Tag: America Invents Act

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Patent Law

CPIP Scholars Join Amicus Brief Arguing that the Government Cannot Petition for CBM Review

U.S. Supreme Court buildingOn December 17, 2018, CPIP Senior Scholars Adam Mossoff and Kristen Osenga joined an amicus brief written on behalf of seven law professors by Professor Adam MacLeod, a CPIP Thomas Edison Innovation Fellow for 2017 and 2018 and a member of CPIP’s growing community of scholars. The brief, which was filed in Return Mail Inc. v. United States Postal Service, asks the Supreme Court to reverse the Federal Circuit’s determination that the federal government has standing to challenge the validity of an issued patent in a covered business method (CBM) review before the Patent Trial and Appeal Board (PTAB).

The petitioner, Return Mail, owns a patent for a method of processing mail that is returned as undeliverable. After the Postal Service refused to take a license, Return Mail sued it for “reasonable and entire compensation” in the Court of Federal Claims under Section 1498(a). Thereafter, the Postal Service filed a petition at the PTAB seeking CBM review, arguing that several claims were unpatentable. Return Mail contested the ability of the Postal Service to petition for CBM review, arguing that it is not a “person” who has been “sued for infringement” within the meaning of Section 18(a)(1)(B) of the Leahy-Smith America Invents Act of 2011 (AIA). Over a forceful dissent by Judge Newman, the Federal Circuit upheld the PTAB’s determination that the Postal Service has standing to challenge Return Mail’s patent before the PTAB.

The amicus brief written by Prof. MacLeod argues that the Federal Circuit was wrong to hold that the federal government could be treated as a “person” who has been charged with infringement. The brief points out that the federal government cannot be liable for patent infringement since it has sovereign immunity. Instead, the government has the authority to take a license whenever it pleases under its eminent domain power—so long as it pays just compensation to the patentee. The Federal Circuit classified the Postal Service’s appropriation as infringement, thus bringing it within Section 18(a)(1)(B) of the AIA. But, as the amicus brief notes, an infringement is an unlawful exercise of the exclusive rights granted to a patentee. The government may have exercised Return Mail’s patent rights, but it did not do so unlawfully, and as such it is not in the same position as a private party who has been charged with infringement.

The Summary of Argument is copied below, and the amicus brief is available here.

SUMMARY OF ARGUMENT

The United States Postal Service (“Postal Service”) wants to be a sovereign power. It also wants not to be a sovereign power. It exercises the right of sovereignty to take patent rights by the power of eminent domain. But it wants to stray beyond the inherent limitations on sovereign power so it can contest the validity of patent rights in multiple venues and avoid the duty to pay just compensation for a license it appropriates.

At the same time, the Postal Service asserts the private rights of an accused infringer to initiate a covered business method review (“CBM”) proceeding though it is immune from the duties and liabilities of an infringer. In other words, the Postal Service is trying to have it both ways, twice. It wants the powers of sovereignty without its disadvantages, and the rights of a private party without exposure to liability.

The United States Court of Appeals for the Federal Circuit erroneously ruled that the Postal Service can exercise both the sovereign power to initiate an administrative patent review, which is entrusted to the Patent Office, and the sovereign power to appropriate patent rights by eminent domain, which is delegated to federal agencies that may exercise patent rights. Congress separated those powers and delegated them to different agencies for important constitutional and jurisprudential reasons. Furthermore, the Federal Circuit ruled that the Postal Service can be both immune from liability for infringement and vested with the powers of an accused infringer. It did this by misstating what a “person” is within the meaning of United States law and by reading unlawfulness out the definition of “infringement,” as the Petitioner explained in its Petition.

In the Leahy-Smith America Invents Act of 2011 (“AIA”), Pub. L. No. 112-29, 125 Stat. 284, Congress created alternatives to Article III litigation concerning patent validity—inter partes review (“IPR”), post-grant review (“PGR”), and covered business method proceedings (“CBM”). IPR, PGR, and CBM proceedings are intended as alternatives to inter alia infringement actions in which an accused infringer might challenge patent validity. This suggests that the Government, which is immune from liability for infringement, is not a “person” with power to initiate an IPR, PGR, or CBM proceeding.

