This is a posting of an open letter sent to Congress about the Venue Act, which is another attempt to deny the rights of inventors.
Dear Chairman Grassley, Ranking Member Leahy, Chairman Goodlatte, and Ranking Member
As legal academics, economists, and political scientists who conduct research in patent law and policy, we write to express our concerns about the recent push for sweeping changes to patent litigation venue rules, such as those proposed in the VENUE Act. 1 These changes would vastly restrict where all patent owners could file suit—contrary to the general rule that a plaintiff in a civil lawsuit against a corporate defendant can select any court with jurisdictional ties to the defendant. 2
Given the recent changes in the patent system under the America Invents Act of 2011 and judicial decisions that have effectively weakened patent rights, 3 we believe that Congress should adopt a cautious stance to enacting additional changes that further weaken patent rights, at least until the effects of these recent changes are better understood.
Proponents of amending the venue rules have an initially plausible-sounding concern: the Eastern District of Texas handles a large percentage of patent infringement lawsuits and one judge within that district handles a disproportionate share of those cases. The reality is that the major proponents of changing the venue rules are primarily large high-tech companies and retailers with an online presence sued in the Eastern District of Texas that would rather litigate in a small number of more defendant-friendly jurisdictions. Indeed, the arguments in favor of this unprecedented move to restrict venue do not stand up to scrutiny. Specifically:
- Proponents for the VENUE Act argue that “[t]he staggering concentration of patent cases in just a few federal district courts is bad for the patent system.” 4 As an initial matter, data indicates that filings of patent lawsuits in the Eastern District of Texas have dropped substantially this year—suggesting a cautious approach until trends have stabilized. 5
- Contrary to claims by its proponents, legislative proposals like the VENUE Act would not spread lawsuits throughout the country. In fact, these same proponents have found that restricting venue in a manner similar to the VENUE Act would likely result in concentrating more than 50% of patent lawsuits in just two districts: the District of Delaware (where most publicly traded corporations are incorporated) and the Northern District of California (where many patent defendants are headquartered). 6 Instead of widely distributing patent cases across numerous districts in order to promote procedural “fairness,” the VENUE Act would primarily channel cases into only two districts, which happen to be districts where it is considered much more difficult to enforce patent rights.7
- Proponents for the VENUE Act have argued that the Eastern District of Texas is reversed more often by the Federal Circuit than other jurisdictions, claiming that in 2015 the Federal Circuit affirmed only 39% of the Eastern District of Texas’s decisions but affirmed over 70% of decisions from the Northern District of California and District of Delaware. 8 These figures are misleading: they represent only one year of data, mix trials and summary judgment orders, and fail to take into account differences in technology types and appeals rates in each district. In fact, a more complete study over a longer time period by Price Waterhouse Coopers found that the Eastern District of Texas affirmance rate is only slightly below the national average for all districts.9
- The Federal Circuit recently confirmed in In re TC Heartland (Fed. Cir. Apr. 29, 2016) that 28 U.S.C. § 1400(b) provides that a corporate defendant in a patent case—like corporate defendants in nearly all other types of cases—may be sued in any district in which personal jurisdiction lies. Constitutional due process requires a “substantial connection” between the defendant and forum. 10 Thus, contrary to its title and the claims of its proponents, the VENUE Act does not re-establish a “uniform” litigation system for patent rights by requiring substantial ties to the forum. Instead, the Act thwarts the well-established rule that plaintiffs can bring suit in any jurisdiction in which a corporate defendant has committed substantial violations of the law.11
- The VENUE Act would raise costs for many patent owners by requiring them to litigate the same patent against multiple defendants in multiple jurisdictions, increasing patent litigation overall. In recent years, the America Invents Act’s prohibition on joinder of multiple defendants in a single lawsuit for violating the same patent has directly resulted in increased lawsuits and increased costs for patent owners.12 Moreover, the VENUE Act would also result in potentially conflicting decisions in these multiple lawsuits, increasing uncertainty and administration costs in the patent system.
- The VENUE Act encourages the manipulation of well-settled venue rules across all areas of law by the self-serving efforts of large corporate defendants who seek to insulate themselves from the consequences of violating the law. By enacting the VENUE Act, Congress would send a strong signal to corporate defendants that they can tilt the substantive playing field by simply shifting cases to defendant-friendly jurisdictions.
Innovators and their investors have long been vital to a flourishing innovation economy in the United States. Startups, venture capitalists, individual inventors, universities, and established companies often rely heavily on patents to recoup their extensive investments in both R&D and commercialization. We urge you to exercise caution before enacting further sweeping changes to our patent system that would primarily benefit large infringers to the detriment of these innovators and, ultimately, our innovation economy.
