Patent quality through the long lens

For the last eight years Ocean Tomo has collaborated with IAM to recognise and celebrate the achievements of the US law firms which, according to analysis of data undertaken by Ocean Tomo, provide the most potent mix of high volume, high-quality patent prosecution work before the US Patent and Trademark Office (USPTO).

In previous years, IAM reporters have provided a series of insightful stories linked to the Ocean Tomo data and analysis. However, this year we have decided to let direct interviews with some of the named firms tell the story. These were conducted with senior practitioners from three firms – Bradley D Lytle, managing partner and co-chair of the patent prosecution group, Richard L Treanor, chair of the chemical patent prosecution group and co-chair of the patent prosecution group and Surinder Sachar, a partner in the electrical and mechanical patent prosecution groups, all at Oblon; John Hayden, principal at Fish & Richardson’s Washington DC office and patent practice group leader for the firm; and Adam Kiedrowski, a registered patent attorney and principal at Schwegman Lundberg & Woessner.

As has become traditional, this article focuses on patent quality and the law firms whose skilled prosecution groups have succeeded in obtaining the highest quality patents. While past articles were based on intrinsic patent quality metrics, this year our review considers the impact that patents have had externally, based on lessons learned from the small group of patents being transacted or litigated.

We began by exploring the attorneys’ professional insights regarding indicators of patent quality. There was near universal consensus among the prosecution partners we interviewed for this article that patent quality is best viewed through a long lens. It is this perspective which frames some of the unique challenges faced by prosecuting attorneys and examiners.

From a practical point of view, the language and detail in the dependent claims advanced by both John F Hayden and Richard L Treanor is a central determinant of quality.

The group was united in their belief that litigation is at the core of the quality discussion. In order for a potential acquirer or licensee to be motivated to act, there must be a firm belief that the patent will be enforceable before the courts. Litigation, or the threat of litigation, is the crucial factor that brings the parties to the table.

Q: What are the greatest indicators of patent quality?

Surinder Sachar (SS): The problem you run into with this question is what we would call the hindsight aspect. To prosecute an application today, the USPTO has limited resources to identify relevant prior art. However, five years from now, when someone is seeking to challenge a patent’s validity, they will expend a great deal more resources as there will be a great deal more at stake. The challenge from our point of view is how to project out and anticipate future challenges in order to prepare for someone later to take a much harder look at the patent. We address this by focusing carefully on the claim scope in the sense that we provide claims of various scopes and various classes of claim. These give you the best chance of withstanding future challenges.

John Hayden (JH): The intrinsic qualities in the strength of the technology combined with a thorough understanding of the technology results in better patents. Strong patents have a depth beyond just what will get the application through the USPTO, with a deep claim set that includes claims of varying breadth and detail.

Richard Treanor (RT): I think in truth the level of detail in the dependent claims can be a bellwether for the patent’s quality. Claims 2 to 20, the dependent claims, are where the prosecuting attorney gets to shine. I liken the prosecution process to painting a house: anyone can roll the walls – it is the quality of the trim that sets the painter apart.

Q: Is there a correlation between patent quality and patents that are licensed?

RT: A patent is always worth something – that value is related to how much it would cost to kill. So if it is going to be licensed, a patent must be worth more than the cost of killing it.

SS: Absolutely. My experience with one of our large clients is that it takes the lead in licence discussions with its highest quality patents. We work with them to manage the process, filing continuations as necessary.

Adam Kiedrowski (AK): Most licensees are savvy enough to scrutinise the patent’s applicability and validity before taking a licence. Both require high quality in patent drafting and advocacy during patent examination.

Q: Do you feel that the highest quality patents are litigated?

RT: I think that the most frequently litigated patents are those related to the highest value products.

SS: Absolutely. Those patents that do not have quality will be shot down in an inter partes review.