In jurisprudential terms, the Postal Service claims the powers and immunities of the legislative sovereign, who possesses the inherent power of eminent domain and is immune from liability for infringement. At the same time, the Postal Service tries to claim the powers of an accused infringer and so disavow the legal disadvantages of the sovereign. It cannot have both.

In fact, the Postal Service cannot infringe and cannot be charged with infringement. The sovereign who exercises the power of eminent domain and pays just compensation has acted lawfully, not unlawfully, and therefore has not trespassed against the patent. And the Postal Service must pay compensation when it appropriates a license to practice a patented invention. Vested patents are property for Fifth Amendment purposes, and the Government must pay for licenses taken from them, just as it pays for real and personal property that it appropriates.

To read the amicus brief, please click here.

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Administrative Agency Innovation Patent Law

The PTAB’s Regulatory Overreach and How it Cripples the Innovation Economy

files labeled as "patents"On August 14, 2017, the Regulatory Transparency Project of the Federalist Society published a new white paper, Crippling the Innovation Economy: Regulatory Overreach at the Patent Office. This white paper examines how an administrative tribunal created in 2011—the Patent Trial and Appeal Board (PTAB)—has become “a prime example regulatory overreach.” Several CPIP scholars are members of the Intellectual Property Working Group in the Regulatory Transparency Project that produced the white paper, including Professors Adam Mossoff, Kristen Osenga, Erika Lietzan, and Mark Schultz, and several are listed as co-authors.

Among the sweeping changes to the U.S. patent system included in the America Invents Act (AIA) was the creation of the PTAB, a new administrative body within the U.S. Patent and Trademark Office (USPTO). The PTAB hears petitions challenging already-issued patents as defective. Anyone can file a petition to have a patent declared invalid. The original idea was that this would help to weed out “bad patents,” i.e., patents that should not have been issued in the first place.

In the past five years, however, it has become clear that the PTAB has become an example of an administrative tribunal that has gone too far. Lacking the proper procedural and substantive restraints that constrain courts and even other agencies in respecting the rights of citizens brought before them, the PTAB is now “killing large numbers of patents and casting a pall of uncertainty for inventors and investors.”

In just a few years, the laudable goal of the PTAB in providing a cheaper, faster way to invalidate “bad patents” has led to a situation in which all patents now have a shroud of doubt around them, undermining the stable and effective property rights that serve as the engine of the innovation economy. The former chief judge of the court that hears all patent appeals recently said that the PTAB is a “patent death squad,” and confirming that this is not extreme rhetoric, the first chief judge of the PTAB responded to this criticism by embracing it: “If we weren’t, in part, doing some ‘death squadding,’ we would not be doing what the [AIA] statute calls on us to do.”

The white paper briefly discusses the history and purpose of the U.S. patent system and describes the PTAB and how it operates. The substance of the white paper details extensively the procedural and substantive problems in how the PTAB has failed to respect both the basic requirements of the rule of law and the rights of patent owners. The concern is that this undermines the stable and effective platform that patent rights provide as the engine of the innovation economy.

To read the white paper, please click here.

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Administrative Agency Antitrust Commercialization Economic Study FTC Innovation Inventors Legislation Patent Law Patent Licensing Patent Litigation Uncategorized

How Rhetorical Epithets Have Led the FTC Astray in its Study of Patent Licensing Firms

We’ve all heard the narrative about patent licensing firms, often referred to pejoratively as “patent trolls.” These patent owners, who choose to license their innovations rather than build them, are the supposed poster-children of a “broken” patent system. It’s as if commercializing one’s property, just like a landlord leases his land for another to use, is suddenly a bad thing. Nevertheless, the power of this “troll” rhetoric cannot be denied. Many provisions in 2011’s Leahy-Smith America Invents Act were aimed at starving out these “trolls,” and no less than five bills currently under consideration in the House and Senate seek to further deflate their sails.

