Patent News

Aug. 5, 2015

(TRANSLATION) Nikkei Newspaper: Unexpected Impact of Regulating Abusive Litigations

A translation of a Dave Kappos interview that ran on page 2 of Nikkei’s newspaper on August 5, 2015.

Decline of U.S. Patent Filings for the First Time in 6 Years – Interview with Former Director of USPTO*

*Mr. David Kappos: Joined IBM in 1983 and became its Vice President (in charge of intellectual property) in 2003. Became Under Secretary of Commerce and Director of USPTO in 2009. Partner of Cravath, Swaine & Moore since 2013.

In the U.S., where pro-patent policies have driven technological innovations, the number of patent filings is expected to decline for the first time in 6 years. Amendments to U.S. patent law and judicial decisions that are disadvantageous to the patent owner are seen as a cause of the decline. Japan has modeled its IP laws and policies on the U.S. We interviewed Mr. David Kappos (54), former director of the USPTO, to find out what has been happening in the U.S.

Q: U.S. patent filings are expected to go down.
According to the figures announced at the USPTO’s advisory committee meeting in May, the number of U.S. patent filings for the current fiscal year (October 2014 – September 2015) is down about 2% from last year (about 580,000). In the U.S., since the 1793 law which forms the foundation of the current patent law went into effect, except in the time of war or economic turmoil (such as following the bankruptcy of Lehman Brothers), there has hardly been instances where the number of patent filings has declined. So the current decline is quite exceptional.

Q: Why are companies filing fewer patents?
It is because the companies have developed distrust of the U.S. patent system. Particularly, recent amendments to the patent law that were intended to restrict abusive litigations have had greater-than-anticipated side effects.

Of the amendments that went into effect prior to 2013, the greatest impact came from making it easier to challenge the competitors’ patents at the USPTO. It was intended to invalidate the low quality patents before they could be used in lawsuits and to rein in abusive litigations, but as the standard of proof at these proceedings is lower than in litigation, it has been used more frequently than was originally anticipated. As a result, the risk of patent invalidation has been heightened across the board.

Q: What are the other causes?
The legislations proposed in Congress over the past few years raise some concerns. Some of them contain proposal to make the loser pay the litigation costs of the prevailing party. The main objective of these legislations is to rein in so-called patent trolls who don’t make any products and use lawsuits for the purpose of collecting settlement payments. The problem is that it is difficult to create laws that only impact patent trolls. The operating companies are concerned about these legislations as they could increase litigation cost burdens. In particular, pharmaceutical companies that rely on patents as their lifeline are opposing these legislations.

Q: There is a perception that in the U.S., the courts tend to side with patent owners.
The courts have been issuing rulings that are tough on patent owners. This is influenced by their view that there are a number of patents that are merely ideas and that those patents have been abused by patent trolls. However, a number of the important patents have been invalidated without careful review, and this is a problem.

Particularly, the June 2015 decision by the CAFC invalidating a patent on DNA test method sent shockwaves. It is difficult to articulate in concrete terms the concepts in cutting-edge technology fields such as bio and software. We need to separate out breakthrough inventions from those patents that merely embody ideas such as those held by trolls.

Q: How would the developments in the U.S. impact other countries?
IP professionals and business leaders in Japan and elsewhere ask me “if even the U.S. doesn’t value patents, how can we protect the patents in our country?” Each country independently develops its own patent system, but the shift in the U.S., which has been leading the pro-patent march, is likely to impact the patent policies of other countries.

More practically, these developments impact the patent strategy of companies doing business in the U.S. Historically, the Japanese companies have been active filers of U.S. patents, but going forward, they should more carefully assess the case law and invalidation risks in filing for patents in cutting-edge technologies.