Christopher A. Cotropia University of Richmond School of Law
Gregory Dolin University of Baltimore School of Law
Richard A. Epstein New York University School of Law
Chris Frerking University of New Hampshire School of Law
Shubha Ghosh Syracuse University College of Law
Richard Gruner John Marshall Law School
Stephen Haber Stanford University Department of Political Science
Hugh Hansen Fordham University School of Law
Chris Holman UMKC School of Law
Gus Hurwitz Nebraska College of Law
Zorina Khan Bowdoin College Department of Economics
Megan M. La Belle Columbus School of Law The Catholic University of America
Kristina M. Lybecker Colorado College Department of Economics & Business
Damon C. Matteo Fulcrum Strategy Tsinghua University, Graduate School of Economics
Adam Mossoff Antonin Scalia Law School George Mason University
Xuan-Thao Nguyen Robert H. McKinney School of Law Indiana University-Purdue University
Sean O’Connor University of Washington School of Law
Seth C. Oranburg Duquesne University School of Law
David Orozco Florida State University The College of Business
Kristen Osenga University of Richmond School of Law
Jillian Popadak Duke University The Fuqua School of Business
Mark Schultz Southern Illinois University School of Law
Ted Sichelman University of San Diego School of Law
David O. Taylor SMU Dedman School of Law
David J. Teece University of California at Berkeley Haas School of Business
Shine Tu West Virginia University College of Law
Saurabh Vishnubhakat Texas A&M University School of Law
- Polk Wagner University of Pennsylvania Law School
1 Venue Equity and Non-Uniformity Elimination Act, S.2733, 114th Cong. (2016), https://www.congress.gov/114/bills/s2733/BILLS-114s2733is.pdf.
2 See 28 U.S.C. § 1391(c)(2). See generally Ferens v. John Deere Co., 494 U.S. 516, 527 (1990) (“a plaintiff . . . has the option of shopping for a forum with the most favorable law”).
3 These include, among others: (1) administrative procedures for invalidating patents created by the America Invents Act, which have had extremely high invalidation rates, leading one former federal appellate judge to refer to these procedures as “death squads,” and (2) several decisions by the Supreme Court and the Federal Circuit that have drastically curtailed patent rights for many innovators. See Adam Mossoff, Weighing the Patent System: It Is Time to Confront the Bias against Patent Owners in Patent ‘Reform’ Legislation, WASHINGTON TIMES (March 24, 2016), http://www.washingtontimes.com/news/2016/mar/24/adam-mossoff-weighing-the-patent-system/.
4 Colleen Chien & Michael Risch, A Patent Reform We Can All Agree On, WASH. POST (June 3, 2016), https://www.washingtonpost.com/news/in-theory/wp/2015/11/20/why-do-patent-lawyers-like-to-file-in-texas/.
5 See Michael C. Smith, “Hot But No Longer Boiling“ – EDTX Patent Case Filings Down almost Half; New Case Allocation and Procedures (No More Letter Briefing for SJ motions), EDTexweblog.com (July 21, 2016), http://mcsmith.blogs.com/eastern_district_of_texas/2016/07/edtx-patent-case-filing-trends-new-case-allocation-andprocedures.html.
6 Colleen Chien & Michael Risch, What Would Happen to Patent Cases if They Couldn’t all be Filed in Texas?, PATENTLY-O (March 11, 2016), http://patentlyo.com/patent/2016/03/happen-patent-couldnt.html. This study also finds that 11% of cases would continue to be filed in the Eastern District of Texas, concentrating nearly two-thirds of all cases in three districts. See id. The authors of this study are presently expanding their investigation to an enlarged data set, which will also capture additional aspects of the VENUE Act. Neither the data nor their results are available yet. However, we have no reason to believe that the expanded data or analysis will produce results other than what has already been shown: a high concentration of patent cases in a small number of districts.
7 See PricewaterhouseCoopers LLP, 2015 Patent Litigation Study (May 2015) (“PWC Study”), http://www.pwc.com/us/en/forensic-services/publications/assets/2015-pwc-patent-litigation-study.pdf.
8 Ryan Davis, EDTX Judges’ Love of Patent Trials Fuels High Reversal Rate, LAW360 (Mar. 8, 2016), http://www.law360.com/articles/767955/edtx-judges-love-of-patent-trials-fuels-high-reversal-rate.
9 See PWC Study, supra note 7 (finding an average affirmance rate of 48% for all districts, compared to an affirmance rate of 42% for the Eastern District of Texas)
10 See Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475 (1985).
11 See generally Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 508 (1947) (“[T]he plaintiff’s choice of forum should rarely be disturbed.”).
12 See Christopher A. Cotropia, Jay P. Kesan & David L. Schwartz, Unpacking Patent Assertion Entities (PAEs), 99 MINNESOTA LAW REVIEW 649 (2014), http://www.minnesotalawreview.org/wpcontent/uploads/2015/02/REVISEDSchwartzetal_MLR.pdf.
