Chamber of Commerce Patent System Ranking Is Built On A Shaky Foundation

The Chamber of Commerce produces a yearly ranking of intellectual property systems around the world.  This year, they dropped the U.S. patent system to 12th.  If I thought their rankings had any merit, I might be concerned by this change.  Unfortunately, their analysis is flawed and based on complete misrepresentations of reality.

So, What Happened?

In a sentence: the Chamber of Commerce study doesn’t like § 101 case law like Alice and Myriad, and it doesn’t like inter partes review (IPR). 1  

Section 101

On § 101, the Chamber study claims that Alice and Myriad have “undermine[d] the longstanding world-class innovation environment and threaten[ed] the nation’s global competitiveness.”  But, as Patent Progress has outlined, this simply isn’t the case. [1] [2].  And it isn’t just Patent Progress saying this—others have shown similar research and pointed out the flaws in innovation rankings that downgrade the U.S. for arbitrary reasons.  U.S. industry continues to be a world leader in innovation.

The Chamber study also notes that “in 2017, a number of legal societies and industry groups called for legislative reform of Section 101 of the U.S. Patent Act.”  But, as Patent Progress has covered in the past, those legal societies are simply wrong.  Industry groups, as acknowledged by the USPTO, are hardly unified on the topic of reform of Section 101.  Quite frankly, claiming that innovation is threatened simply because one group of lawyers dislikes a change in law doesn’t pass the laugh test.

If a ranking penalizes a patent system, claiming that a rule hurts innovation, and the evidence shows quite clearly that innovation remains strong, how much trust should that ranking receive?

IPR

When it comes to IPR, the Chamber study is somehow even less tied to reality.  Their justification for downgrading the U.S. patent system’s score, based on the IPR system, is that “the ease of challenging patents during the post-grant period, particularly through inter partes review, has led to a high volume of trials (particularly for life sciences claims) and a disproportionate rate of rejections.”

The only part of that sentence even remotely connected to facts is the statement that IPR is used to challenge patents during the post-grant period.  The rest of it is questionable at best, and most of it is simply false.

Trial Volume

First, let’s address the so-called “high volume of trials.”  Through the end of 2017, there have been 7,311 IPR petitions filed.  This might sound like a lot—until you realize that only around 15% of litigated patents are subjected to an IPR.  The study doesn’t appear to be concerned with the high volume of patent litigation that never comes near an IPR; it’s only those challenges which are chosen by the subject of patent litigation that the study objects to.

Life Sciences

If the claim that there’s a high volume of trials is questionable, the claim that life sciences claims see a particularly high volume of trials is completely false.  In fact, they represent only 17% of all IPRs filed.  And in the rare cases where life sciences patents are challenged, they are significantly less likely to have an IPR instituted.  And in the unlikely event the patent is both challenged and the petition is instituted, biotech patents are significantly more likely to have all claims upheld.

Suffice to say, that phrase is unconnected from the reality of how biotech patents fare in IPR.  This disconnection from the facts seems to be an alarmingly common problem when it comes to critics of IPR.

Disproportionate Number of Rejections?

But it isn’t just when it comes to biotech patents that this statement is blameworthy.  The idea that the PTAB issues a “disproportionate number of rejections” is also false, and appears sourced from the same statistically-challenged individuals who claim that 90% of challenged patents are invalidated.  

The Chamber study claims, citing a third-party study, that “only about 5–15% of cases end with all claims being considered patentable.”  They failed to actually identify that third-party study so I don’t know if it’s publicly available (and thus can’t directly criticize the methodology), but if they paid anything for it, they should ask for their money back.  The Chamber got some bad data.

If you look at reality, nearly 70% of petitions don’t change the targeted patent at all, and almost 60% of challenged patents survive one or more IPRs untouched.  Hardly a disproportionate number, particularly when you realize that in the EPO patent opposition system, approximately 33% of challenged patents are invalidated and a further 33% are modified after challenge.

It also ignores the PTO’s sterling rate of success when its decisions are appealed to the Federal Circuit.  The vast majority of the time, the Federal Circuit upholds the PTO’s decisions.  This success rate is even higher when only looking at decisions on substantive, rather than procedural, issues.

