It's Not Just the Trolls, It's the Patent Quality
It has become fashionable in the U.S. to pin the blame for the problems in our patent system exclusively on non-practicing entities (NPEs)the patent owners who do not make or sell products. This was certainly the thrust of the White House message from June 4 when it issued a series of executive orders and legislative proposals targeting patent owners who, in President Obamas words, dont actually produce anything themselves.
To be sure, some NPEs do deserve condemnation. But many other NPEssuch as universities, startups, and technology licensing firms in key sectors like next-generation semiconductorsactually contribute a great deal to the U.S. economy, even if they dont have the wherewithal to commercialize their own inventions. They should not be automatically conflated with the so-called patent troll species of NPE, who manipulate the patent litigation process with poor-quality patents to extort settlements from businesses, especially small businesses unable to pay the cost of standing up to them in court.
In short, the larger problem here is the poor quality of many patents, not the identity or business model of their owners. True, there are a growing number of NPE bad actors with egregious business practicesthe patent law version of the ambulance-chaser attorneys seen in personal injury lawbut the central issue here, as in personal injury law, is their meritless claims.
This view may surprise some who associate my crowdsourced patent research firm Article One Partners with helping businesses invalidate NPE patents. What we actually do is help companies invalidate bad patents, regardless of the identity or business model of their owners, and establish the quality (i.e., prove the novelty) of good patents. Our 28,000 patent researchers in 160 nations uncover the prior art evidence companies need to either defeat a meritless infringement suit or to improve the quality of their own patent portfolios.
Prior art, after all, is the Achilles Heel of any patent because a patent is valid only if the invention it covers is novel and nonobvious. The better the search for prior artany previous patent, technical paper, or public knowledge or use of an invention that predates the patent for that inventionthe greater the certainty of patent validity or invalidity. The process is therefore meritorious: any patent that can survive a rigorous worldwide prior art search by definition deserves to do so, establishing its legitimacy as a valid patent asset.
Today, unfortunately, up to half of all patents litigated in court or reexamined by the Patent and Trademark Office during a process known as an inter partes review are ruled invalid. If one includes patents whose claims are narrowed as well as cancelled entirelyand it is the claims that define the limits of a patents value and an infringers liabilitythen 89 percent of all patents reviewed [PDF] by the PTO are judged either partly or wholly invalid.
One major cause of the patent quality problem is the five-fold increase in patent applications over the last 30 years without any corresponding increase in PTO funding, staffing, and resources. More patents have issued since 1980 than were issued during the entire 190 years of the U.S. patent system prior to that date. Overworked patent office examiners thus often have only an hour or two at most to research the prior art to determine novelty and non-obviousness, and their search tools and databases are often limited. As a result, patents are issued that ought not to be, and some applicants take advantage of this fact to game the system.
Some of these poor-quality patents go to NPEs, especially the patent troll variety of NPE. According to a new study [PDF] by George Mason University researcher Shawn Miller, although roughly 28 percent of all issued patents may be invalid due to prior art, the invalidity rate can rise as high as 61 percent for NPE patents. But another study by Villanova University School of Law professor Michael Risch found that NPE patent quality is not drastically lower than that of other litigated patents, although the troll variety of NPE appears to rarely win judgments against defendants who can afford to fight them in court.
But that said, many low-quality patents are also granted to big operating companies, who must shoulder part of the responsibility of improving patent quality in the U.S. After all, just 100 large companies own a third of all U.S. patentsand a mere 311 companies own halfso obviously some of their patents are also invalid due to prior art.
Indeed, its hardly a secret that many big operating companies do only a perfunctory prior art search, if any, before submitting their patent applications. Multiply that by thousands of applications per year per company, and their contribution to the problem becomes clear.
In the words of Joff Wild, editor of Intellectual Asset Management magazine, the leading publication for corporate patent executives, Many patent quality issues could be solved if you put the head of patents of each of these big companies in a room with USPTO management and kept them there until they came up with a plan to improve the quality of their patent applications.
Apportioning blame for the patent quality crisis is made all the more difficult by the fact that some operating companies also run their own internal NPE units and intellectual property holding companies that buy, sell, and litigate patents never used in their own products. Thus, the boundary between practicing and non-practicing patent entities is increasingly blurry.
Good patents deserve legal protection because they promote innovation and create economic value. Whats more, the founding fathers of our nation deliberately designed the patent system to ensure that patents were granted to all deserving inventors, regardless of their station in life or their ability to finance the commercialization of their own inventions.
Bad patents, on the other hand, undermine the innovation benefits of the system and increase its social costs, regardless of the identity or business model of those who assert them.
Its time for all patent ownerslarge and small, practicing and non-practicing aliketo step up their game on patent quality. With the cost of patent litigation and the size of patent verdicts skyrocketing, it is clearly in everyones interest that they do so.
With patents and other intellectual assets now comprising 80 percent of public company market values, patent quality may soon even become a board-level imperative.
Cheryl Milone is the founder and CEO of Article One Partners, the worlds largest crowdsourced patent research community.