has focused on quality for years, if not decades. Quality must be built into an organisation’s DNA. To support an ongoing focus on patent quality, I created an entire department and a new deputy commissioner for patent quality position, with a sole focus on enhancing patent quality. This department and this executive-level position will far outlast my tenure with the agency, and will ensure that the agency has the resources and the organisational structure needed to focus on improving quality now and in the long run.

The EPO’s more rigorous approach to quality has been noted by corporate filers for some years. Microsoft, for instance, uses the European Technical Effect Standard as a guide for many of its worldwide filings – a clear indication that any prosecution that follows European lines is likely to pass muster in pretty much any other jurisdiction. Lenovo’s Robinson claims that the EPO has been doing a better job than it counterparts for the last 10 years, which he puts down to a number of factors, including its ability to bring in non-patent prior art and more experienced patent examiners – “they tend to last longer in Europe,” he remarks.

“The EPO has always done high-quality searches, had good results and done rigorous examinations,” agrees Draeger. “It takes a strict view of what the invention in question is based on the original filing and I think there is something to be learned from that. One source of ambiguity and controversy in the US is the more liberal ability to change the claimed invention during the examination process.” It should come as no surprise, he points out, that the Chinese authorities have sought to shape the country’s relatively embryonic patent system more on the European and specifically German system than on the US model.

Caught in limbo

One of the challenges in gauging the success of the steps taken by the USPTO and the impact of case law and post-issuance reviews on patent quality is that it will take some considerable time before their full effects are felt. The validity of a patent is, of course, primarily tested in the courtroom; but this might not happen for several years after the patent has issued.

To complicate things further, what might be deemed patentable, obvious or indefinite has changed over time, according to court decisions. During the dotcom bubble 15 years ago, for instance, the USPTO had no problem issuing internet-based business method filings which, in light of the Supreme Court’s Alice decision, might now be judged to be invalid.

The evolving case law on Section 101 shows just how the environment has changed and how the courts’ views of what constitutes a quality patent have shifted. “Section 101 used to be akin to a speed bump – making an invention survive 101 was the least rigorous part of the process,” says Mauricio Uribe, a partner at Knobbe Martens Olson & Bear. “Now it has been flipped completely, where you see something pass Sections 102 and 103 and the only remaining issue is whether it is patentable in the first place.”

According to Rajiv Patel of Fenwick & West, the changing currents in case law mean that prosecution lawyers now need to focus their patenting efforts on producing “right-sized claims”. That means “having a better understanding of the prior art, ensuring an application meets subject-matter eligibility requirements and focusing on the written description in any application”.

Steve Slater of Slater & Matsil adds that part of the prosecution strategy that his firm now follows is to discuss with clients how the technology landscape might develop: “One of the things we try to draw out of the inventors is how the problem they are addressing is likely to change in five, 10 or 20 years.”

Although most of the companies that spoke to IAM for this piece have a relatively small number of patents that are affected by the recent uncertainty over Section 101, they still now tend to focus on the more concrete, technical aspects of any filing as a result. “In light of Section 101 issues, I’m focusing more on inventions that include a sold technical contribution in the specification and claims, rather than broad stroke ideas and how to employ existing technology,” reveals Patrick Zhang, vice president of patent strategy and enforcement at Technicolor.

Waving the wand

It is not just the shifting case law that prosecution attorneys need to consider when determining how to draft a high-quality patent that can survive intense scrutiny. The popularity of post-issuance reviews and inter partes reviews in particular have led to myriad validity challenges in the America Invents Act era.

While no one is doubting their popularity, there is more debate over the actual impact of inter partes reviews. “Good patent practitioners have always been aware of litigation risk,” insists Jason Chang, senior legal counsel for intellectual property at AT&T. “In my opinion, when you draft claims, you must assume the patent is going to be litigated; and whether it’s an inter partes review or district court litigation, we’re talking about the same thing.”

But for others, the very real threat that inter partes reviews now pose to validity undermines any steps to improve patent quality at the USPTO. “You can always improve the quality of a product, so it’s hard to argue that the USPTO can’t improve patent quality,” insists one senior IP executive. “But part of the problem is the high cancellation rate in inter partes review proceedings. Patents going into inter partes review were issued some time ago, so it leaves the business community wondering whether they should rely on patents at all.”

That comment raises a broader point about how questions around patent validity and, ultimately, quality are influencing patenting strategies and how companies derive value from their patents. In simple monetisation terms, the combination of shifting case law and the advent of inter partes reviews has had a chilling effect on patent values and the patent deals market, as more companies have come to question the quality of what is in their portfolios. As one IP in-houser points out, “No patent is worth more than $300,000 to $500,000 because that is all it’s going to take to invalidate it in a review.”

Recently there has been some evidence that the number of deals being inked is on the rise again, but most accept that values remain well down on the highs of four or five years ago. That may not be an immediate concern for players not seeking to monetise their patents; but as all companies derive some value from their intangible assets, it should nonetheless be on their radars.

And for those companies that are hunting down deals to grow their portfolios, the new normal has had a significant effect. “When you are looking into a portfolio, you can’t dig into every patent in the same way that someone is going to do in a re-exam,” Zhang points out. “In my opinion, you are better off trying to identify a number of key assets that are bulletproof that will survive re-exam and have a good 101 footprint.”

Ultimately, how patent owners derive value from their patents is of relatively little concern to the USPTO. Its primary focus right now is on the quality of the filings that it grants; and while it might win plaudits for its various initiatives aimed at raising standards, there is no doubt that this will be a lengthy task. Everyone in the market accepts that patent quality is not something that can be improved overnight. “I have a lot of sympathy for the USPTO,” concludes Draeger. “There’s no magic wand for quality.”