Last week, the U.S. Chamber of Commerce, Global Innovation Policy Center (GIPC) released the seventh edition of the International IP Index for 2019, Inspiring Tomorrow. The report provides some long sought good news for the innovation community, as the U.S. rose from 12th to 2nd in the patent system rankings. But while the move signals an IP and economic transformation stemming from inspired IP leadership and a sensible approach to domestic and international IP policy, more work must be done to fully restore the global leadership position of the United States.
GIPC notes:
With this 7th edition, the U.S. Chamber International IP Index: Inspiring Tomorrow shows how intellectual property (IP) systems have been a driving force behind this transformation. Effective IP protections create a climate that drives the world’s innovators and creators to pursue a better tomorrow. Indeed, IP-driven innovation and creativity have ensured that our standards continue to rise.
The U.S. is ranked number one with the highest overall economy score; it is also ranked number one with respect to copyrights. As noted above, the U.S. moved to 2nd place in the annual patent rankings, up from 12th place last year (it is tied for the second place ranking with a number of E.U. nations and Japan). Yet, this is mixed news overall, and more work remains. The trend over the past several years has been downward for the U.S. patent system. The U.S. fell from first place in patents three years ago and was at 10th place in 2017.
The move upward is a result of ongoing efforts by top U.S. IP officials to improve domestic policies and international trade. The GIPC report explains the U.S.’s strong overall rating is based on its framework for legal protections for copyrights, patents, trade secrets, and its recent IP trade policies. The United States-Mexico-Canada Agreement (USMCA) is praised as raising the bar to set the new global standard for international IP protection.
Further, the report commends the USPTO leadership for addressing uncertainty around patent rights by recent reforms of its opposition system (e.g., through the Patent Trial and Appeal Board (PTAB) and inter partes review (IPR)). In his first year, USPTO Director Andrei Iancu launched several initiatives to address long-standing issues hampering U.S. innovation, including issuing new patent eligibility review guidelines for patent examiners and overhauling the PTAB review invalidation proceedings that can create uncertainty for parties. The report explains that these reforms will “creat[e] greater certainty around the inter partes review (IPR) process [and] reduce unpredictability in the patent opposition system.”
Historically, the U.S. has been a front-runner in worldwide innovation; just last year, the USPTO unveiled its 10 millionth U.S. patent. But misguided policies from courts and Congress have resulted in uncertainty for patent owners over the past 15 years (e.g., the systemically ill-advised PTAB opinions spurring our #FixPTAB posts). The GIPC report is a welcome reminder that sensible leadership and even modest reforms can return us to our historic front-runner position in innovation.
Despite more clarity and the recent USPTO reforms, patent owners require additional certainty and reform to ensure ongoing inventive activity, such as building new venture start-ups. CPIP and its network of scholars will continue to study how the new patent guidance and judicial jurisprudence can restore America’s global innovation leadership for the future. Hopefully, the U.S. can soon once again claim the unqualified number one spot.
The “Invalidated” documentary will be screened this Friday, October 26, at 5:30 PM in Washington, D.C. To register for this free event, which features a presentation by Bunch O Balloons inventor Josh Malone among others, please click here.
Imagine that you’re a father of eight children who puts everything on the line to bring your invention to the marketplace. After a successful Kickstarter campaign that brings in close to $1 million, you protect your invention by securing several patents on the innovative technology. Your invention is a huge market success, and sales exceed your wildest dreams. When the copycats come along, you think your patent rights will protect you. After all, that’s what the patent system is for. But you quickly realize that the system is stacked against you, the lone inventor, and it instead favors the large companies that willingly violate your rights for profit.
While this horror story may sound farfetched, it’s exactly what happened to Josh Malone, the inventor of Bunch O Balloons. And the unfortunate reality is that Malone is not the only inventor to be let down by the patent system that is meant to protect inventors from unscrupulous infringers. Thankfully, Malone is not taking things lying down. Not only is he fighting for his rights in the courts and at the U.S. Patent & Trademark Office—the very Office that granted him the rights in the first place—but he also has become a vocal activist fighting to reform the patent system. In fact, Malone is now telling his story in a new documentary entitled “Invalidated.” The full video, which prominently features CPIP Founder Adam Mossoff and runs about 50 minutes long, is available at both iTunes and Amazon.
