Appearing before the Senate Judiciary Committee this week, the new director of the Patent and Trademark Office (PTO), Andrei Iancu, stressed his office’s focus on enhancing innovation through a strong, reliable and predictable patent ecosystem. All of us want a system that supports innovation by maximizing patent quality and minimizing patent granting mistakes. But how?
The biggest recent advancement for patent quality was the Inter Partes Review (IPR) process. With the increasing complexity and volume of new technology, American patent quality was declining by the early 2000s. Patents that should not have been granted — either because someone else already owned the technology or the public did — were slipping by overworked PTO examiners.
Many questionable patents were bought up or even generated by so-called Non-Practicing Entities, otherwise known as patent trolls. Either way, lawsuits based on bad patents too often followed.
The result was an onslaught of litigation that was bad for the patent system and innovation. Soon innovators were searching for way to challenge invalid patents without the high costs and uncertainty of jury litigation in federal court. IPR replaced those risks and costs with the predictability and stability that entrepreneurs, patent holders, capital providers and corporations needed to go forward with investments.
IPR gives challengers and defenders a chance to be heard before an independent panel within the Patent Office, the Patent Trial and Appeal Board. In considering whether the PTO made the right decision to issue the patent, the board uses the same standards as patent examiners use. Many of those who serve on it are former examiners. Dissatisfied parties may appeal to federal court.
The process has worked extremely well and must be kept robust to support innovation. The wave of litigation peaked in 2011 with passage of the AIA, then started to drop. By 2017 patent litigation in the courts was half the pre-AIA peak. That drop is due to IPR.
Almost 70 percent of patents challenged in IPR were in high tech, the most troubled area of patenting. Challenges are neither frivolous nor scattershot. Over 99.8 percent of all active patents and 83 percent of litigated patents never face an IPR,
The Board is highly selective. Of 8,210 petitions filed, only 16 percent have resulted in a loss for the patentee by a written decision invalidating all claims.
The Board is also careful in its reviews. Overall, of the 3120 petitions instituted and resolved, some or all patent claims survive in the majority (1816 or 58 percent) of petitions. In fact, patentees win before the PTAB on validity issues more often than in federal court.
What has been the impact on innovation?
Since 2012 when the IPR process became available, corporate R&D spending in the United States has risen significantly. The 300 U.S. companies with the highest R&D spends (including companies from the high tech, pharmaceutical, automobile, and aerospace industries) collectively invested $293.4 billion in R&D in FY 2017, a 44 percent increase from 2012 levels.
Venture capital funding nearly doubling between 2012 and 2016 and the Kauffman Index of Startup Activity shows a 194 percent increase in overall startup activity even as overall patent filings increased 15 percent. In 2016, more than 650,000 applications were filed. More than 334,000 patents were issued — the highest number for both ever.
And innovation has thrived. In the past five years, the United States climbed from 10th to 4th in the rankings of the Global Innovation Index, which measures the innovation performance of 127 countries.
In fact, the U.S. Chamber of Commerce ranks the United States first as the overall most innovative nation.
But Mr. Iancu is right to consider additional areas of improvement. Improving the quality of issued patents is a central step in improving the predictability and stability of the patent system.
Ideas that would help include increasing access of PTO examiners to the best technology for identifying the most relevant prior art. A good first step would be support the Big Data for IP Act of 2018 introduced by Sen. Chris Coons and Sen. Orrin Hatch to encourage the PTO to study this issue.
Improving the examination process and the management of examiners would also be key to improving patent quality. A GAO report of 2016 identified some problems and solutions.
And clearly, improving patent quality at the front end also requires creating incentives for patent applicants to bring the most relevant prior art to the patent examiner and explain clearly how their inventions are different. IPR does that.
These are the kinds of improvements that make our patent system stronger, more predictable, more reliable and more pro-innovation. Mr. Iancu is right to set those objectives. Building on prior progress will be critical to achieving those results. The stakes for American innovation could not be more profound.
• John Thorne is general counsel of the High Tech Investors Alliance.
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