{"id":1263,"date":"2014-04-04T19:41:21","date_gmt":"2014-04-04T19:41:21","guid":{"rendered":"http:\/\/cpip.gmu.edu\/?p=1263"},"modified":"2026-05-13T19:37:29","modified_gmt":"2026-05-13T19:37:29","slug":"the-unintended-consequences-of-patent-reform","status":"publish","type":"post","link":"https:\/\/blogs.uakron.edu\/ualawip\/2014\/04\/04\/the-unintended-consequences-of-patent-reform\/","title":{"rendered":"[Archived Post] The Unintended Consequences of Patent “Reform”"},"content":{"rendered":"

By Steven Tjoe<\/em><\/p>\n

Much of today\u2019s patent policy debate focuses on the dynamics of patent litigation.\u00a0 Sensational anecdotes of abusive demand letters, litigants strategically exploiting bad patents, and tales of so-called \u201cpatent trolls<\/a>\u201d (reinforced by now debunked empirical claims<\/a>) have captured the public\u2019s imagination and spurred Congress to rush to revise the patent system<\/a>.\u00a0 Unfortunately, the fervor to address perceived patent litigation abuses often overlooks the substantial unintended consequences of recent and proposed legislation.<\/p>\n

CPIP and WARF\u2019s recent conference, From Lab to Market: How Intellectual Property Secures the Benefits of R&D<\/i><\/a>, featured a panel designed to fill this void in the conversation.\u00a0 Instead of myopically focusing on trolls and litigation abuse, the panelists, Eb Bright, Robert Sterne, and Carl Gulbrandsen, brought the discussion back to reality and addressed the greater context of how recent and proposed changes to patent law impact our innovation ecosystem at large.<\/p>\n

First, an understanding of how ideas are developed and brought to market is crucial to evaluating the ramifications of patent legislation.\u00a0 Eb Bright, Executive Vice President and General Counsel of ExploraMed, illustrated this often-overlooked process from the perspective of the medical device industry.\u00a0 In the world of medical device development, the financial risks of bringing an idea to market are very high.\u00a0 The cost from conception to market can range from approximately $75 million for low-risk devices to approximately $135 million for high-risk devices.\u00a0 Additionally, it takes 8-10 years on average to begin seeing a return on investment.<\/p>\n

The result is that innovators in the medical device space \u2013 mostly small start-up companies \u2013 must secure significant financing from venture capitalists and other investors to keep their companies alive during this lengthy process.\u00a0 Strong patents are fundamental<\/span> to securing this financing.\u00a0 They are essential to keeping competitors from free-riding on a company\u2019s work and poaching its investors\u2019 returns.\u00a0 Investors are loathe to finance a start-up without confidence that the company can protect its intellectual property (which often accounts for a significant portion of the company\u2019s value) from free-riders.\u00a0 In this fragile innovation ecosystem, legislation that weakens patents and makes it harder for small companies to enforce their patent rights could have devastating consequences on start-ups\u2019 ability to secure essential financing.<\/p>\n

Carl Gulbrandsen, Managing Director of WARF, discussed proposed patent legislation from the perspective of a large university technology transfer office.\u00a0 As the University of Wisconsin\u2019s licensing arm, WARF licenses university patents and returns approximately $80 million a year to the university to support further research.\u00a0 This symbiotic relationship fuels research and also adds significant value to the university\u2019s inventions.\u00a0 By marketing and licensing inventions to companies (often small start-ups) that take on the substantial effort of turning those inventions into actual products, WARF plays a crucial role in moving innovation from the lab to the marketplace.\u00a0 Importantly, strong patent rights lie at the center of this virtuous cycle.<\/p>\n

Mr. Gulbrandsen observed that proposed legislation would disrupt this process by making it substantially more difficult for universities to enforce their patents, and therefore substantially more difficult for universities to license and commercialize their inventions.\u00a0 While established organizations like WARF may be able to handle the increased costs and risks, at the margin fewer universities would be able to license their intellectual property.\u00a0 The result is that fewer inventions would move from lab to market, and universities would have less revenue to fuel future research.<\/p>\n

It is against this backdrop that efforts to revise our patent system occur.\u00a0 Overbroad \u201cpatent abuse\u201d legislation that fails to appreciate the economic realities of our innovation ecosystem can lead to significant unintended consequences.\u00a0 Robert Sterne, Director of Sterne Kessler, illustrated some unintended consequences from the last major patent \u201creform\u201d legislation, the America Invents Act of 2011 (AIA).\u00a0 In particular, Mr. Sterne addressed issues arising from the Inter Partes Review (\u201cIPR\u201d) and Covered Business Method Patent Review (\u201cCBM\u201d) procedures implemented under the AIA.<\/p>\n

