Comments on the U.S. Patent System by Former CAFC Judge Michel

On Thursday the House Judiciary Committee held a hearing titled “The Impact of Bad Patents on American Businesses.” The full video is available via YouTube.

Of note was that Former Federal Circuit Chief Judge Paul Michel offered significant testimony regarding the patent system that could be considered as criticizing legislative and judicial efforts towards reform. In a session focused on the impact of “bad patents,” the former chief judge endeavored to dispel perceptions of abuse and requested caution with the possibility of further disruption.

Chief Judge Paul Michel said:

Enforcement of valid and infringed patents, always very slow, and very expensive, has become much more so. Inter partes reviews have become less than Congressionally-intended “alternative to expensive court litigation” than the prelude to court action, adding some $500,000 per challenge and typically 2.5 years of delay, as suits are routinely stayed for the duration.

Eligibility law under the Alice/Mayo regime has become highly uncertain and unpredictable. And results have been as inconsistent as unpredictable.

The net impact of these and related changes has convinced most investors that patents are now too unreliable as to validity, and too difficult to enforce, with excessive risk, delay and weak remedies.

Indeed, most owners of patents can no longer afford to enforce them. The majority have been priced out of our justice system. Experts opine that to enforce a small portfolio an owner needs $15 million in cash and $3 billion in market cap. So, wages now say that the “sport of kings”, horse racing, has been replaced by patent litigation.

The impacts on start-ups, research universities, university spin-offs, small and medium sized businesses and nearly all but giant multi-national corporations has been devastating. Even large companies, such as pharmaceutical firms, are hurting, many shrinking labs and decreasing or out-sourcing R & D, sometimes to foreign nations.

In sum, I must report in candor to the Committee that the health of the American patent system is not good, but has declined sharply in just the past few years.

Why? With the best of intentions, the three stewards of the patent system, the Supreme Court, the Congress and the PTO, have worked so hard to root out invalid patents, stem frivolous suits, and curb abusers of the patent system that its efficacy has been diminished or destroyed for the majority of owners who are responsible actors. That seems an absurd and unnecessary price for America to pay. Abusers can be punished and deterred by surgical means and weakening the entire system is surely unnecessary and unwise.

How then did we arrive at this worrisome circumstance?

Three myths pervaded the policy debates even before and particularly since passage of the AIA:

The first myth is that most asserted patents are “bad.” Not so.

The second myth is that most suits are frivolous. No so.

The third myth is that the courts are unwilling or unable to deal with the limited number of actual abusers of the patent system. Also not so. Another phenomenon was that the three Branches of Government did not adequately coordinate their interventions to improve performance of the system. So, the PTO implemented the AIA reviews with procedures that, in my view, in certain respects departed from Congressional intent. The Supreme Court revolutionized the law of patent eligibility, but provided wholly inadequate guidance for those who must apply the new standards: 8,300 examiners, 1,000 district judges, 263 APJs on the PTAB and many thousands of private and corporate attorneys who advise business decision-makers. They, after all control much of the money that could go into R & D and follow-on commercialization that actually puts cures in the hands of physicians and new products on store shelves for consumers, or not.

The problem is simply put: if in the interest of further combatting the relatively few system abusers, we further dismantle the system itself, our county will be committing economic suicide. Instead, the three Branches need to improve the operation of the system with surgical strikes, best done by the courts for the most part, not carpet bomb it into oblivion. Foreign competitors must be watching in astonishment to observe us continually weakening of our patent system. But, they have not been idle. They have enlarged eligibility to take advantage of our shrinking it. They have assured injunctive relief as the norm, while we have largely blocked it. They have made enforcement suits faster, surer and cheaper than here. They have given equal treatment to U. S. companies, of late, even China.

In my view, the Committee should primarily focus on how to strengthen our system, make it cheaper, faster, more reliable. Bad patents and patent abusers are increasingly under effective control, thanks in no small part to the prior work of this committee. For that, it is to be greatly commended.

Former Chief Judge Michel, both in his testimony and answering the committee’s questions, criticized the USPTO’s implementation of Inter Partes Review regarding differing standards for claim interpretation as well as legal guidance and consistency among examiners and the PTAB. Around 1:25.00 of the YouTube video, Judge Michel and the other witnesses dialogue with Rep. Darrell Issa. During the interchange, Judge Michel proffers the concept of an “off-ramp” in IPR that would allow amendments via a USPTO mechanism akin to Re-examination proceedings.

Overall, Judge Michel’s testimony is a must-read for anyone involved in patents and/or technology, and the judge’s pleas for moderation when approaching reform should be seriously taken into consideration.