How We Got Here

Today’s patent crisis is a product of a half-century of policy choices that have left us with the current system.  These legislative, regulatory and legal choices are at the root of the challenges faced today.

These choices started with the 1952 Patent Act, which was presented to the U.S. Congress as a mere ‘codification’ of patent law.   However, according to its principal drafter, it “was written basically . . . by patent lawyers drawn from the Patent Office, from industry, from private practice, and from some government departments.”  Under the Act, an applicant is entitled to a patent; the burden is on the examiner to prove that the entitlement should not be granted.

Thirty years later, Congress acceded to the patent bar’s demand to make patent law more uniform by establishing a new appellate court to hear all patent appeals.  Initially populated by patent lawyers, the Court of Appeals for the Federal Circuit has made patents more powerful, easier to get and harder to invalidate.  In short, the court became “a booster of its own specialty.”

In 1990, Congress tied the U.S. Patent and Trademark Office (USPTO)’s funding to the amount of fees it collected.  Since maintenance fees over the life of the patent subsidize examination and processing, the USPTO has an incentive to grant rather than deny patents.  Proclaiming customer-friendliness, it framed its mission as “to help customers get patents” (1996-2002).  This drew applicants for cheap and easy-to-get patents, fueling a backlog of applications and a growing volume of low quality patents.

In 1998, in the notorious State Street case, the Federal Circuit swept aside the longstanding and widely accepted rule that business methods were not patentable.  This moment of judicial activism, which also appeared to eliminate remaining constraints on software patents, intruded on sectors that had never petitioned Congress to expand the patent system.  Yet by creating the opportunity for some to get a legal jump on others, it created an instant constituency against undoing the decision.

Efforts to respond to concerns about patent quality and the growing number of assertions in the high tech industry began in earnest in 2002 with 30 days of hearings before the FTC and the Justice Department.  It became clear that while pharmaceutical companies were reasonably content with the performance of the patent system, high tech — especially software and Internet services — was not.

Following reports by the FTC (2003) and the National Research Council (2004), the U.S. Supreme Court began to take a new interest in patent law, accepting many appeals and usually overturning Federal Circuit decisions.  In eBay v. MercExchange (2006), the Court stopped the practice of automatic injunctive relief, which had given trolls enormous leverage against producing companies.  In KSR v. Teleflex (2007), the Court struck down a Federal Circuit rule that required specific documentation to show obviousness in questioning validity.

Meanwhile, patent reform legislation stalled in Congress, as strong reforms favored by the high tech and financial services industries were opposed by a variety of interests: 1) the patent bar, which has thrived on the growing volume of applications, assertions and negotiations; 2) pharmaceutical and biotechnology industries, where patents are well-defined and individually correlate well to very large investments; 3) mature industries, especially where portfolios serve to secure market position and keep newcomers out; and 4) technology companies focused on monetizing patents.

Congress did move forward with legislation, The America Invents Act of 2011 (AIA).  However, AIA has done little so far to resolve the concerns of the tech industry.  It added a minor tactical impediment to trolls by limiting the number of defendants that could be joined and it added a special temporary process for reviewing business method patents.  The much heralded inauguration of post-grant review will be little used by high tech because the huge volume of patents issuing in the sector defies monitoring while most patents will prove irrelevant or worthless.  At the same time, AIA cut back on two forms of administrative review used by high tech because they are not limited to a short window after the patent is issued.  The principal achievement of AIA was a switch to a first-to-file system that partially harmonized U.S. practice with the rest of the world — a change the patent establishment had sought for decades.  The structural and institutional problems at the root of the troll crisis and the global war over smartphones remain unaddressed.