Another example of the powerful appeal of the “patent troll” rhetoric is that the agencies charged with enforcing antitrust law have also been convinced that there is something amiss with the commercial licensing of patented innovation in the marketplace. This has been a key feature of the deployment of patented inventions in America’s innovation economy since the early nineteenth century, as scholars have shown. Last year, the Federal Trade Commission (FTC) instigated its own investigative study of what it calls “patent assertion entities” (PAEs), which is merely a more formal and neutral-sounding synonym for the popularized “patent troll” epithet.

In a new paper published in the George Mason Law Review, Sticks and Stones: How the FTC’s Name-Calling Misses the Complexity of Licensing-Based Business Models, CPIP Senior Scholar Kristen Osenga takes a closer look at the FTC’s ongoing study of PAEs and finds that it is destined to fail for two simple, yet inescapably obvious, reasons.

The first is the basic definitional problem of the FTC’s characterization of PAEs, which puts all patent licensing firms in the same boat. Failing to take a more nuanced approach, Osenga warns, “fires up the rhetoric but obscures thoughtful discussion and debate about the issue.” Building upon her previous work, she explains:

[T]he real problem is that patent licensing firms are treated as a homogenous category, with no attention paid to the wide range of business models that exist under the patent licensing firm umbrella. The categorical determination of patent licensing firms as “problems” imputes to a large, diverse group of firms the negative actions and qualities of a small number of bad actors.

Since not all “trolls” are alike, Osenga cautions, it’s “naïve and inaccurate” to lump them all together. And when the FTC makes this mistake, it leads to a situation “where words actually can hurt, much more so than sticks and stones.” The FTC’s study is explicitly “premised on a one-size-fits-all conception of patent licensing firms.” Rather than shedding much-needed light on the complex innovation ecosystem, the study promises to squander the opportunity by failing to recognize that not all “trolls” are the same.

Osenga notes that the FTC is uniquely situated to obtain nonpublic information about how these patent licensing firms operate using its investigative power under Section 6(b) of the FTC Act. Unfortunately, however, the study is premised on the faulty notion that the only upside of patenting licensing firms is to “compensate inventors.” But this focus on patents-as-incentives misses the forest for the trees, Osenga urges, as it fails to account for the larger patent-commercialization network:

[T]here are many steps between invention and the introduction of an actual product to the market and consumers. These steps include transforming an idea in to a marketable embodiment, developing facilities to produce the marketable embodiment, creating distribution channels to bring the embodiment to the consumer, and making the consumer aware of the new product. Each of these steps requires its own additional resources in the form of both capital and labor.

The FTC study, like many patent skeptics, fails to consider the benefits of the division of labor that patent licensing firms represent. Not every inventor is willing or able to bring an invention to the marketplace. Osenga’s point is that patent licensing does more than simply compensate inventors for their troubles; it creates liquid markets and solves problems of asymmetrical actors and information. These exchanges increase innovation and competition by playing the role of match-maker and market-maker, and they place valuable patents into the hands of those who are better positioned to exploit their worth.

Osenga points out that there are indeed possible negative effects with patent licensing firms. For example, they sometimes engage in ex post licensing, waiting to offer licenses until after the would-be licensee has already adopted the technology. These firms can be better positioned litigation-wise since their potential exposure is typically less than that of the infringers they sue. Finally, patent aggregators tend to have greater market power, and it can be difficult to judge the quality of any given patent that’s asserted when they offer to license their entire portfolio.

As with all things, Osenga stresses, there’s both good and bad. The problem is figuring out which is greater. The FTC could conduct a study that reveals a “detailed understanding of the complex world of patent licensing firms,” she laments, but that’s not what the FTC is doing:

[T]he configuration of the study is slanted in such a way that only part of the story will be uncovered. Worse still, the study has been shaped in a way that will simply add fuel to the anti-“patent troll” fire without providing any data that would explain the best way to fix the real problems in the patent field today.

This leads to the second problem with the FTC study, which follows as a necessary, logical consequence from the first definitional problem: There are serious methodological problems with the study that will undermine any possible empirical conclusions that the FTC may wish to draw.