AK: This is not always the case but is increasingly so, because poor-quality patents get knocked out in inter partes review proceedings. Given the expense of patent litigation and the low survival rate of poor-quality patents in inter partes review proceedings, getting higher quality patents makes more sense than ever before. Even during our transactional due diligence investigations, patents that are blighted with potential invalidity issues are easily exposed. Still, litigation is not the sole measuring stick for a patent’s quality. I think that litigation is one factor out of four or five that I consider when looking at the quality or value of a patent.

JH: Yes, if the patent makes it to litigation it is generally very strong. Weaker patents do not make it to litigation because they are just not asserted or the potential defendant has an easy design around or rebuttal as to the merits of the patent.

Q: Do you feel similarly that the highest quality patents are those that are transacted in the market?

Bradley Lytle (BL): Patents are a market business tool; if you do not have the right tools, markets can be shut to you and, likewise, the right tools can give you leverage to shut down other people. However, as some companies are more willing to transact patents than others, transactions cannot be the sole criteria for ascertaining quality.

RT: Yes, because you are always doing the maths; the cost to kill this patent divided by the likelihood of success compared to the licence or sales price of the asset. At the end of this process you are going to identify one measure of patent value.

External influences on patent prosecution

The second major area of focus in our discussion with these leading law firms was the external influences affecting their prosecution work. Overall, the group agreed that the volume of filings and the selection of jurisdiction(s) are heavily affected by both market factors and legal conditions.

Q: Have current market and legal conditions affected the number of patent filings you prepare on behalf of your clients?

JH: Alice has changed the approach that some clients take. However, collectively the number of patents we have filed on behalf of our clients has continued to increase year on year. Alice has certainly had some effect in certain industries particularly those that relied on protecting business methods.

SS: To date, we have experienced no notable reduction in the total number of filings on behalf of our clients. That said, we have received some indication from some clients that there may be a change forthcoming. Certainly discussions are taking place as to how to trim filings back. We anticipate that we will see a focus on fewer and higher quality patents. While this has yet to play out, clients are working on internal process to help identify the processes that will allow this to happen.

AK: Our numbers are fairly steady but the USPTO backlog has fallen and foreign filings have gained importance with the growth of other markets and the increased uncertainty in US patent law. Obtaining a high-quality patent can still take time, particularly in certain technologies, such as medical devices. We have had some good successes with the Track One Prioritised Examination programme at the USPTO, not just for its speed but also for the more collaborative approach taken by the patent examiners. Better collaboration with a patent examiner during examination can yield higher quality patents with fewer hidden issues in the examination file history.

Q: Similarly, have market or legal conditions affected the selection of jurisdictions in which you file?

JH: Changes in the economy and the legal market over the last 10 years have placed a heavier focus on US filings – or perhaps less emphasis on international filings. At Fish we have also seen significant growth in the number of US filings by Chinese companies in recent years.

BL: We see China growing and the United States continuing to be important.

RT: Yes, the US market is always desirable; but investment in markets such as Venezuela for petrochemical filings are driven by market conditions and company performance.

SS: We are seeing some of the Japanese companies we work with reduce their filings in Japan. The real value seems to be in their US patents. We are seeing growth in other countries, for example China.

Q: What influence do recent changes in patent case law or Supreme Court rulings have on your prosecution strategies and process?

JH: Alice has dramatically affected both strategy and process. There are still ways to get cases through the USPTO that are potentially influenced by Alice, but we have to come at our claims in a different way; we spend a lot of time figuring out how to do this. With the advent of the America Invents Act and post-grant inter partes reviews, claims have to be much more focused; you have to prosecute with post-grant reviews in mind. Our active post-grant practice at Fish positions us well to do just that.

BL: Patent law is one of the few areas of law that has a basis in the Constitution. The founding fathers foresaw the need for a system which rewards inventors for disclosing their inventions as opposed to hiding them. Through history the pendulum of patent policy has oscillated back and forth in terms of pro-patent policies and anti-patent policies. Back in the early days, State Street Bank allowed for the patenting of software and business methods. That decision, combined with the internet explosion, resulted in a huge increase in the number of filings and what I would call a ‘froth’ of internet-based patents which were used in commerce and which fuelled a lot of non-practising entity business models. In the past seven to eight years, the courts and all aspects of our government have taken a narrower view. The pendulum has swung the other way and we are now seeing a much less pro-patent policy.

