“Politics and self-interest have been having way too much influence on the patent system”

Yesterday we ran the first part of an interview with Steve Borsand the EVP of IP at Trading Technologies, a company that designs financial trading software. In this second part we discuss both the ongoing debate around patent reform and the impact that recent court decisions on patent eligible subject matter are having on patent owners. As a senior executive in a software business, Borsand not surprisingly had much to say about both.

Someone who is in favor of patent reform, say the Innovation Act or some sort of piece of strong legislation might say to you, “you have nothing to worry about, this is not for companies like yours, this is not for patent owners like you, it’s to tackle the abusers of the system”. What would you say to that?

We’ve heard things like, “these reforms are designed for trolls” but in reality when you give big law firms and well-funded companies tools to delay they’re going to use them against any patent owner, not just one that someone deems abusive. We have these various CBMs that have been filed against us. I believe that those reviews are clearly not even in the intended scope of the statute because our patents are directed to a graphical user interface (GUI) tool that’s akin to a device. They don’t even claim a business method. The Patent Office had tons of prior art and they were very knowledgeable about the various types of tools that were out there before the invention. Yet we had to spend quite frankly a fortune dealing with these proceedings and we’re not Google, we’re not IBM. We’re a 300-person software company that’s in a competitive space and trying to grow and that has a real impact on us. We believe in our inventions, so we’ve been fighting but I can imagine some other company maybe that is smaller than us or not as well funded as us, where these types of tactics could have ended it for them. I look at what effect it could have on the system, on small companies, medium-sized companies and individual inventors with really good ideas and what they have to go through to enforce a patent.

Is that patent protection still worthwhile?

I hope it will be because I hope we won’t let this get out of hand and more people will not let all of these things be used in a way that it’s impossible for the small guy.  I mean, you know, like, again, I’m not sure what we’ve done could have been handled by someone half our size. So it’s a concern for sure. 

Have you raised your concerns with the Patent Office?

We have in the past in general terms, when the law was being passed. Then more recently with some of these CBMs that have been filed against us we’ve written to Director Lee raising our concerns.  We have asked her to look at it because the Director has statutory discretion to stop proceedings if she deems it appropriate.

And what were some of your messages to her?

That what we’re seeing is entities filing against us using a CBM as a litigation tactic, not for its true purpose. They’re raising arguments that have been raised time and time again, they’re not raising even close to their best arguments.  They’re raising issues that the original examiner had already looked at with much more relevant information to determine the patentability. And, by the way, the Patent Office did re-exams on these patents and found them valid.  So we’re complaining that this is a little outrageous when people are going backwards and raising lesser arguments. All the patents that they’re filing CBMs on, again, are directed to GUI technology, specific order entry screens with specific features and functionality, not a business method.  The patents do not claim something like merely trading on a computer – those are the types of patents that the CBM proceedings, which are an exceptional proceeding, were designed for. So we don’t even think that they’re in the realm of the statute which is about covered business method patents.  We have raised all of these issues.

How much sympathy do you have for the Office?

They’re busy and these are new proceedings that they have to staff and I actually think in our experience, and we’ve worked a lot with the Patent Office, that the people there are trying to do the right thing. They’re trying to figure out how to implement these new laws and that’s why we look at it optimistically.  The reason we wrote to Director Lee is that we want to honestly bring to her attention things that are going on that she may not know about. They have a lot going on and they’ve always invited industry to be open with them and raise concerns.

We touched upon the activity we’ve seen in the Supreme Court. Of course, a lot of that has been around 101 including the court’s decision in Alice. That opinion has raised many questions around the patentability of software-implemented inventions. How has that affected your portfolio?

I don’t think much of our portfolio is impacted by Alice.  In fact, we had a case earlier in the year where there was a challenge based on 101 against patents of ours that relate to an improved GUI for trading. We prevailed in a decision where the District Court found the patent was not directed to an abstract idea, it’s directed to technology and it passes under all the prongs of the Alice test.  There has also been a Federal Circuit case called DDR that was favorable when it comes to many of the types of patents that we have. So has it affected us? Well, certainly because people raised arguments they may not have raised before and then we have to spend time and money dealing with it.  But, in the end, it hasn’t affected those patents that have been challenged. On a broader level though, I think there’s all sorts of uncertainty for all sorts of patents. You see it from various decisions in District Court and the Federal Circuit and there are conflicts between these decisions. From our perspective a lot of what’s going on is not really following from what happened in Alice. We probably won’t get guidance on some of those other matters until there’s another Supreme Court case.

When you say it’s not naturally following you mean people going beyond Alice and the type of patents that were at issue there?

Going beyond what the Supreme Court did. I’ve seen it when people are trying to really patent an innovative business method and determine whether it’s patentable or not.  There are some courts that are saying no.  Or when you’ve seen gaming patents run into trouble because of the way they’re interpreting the statute.  And most recently, even some medical device patents that no one would ever have thought of as having a 101 issue. In these cases, I believe those courts are misinterpreting the Alice decision. When I read the Alice case, the Supreme Court was saying that the patent in question merely took a fundamental economic concept that had been indisputably around, at least in the Justices’ minds, for hundreds of years and just simply said do it on a computer. There’s been a lot of rulings around the country of patents being invalidated under 101 and when some of these trickle up through the system, the Federal Circuit is going to have to deal with it and maybe ultimately the Supreme Court and there are going be different facts than the sort that they had in Alice and Bilski.

