Sadly, Michelle Lee is wrong to believe the US IP system is gold standard and that it works for the little guy

A couple of weeks ago the IAM blog featured a two-part interview our North America correspondent Richard Lloyd did with USPTO Director Michelle Lee (Part One here and Part Two here). We were pleased to get it as Lee does not seem to have done too many in-depth one-on-ones with the specialist IP press or blogs, so it stands as something of an exclusive. Although Richard only got half an hour with her, Lee was good value and did not duck any of the questions that he posed. Some of the key takeaways from her were:

  • She believes that any future legislative patent reform must be balanced - “There’s a lot that’s been written about abusive patent litigation and it’s important to curtail that but I think equally importantly we need to be able to allow holders of legitimate patent rights to appropriately enforce their rights when needed."

  • She is sceptical about allowing an IPR carve-out for pharma and biotech companies – “I don’t think it’s sound policy to allow potentially invalid patents in any particular technology, whether it be biopharma, software, mechanical to stand unchallenged.”

  • She forcibly rejects any idea that her past position as head of patents at Google means she is inclined to overly-broad reform – “We all are trained somewhere, we all come from someplace, but that is my one and only one goal, which is to do what’s right for the American people at this time via our intellectual property system.”

  • She is strongly focused on patent quality – “It’s very important that we issue claims that should issue, we do not issue claims that should not issue and we issue patents that have clear boundaries because IP assets are so valuable.”

  • She is optimistic about the IP progress that China is making – “There’s work to be done and we are working with our counterparts in China and others in China to help them share IP values that are shared amongst many countries and I think there’s a desire to get there.”

With some caveats, I am broadly supportive of all of the above. But there were a couple of other areas that Director Lee talked about where it was hard to agree with what she said. In fact, and to be blunt, I think she calls it wrong.

In part two of the interview, Richard asked her about concerns that the US is no longer viewed as having a world class IP system. It is a point that many make, both inside and outside the country, and one that has also been discussed on this blog. It is a claim that Lee utterly rejected:

I’ve travelled around the globe and I meet with my peers and heads of intellectual property offices across the globe and, you know, there are more countries in this world that want an intellectual property system like ours than not like ours. That’s not to say that we should be resting on our laurels and there aren’t improvements that can be made, because there certainly are improvements that we can make and the nature of innovation and our system has changed as we discussed earlier.  It’s a dynamic environment and I think it’s really incumbent upon all of us, those of us in the executive branch, in Congress, in the courts and even, quite frankly, the business and the innovating communities, to make sure that our IP system continually incentivises innovation.  So I actually do believe that the US has a gold standard.  We’re not the only country.  There are many countries with great systems.  But we really do have one of the best intellectual property systems in the world and we’ve seen the results of that. We would not have the level of innovation that we have in this country without the intellectual property system that we’ve had the benefit of having since pretty much the founding of our country.

Of course, it would be nigh on impossible for the Director of the US Patent and Trademark Office to say anything else, but that does not make what Lee says correct. In fact, if you take the quality issues that she acknowledges elsewhere in the interview, the post-Mayo, Myriad and Alice confusion around something as basic as patentability and the fact that the CAFC can hand down a decision as arbitrary as the one in IP Engine, and combine these with the cost of litigating and the time it takes to get to a final decision – not to mention the patent trolls that seek to game this to extort rents from operating companies - the idea of a world class US IP system looks to me to be almost impossible to sustain. In too many cases, the quality of granted patents is not good enough, while currently patent owners in a wide range of industries have no real certainty that what they have is valid, let alone enforceable.

Being world class means being as good as the best; and, sadly, that just does not apply to the US anymore. Up to a few years ago it did, but thanks to the courts, politicians and various regulatory authorities – egged on by a variety of vested interests using dodgy data to justify their claims – things have slipped.

