Senate innovation hearing long on assertions, short on support

Opinion post originally published on November 21, 2023, by The Hill, written by Unified’s Co-Founder & CEO, Kevin Jakel.

Earlier this month, the Senate Judiciary Subcommittee on Intellectual Property held a hearing on the PREVAIL Act, legislation that aims to limit and weaken patent quality reviews at the U.S. Patent and Trademark Office (USPTO).

The USPTO’s Patent Trial and Appeal Board (PTAB) is a public way to review bad patents, and serves as a streamlined alternative to time-consuming, expensive patent infringement lawsuits. PTAB review allows experts to take a second look at some of the many patents the agency issues and pull them back if they do not meet baseline quality standards. This helps innovative companies from all industries fend off wasteful lawsuits from patent trolls; which use thousands of poor-quality patents every year to make baseless patent infringement claims against businesses that are, unlike the trolls, contributing to our economy.

The PTAB has helped hold patent trolling back, cutting costs and increasing U.S. business activity by billions of dollars since Congress created it. Unfortunately, the PREVAIL Act would erode public access to patent quality review by erecting unnecessary barriers to challenging bad patents.

Sound policy should be grounded in data. It is important to correct the record on a few of the most misleading narratives from the hearing, before lawmakers do anything to advance policies that would once again leave innovative American companies vulnerable to wasteful lawsuits.  

First, the PREVAIL Act would weaken, not strengthen, our ability to compete with foreign adversaries like China.

PREVAIL’s advocates claim that the bill is necessary to remain competitive with adversaries like China. Restricting public access to efficient patent quality checks would give foreign competitors more opportunities to rack up their own patents and assert them in U.S. courts, while preventing challenges to poor-quality patents owned by foreign adversaries.

Patent challengers are mostly American companies. And patents being challenged are often owned by foreign entities or linked to litigation funders that can include sovereign wealth funds and other overseas investors. Petitioners based in China, on average, account for less than 5 percent of all PTAB filings; meanwhile, entities based in China file for tens of thousands of U.S. patents each year and their quality is notoriously poor.   

The PREVAIL Act would limit the protections strategically important U.S. industries have against baseless patent troll lawsuits — including those funded by investors in China and elsewhere. 

The PTAB does not overwhelmingly “kill” patents. 

Interest groups have, since before the first PTAB ruling, claimed that review overwhelmingly “kills” patents. As evidence, they repeatedly cite the percentage of PTAB proceedings that reach a final written decision and result in at least one partof a patent being invalidated. 

This cherry-picked number lacks critical context. To begin a review, the PTAB must determine that a petition shows a “reasonable likelihood” that the patent is invalid. Nearly half of challenges are denied outright, never making it close to a final decision.

Just 10 percent of patents that have ever been challenged at the PTAB have been fully invalidated; often, some overreaching claims are canceled, but others remain. One hearing witness noted that patent owners win at the PTAB nearly 60 percent of the time. This is far from automatically “killing” patents. 

Patent review is not used to harass patent owners and small inventors. 

Some lawmakers repeat claims that PTAB review is used to harass patent owners with multiple challenges. However, the USPTO recently concluded that “most patents are challenged by only one petition. Moreover…trials based on multiple petitions are rare.”

The harassment myth is used to justify a new standing requirement that would make PTAB review accessible only to those who have been sued or accused of infringement. As former USPTO Acting Director Joe Matal highlighted in his testimony, a new standing requirement would block review in many cases where a petitioner has a commonsense interest in challenging a bad patent.

The PREVAIL Act’s standing requirement would prevent, for example, many generic drug companies — like Mylan, who has filed more than 100 to date — from challenging broad patents that raise drug prices and would stop a manufacturer from challenging an invalid patent that is being used to sue its customers. Also affected would be small- and medium-sized businesses that patent trolls target with sue-and-settle campaigns. Organizations like the one I founded, Unified Patents, intervene to help stop these abusive patent lawsuits by filing validity challenges on the underlying patents. We are often the only party to shield dozens — and sometimes hundreds — of U.S. businesses that are targeted with baseless litigation.

In short, PREVAIL’s standing policy would leave small businesses alone when facing professional trolls.

The PTAB does not cause duplicative litigation, it resolves it. 

One of the more ironic talking points from the hearing is that 85 percent of PTAB proceedings have related lawsuits in progress, which is evidence of a broken system.  

Congress anticipated that businesses targeted with meritless lawsuits in district court would respond by challenging patents at the PTAB. This was one of the driving forces for creating the more efficient system. Congress urged district courts to pause their cases while patents are reviewed, and they generally do. This avoids unnecessary litigation that might drain resources from plaintiffs and defendants if the patents were granted in error. If PTAB review finds that the patents are valid, then the case continues, not in parallel, but afterward. 

Review is used as a defensive measure, not as a way to proactively attack a patent in two venues. About 80 percent of those who challenge patents at the PTAB have been sued before they file a petition. Meanwhile, 78 percent of patent cases brought in district court do not have a related PTAB review. Defendants do not seek review unless they believe that there is a strong case the patent is invalid. This is exactly what Congress wanted — an efficient way to weed out weak patents. 