All this causes me to wonder. China will eventually eclipse the United States as the largest market in the world. If we have neither strong patent laws nor strong trade laws, we will have no tools to protect US companies in the US market. There is just no protection for companies’ R&D. Given what we are seeing in the present administration – which is critical of international trade laws and agreements – we are left to wonder what we have to rely on? If it is not patents, then companies will be at a severe disadvantage. I would expect that the realisation that we need either strong patent laws or strong trade laws will be embraced sooner rather than later. I would not be surprised if once again we see the pendulum swinging back to a more pro-patent policy, just as we have seen on several other occasions in our history.

RT: My group is on the front line of obtaining patents; as such, we serve two masters – the examiners and the courts – which do not always view the law in the same way. The easiest example of this is product-by-process claims. You have to negotiate with the examiner and pay careful attention to how he or she feels about the claim language – at the same time you also need to be aware that the courts may take a different view of that language. This is where a lot of the dependent claim strategy I have discussed previously comes into play.

SS: The biggest case law challenge we face are Section 101 issues, which are constantly evolving. The biggest issue tied to this is the USPTO’s interpretation of the law and how quickly it can train examiners to apply that interpretation consistently.

AK: What precisely constitutes patent-eligible subject matter continues to plague US case law. In healthcare, diagnostic method claims can be rejected as ineligible as a law of nature, while software claims can be rejected as too abstract. The increased complexity in this aspect of patent law requires additional upfront effort in drafting patent applications to carefully explain the technical problem, solution and any technological improvements.

RT: The economics of the industry in general is a significant influence. In terms of convergence, organic chemists are at the core of the pharmaceutical sector, while device inventors have a very different skill set. The USPTO has a classification system which has not changed in 50 years – examiners look at the filing in the same way that they always have; they put claims with chemical structures attached to them in one group and claims with devices attached to them in another. In that way, I think they remain distinct.

Q: Do factors affecting your patent filings vary in specific sectors?

BL: Yes, we live this every day. We are focused on how we adapt our patents and our claims to reflect more things in the Cloud. We consider how claims should be framed as more devices become part of the Internet of Things. We spend a great deal of time working with our clients to develop strategies to address this and have done so over the last several years. We are seeing a larger percentage of our clients wake up to the realisation that we must do something different. We are not making things in isolation, we are making things which have value within a larger community of devices.

JH: Within the IT space, with the rise of mobility, the Cloud and the Internet of Things, we are seeing more filings for software and remote technologies that create interesting issues when it comes to prosecution. Each of these areas can involve multiple actors, so you have to carefully draft claims so as to address this. For example, in remote systems which involve a broadcaster and a receiver, which might be two different parties, you have to pursue claims that will be infringed by a single party. A claim that needs to be asserted against two parties may be of little value. At Fish we spend a lot of time thinking about these issues.

SS: Within the industrials sector, there are always issues for developing technologies where there is a degree of uncertainty – this is common for any emerging technology.

AK: Patient-specific or personalised medicine is a hot topic in healthcare, with companies expanding their filings significantly in this area. But these and other technologies also face challenges in obtaining reimbursement to healthcare providers from governments or insurance companies. Companies are unlikely to pursue technologies where provider reimbursement is difficult or non-existent, and there is no motivation to protect innovation that is not happening. Sometimes, reimbursement does not change to account for technological improvements to existing technology. The marketplace shifts toward a premium version of a product, while reimbursement is stuck at a base model valuation. The question for companies then becomes whether it is worth obtaining protection if the product may not be widely adopted and commercially successful. It will be interesting to see how this plays out over time.

Comment

No single factor is indicative of patent quality. However, industry consensus confirms that the defining quality must consider events within both the USPTO and the courts – events which change over time. The leading firms we interviewed – as well as the others which feature in this year’s rankings – are adept not only at responding to these changes but also in anticipating their continued evolution and embedding options through a long lens.