Would you like a bright line test around what constitutes an abstract idea?

Well, personally I think that we should go back to what originally was thought about with abstract ideas – that they’re not connected to anything tangible.  I think that we should have a very low bar for 101, most things should be eligible and then we should deal with patents like this with respect to 102 and 103.

The PTO is very aware of the issue around patent quality, they have an enhanced patent quality initiative in place.  Do you feel like that’s having an effect?  Do you notice anything different with regards to that?

I hear, again anecdotally, that in different areas, examinations are getting tougher. From TT’s perspective – and this is what’s ironic - we have financial-related patents and most of them are directed to technology that’s used in the financial industry. So because of that most of our patents get examined in the art unit that also handles these pure business method patents.  Ironically, that unit of the Patent Office for the last 10 to 15 years has been the toughest art unit to get a patent in the entire Patent Office. I remember, the year that we received our first patents, the allowance rate in that art unit was something like 12%, where the average allowance rate in the Patent Office was something like 80%. You know, I think one thing the Patent Office is really good at is they’re always trying to self-improve.  They react to what they hear.  So, yes, years ago there were stories like, you know, oh my God, how did a patent on a swing set get granted or how did this silly patent get granted?  And there was press about it and people talked about it and that feedback certainly gets back to the patent office.  Well, they self-correct.  They toughen up.  Meanwhile, you then have Congress, years later, passing laws to deal with issues that the Patent Office had already dealt with.  So from our perspective we were already in an art unit where it wasn’t easy to get patents granted so I’m not sure we’re seeing much of a change.  Maybe others are. 

And how do your bosses react when they’re tuned into what’s going on and you have this area of the law which is experiencing a lot of flux, a lot of uncertainty, something that businesses don’t always like certainly when it relates to law. How do they respond? 

Well, they prefer certainty. People are doing business with these assets and you don’t want a situation where you have a perpetual patent application.  You’ve got to get a patent and at some point it has to be treated like a property right.  If you start turning it into a perpetual patent application it’s hard to do business based on it so they have concerns over that. Fortunately, the patents that we’ve put the resources into enforcing, we know the story behind them and we know that they’re innovative.  We feel strongly that even these changes in the law don’t impact that, so there’s still a commitment that these are important and we’ve got to protect them.  But, yeah, there’s a concern and we’ve got to start speaking up more and finding others who are like-minded to make sure that members of government are hearing all sides.

We see some companies, major tech companies who have grown significant licensing businesses, mostly in the mobile space or particularly in the mobile space and the licensing groups have become significant profit centers for them.  Do you envisage a time when perhaps you get to that point?

Well we have licensees who pay us royalties and a growing number of them and we have patents on things that we think a lot of people are interested in using. In general, we would prefer to find a way to cut mutually beneficial business deals with people and I think we will do more and more of that.  I mean, we’re not necessarily on a mission to be like, you know, IBM with a multi-thousand patent portfolio, but with a lot of the patents we own, I think we’ll have a nice group of licensees.

Just going back to that point around certainty, every business has to cope with uncertainty. You don’t know how many people are going to buy your products next year. So what does certainty in this case mean for you?

What are patents supposed to be about?  The whole point of it is to promote innovation, to protect something as an asset and attract investment.  They are property rights.  And so when companies are doing that, they’re coming up with something that’s innovative, they get investment and they do business deals based on it as a property right. So you can’t go too far in making that asset uncertain or, you know, it’s going to just completely devalue it and not make it worth using.  I think that we don’t want the tail wagging the dog over a limited amount of abuse in nuisance type suits. 

Are you optimistic though in terms of that sort of pendulum swinging in the market in the direction of stronger patent rights? 

Right now, we have some optimism because there are definitely more voices against further reforms that would weaken patents. There are even groups coming up and talking about proposals to strengthen certain areas. So, I think that there’s more momentum on that side than there was when the AIA was being discussed. I do think that it will start swinging back. How quickly? I don’t know. Things like 101, the uncertainty over that law and those areas I talked about that are on the edge, that may take a little while to work out because unless there’s legislation it takes a while for the courts to work all that out.  But, definitely there is a need for reform to actually strengthen patents.

Do you think Congress should or could look at the language around 101 and act?

I think they could.  It would be interesting because, I mean, we’d probably have some vehement debates.  We have different camps with completely polar opposite views on what the law should be. So, I mean, it’s probably doubtful that anything like that could be passed either way, right?  I’m not sure.  But to change 101 would probably be a big, big battle. I think the answer on what we should do for the interest of the country is clear – a bright line low bar. This has underpinned our patent system for years and our patent system has been the best in the world.  Unfortunately these days, politics and self-interest have been having way too much influence on the patent system.