High-tech patent cold war — Let the arms race begin

Google recently lost a bid to buy Nortel's patent portfolio in bankruptcy, and it is disappointed with the results. Google blames the patent system for increasing costs of its Android platform and generally stifling innovation.

Google's complaints are especially interesting considering President Obama's recent speeches on how America's government needs to promote innovation to compete with the rest of the world (and he's right — the Constitution tells us that patents are supposed to "promote progress of science and the useful arts"). These speeches implied that individual inventors and startup companies can help bring us out of our current economic woes by creating jobs at new (and mainly small) businesses.

From a historical perspective, Google is still a startup company; it was formally incorporated in 1998. Assume that Google began applying for patents when its founders created their first search engine in 1996 — those patents would not have expired yet, since patents last 20 years after the date of filing. This means that Google is a relative newcomer to the patent game, but has 15 years' experience as a startup company for whom the patent system is supposed to promote innovation.

And what is Google telling us from its position of experience? That the patent system is not geared towards promoting innovation by startup companies. What's to blame, according to Google? First, the patent system itself, since it is geared towards large corporations who can afford to invest millions of dollars and years of time toward procuring and enforcing patents. A patent, at its very core, is merely the right to exclude someone else from practicing a patented invention — and the only way to exclude someone from doing what they're doing is to sue them. The average utility patent costs somewhere in the five-figure range and takes 3–4 years to obtain, and the average patent infringement lawsuit costs at least a million dollars. What startup company or small business do you know of that can pay a million dollars for a patent infringement lawsuit?

Second, Google complains the patent system is open to exploitation by non-practicing entities (known as "NPEs", or the less-politically-correct "patent trolls"), who do not actually make and sell innovative products, but instead buy and enforce patents against those who do. Just because a startup or small business has a patent doesn't mean that it can't be sued for patent infringement by someone else — products can be, and often are, covered by more than one patent.

What do the pitfalls of the patent system mean for real businesses? Well, there are two general approaches a business can choose to take. First, an industry can elect not to pursue patent protection and compete on the merits of their products. This approach is rare these days, as it is hard for small businesses and startups to attract investment capital without a protectable core product. Second, everyone in the industry can elect to pursue a patent enforcement model. This is the Cold War, mutually-assured destruction model. Since most products in the rapidly evolving high-tech industry are covered by some type of patent, the industry players can extract licensing fees from their competitors, and can resolve patent disputes through some mixture of cross-licensing arrangements, cash payments, and injunctions against future competition. Google's recent press releases make abundantly clear that while it is playing the patent game, it doesn't want to be.

Any industry in which one player shifts from the first two the second model will ultimately force all other players in the industry into the second model. Google is a prime example of this. Its press releases following the Nortel patent sale plainly indicate that Google would prefer to compete on the merits of its products, rather than the size of its patent portfolio. That is, Google would rather spent tens of millions per year on research and development of new technology, rather than litigating over old technology. While some portray this as sour grapes, Google is the current poster child for startup companies, so perhaps the architects of our patent system should listen to what it is saying if they truly want to encourage innovation by startups and small businesses.

Trademark Dashboard

Last month, I posted about the Patent Dashboard, a fairly new feature on the USPTO's website that provides statistics on how quickly and how well the USPTO is examining patent applications.

Last month, the USPTO's Director announced a new Trademark Dashboard aimed at providing the same type of information for trademark application pendency. Currently, a trademark applicant can expect to hear something about an application within 3 months. Assuming no problems, total pendency is averaging a little under a year.

The new tool provides tons more useful statistics. As a practitioner, it is helpful to have this information available so I can give my clients a firm estimate of how much time it will take to secure a federal trademark registration. This represents a step in the right direction for the USPTO, which has been plagued by a lack of transparency about its operations in recent years.

El Dorado man earns fishing yo-yo patent

A client of mine from El Dorado recently earned a patent on an improvement he invented for fishing yo-yos. (For those of you unfamiliar with yo-yos, check out this ESPN article, which was cited in the patent application to educate the patent examiner).

The new yo-yo adds a battery and a switch on the back of the yo-yo. The front part of the yo-yo is a spool that has an integrated trigger. The yo-yo and switch are baited and set. When a fish strikes, the spool begins turning to reel in the fish. The turning action of the spool also turns the trigger, which trips the switch and signals the fisherman that he has caught a fish. The switch is most often a light, but can also be a radio signal.

An optional feature is to have a light shining down on the water when the yo-yo is set. This has two advantages: (1) the light attracts bugs, which attract small fish, which attract bigger fish; and (2) the fisherman can see where his yo-yos are at night. When a fish strikes, the switch turns out the light shining on the water and activates another, different-colored light to alert the fisherman.

Congratulations to Mr. Carelock on his new patent!

