View from the IP Hall of Fame: Consensus grows that US patent system needs a lifeline

Agrowing consensus recognises the US patent system’s dangerous decline. For the first time in recent history, it is not the top-ranked patent system in the world, tumbling to 10th place according to the US Chamber of Commerce’s global ranking of patent systems. The US patent system protects innovation – the engine of the economy – while intellectual property contributes directly to almost 40% of the nation’s gross domestic product; clearly, the United States urgently needs to reverse this deterioration.

As we previously detailed (“The uncertain state of patent law 10 years into the Roberts court” in IAM 80), a 10-year combination of statutory amendments, judicial interpretations and regulatory implementation has fundamentally destabilised the US patent system, while the Supreme Court’s decisions in cases such as eBay, KSR, Bilski, Mayo, Alice and Myriad have created confusion about the scope and enforceability of patent rights. In 2011, the America Invents Act radically weakened the US patent system – for the first time allowing the cancellation of patent rights upon a showing of a preponderance of evidence only, even though Supreme Court precedent requires clear and convincing evidence. Adding to this chaos, the recent decision in Impression Products, Inc v Lexmark International, Inc upended settled expectations about patent exhaustion.

Leading innovators, investors and legal experts have highlighted the current uncertainties and deficiencies in the US patent system. In May 2017 top thought leaders on innovation and intellectual property – including David Kappos, Todd Dickinson, John Whealan, Bob Pavey, Charles Henry Giancarlo, Marshall Phelps and one of the authors of this article, Judge Paul R Michel – convened at the International IP Commercialisation Council’s conference at the US Capitol. The conference’s direct message is best summarised by the words of Kappos: “We need some clarity and consistency and stability for the [patent] system.”

One potentially positive development is the Supreme Court’s decision in TC Heartland LLC v Kraft Foods Group Brands LLC. Although some have criticised the new limits on venue availability, the previous interpretation overturned by TC Heartland created a disproportionate concentration of patent litigation, with one trial judge handling one-quarter of all US patent cases. This prevented the Federal Circuit from receiving diverse views about how patent law should respond to ever-changing technologies.

Despite this advance, TC Heartland failed to address the most fundamental deficiency: the lack of sufficient guidance concerning software-related and biotech-related inventions. The Supreme Court trio of Bilski, Mayo and Alice adversely affected software patent eligibility, while Myriad and Mayo have been expanded to undermine important biotech inventions.

This unpredictability is epitomised by cases where patents are successfully enforced in district court only to be cancelled by the Patent Trial and Appeal Board (PTAB). Conversely, the PTAB might confirm a patent only for it to be felled in district court. Such disparate outcomes undermine confidence in the US patent system and discourage investment in innovation.

Software-related inventions are critical to all industries and businesses, and companies continue to patent their software inventions. Raymond Millien, associate general counsel for intellectual property and engineering for GE Oil & Gas, recently detailed how inventors continue to seek – and the US Patent and Trademark Office (USPTO) continues to issue – large numbers of software-related patents. Since 2012, over half of issued US utility patents have been software-related. This should surprise no one, given that the US economy depends on innovation in computers and software, which are now ubiquitous in nearly all industries.

Certain internet-based mega-corporations which have been pushing so-called ‘patent reform’ efforts continue to obtain hundreds, if not thousands, of software patents – the very type adversely affected by the uncertainty in Section 101 patent eligibility. Google, for example, receives dozens of software-based US patents each week, one recent example being directed to a “[m]ethod and system for vicarious downloading or uploading of information”.

Many new software patents resemble those invalidated in recent court decisions. At the same time, they differ little from patents upheld in cases such as DDR Holdings, Enfish and BASCOM.

The US situation contrasts sharply with China and Europe, where patent eligibility has been greatly broadened. In the seven years since Bilski, confusion about US patent eligibility has worsened, in part due to the two-step Mayo/Alice process which uses vague criteria such as “directed to” and “something more” instead of considering the claimed invention as a whole. We cannot continue with a system where thousands of software patents are issued by the USPTO and then struck down by the PTAB or by courts at the pleading stage for being “abstract”, ignoring the statutory requirement that an issued patent is presumed valid.

The current uncertain, unpredictable and unreliable patent-eligibility regime is stifling much-needed US innovation for new drugs and treatments for serious diseases, and is driving investments, patenting, enforcement and innovators overseas to competing nations. Thousands of patents have already been invalidated, while tens of thousands more exist under a cloud of possible cancellation which has left them with little to no value. Many investors now view the US patent system as too unreliable, which is driving down investment in R&D, commercialisation and emerging companies. Policy makers need to rescue the US patent system before these negative trends become irreversible.