There is a myth by the anti-patent crowd that “overly broad” patents inhibit the development of new technologies. One of the classic examples they like to cite is the Selden Patent (US Pat. No. 549,160), which supposedly inhibited the development of the automobile around the turn of the century. A new paper ‘The “Overly-broad” Selden patent, Henry Ford and Development in the Early US Automobile Industry’ By John Howells and Ron D. Katznelson, shows that in fact the automotive industry prospered and inventiveness accelerated despite the Selden patent.
According to the paper:
First, neither the ALAM-adopted restrictive licensing policy based on the Selden patent, nor the public liability threats to purchasers of unlicensed vehicles (see sections 2.2.3-2.2.4) restricted entry into the automobile industry as shown by Figure 1.
Second, measures of automobile development show it to have been most rapid during the Selden patent term; Raff and Trajtenberg’s analysis of real, quality adjusted prices for the American Automobile Industry show that the fastest rate of price decline for a given automobile quality occurred between 1906 and 1911, within the term of the Selden patent prior to its 1911 adjudication: the rate of quality improvement was greatest in the 1906 – 1911 period and more than half of the quality gain for a given price observed to have occurred by 1980, had been attained in the period 1906 – 1911 (Raff and Trajtenberg 1996, p85, 91).
Third, rather than Ford being slowed down through patent litigation with the ALAM, from the foundation of the Ford Motor Company in 1903, Ford grew sales at an exponential rate faster than that of the total industry during the period of litigation. A serial developer of five major automobile models, which gained tenfold increase in sales every four years, can hardly be considered to have been “stifled.” The Ford Motor Company became the leading manufacturer of automobiles produced in 1906, a position the company retained until 1927; see Figure 2.
The paper provides overwhelming evidence that the Selden patent did not inhibit the automotive industry or the development of new technologies in the automotive industry. This should have been apparent to anyone familiar with the history of the automotive industry. The United States led the world in developing and manufacturing automobiles at the turn of the century and beyond. Selden had a U.S. patent and it was enforced in the U.S., so the facts do not square with the anti-patent narrative.
Another interesting part of the paper is that Ford knew that they would prevail in a lawsuit over the Selden patent. This is the value of well-defined laws and courts who stick to the law.
Selden’s patent was issued by the US Patent Office in 1895 and eventually was assigned to the Association of Licensed Automobile Manufacturers (ALAM) in early 1903. The ALAM publicly asserted that the Selden patent claims should be broadly construed, meaning that the entire automobile industry was within their scope. In October 1903 suit was brought against the Ford Motor Company under the Selden patent and when finally adjudicated on appeal in 1911 the Ford Motor Company was found not to infringe because although the patent was held valid, it was construed narrowly to cover an improvement to the obsolete Brayton engine. This was the embodiment with which Selden had experimented prior to 1879, the year he applied for a patent. Columbia Motor Co. v. CA Duerr and Co. 184 F. 893, 896 (2nd Cir. 1911). The narrow Brayton-based construction saved Selden’s claims, but they were not infringed since all gasoline engines in commercial use were Otto engines by 1911, rendering the patent economically worthless
Another anti-patent lie bites the dust. When a group or a movement consistently lies and promotes lies to support their position over and over again, as the anti-patent crowd has done, they should not be taken seriously by rational people.
Law professor Adam Mossoff examines the latest patent deform bill, the Venue Act, in his editorial in the Washington Times entitled Weighing the Patent System. This ACT makes it more difficult for patent owners to select the venue of their choice. The legislation would not change the venue rules for any other class of plaintiffs or defendants, which shows the Act is arbitrary and makes patent owners second class citizens.
Aside from these concerns, the more fundamental problem is that the VENUE Act reflects ongoing bias against patent owners in the policy debates.
This bill is being pushed by a coalition of large companies. These companies do not think they should ever have to pay to use other peoples’ intellectual property. In other words they want to be legal thieves and they are willing to destroy the U.S. economy for their short term economic advantage.
It is widely recognized that the PTAB is incredibly biased against patents in both its procedural and substantive rules.
These new rules and procedures for challenging patents were pushed by the same coalition that is pushing the Venue Act.
Opponents of patents often like to refer to them as a monopoly, which is a thoroughly discredited idea (see here, here, here, here, and here). Another argument they often raise is that “real” property rights do not expire, they go on in perpetuity. Since patents and trademarks expire after a certain period of time, they cannot be true property rights.
To answer this question, it is necessary that examine the nature of property rights more carefully. You obtain property rights in something because you made it productive or created it. Of course you can also trade your rights in something you created for currency and then contract to buy something else, thus obtaining property rights in the item. Your rights in say land are limited by the activity you undertook to obtain those rights. For instance, if you farmed the land and say put a house on it, then you have a right to continue those activities and ones reasonably related to them. However, this does not mean that your property rights extend to the center of the earth or up infinitely into space. It also does not mean you can put a huge pigsty on the edge your land next to your neighbor’s house. Note this was/is true under common law, no need for regulatory law or home owners’ associations.
