In a week dominated by talk of the 12-nation Trans-Pacific Partnership (TPP) trade deal, a deadly train derailment, and the various campaigns for president, Congress has quietly taken up a subject we should all be following: patent reform.
Some background is instructive.
A patent is a property right granted through the U.S. Patent Trade Office (PTO) to protect a specific invention and to prevent other people from making, using, or selling that invention. Patents make sense: they encourage innovation, reward intelligence, and enforce standards.
But the patent process in America is broken.
In the U.S., a basic patent lasts 20 years from the date of the application. But certain industries, such as drug manufacturers, have patents that cover inventions that take years and years to be approved for public use. In these cases, patents can quickly lapse and the product that these innovators have spent so long developing swiftly loses its value.
Of great concern is the issue of patent trolls. Every year, companies that don’t actually make or sell any products bring frivolous lawsuits against companies ranging from Google and Pfizer to the smallest of startups—alleging patent infringement. Despite the fact that these cases are nearly always dismissed when the patent holders fight back, defending against them can be prohibitively expensive. And as a result, they also distract from innovation.
The percentage of troll litigation is not out of line of the historic average. What is increasing is hedge fund managers exploiting loopholes in the PTO to make a quick buck by shorting stock of American companies and then challenging their legitimately granted patents. This is happening to companies that have products on the market and have successfully commercialized their ideas – particularly medicines.
These issues persist, and maybe even worsen, if elements of legislation currently proposed are not improved.
The House bill, H.R.9, heads to its committee mark-up soon. This bill must be altered significantly for it to succeed in protecting individuals and businesses alike.
Fortunately, a Senate bill addressing patent reform could be a much-needed first step in the push for patent reform. The bill, introduced by Iowa Senator Chuck Grassley, has bi-partisan support and is far reaching in its scope. Grassley’s bill institutes numerous reforms to minimize the effect of patent trolls.
Still, the Senate bill does not adequately address the systemic issues at the PTO that prove so intractable for patent holders. The anti-patent bias at the PTO and Patent Trial and Appeal Board (PTAB) is so great that hedge funds will continue to short the stocks of patent holding companies before they themselves file petitions at the PTAB against the companies. The stocks of the companies fall and the hedge funds make millions, and incentives for research and development suffer enormously. This practice could potentially applied to any U.S. company with a patent.
What’s more, administrative proceedings at the PTAB – an unelected board of regulatory reviewers – are significantly more likely to result in invalidation of patent claims than proceedings in front of U.S. district courts throughout the federal court system. This anti-patent bias poses a threat to continued innovation in America. The standards at the PTO and PTAB should be without question as high as those of the U.S. district courts. Without legislation curbing the ability of this new type of patent troll to use the PTAB to manipulate stock prices and cripple patent holders, this bill will fall short of its goal to achieve meaningful patent reform.
If the Senate bill were to adopt language that makes the necessary and sweeping fixes to the PTO, American businesses should champion the legislation for what it would be: a rare bipartisan measure that will better America.
It is therefore in America’s interest for Congress to work together to pass this legislation. It will foster job creation, encourage innovation and ensure competitiveness through the 21st century.
