Everyone involved in patent reform acknowledges the strategic importance of the nation’s innovation ecosystem and the vital role played by our patent system. Everyone favors constructive reform. However, differences exist among the various sectors in the U.S. patent community over the best way to ensure the system’s continued contribution to U.S. economic leadership.
The Innovation Alliance supports patent reforms that would improve patent quality without diminishing patent rights and the strength of the U.S. patent system. Proposed measures that would significantly weaken the foundation of our patent system raise concern.
What follows is a brief discussion of various reform alternatives and their potential impacts, both positive and negative.
Pre-Grant Measures
Current Approach: The U.S. Patent and Trademark Office (USPTO) has taken several steps in recent years to improve pre-grant quality by hiring thousands of new examiners and strengthening its training programs. The results are promising. In December 2006, the USPTO reported a significant decrease in the patent allowance rate to a record low of 54 percent -- a dramatic drop from the 2000 rate of 70 percent. In addition, the USPTO in 2006 achieved its lowest error rate in 20 years -- 3.5 percent.
Suggested Changes: To maintain the current trend of improved patent quality, it is imperative that the USPTO continue to receive the resources necessary to evaluate an escalating number of patent applications. To this end, legislation to end patent fee diversion permanently is most needed.
Measures that would foster an environment of cooperation between patent examiners and applicants and increase the information available to examiners would also increase patent quality. Reform proposals to increase third-party submissions and mandate universal publication of all patent applications, as well as clarification of the willfulness standard and inequitable conduct defense would benefit all participants in the patent system. At the same time, the USPTO should reconsider policies that potentially encourage patent examiners to issue questionable patents, including quotas or other benchmarks that tie compensation to the number of applications processed.
Potential Impacts: Continuing to improve patent quality through invigorated pre-grant review will reduce the incidence of headline-grabbing patent litigations without requiring wholesale changes to a patent system that has served America, the most innovative economy in the world, well for decades.
Of course, even if the quality of issued patents is improved, disputes will inevitably arise. Maintaining a strong statutory framework and stable judicial system that protect and enforce the rights of patent holders creates powerful incentives for entities of all size, structure and focus to collaborate through market-based agreements. This helps fuel a dynamic and prolific innovation ecosystem while decreasing the likelihood and cost of litigation.
Post Grant Opposition
Current Approach: Under the current patent system, an application is investigated prior to patent granting. Once a patent has been granted, challenges to the patent’s validity must be made via ex-parte or inter-partes reexamination or through the judicial system.
Suggested Changes: Under the guise of reducing the incidence and cost of patent-related litigation, some have suggested that an administrative procedure be created in which the validity of a patent can be challenged AFTER the patent has been issued. In effect, this would establish an open-ended, parallel-tracked, litigation-like administrative procedure in which a previously issued patent could, at any time, be declared invalid.
Potential Impacts: By creating a new, expensive procedure to challenge the validity of an issued patent throughout its life, post grant opposition would severely hamper a patent holder’s ability to make business plans. Furthermore, angel and venture capital investors would be forced to entertain an entirely new risk in making an investment decision, which would reduce the amount of risk capital available for inventors and stifle innovation.
In short, post grant review would make patents less certain and more difficult to rely upon after issuance. With less certainty, patents would be more difficult to split up, combine and license in innovative and economy-driving ways. Less patent certainty would also make it more difficult for innovators to connect, exchange ideas and secure funding for research and commercialization.
Apportionment of Damages for Proven Infringement
Current Approach: Apportionment generally refers to the practice of dividing the profits on the sale of a particular product according to the percentage of cost attributable to the patented invention. Under existing case law, courts already have discretion to “apportion” damages where appropriate, but rightly calculate a reasonable royalty according to a broad range of factors that may impact the patent’s market value.
Suggested Changes: A mandatory apportionment test would encourage juries to value patents based on an artificial and arbitrary parsing among patented and non-patented product components. This would, in effect, require a jury to substitute its judgment for that of the USPTO in determining which parts of a patent claim are “inventive” and that of a market based analysis of the value of the patented technology.
Potential Impacts: By adopting a rigid formula that calculates contribution of an invention to an end product based upon the relative quantity of contribution rather than the relative quality of contribution, apportionment eliminates any regard for the possibility that a given component’s technical contribution may result in a disproportionate contribution to the aggregate value of an end product.
In effect, the suggested apportionment reforms would result in the potential for valid patent claims to be deemed non-inventive and invalid for purposes of a damages calculation. In doing so, apportionment reforms would encourage infringers and even existing licensees to reject negotiated, market-based royalties in pursuit of a more favorable jury award, thus increasing the prevalence, cost and uncertainty of litigation.
