THE HOUSE IP SUBCOMMITTEE WILL DETERMINE THE FATE OF U.S. INNOVATION – PART 1: THE WAY FORWARD
Leadership of the House of Representatives Judiciary Committee’s Subcommittee on the Courts, Intellectual Property and the Internet (IP Subcommittee) will change hands from the Democratic Party to the Republican Party in January of 2023. This committee writes patent law which is crucial for innovation. Patent laws can boost or destroy the uses of patents and the associated private property rights; Patents attract investments into startups, create disruptive innovations in new industries, establish leadership in an industry, break up monopolies, and much more.
THE LOUD VOICE OF THE IP SUBCOMMITTEE
For more than a decade, the IP Subcommittee has proposed a multitude of bills including several that would harm America’s inventors and startups. Some of the worst legislation was made law under the America Invents Act of 2011 (AIA). Other legislation was proposed, failed in IP Subcommittee debate, but then in large part was incorporated into judge-made law by the Supreme Court.
The IP Subcommittee has influence with the Patent and Trademark Office (USPTO) and the International Trade Commission (ITC). This influence is felt by the agencies directly through letters from the IP Subcommittee or indirectly by proposed legislation and statements made by members that are then amplified by lobbyists. Often, agencies act in anticipation of legislation to avoid it.
Deliberations on harmful provisions on the IP Subcommittee have been so conspicuous so as to affect the legal landscape: the Supreme Court and the USPTO have reacted with changed policies, rules, and judge-made laws affecting prior art scope, invention priority, injunction conditions, litigation venue, patent claim construction, error correction, enabling disclosure requirements, expanded mental step doctrine, abstract idea doctrine, invalidation procedures etc.
These changes have caused severe injury to American innovation. Inventors and startups are left with meritorious patent applications denied, issued patents invalidated or otherwise made unenforceable, and opportunities to recover damages virtually annihilated. Patent owners attempting to enforce their rights are thrown out of court or saddled with liabilities. The floodgates were opened to massive predatory infringement of small entity patents by large multinational corporations.
Overall, the harm befalls inventors of technologies that could disrupt large corporations, especially Big Tech, and it has aided China in its efforts to overtake the U.S. in developing technologies critical to China’s 2025 Initiative.
In the 118th Congress, action must be taken to right the ship and fix the gutted patent system so that the entrenched big market incumbents and monopolies that benefit from gutting the patent system can be checked and demonopolized, so that America can take back its traditional world’s technological lead from China.
WHAT IS BROKEN?
Injunctive Relief. In 2006, the Supreme Court in eBay vs. MercExchange (eBay) created a four-factor test for issuing injunctions. This was contrary nearly 200 years of settled law that granted injunctions as a default remedy upon a finding of infringement of a valid patent. eBay’s test effectively means that the patent holder must have the patented product on the market and the capability to distribute that product.
When a large corporation steals a patented invention and uses its deep pockets, existing market access, manufacturing, and supply chain capabilities to saturate the market with infringing products, the startup is left with no market to sell its product and usually goes out of business. With no product on the market, it is impossible for the startup or its investors to overcome eBay’s test.
Infringers have little incentive to negotiate fair licensing deals before infringing because they do not need to. If they steal it, they keep it and the market it created. They prefer to steal it and bet the inventor would never sue. Due to a combination of other judge-made law, making it virtually impossible to obtain lost profits and punitive damages, even if the patent holder sues and wins, the infringer will only pay what they would have paid had they licensed it in the outset. eBay opened the floodgates to predatory infringement (sometimes called efficient infringement).
Patent Eligibility. In a series of decisions culminating in its 2014 decision in Alice vs CLS Bank (Alice), the Supreme Court determined that the word ‘any’ in Section 101 has an additional judicial exception beyond ‘law of nature’ called an ‘abstract idea’. However, it did not define what an abstract idea is, thus making entire swaths of innovation patent-ineligible.
Alice renders inventions ineligible for patent protection in critical fields like artificial intelligence, 5G/6G, cybersecurity, enterprise systems, block chain, fintech, and much more. These are the very same technologies that foster new economic growth in America, technologies that China is attempting to lead in their 2025 initiative, and those that compete with or disrupt large entrenched market incumbents.
While no court has offered a coherent definition of the term abstract idea, the USPTO does not issue patents for inventions that they decide are directed to abstract ideas, and the courts invalidate patents issued by the USPTO for inventions that the courts decide are directed to abstract ideas. Today, nobody can say what will pass muster. One can only know when the Supreme Court says it is or isn’t an abstract idea.
Judge Michell, a former Chief Judge of the CAFC, and David Kappos, a former USPTO Director, and others wrote several authoritative articles showing how destructive the Alice decision is. (here, here, here and here)
PTAB AIA Proceedings. Other major harm inflicted on inventors and startups was in the inaptly named America Invents Act of 2011 (AIA) and its creation of the Patent Trial and Appeal Board (PTAB), an administrative tribunal within the USPTO with the mission of invalidating the same patents that the USPTO just issued. The PTAB invalidates a staggering 84% of the patents it fully adjudicates. Nearly all PTAB invalidation procedures are at the request of Big Tech, foreign, and Chinese Communist Party (CCP)- controlled multinational corporations. It is a political tribunal that does the bidding of domestic monopolies and large multinational market incumbents.
The PTAB’s devastating invalidation rate means that a patent can no longer be presumed valid and can only be valued after it survives PTAB challenges. This means that patents cannot be meaningfully valued for early-stage investment in a startup. Thus, startups cannot get funded, especially if their patented invention is likely to create a large market thereby becoming attractive to infringers who will petition the PTAB to invalidate the patents.
CLEAR DAMAGE TO INVENTORS AND STARTUPS
For small entities, these changes have slammed shut the courthouse door. It is an economic fact that a patent that cannot be defended, cannot attract investment. This is particularly important at the earliest stages of new business formation – the stage where an inventor has a big idea protected by a patent but not much more. This first investment is the foundation of American innovation because without it the startup does not start up.
Early-stage investment into U.S. startups has chilled and, in many fields, eliminated altogether for startups with new technology that could compete with Big Tech, thus slowing U.S. job creation and sending those new jobs and investments into emerging technology startups to China.
IT’S THE IP SUBCOMMITTEE’S DUTY TO CHANGE COURSE
The duty of the House IP Subcommittee in the 118th Congress is to fix the extreme damage levied on the patent system so that America can take its place leading global innovation ahead of China. Whether that is done will have a huge consequence to America’s national security, innovation ecosystem and economic growth. This duty cannot be taken lightly and should be directed by a Subcommittee Chair that will garner broad support from stakeholders — the subject of Part 2 of this article.