Property rights are part of the system of natural rights, which are based on the foundation of self-ownership or self-sovereignty.
Is man a sovereign individual who owns his person, his mind, his life and its products – or is he the property of the tribe …
Capitalism: The Unknown Ideal, What is Capitalism, p 10.
Locke also based natural rights on self-ownership or self-sovereignty. These ideas are not axioms but derived from observation and logic. You obtain property rights in something because you created it or made it productive. Since you own yourself, you own those things you create, however the limits of your property rights are determined by what you created (made productive) and some practical legal implications.
When it comes to land, most people obtain property rights in the land because they farmed it or made it useful for habitation or both. These property rights do not go on forever as commonly conceived. Dead people cannot own something, only living people can have property rights. When a person dies their property rights expire including their property rights in land. The heirs do not acquire the property rights in the land (assuming they were not an active part of making the land productive), they just receive the first right to acquire the property rights in the land, by making it productive. If they are unable to make the land productive or they are otherwise not a productive people they will quickly have to sell the land to someone who can make it productive.
You might argue that the law does not precisely follow the philosophical basis of the law and that would be correct. However, the law has to consider factors that the pure philosopher does not, for instance, efficiency, evidentiary issues, and certainty of title. If the ownership of land and other property were not passed to the heirs in the form of first right to acquire, then every time someone died there would be a free for all to acquire the land, etc. This would lead to fights, both legal and physical. This would defeat the legal goals of efficiency, evidentiary clarity, and title clarity. However that is not to suggest that the system we have “inherited” for the disposition of estates is perfect or the best.
In the case of patents/copyrights the most philosophically correct position for the length of a patent/copyright (from this point forward I will just discuss patents) would be the inventor’s life. However, this would cause all sorts of practical patents. The patent for a first inventor could issue and one day later the inventor could die, while another inventor could live for another seventy years. This would be unjust. More importantly it would make it very difficult to verify if a patent was still active. Last it would make it very risky to invest in company built around an invention that was patented. Imagine that you are asked to invest in company whose main asset is an invention that could be worth hundreds of millions of dollars, however if the inventor dies tomorrow the company would lose its most important asset. These practical realities of the law mean that patents should have a certain set period of time. The patent cannot go on in perpetuity because the inventor’s heirs cannot make the asset productive as in the case of land, so they cannot reacquire the patent rights. The US has tried out a number of different term lengths for patents. Presently, it is 20 years from the date of filing and that makes it essentially uniform with the rest of the world. My suggestion would be to make the term of a patent closer to half a person’s life, since most people do not invent things as a child and there is absolutely no macroeconomic evidence that stronger patents have ever inhibited the economy.
 Rand in other places states that Rights are based on the right to life. She necessarily had to mean the right your own life, to be consistent with inalienable rights. It is clear that she was not opposed to the idea of self-ownership and did not see this inconsistent with the idea of natural rights. It is also easier to understand natural rights from a self-ownership point of view than a right to (your own) life.
 It is beyond the scope of this paper to explain the derivation of natural rights by Locke and Rand.
The paper, Patent Trolls: Evidence from Targeted Firms, by Umit G. Gurun and Scott Duke Kominer assumes that NPEs are enforcing patents of questionable validity. However, the paper offers no proof of this and does not even try to justify this position. Once you start with that position, it is a foregone conclusion that any litigation is unjustified and wastes resources. However, the initial assumption is not proven and in fact many papers have shown the opposite. If you do not start with this assumption then the paper’s whole argument falls apart. Litigation losses by operating companies are a justified return to the inventor and their investors. The operating companies are not victims, but victimizers and the return to inventors and their investors encourages more inventive activity.
The paper’s big conclusion is:
“Specifically, in the years following litigation, firms against whom cases are dismissed produced spent on average $211 million (t = 1.96) more on R&D expenditures than firms that lost to NPEs. These firms also spent on average $49 million more (t = 2.95) to acquire more in process R&D from outside.30 Furthermore, in the years following litigation, firms against whom cases are dismissed produced 63.52 more new patents (t = 2.96), and these new patents received 723.98 more citations (t = 3.45), relative to the group of firms that suffered the cost of NPE litigation.31 These large differences in R&D expenditure, patent production and in the quality of produced patents do not appear until after NPE litigation.”
Inherent in this statement is that anytime an operating firm that loses a patent litigation case to a NPE is a bad result. If the firm was stealing an invention, then the fact that they lost is a good thing.
The companies that lost in litigation spend less on R&D according to the paper. Perhaps that is because they were not as inventive to start with, perhaps it is because they decided to focus on manufacturing and purchasing their R&D from outside inventors, and perhaps it is because they lost a substantial amount of money. These are not dire results or unexpected results or necessarily bad results.
