Patent reform was in the air once more this month when the president and Randall Rader, chief judge of the United States Court of Appeals for the Federal Circuit, added their voices to the chorus of legislators calling for new measures to address abuses of the patent system. Many of their proposals are well taken, for the consensus is growing that something must be done to protect American businesses from meritless lawsuits designed to extract nuisance-value settlements from them. What all current proposals have missed, however, is that abuse runs both ways in the patent system: just as a company may find itself the target of a frivolous patent lawsuit in court, so an inventor may find his valid patents embroiled in baseless litigation at the Patent & Trademark Office (“PTO”). Yet Congress, by devising protections for some actors in the system but leaving others defenseless, is subjecting inventors to a double standard and inviting more wrongdoing thereby. Place yourself in the shoes of a new startup, with little else to attract venture capital but a handful of patents and the promise of your product. You imagine these will be enough to gain footing in the market, but an established competitor can easily attack your patents through administrative proceedings at the PTO known as “reexamination” or “post-grant review.” These procedures are designed to take a second look at patents, and most invoke them legitimately, helping to purge the system of overbroad patents. But many do not: in a survey I conducted, the results of which appear in a forthcoming paper, more than 25% of patent attorneys reported that those challenging patents had perpetrated fraud, among other forms of misconduct.
As a startup facing an attack on your hard-won intellectual property, a cloud hovers over the validity of your patent portfolio, driving away investors while emboldening your competitors, and only by spending hundreds of thousands of dollars in legal fees can you dispel it. A patent challenged before the PTO loses its potency as an asset and becomes difficult to enforce in court (much as piece of land would be difficult to market during a dispute over ownership); one Los Angeles Times columnist describes patents in the midst of PTO review as “worthless scraps of official paper.”
Yet, under the law today, a startup has no way to make itself whole when sham PTO litigation has derailed its business or damaged the value of its intellectual property. Similar proceedings in Europe once degenerated into outright “economic predatory activity” against inventors. Legislators should not allow the U.S. patent system to follow the same course.
Judge Rader has praised Vermont’s effort to prosecute those bringing vexatious patent suits there. A worthy aim—yet it was Rader’s court which less than three years ago affirmed a decision barring inventors from seeking compensation under state law when they suffer wrongful attacks on their patents. Should only some in the patent system enjoy the benefits of state protection, then? Rader’s call for state intervention on behalf of a select class of victims, well-intended though it is, fosters unequal treatment and an imbalance in the way the system is policed.
Fraud, baseless accusations, frivolous arguments—these are ancient phenomena in the law, no less in the PTO than in the courts. If Congress intends to address abuse of the patent system seriously, it must deal with these problems wherever they occur: it cannot pretend to tackle misconduct in the courts while leaving it unaddressed at the PTO, nor can it craft stronger armor for favored constituencies while leaving inventors wholly naked.
Legislators must create a federal cause of action to compensate inventors for wrongful attacks on their patents, or else set up an administrative process at the PTO to adjudicate misconduct by patent challengers and allow inventors to seek damages.
When all victims of sham litigation in the patent system have the right to just compensation, its integrity will be secure.