Patent Rocket Docket stays in the Eastern District of Texas

In 2010, the Eastern District of Texas remained the undisputed Rocket Docket for patent cases. According to a recent article, 299 patent cases were filed in the E.D. Tex. in 2010. That's 44 more cases than the next most popular district in Delaware. Even more stunning, however, is the number of defendants in the E.D. Tex.: nearly 4,000, compared with under 1,000 for the next most popular district.

The E.D. Tex. remains a popular district because the docket moves quickly (hence the nickname) and because the judges are perceived as familiar with patent cases. In litigation, plaintiffs generally want to move quickly, while defendants wish to slow down the process. Motions to transfer venue are a way to slow down the process by (1) filing the motion in the first place, and (2) transferring the case to a slower, less patent-savvy district court.

The Federal Circuit Court of Appeals, which hears all patent appeals, continues to review many cases involving requests for transfer of venue. Some of those cases have attempted to make it easier for Defendants to secure a transfer of venue to a more convenient location. Accordingly, it remains to be seen whether the E.D. Tex. will continue to be the nation's Rocket Docket for patent cases.

Patent pendency dashboard

Last fall, the U.S. Patent & Trademark Office ("USPTO") unveiled its Data Visualization Center, which is a real-time reporting tool showing the USPTO's performance in examining patent applications.

The Patent Dashboard feature shows several metrics for pending patent applications. The USPTO currently issues its first substantive action on the average new patent application 25.3 months after the filing date, and is currently issuing patents a little less than 3 years after the filing date.

Over the last several months, the USPTO has added staff and made a concerted effort to reduce the application backlog. The result has been a reduction in the total pendency time for new applications.

These figures are great for people (especially new clients) who are thinking about filing a new patent application. Once an application is filed, the USPTO will provide an estimate of time to the first office action for that particular application. Clients who want to know this information can call and ask for this estimate, which we can retrieve quickly through the USPTO's Private PAIR system.

Is big pharma in trouble as patents expire?

The New York Times published an article earlier this month on the financial problems some drug companies are facing due to the expiration of the patents on blockbuster drugs. Once a patent expires, competitors can begin selling generic drugs at a fraction of the cost. These generics eat into the profits of the name-brand, patented drug.

Should we feel sorry for the drug companies? Consider three things: first, the article reports that "Americans fueled the research engine, spending much more per capita on prescriptions than in any other nation, and paying the highest prices for prescribed medicines." Second, the pharmaceutical companies have billions in cash reserves, much of that borne on the back of regular Americans. And third, U.S. law gives pharmaceutical companies up to 5 additional years of exclusive use beyond the term all other patent owners get. Ordinary Americans have struggled through the latest recession, and few of us have $20 billion in cash lying around to get us through the rough times. I see families every day who have to choose between paying a light bill or buying much-needed prescription medications. So, pardon me if I don't feel too sorry for the drug companies that gouge American families for hundreds or thousands of dollars a month for medication yet virtually give that same medication away to Canadian and European citizens.

With all the billions the drug companies have lying around, they have plenty to spend lobbying Congress to pay for expensive drugs. Problem is, Congress helped fund the development of many of these drugs. It seems like to me that federal deficits could be substantially reduced if we did two things. First, we could invoke the Bayh-Dole Act so the government pays less for prescription drugs for which it sponsored research. And two, we could reduce the patent terms for prescription drugs so they don't get preferential treatment. These things will be tough given big pharma's lobbying power, but they would help get our government out of debt and help the wallets of ordinary Americans.

Update on America Invents Act of 2011

In a rare showing of bipartisanship, the Senate passed the America Invents Act last week. Since I last reported on the Act (when it had a different name), I sent a letter to my congressional team containing the analysis I shared here several weeks ago. Before the Senate's vote last week, I was honored to receive a call from Senator Boozeman's office requesting my input on several provisions in the Act. His office told me only two patent attorneys in the state wrote to the Senator to comment on the Act, and his staff appreciated the help in understanding the sometimes-esoteric patent laws.

Thoughts on the Patent Reform Act of 2011

The Patent Reform Act of 2011 ("PRA"), if passed, will represent a complete overhaul of the U.S. patent system. The bill changes many procedural and substantive aspects of patent law.

1. The first major change is shifting the U.S. from a first-to-invent country towards a first-to-file country, except in certain circumstances where competing patent applications were co-inventors of an invention. This brings the U.S. more in line with the rest of the world, which generally follows a strict first-to-file rule. The first-to-file rule is easier to administer for patent offices and courts alike. This change does not include an absolute novelty requirement, which is also found in most foreign countries. Rather, the U.S. will retain the rule that a patent applicant must file an application within one year of the first public use or sale of an invention. I like the idea of moving towards a first-to-file system for its ease of administration, the elimination of potential abuses, and the encouragement to use the patent system.