You can watch the trailer here:
Inspired by childhood memories, Josh Malone invented Bunch O Balloons to solve a real-world problem. His invention allows anyone to fill and tie around 100 water balloons in just one minute. As a child, he spent days filling up hundreds of water balloons to play with his friends. Though he eventually stopped playing with balloons, the idea of finding a better way to play never left him. His idea finally materialized through a method to save his children’s time by filling several balloons at once. Malone burned the midnight oil perfecting his invention, and his family also invested their time and efforts backing his venture. After failing through several experiments and exhausting their savings, Malone finally succeeded with Bunch O Balloons.
Ready with the product’s final prototype embodying his invention, Malone shot a video for a Kickstarter campaign to advertise his product and to raise some much-needed funds. The campaign was a hit, bringing in close to $1 million. Malone was even interviewed on the Today Show, where he got into an impromptu water balloon fight with Carson Daly. The purchase orders then started pouring in from toy manufacturers and big retailers like Walmart. They were all interested in profiting from the competitive advantage they would get from Malone’s novel—and fun—invention.
On realizing his invention’s strength and wanting to protect it from potential infringers, Malone filed several patent applications with the U.S. Patent & Trademark Office (USPTO). While the patent applications were pending, Malone came to know that a product nearly identical to his own was being advertised and sold in the marketplace under the name, “Balloon Bonanza.” Investigating further, Malone realized that Telebrands, the marketing company that originated the “As Seen On TV” advertisements, had stolen his idea and begun selling knock-off versions of his invention.
Malone sued Telebrands in the Eastern District of Texas, seeking a preliminary injunction to prevent the marketer from further infringing his rights. The district court granted the injunction, agreeing with Malone that his patent was likely valid and infringed. Telebrands fought back, appealing the injunction to the Federal Circuit and again challenging the validity of Malone’s patent on indefiniteness and obviousness grounds. The Federal Circuit sided with Malone, holding that it was not clear error for the district court to conclude that he was likely to succeed on the merits. The Court of Appeals rejected Telebrands’ arguments as failing to raise a substantial question concerning the validity of Malone’s patent.
Telebrands also challenged the validity of Malone’s patent before the Patent Trial & Appeal Board (PTAB) in a post-grant review (PGR) proceeding. During the pendency of Telebrands’ appeal to the Federal Circuit on the preliminary injunction, the PTAB rendered its final written decision: Telebrands had shown by a preponderance of the evidence that Malone’s patent was invalid as indefinite. Of course, had the issue been decided in the district court, the mere preponderance standard would have been insufficient to overturn the presumably valid patent. But in the PTAB, the rules are different, and they favor challengers such as Telebrands that use the additional venue to game the system.
The Federal Circuit was well aware of the PTAB’s decision to the contrary when it upheld the district court’s determination that Malone was likely to succeed on merits in assessing the propriety of the preliminary injunction. In fact, it mentioned the PTAB proceedings in a footnote, noting that its decision was not binding and that it was nevertheless unpersuasive. When Malone subsequently appealed the PTAB loss, the Federal Circuit finally got its chance to directly address the PTAB’s decision on the merits. The Court of Appeals held that, even applying the PTAB’s more relaxed standard, Malone’s claims were not unpatentable for indefiniteness. The Federal Circuit thus made good on the earlier indications from both itself and the district court that Malone’s patent was indeed valid.
While Malone ultimately has been victorious so far, he’s been forced to spend millions of dollars protecting his rights. He reported in July of 2017 that he’d already spent $17 million, and that it might grow to as much as $50 million before it’s all through. That’s an insane amount of money for most lone inventors, and Malone is fortunate enough to have made enough revenue in sales to be able to afford it. Most people aren’t so lucky. And the battle for inventors is certainly far from over, especially when infringers with deep pockets can repeatedly play the game and wear down their victims in multiple forums. As Malone laments, “the PTAB simply encourages infringers like Telebrands to double down on the expense of litigation, rather than acquiescing to the adjudication by the District Court.”