Mr. Sterne spoke about trial practice before the USPTO Patent Trial and Appeal Board (“PTAB”), noting that Rule 42.1(b) establishes that the rules should “be construed to secure the just, speedy, and inexpensive resolution of every proceeding.” \u00a0While the resulting procedures are certainly speedy (cases proceed through the USPTO and through appeal at the Federal Circuit within 2 years) and are cheaper than District Court proceedings, the procedures are far from just, and have proved particularly unforgiving for patent owners as a result of vast departures from well-established rules and procedures utilized by the courts.<\/p>\n

Mr. Sterne explained how the new IPR procedures include more limited claim construction rules, less stringent burdens of proof to invalidate a patent, and less opportunity to adequately prove non-obviousness. \u00a0Of particular concern to patent owners is the inability to show non-obviousness. \u00a0In District Court, patent owners generally show non-obviousness by telling the story of the invention. \u00a0Inventors recount the state of the technology prior to their invention and the contributions their invention made. \u00a0By contrast, PTAB\u2019s narrow time limitations and constraints on responses filed strip patent owners of the ability to do the same in IPR proceedings.<\/p>\n

Consequently, the trial outcomes under the new system have yielded startlingly negative results for patent holders.\u00a0 As of March 7, 2014, the PTAB had issued 19 Final Written Decisions on the merits for IPRs and CBMs. \u00a0In all but three of these proceedings, the Board cancelled all claims for which trial was instituted. \u00a0In total, 95.2% of all claims for which trial was instituted were cancelled and 82.9% of all claims that were initially challenged by the petitioner were cancelled.<\/p>\n

Furthermore, IPR proceedings are always available and may stand alone or<\/i> exist as part of a litigation strategy.\u00a0 A patent owner does not have to take any action before being challenged.\u00a0\u00a0 New business entities, such as subscription services designed to work around the estoppel provisions, are already being formed to capitalize on the lopsided nature of the process.\u00a0 It\u2019s important to note that the constant threat of IPR and the risks and costs associated with it are not only detrimental to patent owners, they also affect our entire innovation ecosystem.<\/p>\n

The central takeaway from the panel was this<\/i>: \u00a0As we consider patent legislation ostensibly designed to curb abusive litigation, it is crucial to consider the potential unintended consequences of weakening patent rights across the board.\u00a0 We must recognize the economic realities of our innovation ecosystem, and we must narrowly tailor any solutions to address the limited instances of abuse without harming start-ups, universities, and all the other patent owners that fuel our innovation economy.<\/p>\n","protected":false},"excerpt":{"rendered":"

By Steven Tjoe Much of today\u2019s patent policy debate focuses on the dynamics of patent litigation.\u00a0 Sensational anecdotes of abusive demand letters, litigants strategically exploiting bad patents, and tales of […]<\/p>\n","protected":false},"author":3627,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[7,9,21,26,27,33,34,35,36,37,38,48,1],"tags":[],"class_list":["post-1263","post","type-post","status-publish","format-standard","hentry","category-commercialization","category-conferences","category-high-tech-industry","category-innovation-2","category-intellectual-property-theory","category-law-and-economics","category-legislation","category-patent-law","category-patent-licensing","category-patent-litigation","category-patent-theory","category-software-patent-high-tech-industry","category-uncategorized"],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/blogs.uakron.edu\/ualawip\/wp-json\/wp\/v2\/posts\/1263","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blogs.uakron.edu\/ualawip\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blogs.uakron.edu\/ualawip\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blogs.uakron.edu\/ualawip\/wp-json\/wp\/v2\/users\/3627"}],"replies":[{"embeddable":true,"href":"https:\/\/blogs.uakron.edu\/ualawip\/wp-json\/wp\/v2\/comments?post=1263"}],"version-history":[{"count":2,"href":"https:\/\/blogs.uakron.edu\/ualawip\/wp-json\/wp\/v2\/posts\/1263\/revisions"}],"predecessor-version":[{"id":16964,"href":"https:\/\/blogs.uakron.edu\/ualawip\/wp-json\/wp\/v2\/posts\/1263\/revisions\/16964"}],"wp:attachment":[{"href":"https:\/\/blogs.uakron.edu\/ualawip\/wp-json\/wp\/v2\/media?parent=1263"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blogs.uakron.edu\/ualawip\/wp-json\/wp\/v2\/categories?post=1263"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blogs.uakron.edu\/ualawip\/wp-json\/wp\/v2\/tags?post=1263"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}