Wednesday, December 14, 2005

Antiquated U.S. patent justice system thwarts innovators?

Some great (although not necessarily correct) writing appears in an article by JACQUIE MCNISH in the Globe and Mail entitled: RIM's and eBay's Misadventures in the Wacky World of Patent Law.

Some text:

Welcome to the dysfunctional world of patent litigation.

The combination of an antiquated U.S. patent justice system and spiralling North American patent litigation costs are stacking the judicial deck against successful companies that want to defend themselves against patent infringement claims. Making matters worse, technical and medical innovators have become such hugely successful businesses that small companies -- known as patent trolls -- with little more than a few patents to their name are flooding North American courts with lawsuits.

It used to be a snap for big companies to defend themselves against patent infringement cases. With deeper pockets, they typically mounted huge battles in a number of legal venues until smaller plaintiffs exhausted their budgets and cried uncle. Today, some U.S. courts, particularly in Virginia, are fast-tracking patent cases, taking away big companies' advantage.

OK, McNish, isn't a speedy patent trial a good thing, and winning a case by outspending an opponent (rather than winning on the merits) a bad thing?

The article continues:

Faced with these challenges and the potentially devastating outcomes of the RIM and eBay cases, legal experts say it has become too perilous to take patent fights to court. The stark legal reality is that patent litigators have enormous leverage to demand lucrative licensing fees or settlements regardless of the validity of their claims.

If the claim of the patent is plainly invalid, and the court system is working fast, why is it too perilous for a defendant to fight in court?

Of the lawyers, the article states:

How did two such successful innovators land in such a perilous position? Part of the blame must be shouldered by the aging U.S. patent justice system. In RIM's case, some of the blame must be worn by the company itself for pursuing a legal course that experts say will serve as a study for years to come in how not to fight a patent case.

Oddly, McNish places blame on the "first to invent" aspect of US patent law:

The biggest problem with litigation in the United States is old-fashioned legislation that grants patent protections to individuals or companies that can prove they were the first to invent a product. It means that if an individual or company, even accidentally, uses the same intellectual property previously discovered or invented by another, then a patent has been infringed. In contrast, Canada and most European countries have modernized their acts so that protection is given only to those who first file patents for their inventions, making patent cases in these countries a simpler matter of proving dates on patents.

The reasoning of McNish is stupid. In the cases in question, the issue is whether there was prior art before the filing dates of the patents in question. First to invent vs. first to file is not relevant to these cases, and, in a hypothetical situation, first to invent would favor the defendants, who might have another defense (under 102(g) or 102(f)).

McNish gets to injunctions:

What makes U.S. cases particularly problematic is the limited and devastating remedy that courts can apply if they find a patent is infringed. If a court finds that a company did infringe on a patent and that company fails to pay licensing royalties to an inventor, one of the few remedies available to U.S. courts is to impose an injunction that, similar to the eBay and RIM cases, would effectively shut down the infringer's U.S. operations.

The issue before the Supreme Court in the eBay case is whether or not a permanent injunction must be issued (absent exceptional circumstances). The Supreme Court will review the CAFC analysis that once validity and infringement are established, an injunction must be issued (absent exceptional circumstances). There is no doubt that money damages are available, as there was no doubt that money damages were available in the 1908 Continental Paper case.

On December 14, 2005, I submitted the following to the Globe and Mail over the internet (and emailed a copy to McNish):

In attempting to illustrate the wackiness of the US patent system, McNish does a great disservice to Canadian readers in misidentifying what are, and are not, significant issues in the RIM and eBay cases. Contrary to the statement ("The biggest problem with litigation in the United States" is first-to-invent vs. first-to-file system), litigation created by the first-to-invent system comprises a fraction of a percent of US patent litigations and has nothing to do with issues in the RIM or eBay cases. Under either system, the relevant date for previous invalidating work is the filing date of the application, with the US giving a grace period of one year for certain work (35 USC 102(b)). It is simply not true that the US is contemplating going to first-to-file in H.R. 2795 "to remedy a patent litigation logjam." In going to first-to-file, the US would be seeking harmonization with other countries and would be seeking to eliminate a small number of costly interference proceedings which grant priority to the first to file in three quarters of the cases (one notable case wherein the first to file was not the first to invent involved the significant "integrated circuit" invention).

The injunction issue is significant in both the RIM and eBay cases. The Supreme Court will review the rule of the Court of Appeals for the Federal Circuit (which generally decides initial appeals of patent cases in the US) that, once patent validity and patent infringement have been established, an injunction should issue, absent exceptional circumstances. Part of the argument for this rule goes to text in the U.S. Constitution and to a 1908 decision of the U.S. Supreme Court. Contrary to the implications of the McNish article, the remedy of an injunction is in addition to the remedy of money damages. Disagreements between powerful factions in the US over the proper rule for patent injunctions were the primary reason for the failure of H.R. 2795 to advance in the US Congress in 2005.

Patently-O mentions a paper by Lemley, Lichtman, and Sampat, "What to do about bad patents."

The paper is not unrelated to Lemley's article in the Northwestern Law Review, or to Qin Shi's more recent paper at NYU.

The first sentence of the abstract states: At the time patent applications are reviewed, the Patent and Trademark Office has no way of identifying the small number of applications that are likely to end up having real economic significance.

Lemley proposes a two-tier level of review, with only a more thorough (and presumably much more costly) examination giving rise to a presumption of validity:

because legitimate inventors need as much certainty as the law can provide, we would give applicants the option of earning a presumption of validity by paying for a thorough examination of their inventions. Put differently, applicants should be allowed to “gold-plate” their patents by paying for the kind of searching review that would merit a strong presumption of validity.

I'm sure small inventors and universities will love this.

The authors also back post-grant oppositions:
we support instituting a post-grant opposition system, a process by which parties other than the applicant would have the opportunity to request and fund a thorough examination of a recently issued patent.

One notes that the opposition system of H.R. 2795 merely allowed discovery through depositions.

**UPDATE. Dec. 26, 2005**

The Detroit News republished the McNish article with all the errors. Sort of like the University of Pennsylvania law professor citing the 97% patent grant rate number of Quillen/Webster in Nov. 2005, three years after Quillen/Webster retracted it.


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