Setting the record straight. 

I applaud Congress for exploring new ways to promote innovation, but the PREVAIL Act is a move backward. These misnomers must be corrected, before erroneous narratives are used to justify bad policy. 

Streaming media threatened by new patent licensing programs

Streaming Media has published an article written by industry expert, John Simmons, who reports on the history of video codec Standard Essential Patents (SEPs) licensing and how it relates to video streaming services. Simmons argues that the video streaming’s enormous growth was the result of royalty free licensing of essential streaming technologies and a bargain struck to charge device makers the bulk of the royalties for SEP codec licensing while charging streaming video companies only a low nominal fee for subscription and other paid content. New uncertainty created by outfits like Avanci’s Video pool and others asserting against video streamers will only lead to less consumer choice, technologies, and services.  

To read the full article, click HERE.

Patent Trolls Will Prey on SMEs if USPTO Proposals Proceed

Blog post originally published on August 30, 2023, by Patent Progress, written by Unified’s Co-Founder & COO, Shawn Ambwani.

USPTO’s proposed restrictions on validity review would hurt SMEs by limiting independent third parties interested in deterring patent trolls’ use of invalid patents. Unified's Shawn Ambwani provides third-party examples that have successfully challenged especially egregious patent trolls which would no longer be allowed if ANPRM proposals or the PREVAIL Act are enacted. Patent trolls will be more aggressive, more profitable, and more rampant, imposing what amounts to a legal tax on economic growth and innovation, especially against SMEs who do not have the financial resources to fight.

Continue reading this blog piece published on Patent Progress HERE.

Proposed USPTO Rules and Legislation Would Increase Government Costs

Recently proposed rulemaking and legislation would increase discretionary denial of institution of inter partes review (IPR) matters based on the criteria set forth in the Apple, Inc. v Fintiv, Inc. (Fintiv) matter and similar provisions. The Fintiv guidelines and related restrictions can make it difficult for claims to be fully considered even in cases where there is a substantial probability of success for the petitioner. If the proposed guidelines were implemented, the result would be a reduction in IPR proceedings even for cases that are otherwise meritorious. As a consequence, the economic efficiency benefits associated with the IPR process would be substantially diminished.

An additional issue with reducing IPR is that it will lead to higher costs of procurement for the US government. The Perryman Group estimates that the direct increased costs to the federal government associated with federal spending over the 2023-32 period would be -$106.4 million.

When summed with the estimated tax effects previously described, the total cost to the federal government was found to be almost -$202.9 million.

For more details please refer to the full report.

Litigation Funding Disclosure and Patent Litigation

In an article slated for publication in the Federal Circuit Bar Journal, Sean Keller, J.D. Candidate at Texas A&M University School of Law, and Jonathan Stroud, GC at Unified Patents, have written about the growing policy debate surrounding litigation financing disclosures.

Litigation financing is one of the most significant developments in modern litigation. Since at least the 1990s, litigation financing steadily expanded in the United States and has grown into a multibillion-dollar industry. Litigation funding—providing third-party non-recourse funding contingent upon litigation recovery and outcomes—is a modern phenomenon of relatively recent vintage that nonetheless undergirds huge swaths of U.S. civil litigation today. And one of the biggest recent beneficiaries of litigation financing has been patent litigation.

Modern patent litigation, being high-stakes, arm’s-length, and Federal in nature, is both a high-risk, high-reward prospect for litigation funding. Studies show that up to a third of all modern patent litigation is now funded, making it the highest-growth area in litigation funding; the prevalence of litigation shell companies and other procedural quirks in patent litigation present potential advantages and challenges in employing funding. As it grows into a major feature of the U.S. litigation landscape, several academics, advocacy groups, policymakers, and practitioners have raised concerns about the lack of transparency in litigation financing, given there are comprehensive rules or practices surrounding disclosure of the existence and terms of such arrangements.

Historically, litigation funding regulation in the U.S. had been barred at common law and thereafter has been largely left to the states and their legislatures, resulting in a messy patchwork of disclosure requirements. State courts, legislatures, and judges have offered piecemeal approaches that often conflict. To remedy this in other contexts, the Judicial Conference Advisory Committee on Civil Rules has debated adding disclosure requirements to the Federal Rules of Civil Procedures, resulting years ago in Rule 7.1 and its minimal upfront corporate disclosures, as well as an insurance disclosure requirement into the FRCP. Both debates at the time were akin to the current debate about litigation financing disclosure requirements. Nevertheless, advocates have resisted comparisons between insurance and litigation financing disclosures. We tackle this comparison head-on by deconstructing some of the arguments disclosure opponents have cited to undermine the comparison. We conclude that arguments for enhanced disclosure are sensible, overdue, and inevitable; indeed, in many courts and some agencies, they are already here. Clear, focused Federal disclosure requirements would go a long way to preventing an unenforceable patchwork of state regulations, and would prevent enforcement that is under- or over-inclusive.

The article can be accessed on SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4527378