When Lee talks about the amount of innovation the US produces showing that the US system is the gold standard, she is talking about the past – the one that saw the country become the world’s innovation engine. But what should concern everyone State-side now is the future and whether the system as it stands, let alone the one advocates of major legislative reform envisage, will offer the incentives that have existed up to now. My sense is that it does not.

That takes me to my second argument with Director Lee; and it’s one that is very much related to the first. Richard put it to her that:

At our recent patent law and policy conference last week here in DC we had a very interesting panel looking at the investment climate around IP assets and one banker there said that the climate for patent assertions in the US has become about Goliath versus Goliath. David versus Goliath is dead.  We also heard from one small patent owner in the audience who complained that the system was now against inventors like him.  If that persists, if that feeling persists, how damaging would it be for the US system?

She responded:Well, I’m not sure I buy into the proposition that it exists so I guess it’s hard for me to answer the second question.”

To be fair, from a political standpoint Lee once again had very little freedom to answer this, as even if she might have wanted to she could not admit that the US system has increasingly marginalised smaller entities and single inventors. But this is exactly what has happened over recent years. With the rise of the PTAB regime and the opportunity it provides to file multiple IPRs against entities that sue for patent infringement, as well as a string of court decisions that have made infringers/potential licensees far less willing to sit down to talk turkey in the absence of a lawsuit, the cost and risk of enforcement has increased significantly. This is not a problem for big companies with deep pockets, but for those that do not have piles of money to call on it is a major issue. Proposed reforms will make the going even more difficult.

The US system has always been expensive to navigate, but its genius lay in the fact that thanks to things such as the availability of no-win, no-fee law firm support and access to capital to fight when necessary, it was accessible to the smaller players. Being able to take on the big boys and win was an incentive to keep on inventing, to keep on innovating and to keep on building businesses. Recent changes, though, have seen lawyers back away from no-win, no-fee, while making investors far more selective in their choice of partner. The people who have been damaged by this are the “Davids” Richard referenced in his question.

Over recent years, the US has developed a patent system that has become much closer to most of the others in the developed world; albeit one that because of its cost base works for and is dominated by the big boys to a much greater extent. What’s more, when judged against those other systems it is not close to the top of the pile. The era of American patent exceptionalism, it seems, has ended. What remains is an expensive, time-consuming and uncertain litigation system which has spawned the “efficient infringers” the New York Times recently wrote about.

Now, none of this is Michelle Lee’s fault: she has been in office – de facto and then de jure – for only two years or so. But as the Director of the USPTO she does now have a responsibility to go out there and find out what is really happening on the ground. She needs to ask hard questions of the system that she is responsible for: just assuming that it is basically OK and requires little more than a bit of a polish is not going to be good enough. Quite rightly, Lee talks about ensuring that the American IP regime works for all its stakeholders and that it is balanced; but, up to now, attention has been largely on defendants/infringers/licensees; there has been far less focus on the needs and interests of patent owners who want to enforce their rights (the USPTO website seems to have plenty advice on what to do if you are accused of infringement, for example, but not much on your options if you think your rights are being infringed). This imbalance is doing profound harm.

Although the environment does not look good for patent owners in the US currently, the good news is that things can be reversed. But leadership and vision are going to be required for that to happen. As USPTO Director, Michelle Lee is in a perfect position to provide that leadership. But it can only happen if she understands that there are major issues in the first place. Unfortunately, some of the answers she provided during the interview with Richard seem to indicate that she is not there yet. However, with the next US president only due to assume office in January 2017, it is possible that she still has over a year left in her current job. During that time, it would be nice to think that she will reach out to all section of the IP community and take time to hear what they have to say, while also being rigorous in separating cold, hard empirical facts from specious “research”. If she does that, she might begin to question assumptions about gold standards and there being a level playing field for the little guy.  

Michelle Lee probably does not have enough time to reverse the US patent system’s slide towards mid-table mediocrity, but she can begin the process. That would be a strong legacy to leave behind and something very positive for her successor to build on. Here’s hoping …      

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