Osenga says that the FTC’s study is simply not asking the right questions. Painting a complete picture of complex licensing schemes requires more than just counting the number of patents a firm has and adding up the attempts to negotiate license deals. To really get to the bottom of things, she contends, the FTC should be asking why patentees sell their patents to licensing firms and why licensing firms buy them from patentees. Better still, ask them why they decided to become patent licensing firms in the first place.

This insight is powerful stuff. It’s not enough to simply ask these firms what they’re doing; to really understand them, the FTC must ask them why they’re doing it. And the results are likely to be varied:

Some, of course, begin with this business model in mind. Others invent new technology but are unable to successfully commercialize it themselves, despite making efforts to do so. Still others exist as practicing entities for years or decades before something changes—supply change issues, rampant infringement by competitors, and regulatory initiatives—and they are no longer able to exist as a viable practicing entity.

Similarly, the FTC could ask them what kind of firms they are, and these answers are also likely to be diverse. Osenga’s point is that the FTC’s questions aren’t designed to showcase the vast differences between the various types of patent licensing firms. If the FTC wants to get to the bottom of how these firms affect innovation and competition, the first step should be to realize that they’re not all the same. The FTC’s study is as clumsy as those who refer to all such firms as “patent trolls,” and the lack of nuance going in will unfortunately produce a study that lacks nuance coming out.

In the end, Osenga agrees that deterring abusive behavior is a good thing, and she worries about innovation and competition. However, unlike many in patent policy debates, she is also concerned that the rhetoric is having an undue influence on policymakers. Throwing all patent licensing firms under the “patent troll” bus will not get us the narrowly-tailored reforms that we need. Sadly, the FTC’s approach with its ongoing study appears to have swallowed this rhetoric wholesale, and it seems unlikely that the results will be anything but more fuel for the “patent troll” pyre.

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Commercialization History of Intellectual Property Innovation Patent Law Patent Licensing Patent Litigation Uncategorized

Guest Post by Wayne Sobon: A Line in the Sand on the Calls for New Patent Legislation

On June 9-11, the IP Business Congress sponsored by Intellectual Asset Magazine (IAM) hosted a debate on the resolution: “This house believes that the America Invents Act should be a legislative line in the sand and that no more reform of the US patent system is needed.” The debate was moderated by Denise DeFranco, a partner with the Finnegan law firm.  Arguing on behalf of the resolution were David Schwartz, Associate Professor of Law at Chicago-Kent College of Law, and Wayne Sobon, Vice President and General Counsel of Inventergy, Inc.  Arguing against the resolution were Michael Meurer, Professor of Law at Boston University School of Law and Dan Lang, Vice President, Intellectual Property, Cisco.  

With Mr. Sobon’s permission, we are publishing here a slightly modified version of his opening statement at the IP Business Congress debate. Mr. Sobon spoke for himself and not on behalf of his employer or any other institutions.

A Line in the Sand on the Calls for New Patent Legislation

Wayne Sobon
Vice President & General Counsel, Inventergy

With the June 4, 2013 announcement by the Obama Administration of a new set of legislative priorities to change our patent laws yet again, bolstered by a chorus of academics and interested corporations, there are now four separate bills in Congress (with more coming) proposing a wide range of changes to the patent system. Fresh from the seven-year battle that concluded with the America Invents Act of 2011, we once more face a highly emotionally-driven campaign to alter the rules of the field, replete with name-calling (“trolls”).

But just as with our personal conflicts, the best way forward usually comes once we let emotions cool and we dispassionately take a longer view.

We just spent the better part of a decade — following significant research, public hearings, the reports of the National Academies of Science and the FTC, and the testimony of a wide variety of NGOs, corporations, and private inventors and citizens — debating and then approving the most significant changes to our patent system since the 1952 Act.  The America Invents Act of 2011was argued in forums like this and on the floor of our Congress as the needed corrective for poor-quality patents, claimed by so-called “trolls” to hold up and oppress innovative companies.

Various companies such as Cisco testified before Congress that the sweeping collection of provisions that make up the AIA were necessary to achieve these policy goals.  When it was enacted, it was heralded as “the most significant reform of the U.S. patent system since 1836.” Yet the ink is barely dry, and the voluminous regulations implementing the AIA have barely been set in motion, when the same group of academics and industry players are once again demanding sweeping new changes to the patent laws.

