By Lee Cheng As patent-reform legislation continues to wind its way through Congress, opponents of reform have become increasingly shrill and desperate in their search for allies. They have been trying to convince traditional conservatives that patent reform is an attack on private property rights, which any good conservative holds dear.
Traditional conservatives justly value private property rights. But the battle to reform patent law is not about limiting property rights. It’s simply about preventing the abuse of patent rights and our legal system by a few unscrupulous advantage takers.
As the named inventor on three patent applications, I have a strong and personal incentive to oppose any effort to weaken the patent system. I also work for an online retailer, Newegg.com, that brings the benefit of patented technological innovation to customers. We deeply appreciate inventors, invention and the patent system.
Reform is necessary because the patent system is presently being so deeply abused. Unscrupulous individuals have been setting up shell companies to purchase poor quality and likely invalid patents that have never been used to make anything. They use these patents to file thousands of lawsuits every year, and 2015 promises to set a new record for patent suits.
If we use the real property analogy, think of patent rights as rights that must, to be valid, meet specific qualification criteria set by law. Getting a patent is like making a claim for public land. The initial application to get this property right is filed with the U.S. Patent and Trademark Office, which tends to grant the vast majority of applications in a non-adversarial process. Over 300,000 patents were granted in 2014 alone! Of granted patents, few are ever made into products or incorporated into services that are useful to anyone.
While a granted patent is technically presumed valid, the reality is that many, if not most, are, if subjected to real challenge either not valid, end up being significantly narrowed in scope. However, every single patent can be used to make demands and file lawsuits against alleged infringers, with very little basis. The cost of litigation defense is so high that it is almost always cheaper to just pay a patent extortionist off rather than fight. Early patent abusers made billions of dollars in easy settlement money before companies started to realize that paying off terrorists simply encouraged and funded more terrorism.
As stated, the reality is that most patents, if subjected to a well-managed validity challenge, will either be narrowed or invalidated. We proved that at Newegg. Since 2006, we have faced about 35 patent claims. We have never been found, after trial and appeal, guilty of infringing on a valid patent. Not once. We have invalidated most of the patents we have taken through trial. Basically, this is like having someone wave a deed to property claiming trespass, with the deed turning out to have been improperly granted.
Continuing with the real property analogy, even property that has been properly claimed technically is rarely worth a fortune. Every patent holder seems to believe that their patent, whether they add any value to it, deserves to be rewarded at a windfall rate. When the vast majority of patents cost very little (usually less than $10K), and the patent holder does little to make the benefit (if any) of the patent available to society, a claim for a windfall profit for that patent is akin to a demand for the same rent for undeveloped scrub land as for Manhattan office space. The scrub land should not be made more valuable solely because the cost of defense in our legal system is ridiculously high. No true conservative can support allowing government handouts and legal system inefficiencies to be used to extort windfall profits from honest businessmen.
The path forward for America has been and remains critically dependent on innovation and entrepreneurship. It is being blocked by legal advantage takers ultimately invalid or poor quality patent rights, and demanding exorbitant payoffs. Even when valid rights are asserted, unjustified premiums are demanded because of the cost of litigation. The patent almost never conveys real value to an alleged infringer.
Fixing laws to facilitate free enterprise, and to prevent and curtail frivolous litigation, are consistent with core conservative values. If the righteousness of a cause can be seen in the character of its ardent supporters, then it should be known that the trial lawyers’ lobby vigorously opposes patent reform. If for nothing else, then, real conservatives should strongly support patent law reform.
Lee Cheng is the chief legal officer at Newegg.com.