2. The second change deals with damages. Following some jury verdicts in the $500 million range in patent cases over the past decade or so, some believe that more stringent caps on patent damages are warranted. The PRA would enact procedural hurdles for federal district court judges handling patent cases, such as making pretrial rulings on damages issues and bifurcating the damages portion of patent infringement trials. Essentially, these hurdles would require a federal judge to devote even more time, money, and effort to trying a patent infringement case. In my experience, most federal judges do not have the same familiarity with the patent laws they do with other types of substantive law, which makes it hard for them to comply with the current, less stringent procedural requirements. In my opinion, these new requirements will add to the number of cases reversed on appeal. From a court-clogging perspective, the damages amendments will probably exacerbate any perceived docket issues.

3. The third major change deals with how courts enhance damages against persons willfully, knowingly, or recklessly infringing a patent. The current rule provides that a court may award up to treble damages against an infringer depending on the facts shown. The amended rule would require proof by a standard of "clear and convincing evidence" that infringement was willful, and sets forth guidelines about what constitutes willful infringement. While this section is touted as reform, the guidelines really just codify existing case law, and I have no problem with this. The real change comes from the heightened burden of proof; as a practical matter, I can't see the burden of proof affecting trials much. It will have the most impact in cases on appeal. I don't believe a heightened burden should be in place for enhanced damages; these are punitive in nature and serve a deterrent effect against infringement.

4. The fourth change allows a corporation to more easily apply for a patent on behalf of an inventor. Current practice requires the corporation to notify the inventor and attempt to get him or her to participate before filing the application. If the inventor refuses, the corporation can file a petition seeking to involuntarily name the person as an inventor and must show the reasons why the corporation can apply for the patent. Essentially, current procedure focuses on protecting the inventor. The new approach would focus on protecting the corporation. While the corporate-centric approach would probably make it slightly easier to further the Obama administration's focus on innovation, I believe the inventor-centric approach is the better one. The patent laws derive from the Constitution, which grants exclusive rights to inventors for their inventions. The Patent Office is already a tough place for a solo inventor or small business, and it doesn't need to be made tougher for regular people.

5. The fifth change would see the PRA eliminate false marking litigation by private parties unless by a competitor who can prove a competitive injury. As the law stands now, anyone can bring suit on behalf of the government for penalties against a person or company who falsely marks a product as patented. The purpose of the law is to keep people from being able to improperly inflate the cost of their product because others will not enter the market for fear of being sued for patent infringement. Some organizations known as "trolls" have recently begun making a cottage industry out of false marking litigation. While the false marking litigation probably is a little excessive right now, I believe proof of competitive injury is too high of a bar for this type of litigation. Perhaps a middle ground would be appropriate, where only a competitor can bring suit but competitive injury is a rebuttable presumption. This would serve to limit the amount of false marking litigation while at the same time serving the intent of the original law.

6. The final major change broadens the amount of third-party participation in the patent process. Third parties can currently file limited proceedings, very similar to lawsuits, with the Patent Office opposing patent grants to others. The proposed legislation would allow third parties to submit publications they believe are relevant to the examination of pending applications and recently issued patents. The goal with this expansion is to ensure that higher quality patents issue from the Patent Office, which is a by-product of the examiner having all relevant information in front of him or her. I believe this is a good idea, since many court battles could be avoided by having third parties provide information and comment on the patentability of pending applications.

There are several other changes in the law, but these are the main points. Overall, I believe the Senate Judiciary Committee did a good job. I do wish the proposed amendments had been more inventor and small business centric, rather than major corporation centric. This is unsurprising, however, since most of the patent applications granted in this country go to larger corporations.

I encourage you to write your elected representatives in Washington and encourage them to think hard and offer constructive criticism on the PRA. I will be doing the same later today.

Grassley on the Patent Reform Act of 2011

Last week, the Senate Judiciary Committee approved the Patent Reform Act of 2011, which means it will go on to the Senate floor for consideration. Senator Grassley of Iowa was a co-sponsor of the bill, and he talked about his reasons for introducing the bill in his weekly address:

I agree that the U.S. Patent & Trademark Office (or "USPTO") has issues that need to be addressed. It's currently taking a shade under three years for the average patent to issue, according to the official statistics of the USPTO. The enormous 721,000+ backlog of pending applications is the primary problem, but patent quality is an issue too.

Once I've had a chance to study the Senate bill, I'll post my comments and call my Congressional team.

Nathan secures pontoon patent

Congratulations to Xpress Boats, who recently received a patent for a pontoon they designed for their Veranda line of pontoon boats. Here are some pages of the patent I obtained for them, which convey some of the ideas underlying what they've invented:

The purpose of these new pontoons is to lift the boat out of the water faster and permits the boat to stay on plane easier. These pontoons greatly improve performance over typical round pontoons.

See http://www.verandamarine.com for more information on Veranda's luxury line of pontoon boats.