It’s no wonder that, in his dismay, Malone joined other frustrated inventors to symbolically burn their patents outside of the USPTO in the summer of 2017. Malone’s story is a stereotype example of how the big infringers attempt to overwhelm the little guy by simply outspending them should they dare to challenge the wrong. Such gamesmanship at the expense of inventors is not the purpose of the PTAB. As Professor Mossoff notes in the documentary: “The original argument for why we needed the PTAB is that, every once in a while, there will be a mistakenly issued patent they shouldn’t have issued, and that these patents can clog the gears of the innovation economy. Unfortunately, what Congress created was a completely unrestrained, unrestricted agency whose job is to cancel patents.”
America’s Founders recognized that a stable and effective patent system is vitally important for the innovation ecosystem to thrive. American inventors like Josh Malone have made a significant difference in people’s lives, and the patent system exists to reward them for their efforts. Inventors should be able to trust that the patent system will be there to protect them when others trample on their rights. They need those rights to be meaningful in order to recoup their investments and to realize their just rewards. The Founders understood that benefiting inventors through such private gains would redound to the public benefit. But as Malone’s story demonstrates, we will need to make some changes to the patent system before the Founders’ vision can be fully realized.
*Aditi Kulkarni is working towards an LLM Degree in Intellectual Property at Antonin Scalia Law School, and she works as a Research Assistant at CPIP.
Today, Representatives Steve Stivers (R-OH) and Bill Foster (D-IL) introduced the Support Technology & Research for Our Nation’s Growth and Economic Resilience (STRONGER) Patents Act of 2018. This important piece of legislation will protect our innovation economy by restoring stable and effective property rights for inventors. This legislation mirrors a bill already introduced in the Senate, which I have previously discussed.
The STRONGER Patents Act accomplishes three key goals to protect innovators. First, the Act will make substantial improvements to post-issuance proceedings in the USPTO to protect patent owners from administrative proceedings run amok. Second, it will confirm the status of patents as property rights, including restoring the ability of patent owners to obtain injunctions as a matter of course. Third, it will eliminate fee diversion from the USPTO, assuring that innovators are obtaining the quality services they are paying for.
First and foremost, the STRONGER Patents Act aims to restore balance to post-issuance review of patents administered by the USPTO’s Patent Trial and Appeal Board (PTAB). The creation of the PTAB was a massive regulatory overreach to correct a perceived problem that could have been better addressed by providing more resources towards initial examination. While the USPTO has long been responsible for issuing patents after a detailed examination, it has recently taken on the role of killing patents the same USPTO previously issued. What the USPTO gives with the one hand, it takes with the other.
Data analyzing PTAB outcomes demonstrates just how dire the situation has become. Coordinated and repetitive challenges to patent validity have made it impossible for patent owners to ever feel confident in the value and enforceability of their property rights. In some cases, more than 20 petitions have been filed on a single patent. Although recent headway has been made to address this issue in the administrative context, it only listed factors to be used when evaluating serial petitions. A more complete statutory solution that prohibits serial petitions except in limited circumstances is necessary to fully protect innovators and provide certainty that these protections will continue.
The kill rate of patents by the PTAB is remarkable. In only 16% of final written decisions at the PTAB does the patent survive unscathed. The actual impact on patent owners is far worse. Disclaimer and settlement are alternate ways a patent owner can lose at the PTAB prior to a final written decision. Thus, the fact that only 4% of petitions result in a final written decision of patentability is more reflective of the burden patent owners faced when dragged into PTAB proceedings.
For these reasons, the PTAB has been known as a “death squad.” This sentiment has been expressed not only by those who are disturbed by the PTAB’s behavior, but also those—such as a former chief judge of the PTAB—who are perpetuating it. The list of specific patents that have been invalidated at the PTAB is mind-boggling, such as an advanced detector for detecting leaks in gas lines.
There are even examples where the PTAB has invalidated a patent that had previously been upheld by the Federal Circuit Court of Appeals. One recent examination further found that there have been at least 58 patents that were upheld in federal district courts that were invalidated in the PTAB on the same statutory grounds. The different results are not mere happenstance but are the result of strategic behavior by petitioners to strategically abuse the procedures of PTAB proceedings.
