Congress should avoid knee-jerk reactions to patent trolls

commentary Yes, patent trolls are a big problem, but recent legislative proposals are poorly thought out and won't resolve the issue.

Editor's note: This is a guest post by Bernard J. Knight Jr., whose bio is below.

As legislation proceeds on the Hill to deal with the patent troll issue, many are lobbying Congress to expand the ability to challenge software patents before the United States Patent and Trademark Office.

In 2011, Congress enacted the America Invents Act (AIA), which created several new means to attack the validity of patents.

One judge has referred to the new proceedings as setting up a "schizophrenic" situation where the agency that granted patents now is charged with potentially invalidating them. The USPTO has a cadre of judges and a court within the agency that hears challenges to patents that were issued by the USPTO. Anyone can file a proceeding at the USPTO to attempt to strike down a patent.

One new proceeding under the AIA is called the "covered business method" process, which was put into the legislation by Sen. Charles Schumer of New York to aid the financial services industry. Financial institutions have been sued for infringing patents dealing with software programs related to the processing and tracking financial transactions. Sen. Schumer created the covered business method proceeding so that financial institutions charged with infringement could more readily invalidate the patent and hopefully avoid the infringement suit.

Now Congress wants to address the patent troll situation where entities buy patents not to use the technology that they describe directly in a business but solely to gain a profit by suing other parties for infringing the patent. These patent trolls run on an economic model that takes advantage of the high costs of district court litigation.

Simply put, the patent trolls sue an entity that may or may not be actually infringing and offer to settle for the cost of a license to use the technology described in the patent. Since many entities cannot afford to litigate a long drawn out case in district court, they settle with the patent troll simply because it's cheaper than the fight.

The latest proposal to deal with patent trolls is to expand Sen. Schumer's covered business method process to cover all software patents and not just those involved in the financial services industry. This is seen by many as a good solution to the patent troll problem because a party sued for infringement by a patent troll can instead go to the USPTO to invalidate the patent troll's patent quickly and cheaply.

Sen. Charles Schumer, D-N.Y. Getty Images

These legislative proposals are not well thought out and are being proposed in a "knee-jerk" fashion to address the now newsworthy patent troll problem. The proposals are offered without much thought to the effect on the software industry or the USPTO's ability to successfully handle a new onslaught of cases.

A patent litigation reform bill introduced by Rep. Bob Goodlatte of Virginia adopts the definition of a covered business method that was announced in a USPTO's Patent Trial and Appeal Board decision earlier this year, which basically includes all commercial software. This expansive definition may not be supported by the plain language of the statute and would otherwise be subject to challenge before the United States Court of Appeals for the Federal Circuit. Rep. Goodlatte's bill would effectively prevent any such challenge.

Several issues are presented by expanding this proceeding beyond the financial services industry.

Most important is that the software industry in the United States contributes about $400 million dollars to the economy. The other new proceedings to attack the validity of patents before the USPTO are not limited to a particular type of patent. In contrast, the covered business method proceeding is basically limited to software patents.

The software industry is the only business sector for which a process to invalidate their patents was specifically created by the new America Invents Act. As it now stands, it is limited to a financial product or service patent, whatever that phrase in the end turns out to mean.

Now Congress may expand this process to cover all software patents.

Adding to the software industry's expenses
The cost of expanding the covered business method proceeding to the entire software industry should be studied before any legislation proceeds. An expansion of the proceedings could make it more expensive for the software industry to operate in this country by requiring it to defend more patent challenges from those trying to take advantage of the proceedings.

Beyond the effect on an important US industry, it is unclear whether expanding the covered business method proceeding to include all software patents will set the USPTO up for failure. Today, the Patent Trial and Appeal Board already is faced with a much greater workload than originally forecast by the USPTO.

In fact, the filings in the first year of the program were almost 50 percent greater than predicted. The USPTO now has the third largest patent docket in the country after the Eastern District of Texas and the District of Delaware.

The USPTO must be able to succeed with handling the new cases that the legislative proposal would create. To do so, the USPTO must have sufficient resources and personnel to get the work done or it will fail. Judges need to be hired, IT systems must be upgraded, and courtrooms need to be built.

All of this requires resources and a director with intimate knowledge of the new law and the operations of the USPTO. The prior director left the agency last January and there has not been a nomination of a new director. Word on the street is that the Obama administration has approached several candidates and most have declined. As the president's term comes closer to the end, it will indeed be difficult to find a strong leader with management experience who has the respect of the intellectual property community.

The viability and proper use of these proceedings is important to the US patent system. Clearly, only valid patents should receive the monopoly it accords. Public policy demands a process to "weed out" poor patents so that new innovation can be created using that technology.

To improve the patent system, these new proceedings to invalidate patents must be completed effectively and quickly. The USPTO also needs sufficient resources to conduct these new proceedings. The USPTO is financed entirely by the funds it receives to process patent applications, conduct the covered business method and other new proceedings, and the myriad of other great services it provides to foster innovation. However, sequestration is making this difficult for the USPTO because it is not able to retain all of its fees.

Time to take a breath
It seems imprudent to expand the work of the USPTO to handle more cases to invalidate software patents when it has less money available to do the work. Besides the sheer number of cases and less available funding to do the work, there are personnel issues to be considered. The USPTO Patent Trial and Appeal Board has nearly doubled the number of judges on staff since the enactment of the America Invents Act.

The new judges need to have time to be adequately trained before the workload is increased. Also, the senior management at the Patent Trial and Appeal Board has changed. A new judge is the lead trial judge for the post-grant proceedings and the vice chief judge position was recently filled with new personnel.

These changes in top management at the board put additional pressures on its ability to perform successfully in the short term. This in combination with the president's failure to nominate a new director of the USPTO brings into question the agency's ability to successfully handle an onslaught of new cases and get them done within a year as the law requires.

This all leads to the question of what should be done before new legislative proposals are taken up. One good approach is to have the issues studied by the Government Accountability Office (GAO) before legislation expanding the covered business method proceeding is given serious consideration. The GAO is an independent, nonpartisan agency that works for Congress.

The GAO was established to support the Congress in meeting its constitutional responsibilities and to help improve the performance and ensure the accountability of the federal government for the benefit of the American people. The mission of the GAO seems well suited to study the impact of expanding the covered business method proceeding and the USPTO's current ability to successfully handle the new cases that any legislative change would bring to it.

Considering new legislation without knowing the consequences clearly seems ill-advised.

About the author

    Bernard J. Knight Jr. is the former General Counsel for the US Patent and Trademark Office where he served from 2010 to 2013. Now a partner in the Washington office of McDermott Will & Emery, he counsels clients on complex patent litigation.

     

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