The United States intellectual property system is a precious resource.  Indeed, the Founding Fathers saw a unified, national regime of patent laws as so crucial to our democracy that they enshrined it as one of the key powers of Congress.  Unanimously and without debate, they passed Article 1, Section 8, Clause 8 of our Constitution.  One of the first acts of the first Congress was to pass the Patent Law of 1790.  That law has only been significantly amended five times in the last 220 some years.  Five times.  1793‎, 1836, 1870, 1952 and 2011.

One genius of our patent system has been an implicit recognition that since its underlying subject matter, innovation, remains by definition in constant flux, the scaffolding of our system and the ability of all stakeholders to make reasonably consistent, prudent and socially efficient choices, should remain as stable as possible.  But now these latest moves, demanding yet further significant changes to our patent laws, threaten that stability.  And it is in fact systemic instability, from whatever source, that allows the very parasitic behaviors we have termed “troll”-like, to flourish.

It is silly and blindly ahistoric to lump anyone who seeks to license or enforce a patent right, but who does not themselves make a corresponding product, as a “troll.”  Many arguments about Non-Practicing Entities (NPE), Patent Assertion Entities (PAE), Patent Licensing Assertion Entities (PLAE) — the various formal names and acronyms for the more commonly known epithet, “patent troll” — include an implicit and often explicit emotional condemnation of any patent holder who either did not invent or does not manufacture the patented products.  The President’s statements unfortunately are replete with such derision of people or firms who “don’t actually produce anything themselves.”

Yet, from the very outset, our American patent system distinguished itself from its English predecessor, by establishing the unfettered sale in the marketplace of patent rights, precisely because patents are private property rights (see here, here, and here).  In England, patent monopolies were still mostly creatures of the Crown — personal privileges. See B. Zorina Khan, The Democratization of Invention: Patents and Copyrights in American Economic Development, 1790-1920 (Cambridge University Press, 2005), pp. 36-38.  The United States patent system, based upon objective criteria for inventiveness and established in freely-alienable property rights, was as significant a revolution in the commercial sphere as the federalist structure was in the political.  Id., pp. 49-51, 60-62. And it’s hard to argue against the unprecedented success of the American economy based on the patented innovation protected by these laws.

And indeed, it might come as a surprise, that many of the inventor giants we hold in such high regard today in fact never manufactured the products covered by their patents.  Elias Howe did not make sewing machines.  Rather, having invented the hugely important lock-stitch technology, but being poor himself, he assembled financing, using then novel securitization of patents, and then licensed his patent to others (and famously, fought the equivalent of our smart phone wars, against Singer). Charles Goodyear never manufactured any rubber; he licensed his vulcanization process to others.  Thomas Edison also received third-party financing to operate his famous invention factory in Menlo Park, and he licensed his patented inventions to other companies for manufacture and sale in the marketplace, such as his invention of the first electric pen.  And when the unscrupulous refused to pay licenses, each of these inventors of course moved to enforce.

Rather than focus on practicing vs. non-practicing, as manufacturing and licensing are both equal rights in practicing a property right, let’s focus instead on parasitic behaviors. Let’s respect the genius of our Founders, and make few if any changes to the structure of our system.  And let’s focus on specific, targeted interventions that can actually cut off the systemic rot upon which parasitic behavior thrives.

Here are two important areas that could benefit from targeted interventions: (1) the high costs of litigation for all participants, and (2) the rampant and extended uncertainty of patent disputes.  Both of these interventions rest soundly in the discretion of our Federal Courts.  We already have the tools to bring down discovery costs (I’d argue we need less discovery than what we spend so much time, money, energy and emotion on to yield valid, fair results).  And as noted by now-former Chief Judge Randall Rader in his many public comments, judges already have the legal and procedural tools to cull sham lawsuits from the courts.  It just requires exercising judgment, as they ably can and do.  That’s why they’re called judges.

We do not need yet more statutory changes, changes that will engender more uncertainty and another decade of resulting litigation, to achieve the particular policy goals here.  We simply need our judges and our existing system to do the job they already have.