With the STRONGER Patents Act, these proceedings will move closer to a fair fight to truly examine patent validity. There are many aspects to this legislation that will improve the PTAB, such as:
Harmonizing the claim construction standard with litigation, focusing on the “ordinary and customary meaning” instead of the broadest interpretation a bureaucrat can conceive. This will promote consistent results when patents are challenged, regardless of the forum, by assuring that a patent does not mean different things to different people. Sections 102(a) and 103(a).
Confirming the presumption of validity of an issued patent will apply to the PTAB just as it does in litigation. This will allow patent owners to make investments with reasonable security in the validity of the patent. Sections 102(b) and 103(b).
Adding a standing requirement, by permitting only those who are “charged with infringement” of the patent to challenge that patent. This will prevent the abusive and extortionate practice of challenging a patent to extract a settlement or short a company’s stock. Sections 102(c) and 103(c).
Limiting abusive repetitive and serial challenges to a patent. This will prevent one of the most common abuses, by preventing multiple bites at the apple. Sections 102(d), (f) and 103(d), (f).
Authorizing interlocutory review of institution decisions when “mere institution presents a risk of immediate, irreparable injury” to the patent owner as well as in other important circumstances. This change will allow early correction of important mistakes as well as provide for appellate review of issues that currently may evade correction. Sections 102(e) and 103(e).
Prohibiting manipulation of the identification of the real-party-in-interest rules to evade estoppel or other procedural rules and providing for discovery to determine the real-party-in-interest. Because many procedural protections depend on identifying the real party-in-interest, this change will assure that determining who that real party is can occur in a fair manner. Sections 102(g) and 103(g).
Giving priority to federal court determinations on the validity of a patent. Although discrepancies will be minimized by other changes in this Act, this section assures that the federal court determination will prevail. Sections 102(h) and 103(h).
Improving the procedure for amending a challenged patent, including a new expedited examination pathway. This section goes further than Aqua Products, prescribing detailed procedures for adjudicating the patentability of proposed substitute claims and placing the burden of proof on the challenger. Sections 102(i) and 103(i).
Prohibiting the same administrative patent judges from both determining whether a challenge is likely to succeed and whether the patent is invalid. This section will confirm the original design of the PTAB by assuring that the decision to institute and final decision are separate. Section 104.
Aligning timing requirements for ex parte reexamination with inter partes review by prohibiting requests for reexamination more than one year after being sued for infringement. This section will prevent abuses from the multiple post-grant procedures available in the USPTO. Section 105.
Second, the STRONGER Patents Act will make other necessary corrections to allow patents to promote innovation. For example, as Section 101 of the Act confirms, patents are property rights and deserve the same remedies applicable to other kinds of property. In eBay v. MercExchange, the Supreme Court ignored this fundamental premise by holding that patent owners do not have the presumptive right to keep others from using their property. Section 106 of the STRONGER Patents Act will undo the disastrous eBay decision and confirm the importance of patents as property.
Third, the STRONGER Patents Act will once and for all eliminate USPTO fee diversion. Many people do not realize that the USPTO is funded entirely through user fees and that no taxpayer money goes to the office. Despite promises that the America Invents Act of 2011 would end fee diversion, the federal government continues to redirect USPTO funds to other government programs. This misguided tax on innovation is long overdue to be shut down.
Each of the steps in the STRONGER Patents Act will help bring balance back to our patent system. In addition to the major changes described above, there are also smaller changes that will be important to ensuring a vibrant and efficient patent system. CPIP co-founder Adam Mossoff testified to Congress about the harms being done to innovation through weakened patent protection. It is great news to now see Congress taking steps in the right direction.
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.
Last week, the U.S. Chamber of Commerce, Global Innovation Policy Center (GIPC) released the seventh edition of the International IP Index for 2019, Inspiring Tomorrow. The report provides some long sought good news for the innovation community, as the U.S. rose from 12th to 2nd in the patent system rankings. But while the move signals an IP and economic transformation stemming from inspired IP leadership and a sensible approach to domestic and international IP policy, more work must be done to fully restore the global leadership position of the United States.
By 
Today, Representatives Steve Stivers (R-OH) and Bill Foster (D-IL) introduced the Support Technology & Research for Our Nation’s Growth and Economic Resilience (STRONGER) Patents Act of 2018. This important piece of legislation will protect our innovation economy by restoring stable and effective property rights for inventors. This legislation mirrors a bill already introduced in the 
On August 14, 2017, the