Archives For innovation act

Time to Confront Bias Against Patent Owners in Patent “Reform” Legislation like the VENUE Act

Adam Mossoff —  3 May 2016

Last March, I published an op ed in the the Washington Times on the proposed VENUE Act, a recently introduced bill taken wholesale from a portion of HR 9 (the tendentiously titled “Innovation Act”).  HR 9 has rightly stalled given its widespread and radical changes to the patent system that weaken and dilute all property rights in innovation.  Although superficially more “narrow” because the VENUE Act contains only the proposed venue rule changes in HR 9, the VENUE Act is just the Son of Frankenstein for the innovation industries.  This bill simply continues the anti-patent owner bias in the DC policy debates that has gone almost completely unchecked since before the start of President Obama’s first term in office.

Here’s a portion of my op ed:

The VENUE Act is the latest proposal in a multi-year campaign by certain companies and interest groups to revise the rules of the patent system. The fundamental problem is that this campaign has created an entirely one-sided narrative about patent “reform”: all the problems are caused by patent owners and thus the solutions require removing the incentives for patent owners to be bad actors in the innovation economy. This narrative is entirely biased against patented innovation, the driver of America’s innovation economy for over two hundred years that has recognized benefits. As a result, it has produced an equally biased policy debate that inexorably leads to the same conclusion in every “reform” proposal arising from this campaign: these vital property rights must be weakened, watered down, or eliminated when it comes to their licensing in the marketplace or enforcement in courts.

….

In this narrower bill to address litigation abuse, for instance, it is an Alice in Wonderland state of affairs to be talking only about stopping abuse of the courts by patent owners while blatantly ignoring the same abuse by challengers of patents in the administrative review programs run by the Patent Trial and Appeals Board (PTAB). It is widely recognized that the PTAB is incredibly biased against patents in both its procedural and substantive rules. The Supreme Court recently agreed to hear just one of many appeals that are currently working their way through the courts that explicitly address these concerns. There is legitimate outcry about hedge fund managers exploiting the PTAB’s bias against patents by filing petitions to invalidate patents after shorting stocks for bio-pharmaceutical companies that own these patents. The PTAB has been called a “death squad” for patents, and with a patent invalidation rate between 79% to 100%, this is not entirely unjustified rhetoric.

The absence of any acknowledgment that reform of the PTAB is just as pressingly important as venue reform by those pushing for the VENUE Act is a massive elephant in the room. Unfortunately, it is unsurprising. But this is only because it is the latest example of a strikingly one-sided, biased narrative of the past several years about patent “reform.”

As bloggers like to say: Read the whole thing here.

UPDATE: A more in-depth, legal analysis of proposed “venue reform” and the resulting collateral damage it imposes on all patent owners is provided by Devlin Hartline in his essay, “Changes to Patent Venue Rules Risk Collateral to Innovators,” which can be read here.

In Health Care, Intellectual Property, Patent, Pharmaceuticals, Truth on the Market , , , , , , ,
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GAO Report on Patent Litigation Confirms No “Patent Troll” Litigation Problem

Adam Mossoff —  17 December 2013

This was previously posted to the Center for the Protection of Intellectual Property Blog on October 4, and given that Congress is rushing headlong into enacting legislation to respond to an alleged crisis over “patent trolls,” it bears reposting if only to show that Congress is ignoring its own experts in the Government Accountability Office who officially reported this past August that there’s no basis for this legislative stampede.

As previously reported, there are serious concerns with the studies asserting that a “patent litigation explosion” has been caused by patent licensing companies (so-called non-practicing entities (“NPEs”) or “patent trolls”). These seemingly alarming studies (see here and here) have drawn scholarly criticism for their use of proprietary, secret data collected from companies like RPX and Patent Freedom – companies whose business models are predicated on defending against patent licensing companies. In addition to raising serious questions about self-selection and other biases in the data underlying these studies, the RPX and Patent Freedom data sets to this day remain secret and are unknown and unverifiable.  Thus, it is impossible to apply the standard scientific and academic norm that all studies make available data for confirmation of the results via independently produced studies.  We have long suggested that it was time to step back from such self-selecting “statistics” based on secret data and nonobjective rhetoric in the patent policy debates.

At long last, an important and positive step has been taken in this regard. The Government Accountability Office (GAO) has issued a report on patent litigation, entitled “Intellectual Property: Assessing Factors that Affect Patent Infringement Litigation Could Help Improve Patent Quality,” (“the GAO Report”), which was mandated by § 34 of the America Invents Act (AIA). The GAO Report offers an important step in the right direction in beginning a more constructive, fact-based discussion about litigation over patented innovation.

The GAO is an independent, non-partisan agency under Congress.  As stated in its report, it was tasked by the AIA to undertake this study in response to “concerns that patent infringement litigation by NPEs is increasing and that this litigation, in some cases, has imposed high costs on firms that are actually developing and manufacturing products, especially in the software and technology sectors.”  Far from affirming such concerns, the GAO Report concludes that no such NPE litigation problem exists.