The only “disproportionate” thing that I see is the report’s characterization of the facts.

Bad Faith Statement About Bad Faith Actors

There’s one other statement in there that brings up an old boogeyman in an attempt to criticize IPR and ignores evidence.  The Chamber study claims that “the opposition system in the U.S. provides a channel for bad faith actors and injects a great deal of cost and uncertainty for patent owners.”  Unfortunately, it fails to name any actual bad faith actors.  

This is unsurprising—there simply isn’t a problem with bad faith actors in the IPR system.  The closest thing anyone’s ever identified are the Kyle Bass petitions, but it turns out that when you bring a bad faith petition, you tend to fail.  (And if occasionally, as with Kyle Bass, an allegedly bad faith petition succeeds, perhaps that’s nothing even a blind pig finds a nut sometimes.)

IPR Saves Everyone Money—Including Patent Owners

The claim that the IPR system injects a great deal of cost for patent owners is also false.  As I explained last year, the IPR system has saved an immense amount of deadweight loss over the past five years—over $2.3 billion.  That money wasn’t just saved by IPR petitioners—patent owners saved approximately half of that money.  They saved by avoiding spending money on litigation over patents they should have known were invalid.

Ironically, the Chamber itself used to agree that IPR is essential.  The study represents quite a turnaround from their position when IPR was enacted via the America Invents Act.  Back then, the Chamber stated “this legislation is crucial for American economic growth, jobs and the future of U.S. competitiveness” and supported the “important legal reforms that would help reduce unnecessary litigation against American businesses and owners.”  IPR was a key part of those reforms.

If a ranking rewards countries that have opposition systems that allow invalid patents to survive, but penalizes an effective system for reviewing patents that never should have been issued, should we really trust that ranking?

Want Innovation?  The Chamber Says You Should Go To Spain

That’s right.  According to the Chamber’s rankings, Spain has a better patent system than the United States.  Other countries ranked ahead of the U.S. include Ireland, the Netherlands, and Switzerland.

This simply beggars belief.  

No one can realistically claim that the patent systems in those countries are better than the U.S. patent system.  They produce less innovation, as described above; they don’t even succeed in producing patents that are more valued by the real world.  I deal with patents professionally and I’m not sure I’ve ever even seen an Irish patent.  In fact, a recent study concluded that “it is usually U.S. patent assets that drive sales” of patent portfolios, and that “buyers typically view the U.S. patents in a package as the primary source of value.”  

Combined with the same study’s evidence that, despite IPR and Alice, patent values have held more or less constant post-Alice, there’s just no way to argue that U.S. patent value has been significantly harmed by these changes.

There’s no problem with IPR.  There’s no problem with Alice and Myriad.  When you have a ranking that says the U.S.’s patent system, which continues to produce world-class innovation and whose patents are the most valuable in the entire world, isn’t number one, I think it’s pretty clear where the problem lies—the problem lies in the ranking.

  1. The Chamber study says that, because of these changes, the U.S. is “notably behind the top performers.”  Of course, the difference between the U.S. (tied for 12th, rated 7.25) and Germany (tied for second, rated 7.5) is the same as the difference between Germany and the top-ranked country, Singapore.  

    Oddly enough, the report doesn’t claim that Germany is “notably behind” Singapore, despite the identical differential in rating.

Joshua Landau

Joshua Landau is the Patent Counsel at the Computer & Communications Industry Association (CCIA), where he represents and advises the association regarding patent issues.  Mr. Landau joined CCIA from WilmerHale in 2017, where he represented clients in patent litigation, counseling, and prosecution, including trials in both district courts and before the PTAB.

Prior to his time at WilmerHale, Mr. Landau was a Legal Fellow on Senator Al Franken’s Judiciary staff, focusing on privacy and technology issues.  Mr. Landau received his J.D. from Georgetown University Law Center and his B.S.E.E. from the University of Michigan.  Before law school, he spent several years as an automotive engineer, during which time he co-invented technology leading to U.S. Patent No. 6,934,140.

Follow @PatentJosh on Twitter.