Guest Post: A Balanced Patent System to Protect Innovation

Today I’m pleased to present a guest post from Dan Lang, VP Intellectual Property at Cisco.

Now more than ever we need a strong patent system which strikes the right balance so that intellectual property rights encourage innovation rather than financial gamesmanship.   The need to prevent a copyist competitor from reaping all the rewards of research and development by the real innovator argues for strong patent protection.  But when we make it too easy to get and enforce patents we open the door to opportunists who use the system to make a quick dollar off of businesses that develop technology, and allow those who haven’t really innovated to block innovation by others.

Jefferson and Madison themselves realized this tension when they decided that there should be a patent system in our then-fledgling republic despite the very real potential for abuse.  In Lincoln’s words, the patent system “added the fuel of interest to the fire of genius.”  But the abuses were already apparent in the 19th century with opportunists buying up patents to harass railroads and farmers.  Courts began to refine patent law to bring about a better balance.  The pendulum between stronger and somewhat weaker protection swung back and forth over the decades.

In response to concerns about foreign competition, the 1980s and 1990s saw a shift toward stronger patent rights that included the establishment of a pro-patentee centralized patent appeal court, the Federal Circuit, and an overly permissive approach to granting patents on information technology at the patent office.  The result was an explosion of abusive patent litigation in the 2000s as capital flowed into a newly liquid patent market to exploit the new landscape.

It was time to rebalance the system.  A broad swath of American industry including pharmaceutical, manufacturing, and IT companies such as ours worked with legislators of both parties and the Obama Administration over many years of negotiation and compromise that resulted in the America Invents Act (AIA) of 2011. A key goal was to make sure that patents that never should have been granted would be efficiently weeded out with the lowest deadweight cost to the economy.  Those whose business models depended most heavily on patent protection – largely pharmaceuticals and chemicals – also wanted to make sure that the “weeding out” process did not subject them to ongoing uncertainty.  The most important achievement was a new system of post-grant review including the new “inter partes review” or IPR procedure that allowed the patent office to review its own work, using the same standards that applied in the initial review and issuance of patents, to eliminate patents that shouldn’t have been granted in the first place.  Like in any difficult compromise, nobody got everything they wanted.  Outside of a very limited window of time following issuance, the new “post grant” procedures couldn’t be used to address patent quality problems having to do with vague wording or insufficient disclosure of the invention.  The new IPR procedure limited intensive review only to those cases where the patent office believed it reasonably likely that claims would be invalidated and had a scope limited to patents and prior publications.  The pharmaceutical industry also insisted on establishing a separate procedure (now little used) where patent owners could cleanse the effects of previously misleading the patent office and save the enforceability of patents which had been received based on false information having been provided to the patent office.

The IPR procedure has been in operation for 5 years and has performed admirably with an affirmance rate of nearly 75% by the courts.  The patent office collected broad input from stakeholders in setting the rules.  The agency staffed the Patent Trial and Appeal Board (PTAB) with experienced technically trained litigators.  Appellate review has given the PTAB important guidance in claim construction and validity analysis.  The IPR procedure has become an indispensable mechanism for taking low quality patents out of circulation.  Fewer than 4300 patents, out of 2.8 million in force, have been challenged, and of those the patent office has instituted proceedings on only 2400.

But having robust procedures to assure quality patents is itself a means to an end, fostering innovation.   The PTAB still has room to improve toward the goal of fairly and reliably terminating every invalid patent while preserving every valid one.  To that end, the patent office will continue to make adjustments to its rules and the Federal Circuit will give guidance as well.

Whether or not to grant a stay of litigation after an appealable finding of invalidity by the PTAB is also a question of striking the right balance so that the system is fair.  In a case Cisco is currently involved in, the ITC found intentional infringement by a direct competitor after a 10 ½ month procedural delay.  The ITC considered and rejected our competitor’s contentions that the patents are invalid.  In our court filings, we explained where and how we think the PTAB got it wrong and is likely to be corrected by appellate review.  The Federal Circuit has now agreed with us that a stay is unwarranted.  If a stay were to have been put in place, infringement would have continued and we as the innovators would have lost the benefit of temporary exclusivity that the patent system was designed to provide.

As strong supporters of the IPR system, we believe our appeal of the PTAB findings is exactly what a patent holder should do if the PTAB makes a ruling the patent holder disagrees with.  At the same time, we view with alarm the increasingly shrill denunciations one hears today from interests that care less about patent quality than about preserving what they characterize as “quiet title” in an asset they never should have had in the first place.  The IPR procedure is important and any needed adjustments are refinements rather than sweeping changes such as proposed in the STRONGER Act or abolition as requested by petitioners in Oil States on specious constitutional grounds.

We at Cisco have long advocated for a balanced patent system that helps innovation.  We have encouraged all three branches of government to make sure that the patent system isn’t abused by opportunists and speculators who buy up patents and litigate for the purpose of extortion.  But we shouldn’t lose sight of why America’s founders created the patent system in the first place – to encourage and reward innovation.