The paper implies that NPE lawsuits result in less spending on R&D, but just because firms that lose patent lawsuits spend less on R&D in the years immediately following, does not mean that total R&D is down. When inventors see their rights are upheld then they are encouraged to spend more time inventing. Unless you measure the amount spent by independent inventors or inventive firms who now see their rights upheld, you cannot draw that conclusion. These comments also apply to the citation differences. The authors are only looking at the microeconomic system that they care about, but you cannot draw the macroeconomic conclusions they do, because they don’t consider all the macroeconomic effects.
The paper does not define what a NPE is. It starts with this surprising conclusion, “We show that NPEs on average target firms that are flush with cash (or have just had large positive cash shocks).” They needed a study to tell them that? Of course NPEs focus on companies with cash on hand, why would they waste their time suing companies that could not pay them? Especially after the eBay decision, in which they are unlikely to get an injunction.
The paper goes on to state:
“A new organizational form, the non-practicing entity (hereafter, NPE), has recently emerged as a major driver of IP litigation. NPEs amass patents not for the sake of producing commercial products, but in order to prosecute infringement on their patent portfolios.”
Edison, Tesla, Bell, Amstrong ‘amassed patents.’ In fact, most of the US’s greatest inventors were just inventors. They did not create patents ‘for the sake of producing commercial products.’ They specialized in being inventors and let manufactures concentrate on manufacturing. All of them were involved in numerous lawsuits. The difference between them and today’s inventors is that the courts were much more likely to uphold their rights to their inventions. As a result, manufacturers were much quicker to license inventions. In fact, one study showed that in the late 1800’s an inventor’s chance of monetizing their invention if they received a patent was around 85%. In other words they made money specializing as inventors. Today that figure would be less than 2%. Because courts allow companies like Google, Microsoft, Samsung, etc. to get away with stealing other people’s inventions, they make the calculated risk that it is better to go to court than pay an inventor a licensing fee. As a result, inventors often have to team with someone with a deep pocket in order to get large corporations to pay them the licensing fees they deserve. In fact, large companies such as IBM, Microsoft and others will also often team with people who are experts in licensing or litigation.
Division of labor is generally considered a positive in economics. The fact that this paper is arguing against it means that it has to give extraordinary proof for its extraordinary claim. The attack on NPEs is really an attack on the profession of inventing. A uniquely American profession.
This is not an academic paper, it is a propaganda paper pretending to be science.
Patent Trolls: Evidence from Targeted Firms, by Umit G. Gurun and Scott Duke Kominer
The paper, The True Story of How the Patent Bar Captured a Court and Shrank the Intellectual Commons, has a number of errors that show its conclusions are flawed. The author’s errors in a related article, entitled How Many Jobs Does Intellectual Property Create? were well documented by Adam Mossoff and Mark Schultz in Intellectual Property, Innovation and Economic Growth: Mercatus Gets it Wrong. This paper’s title purports to show the Court of Appeal for the Federal Circuit has been captured by patent attorneys, but never actually provides any evidence to support this assertion. Below I will detail a number, but not all the other errors in this paper.
1) The article states. “Just as other property rights internalize the social benefits of improvements to land, automobile maintenance, or business investment, patents incentivize the creation of new inventions, which might otherwise be undersupplied.”
This is the utilitarian model of property rights. The US was not founded on the Utilitarian model it was founded on natural rights, which are incorporated the Declaration of Independence and into Blackstone’s Commentaries which formed the basis of US common law for the first century of the US. In fact, Blackstone specifically states that patents and copyrights are property rights based on Locke’s formulation. See The Second Treatise of Civil Government; 1690; John Locke; CHAP. IX., Of the Ends of Political Society and Government.
There is no such thing as balancing test for property rights as implied by the author, this is a Utilitarian formulation of property rights.
2) The article states. “A single, politically captured circuit court with exclusive jurisdiction over patent appeals has consistently expanded the scope of patentable subject matter. This expansion has resulted in an explosion of both patents and patent litigation, with destructive consequences.”
The myth of an explosion in patent litigation has been debunked many times. As pointed out in the article The “Patent Litigation Explosion” Canard,
“First, it’s simply untrue. Award-winning economist, Zorina Khan, reports in her book, The Democratization of Invention, that patent litigation rates from 1790 to 1860 fluctuated a lot, but averaged 1.65%. Today’s patent litigation rates are around 1.5%. As Yoda would say: patent litigation explosion this is not, hmm, no. In fact, for three decades in Khan’s study patent litigation rates were higher than today’s litigation rate. From 1840-1849, for instance, patent litigation rates were 3.6% —more than twice the patent litigation rate today.”
Second there has not been an explosion in the number of issued patents. The number of patents issued to US inventors in 1980 were 37,355 and in 2011 there were 108,626 that is a 3.5% increase in the number of patents per year, hardly an explosion in the number of issued patents.
