Patent News

Apr. 15, 2014

Legal Newsline: Inventors fear effects of patent litigation reform, by Jessica M. Karmasek

This post originally appeared in Legal Newsline on April 15, 2014.

WASHINGTON (Legal Newsline) — Eb Bright knows a thing or two about patents.

The now-executive vice president and general counsel of Exploramed, a venture-backed medical technology incubation company, has served as a business advisor and patent attorney for various start-up companies.

He was director of intellectual property west coast operations at Guidant Corp., where he directed a nine-member team involved in litigation and the strategic development of more than 1,300 patent and trademark applications related to the vascular intervention, cardiac surgery and endovascular solutions divisions, as well as handling legal issues for Guidant Japan and the Compass Group.

After law school, he worked at the intellectual property firm of Burns Doane Swecker & Mathis for about five years.

And Bright started off his career as a design engineer for the F-16, F-22 and A-12 aircraft.

So, he knows, first-hand, the time, expense and risk involved in the patent licensing process.

That’s why, he says, he fears the proposed federal legislation, and even those state measures aimed at further “reforming” the current system.

“I think it’s appropriate and right to focus on bad faith demand letters, to stop that type of activity and the misuse of that type of activity,” Bright said.

“But, in so doing, solutions need to be narrowly crafted so they don’t overall weaken the patent system or essentially make it harder for legitimate inventors and start-ups to protect themselves.

“This could do some real damage to areas of the economy ecosystem.”

It could mean more time and, in turn, fewer investors, he said.

“Back in 1993, we would say it would be a year or year-and-a-half, maybe two years total, to get a patent,” Bright explained. “Now, we have to tell a client it’ll take three to four years to get an issued patent.

“That’s too long, and not good for inventors and start-ups looking for investors.”

He continued, “We should be incentivizing and encouraging companies, not run them off, which is what (the government) is going to end up doing.”

Ron Katznelson, an inventor, patentee and the founder and president of Bi-Level Technologies, argues that the proposed reforms will end up nickel-and-diming start-up companies such as his own and, in the end, essentially “kill” the value of patents.

“It just shows you that these people haven’t really thought this through,” he said. “They just want to make a patentee’s life harder.”

Bright agreed.

“All of these provisions — heightened pleadings, delaying discovery, etc. — it’s just going to make the litigation process longer and more expensive for us,” he said.

If “demand letters” are the issue, then deal with that, he said.

“They need to be focusing on, if you send out a bad faith letter, then you’re going to get slapped with sanctions, fines and that should be your punishment,” Bright said.

Bright and Katznelson concurred that piling on additional provisions isn’t going to solve the so-called “patent troll” problem.

Instead, they suggest lawmakers focus on freeing up more money for the U.S. Patent and Trademark Office itself.

“The only legislation that we really need is making sure the PTO gets to keep all of the fees it collects,” Bright said, noting that the office is not taxpayer-funded but is solely funded by those patent applications paid.

“A couple of decades ago, Congress said, we’re running out of revenue, so we’re going to divert money from the PTO to other offices,” he explained.

“The problem is, the office still has the same amount of work to do. So, the quality of examinations has gone down and the length of time it takes to do them has gone up.

“That’s part of the problem. We have to have patents early in the process, otherwise investors don’t feel comfortable investing. We can’t wait three to five years. So we need to make sure Congress can never again take money from the PTO.”

Last month, U.S. Sens. Dianne Feinstein, D-Calif.; Tom Coburn, R-Okla.; Amy Klobuchar, D-Minn.; and Jeff Flake, R-Ariz. introduced the Patent Fee Integrity Act.

The bill, also referred to as Senate Bill 2146, aims to protect and secure patent user fees paid by U.S. inventors and businesses, and stabilize funding for the PTO.

The proposed legislation, which has been referred to a congressional committee, also protects the current user-fee system by placing those fees in a separate fund to prevent them from being raided for other purposes.

S.B. 2146 also includes provisions to ensure accountability for the PTO, requiring annual operations and spending plans be sent to Congress, as well as an annual independent financial audit.

“In 1990, Congress made the PTO a self-funded agency, but those funds are frequently plundered for other uses,” Feinstein said. “Since then, more than $1.1 billion in user fees have been diverted. When fees paid by inventors are used for general purposes, they amount to a tax on innovation.

“If we fail to support the PTO and reduce delays in the patent process, we are contributing to a decline in American ingenuity, and that is something we should all work hard to avoid.”

Coburn said better funding of the office is “one of the best ways Congress can take action on a jobs program.”

“Instead of letting politicians in Congress raid PTO’s funds to pay for parochial pet projects, lawmakers should ensure that funds raised by patent fees stay at the PTO,” he said. “Doing so will help shore up the PTO’s finances and alleviate the backlog of hundreds of thousands of potentially job-creating patent applications that are due a review.”

Flake agreed.

“The PTO needs these fees to ensure the timely and thorough review of patent applications,” he said. “Delays in patent approvals stifles innovation and growth of businesses, and so Congress ought to do everything it can to ensure the PTO has adequate resources.”

Though a step in the right direction, Bright contends lawmakers also need to employ a “wait and see approach” when it comes to additional legislation.

“I think we really need to see the effects of the America Invents Act and what that’s already doing to the patent system,” he said.

The AIA was signed into law by President Barack Obama in 2011, and its central provisions put into effect in March 2013.

The law switched the U.S. patent system from a “first to invent” to a “first inventor to file” system, eliminated interference proceedings and developed post-grant opposition.

Bright said he also thinks having the Federal Trade Commission step in as a mediator — as proposed in some bills — could end up proving helpful.

“If the government steps in and says, hey, we’re going to look into this, then it’s different,” he said. “They have an endless pocketbook, right? So they can tell these bad actors, hey, you can threaten us all you want, but we’re not afraid of the financial risk.

“They won’t have the same thing at stake as the defendant.”

But Katznelson, who has more than 20 patents in his name as an inventor, questions why change the patent law at all.

“The issue behind this issue is that there are certain parties who believe that certain patents shouldn’t be asserted against them,” he explained. “So, they’re exploiting some ‘bad acting’ activities to change the whole patent law.”

Katznelson noted that states already have laws in place to deal with such activities, including “demand letters.”

Any additional laws by states are just muddying the waters, he said.

“To single out patents in state legislative law — it’s counter-factual,” he said. “(State attorneys general) already have on the books a way to deal with unfair trade practices. Deal with it that way. Don’t make it a patent problem.”

Katznelson said he believes the current patent troll rhetoric simply is a response to a problem that “appears to be more generic.”

“There is nothing special about patents when it comes to litigation abuse,” he said.

“There are bad actors in every field of the law. It happens in every area of law, not just patents. It’s troubling that patents are being singled out.”