In its study of patent litigation in the United States, the GAO primarily utilized data obtained from Lex Machina, a firm specialized in collecting and analyzing IP litigation data.  To describe what is known about the volume and characteristics of recent patent litigation activity, the GAO utilized data provided by Lex Machina for all patent infringement lawsuits between 2000 and 2011.  Additionally, Lex Machina also selected a sample of 500 lawsuits – 100 per year from 2007 to 2011 – to allow estimated percentages with a margin of error of no more than plus or minus 5% points over all these years and no more than plus or minus 10% points for any particular year.  From this data set, the GAO extrapolated its conclusion that current concerns expressed about patent licensing companies were misplaced. 

Interestingly, the methodology employed by the GAO stands in stark contrast to the prior studies based on secret, proprietary data from RPX and Patent Freedom. The GAO Report explicitly recognized that these prior studies were fundamentally flawed given that they relied on “nonrandom, nongeneralizable” data sets from private companies (GAO Report, p. 26).  In other words, even setting aside the previously reported concerns of self-selection bias and nonobjective rhetoric, it is inappropriate to draw statistical inferences from such sample data sets to the state of patent litigation in the United States as a whole.  In contrast, the sample of 500 lawsuits selected by Lex Machina for the GAO study is truly random and generalizable (and its data is publicly available and testable by independent scholars).

Indeed, the most interesting results in the GAO Report concern its conclusions from the publicly accessible Lex Machina data about the volume and characteristics of patent litigation today.  The GAO Report finds that between 1991 and 2011, applications for all types of patents increased, with the total number of applications doubling across the same period (GAO Report, p.12, Fig. 1).  Yet, the GAO Report finds that over the same period of time, the rate of patent infringement lawsuits did not similarly increase.  Instead, the GAO reports that “[f]rom 2000 to 2011, about 29,000 patent infringement lawsuits were filed in the U.S. district courts” and that the number of these lawsuits filed per year fluctuated only slightly until 2011 (GAO Report, p. 14).  The GAO Report also finds that in 2011 about 900 more lawsuits were filed than the average number of lawsuits in each of the four previous years, which an increase of about 31%, but it attributes this to the AIA’s prohibition on joinder of multiple defendants in a single patent infringement lawsuit that went into effect in 2011 (GAO Report, p. 14).  We also discussed the causal effect of the AIA joinder rules on the recent increase in patent litigation here and here.

The GAO Report next explores the correlation between the volume of patent infringement lawsuits filed and the litigants who brought those suits.  Utilizing the data obtained from Lex Machina, the GAO observed that from 2007 to 2011 manufacturing companies and related entities brought approximately 68% of all patent infringement lawsuits, while patent aggregating and licensing companies brought only 19% of such lawsuits. (The remaining 13% of lawsuits were brought by individual inventors, universities, and a number of entities the GAO was unable to verify.) The GAO Report acknowledged that lawsuits brought by patent licensing companies increased in 2011 (24%), but it found that this increase is not statistically significant. (GAO Report, pp. 17-18)

The GAO also found that the lawsuits filed by manufacturers and patent licensing companies settled or likely settled at similar rates (GAO Report, p. 25).  Again, this contradicts widely asserted claims today that patent licensing companies bring patent infringement lawsuits solely for purposes of only nuisance settlements (implying that manufacturers litigate patents to trial at a higher rate than patent licensing companies).

In sum, the GAO Report reveals that the conventional wisdom today about a so-called “patent troll litigation explosion” is unsupported by the facts (see also here and here).  Manufacturers – i.e., producers of products based upon patented innovation – bring the vast majority of patent infringement lawsuits, and that these lawsuits have similar characteristics as those brought by patent licensing companies.

The GAO Report shines an important spotlight on a fundamental flaw in the current policy debates about patent licensing companies (the so-called “NPEs” or “patent trolls”).  Commentators, scholars and congresspersons pushing for legislative revisions to patent litigation to address a so-called “patent troll problem” have relied on overheated rhetoric and purported “studies” that simply do not hold up to empirical scrutiny.  While mere repetition of unsupported and untenable claims makes such claims conventional wisdom (and thus “truth” in the minds of policymakers and the public), it is still no substitute for a sensible policy discussion based on empirically sound data. 

This is particularly important given that the outcry against patent licensing companies continues to sweep the popular media and is spurring Congress and the President to propose substantial legislative and regulatory revisions to the patent system.  With the future of innovation at stake, it is not crazy to ask that before we make radical, systemic changes to the patent system that we have validly established empirical evidence that such revisions are in fact necessary or at least would do more good than harm. The GAO Report reminds us all that we have not yet reached this minimum requirement for sound, sensible policymaking.

In China, Intellectual Property, International, Patent , , , , , , , , , , , , , , ,
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