The research and development cost per patent has increased from around $1.2 Million per patent to around $4 Million per patent from 1955 to 2005 and GDP per patent over the same time period in constant dollars has increased from 60 million per patent to around 170 million per patent. According to a paper by the Federal Research Bank of San Francisco, real industrial R&D has been growing at 3.7% per year between 1953 and 2000, while the number of patents per capita has been growing at 1.7% per year over the same period. The number of citations per patent increased 3.3% per year over the 25 year period from 1975-1999.
3) The article states. “As early as 1951, Simon Rifkind, a former federal judge in New York City, warned in a prescient essay that then-current proposals to create a specialized patent court would lead to “decadence and decay.”
This was the time period in which a Supreme Court Justice in 1948 would write “the only patent that is valid is one which the Court has not been able to get its hands on.” Jungerson v. Ostby and Barton Co., 355 US 560. This was also when the Supreme Court was applying its “flash of genus standard to patents.” If Rifkind meant that it would result in courts that did not have this utter disdain of patents he was right. However, this is hardly an objective measure.
4) The article states. “Using a dataset of district and appellate patent decisions for the years 1953–2002, economists Matthew Henry and John Turner find that the Federal Circuit has been significantly more permissive with respect to affirming the validity of patents.”
Well given the Supreme Court’s attitude the only patent that is valid is one which the Court has not been able to get its hands on that is hardly a surprise. One of the first things that Reagan did upon becoming president, was to create the Court of Appeals for the Federal Circuit. This court does hear all patent appeals and actually had about half the Justice that were actually trained in patent law. In order to be legally or factually competent as a patent attorney you have to have a technical background in science or technology, which none of the present Supreme Court justices have. In addition, patent attorneys have to pass a separate bar exam that has one of the lowest pass rates in the US. Patent law is a highly technical and specialized area, just like quantum mechanics is highly specialized and technical. You would not ask an English professor how to solve a problem in quantum mechanics and expect anything sensible. The same is true for patent law.
5) The chart in the article is a lie. It shows the number of patents linearly, which would show any compound growth as an exponential. In fact the number of issued patents has grown at a rate 3.5% from 1980 to 2011, hardly an explosion.
6) The article states. “They estimate that patentees are three times more likely to win on appeal after a district court ruling of invalidity in the post-1982 era. In addition, following the precedents set by the Federal Circuit, district courts have been 50 percent less likely to find a patent invalid in the first place, and patentees have become 25 percent more likely to appeal a decision of invalidity.”
The 1970s was a period of time in which several appeals circuits had not upheld the validity of a patent in 25 years. The FTC had a policy of nine no-nos of what you could not do with your patent without running afoul of the antitrust laws. It is hardly surprising that Reagan and Congress wanted to strengthen the property rights of inventors.
7) The article states. “The U.S. Supreme Court reversed the Court of Customs and Patent Appeals, holding that mathematical algorithms (and therefore software) were not patentable subject matter.”
Here the Supreme Court showed their complete ignorance of what a computer is and what software does. Any electrical engineer knows that any device implemented in software can be implemented in hardware. In fact, software just wires an electronic circuit (computer) to create an application specific device. Engineers choose between these options based on the need for flexibility and lower cost (software) and speed (hardware) and have several choices in between.
In order to be logically against software patents, one has to be against all patents for electronic circuits. This is the sort of nonsense you get from a court that does not understand the underlying technology.
8 ) The article states. “State Street Bank v. Signature Financial Group (1998), the Federal Circuit broadened the criteria for patentability of software and business methods substantially, allowing protection as long as the innovation “produces a useful, concrete and tangible result.”
35 USC 101 states “Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.” A computer implemented invention is a new and useful machine and useful process. Seems like the Federal Circuit got it right.
9) The article states. “The GAO estimates that more than half of all patents granted in recent years are software-related.”
The GAO counted any invention that includes some sort of software, firmware, or related. Let’s see, a procedure to sequence DNA would probably use a machine that had software or firmware and therefor met the GAO’s definition. A chemical patent that used any computer controlled machinery would count as a software patent under this definition. Today most transmission systems are computer controlled and therefore meet this definition. This standard is so loose as to meaningless.
10) The article states. “While more patents have not resulted in faster economic growth, they have resulted in more patent lawsuits.”
This statement will take some unpacking. First of all the 1980s and 1990s saw significantly faster growth than the 1970s, which had a significantly weaker patent system. Second of all the patent laws were weakened starting in 2000 with the Patent Act of 2000. This trend has continued to this day. In 2002, we passed Sarbanes Oxley which made it almost impossible for startups to go public, which starved startups and VCs of capital. Economic growth did not start to fall off until around 2000. So actually the data is consistent. Weaker patent laws are associated with weaker economic growth. Third, the patent system cannot function in a socialist system. The US by CATO’s estimate takes 60% of the GDP today. What does it mean to own your patent in a world where the EPA can take your land at any time, in which the eminent domain can be used to take your property for a project that promises higher tax revenue, a world in which the government publishes your invention for the whole world to see before they provide you any patent protection, a world in which the government does not accept any limits to tax you or regulate you? The author is right that a patent system cannot cause economic growth in the USSR, which tried to implement a patent system. A patent system is based on a system of property rights. Since 2000 we have created a patent system that supports crony socialism (capitalism), not surprisingly our inventors and entrepreneurs are not creating economic growth.
