[Ip-health] FT: Supreme Court to weigh in over US patent battle

Thiru Balasubramaniam thiru at keionline.org
Mon Nov 27 03:43:37 PST 2017


Intellectual property
Supreme Court to weigh in over US patent battle

Small inventors await ruling on whether review system to challenge holders
is constitutional

Richard Waters in San Francisco

It was a good week for Josh Malone, the inventor of Bunch O Balloons, a
device for filling a large number of water balloons from a garden hose at
the same time.

He had accused another company, Telebrands, of copying his product to sell
on television. Two days before Thanksgiving, a federal jury in the eastern
district of Texas — long a favourite venue for plaintiffs in patent cases —
agreed, handing him $12.3m in damages.

But it is far too early to celebrate. Next week, in a patent office
tribunal hearing known as an inter partes review (IPR), three judges will
take another look at Mr Malone’s claims — and they have already reached a
preliminary view that his water balloon filler is too obvious an idea to
warrant a patent.

Mr Malone complains this new process beyond the courts has given unfair
advantage to patent infringers: “You can keep going back and filing
petitions. It’s an endless opportunity.” And, defending the breakthrough
nature of his idea, he adds that “no one thought of it for the first 63
years” after the water balloon was invented.

Like many other small inventors in the US, he is now waiting on the Supreme
Court to weigh in on whether this system is fair. The top court is set to
hold a hearing on Monday into the constitutionality of IPRs, in what has
become its most patent-related case in years.

The reviews were introduced five years ago by the America Invents Act, to
make it easier to strike down patents that should not have been issued in
the first place. That made them a key weapon in the battle against
“trolls”, the patent holders accused of using the high costs and
unpredictability of the court system to hold deep-pocketed defendants

Patent claims in the US have fallen steadily since the new law, with the
number of cases this year likely to reach only half the peak 7,000 hit in
2011, according to RPX, which protects companies against patent claims.
Defendants in about a fifth of the lawsuits have petitioned the patent
office for an IPR, to try to turn the tables and have the patents

The lower cost — estimated at $350,000-$500,000, much less than a
counter-suite — has made IPR petitions a popular weapon. They have also
been effective: more than 85 per cent of challenges were successful in the
first 12 months. That has since fallen to around 60 per cent.

This has all eaten into the leverage of patent holders. It was once common
to see a large number of legal settlements in the “low millions”, but many
have fallen to under $500,000, says Emily Hostage, head of strategic
analytics at RPX.

According to Alexander Poltorak, chairman of General Patent, this has cut
into the returns for investors who once funded patents, starving inventors
of cash, and few contingency lawyers are interested in taking up a case.

Inventors such as Paul Morinville, a software developer from Ohio, say they
are the losers. Four years ago, he says, a licensing firm that had
undertaken to monetise his patents cut off the funding, worried by the
impact of IPRs, and now he cannot find a lawyer to take up his claims.

IPRs “are simply an easier way to invalidate patents”, complains Randy
Landreneau, another individual software inventor. “There’s a whole lot less
due process than a court.”

Critics claim that the shift has favoured big tech companies in particular,
enabling them to force patent owners to give up their rights for less
money. Apple has been the most active, with an average of more than 70
petitions a year, followed by Samsung, Alphabet and Microsoft. But the
large patent portfolios of many big tech companies has made this a complex
picture, and many have lined up to join in legal briefs before the Supreme
Court arguing against IPRs.

Supporters of the reviews, meanwhile, say they are a much-needed corrective
for a system that has issued far too many low-quality patents. Patent
office examiners spend an average of 18 hours reviewing each application,
too little time to research all the evidence that might invalidate a claim,
says Daniel Nazer at the Electronic Frontier Foundation.

The balance of power in the US patent system has already shifted in favour
of those accused of infringing in recent years, thanks to a succession of
Supreme Court decisions. These include eBay v MercExchange (which made it
harder for patent owners to win an injunction, one of their most powerful
weapons) and Alice Corp v CLB Bank International (which limited the
patentability of things like business processes). Whether this has simply
righted the balance or allowed the pendulum to swing back too far against
the rights of patents holders is now a subject of heated debate.

RPX, which buys up patents to prevent them from being used as legal
weapons, says the pricesof many patents have been falling for some time,
though the market is too opaque to generalise. Mr Poltorak puts the price
decline from an average of $250,000 to below $100,000.

The link between declining patent values and the level of innovation in the
economy is even harder to assess. Mr Nazer argues that steady increases in
research and development spending and software company valuations show that
IPRs have not hurt. But critics such as Mr Landreneau point to a fall-off
in early-stage venture capital investment as a sign that invention is

The case before the Supreme Court on Monday — Oil States v Greene’s Energy
— could also have a bearing on broader issues. The judges will decide
whether patents count as “real property”, and, if so, whether the
constitution allows a government agency — rather than a court — to
invalidate them. A decision to clip the wings of the patent office would
send a message on the limits of the administrative state, says Mr

Thiru Balasubramaniam
Geneva Representative
Knowledge Ecology International
41 22 791 6727
thiru at keionline.org

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