The macroeconomic evidence is overwhelming for patent systems creating growth. Those countries with the strongest patent systems are the most inventive and have the greatest technological dispersion and are the wealthiest in the world. While those with the weakest patent systems do not contribute any inventions and have very poor technological dispersion and are some of the poorest countries in the world.
I for one am very disappointed that the CATO Institute would publish such a poorly researched and reasoned article.
 Wilson, Daniel, “Are We Running Out of New Ideas” A Look at Patents and R&D”, FRBSF Economic Letter, Number 2003-26, September 12, 2003.
We are beginning to see the absurd results from Alice in the case Digitech Image Technologies, LLC v. Electronics For Imaging, Inc., Case No. 13-1600 (Fed. Cir. July 14, 2014), the Federal Circuit affirmed a district court decision invalidating all claims of Digitech’s patent (U.S. Patent No. 6,128,415). The invention tags digital images with particular information about the camera and its color/spatial image qualities in a form that is device-independent. The patent includes claims directed to both a “device profile” and a “method of generating a device profile.” The Court found the claims invalid under 35 USC 101. Independent Claim 1 states:
1. A device profile for describing properties of a device in a digital image reproduction system to capture, transform or render an image, said device profile comprising:
first data for describing a device dependent transformation of color information content of the image to a device independent color space; and
second data for describing a device dependent transformation of spatial information content of the image in said device independent color space.
According to Patently O:
At the Federal Circuit, the patentee argued that one of skill in the art would understand that the claims required hardware or software within a digital image processing system. However, in an implicit claim construction, the appellate panel rejected that argument – finding that the claims are not so limited. “The claims encompass all embodiments of the information contained in the device profile, regardless of the process through which this information is obtained or the physical medium in which it is stored.” The underlying problem with this analysis is the reality that data is always stored in a physical form lest it disappear.
The court disagreed and found the patent was directed to an Abstract Idea, a term that the Supreme Court has refused to define. Logically all inventions are directed to an abstract idea, in that they abstract the invention from the particular or specifics. The only logical definition of Abstract Idea is a thought or conception that is separate from concrete existence or not applied to the practical. Here the invention is clearly drawn to the practical and is being widely used.
You can argue that patentee wrote the claims incorrectly, but the Supremes would then counter than cleaver draftmanship will not save you from 101. Of course the Supremes then look to the claims to determine 101 eligibility. This is circular reasoning on the part of the Supremes.
Claims are supposed to define the invention, they are not the invention. A definition should not have extraneous information that does not add meaning. Here the physical structure would not have added anything to the definition. This is why I have been arguing that 101 should really be about the specification. Here the patentee clearly describes an invention. Patent law is devolving back to the 1940s and now we are all talking about how many angels can dance on a pinhead.
The long awaited decision by the Supreme Court in Alice v. CLS Bank came out on June 19, 2014, while I was away giving a talk at Atlas Summit 2014, which is why this post has been delayed. Even in the statement of the question presented in the case the Court got it wrong:
The question presented is whether these claims are patent eligible under 35 U. S. C. §101, or are instead drawn to a patent-ineligible abstract idea.
Abstract ideas are not an exception to section 101, despite a long line of nonsense by the court. Every invention is an abstract idea in that it describes a class of things, not a specific instance. The failure (purposeful) of the Court to define what they mean by an “abstract idea” has resulted in an incomprehensible standard.
An abstract idea is a thought or conception that is separate from concrete existence or not applied to the practical. From this definition, it is clear that if an inventor were to describe an “abstract idea” it would be a section 112 issue, not a 101 issue. In this case, Alice describes and claims a concrete existence that is applied to the practical problem of settlement risk that saves billions of dollars a year. Note using any rational definition of abstract idea, means it would not be a “process, machine, manufacture, or composition of matter.” Therefore the abstract ideas exception is just redundant. But the Court is unable to think logically, so instead of applying the statute, they make up the law as they go along.
In any event, we need not labor to delimit the precise contours of the “abstract ideas” category in this case. It is enough to recognize that there is no meaningful distinction between the concept of risk hedging in Bilski and the concept of intermediated settlement at issue here. Both are squarely within the realm of “abstract ideas” as we have used that term.
Biliski did not claim or describe “risk hedging” and Alice did not describe “intermediate settlement” any more than the patent for the LASER described “light making.” The Court’s characterization of these inventions with two word tag lines is intellectually dishonest.
Note the Court admits that they refuse define what they mean by abstract idea. Failure to define one’s terms is the hallmark of charlatans and tyrants. The Court’s statement means that no one can know what will be considered an abstract idea until the Supreme Court rules. This is a judicial power grab.
Below the Court tries to justify what is clearly an absurd position.
The fact that a computer “necessarily exist[s] in the physical, rather than purely conceptual, realm,” Brief for Petitioner 39, is beside the point. There is no dispute that a computer is a tangible system (in §101 terms, a “machine”), or that many computer-implemented claims are formally addressed to patent-eligible subject matter. But if that were the end of the §101 inquiry, an applicant could claim any principle of the physical or social sciences by reciting a computer system configured to implement the relevant concept.
But what petitioner characterizes as specific hardware—a “data processing system” with a “communications controller” and “data storage unit,” for example, see App. 954,958, 1257—is purely functional and generic. Nearly every computer will include a “communications controller” and “data storage unit” capable of performing the basic calculation, storage, and transmission functions required by the method claims.
A computer is a machine and those are covered by 101. The Court is intellectual dishonest or just plain stupid when they state “an applicant could claim any principle of the physical or social sciences by reciting a computer system configured to implement the relevant concept.” Alice never said any such thing, but because the Justices are incompetent in reading claims and computer technology, they ignore the claims and description, and come up with their own characterization.
Here they again prove they cannot read the claims and instead paraphrase them, of course ignoring any part they find inconvenient.
The representative method claim in this case recites the following steps: (1) “creating” shadow records for each counterparty to a transaction; (2) “obtaining” start-of-day balances based on the parties’ real-world accounts at exchange institutions; (3) “adjusting” the shadow records as transactions are entered, allowing only those transactions for which the parties have sufficient 8resources; and (4) issuing irrevocable end-of-day instructions to the exchange institutions to carry out the permitted transactions. See n.2, supra.
The Court then proceeds to suggest that there is some sort of balancing test to 35 USC 101.
The former “would risk disproportionately tying up the use of the underlying” ideas, id., at ___ (slip op., at 4), and are therefore ineligible for patent protection. The latter pose no comparable risk of pre-emption, and therefore remain eligible for the monopoly granted under our patent laws.
Balancing tests are inherently unconstitutional. A nation of laws is based on Natural Rights and clearly delineated laws. A balancing test turns that into a nation of men. Judges like them because they are the “men” so it is an inherent power grab. The Constitution requires the Rights of Inventors be secured. It does not allow for judicial balancing of inventors’ rights.
The Court then ignores the 1952 Patent Act and deconstructs the claims, which not only violates 35 USC 103, but is illogical (every invention is a combination of existing elements – conservation of matter and energy). In addition, it brings back the discredited idea of “inventive concept”, which the 1952 Patent Act specifically was directed at eliminating.
To answer that question, we consider the elements of each claim both individually and “as an ordered combination” to determine whether the additional elements “transform the nature of the claim” into a patent-eligible application. Id., at ___ (slip op., at 10, 9). We have described step two of this analysis as a search for an “ ‘inventive concept’”—i.e., an element or combination of elements that is “sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the [ineligible concept] itself.” Id., at ___ (slip op., at 3).
It would be nice if the Justices could actually read a statute.
The following statement shows the intellectual dishonesty of the court.
A claim that recites an abstract idea must include “additional features” to ensure “that the [claim] is more than a drafting effort designed to monopolize the [abstract idea].” Id., at ___ (slip op., at 8–9). Mayomade clear that transformation into a patent-eligible application requires “more than simply stat[ing] the [abstract idea] while adding the words ‘apply it.’” Id., at ___ (slip op., at 3).
Alice’s patent application never said any such thing. The Justices should be impeached for this sort of outrageous characterization.
Here again, the Justices prove they have no idea how to read a claim.
On their face, the claims before us are drawn to the concept of intermediated settlement, i.e., the use of a third party to mitigate settlement risk. Like the risk hedging in Bilski, the concept of intermediated settlement is “ ‘a fundamental economic practice long prevalent in our system of commerce.’” Ibid.; see, e.g., Emery, Speculation on the Stock and Produce Exchanges of the United States, in 7 Studies in History, Economics and Public Law 283, 346–356 (1896) (discussing the use of a “clearing-house” asan intermediary to reduce settlement risk).
The claims are not drawn to anything. This is just an attempt to ignore the limitations of claims to smear the invention. The LASER is a part of the fundamental practice of creating light that has been known before for millions of years. Does that mean it should not have been patentable?
The bottom line on this case is the Court is opposed to patents that cover financial products. Alice and Biliski are Wall Street protection act decisions. It is impossible to draw any conclusions broader than the Court will not allow patents on financial products. This is not logic and it is not law. It is time that we withdraw the Supreme Court’s jurisdiction over patent cases. Not one of the Justices or their aides are legally or factually competent to be patent attorneys, and the consequences of their incompetence are just too high.
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