Just two years since the enactment of the America Invents Act, the Obama administration and Republicans and Democrats in Congress are calling for further reforms of the patent system. These calls reflect growing bipartisan recognition that innovators are being increasingly harmed by the abusive behavior of patent trolls, also known as “patent assertion entities” or PAEs.
The patent troll “business model” involves amassing portfolios of patents and then threatening litigation based on vague and unsubstantiated allegations of infringement. Patent assertion entities, which now account for more than 60 percent of all patent litigation, typically file blanket demand letters against hundreds of businesses and inventors. The majority of patents asserted are software patents, whose boundaries are often so unclear that it is very hard to discern what the patent actually covers. Patents for business methods are a subset of software patents with particular potential for litigation abuse.
Patent trolls often sue small businesses and startups that lack the resources to defend themselves in a patent litigation proceeding. Therefore, even though many of the patents asserted by trolls end up either being deemed invalid or not infringed, businesses too often fork over hefty settlement or “licensing” fees in what President Barack Obama called an attempt to “extort some money” from actual inventors.
Politicians in both parties recognize that patent troll litigation serves as a tax on innovation and a drain on our economy. That’s why members in the House and Senate have introduced legislation with certain common features: all seek to curb trolls’ ability to engage in abusive litigation by requiring transparency about who really owns the patent at issue, requiring parties to clearly claim what their patent allegedly covers, placing limits on abusive legal tactics and enabling a prevailing party to recover costs, including attorney fees. These proposals, which enjoy broad support in the intellectual property community, correct imbalances in the patent litigation system that have enabled such practices, and Congress is to be commended for moving forward with additional reform legislation.
The administration has also been a key driver of this effort. The White House issued a report and a set of recommendations in June. Many of these recommendations are reflected in the legislative proposals under consideration. The White House report highlighted concerns about the quality of software patents in particular and directed the Patent & Trademark Office to review its practices in issuing them. It also proposed legislation that would enable the PTO to weed out a broader range of business method patents than is currently authorized by the AIA.
The AIA established a mechanism for “post grant” review of one class of business method patents — financial services business methods — by the PTO’s Patent Trial and Appeals Board. This “covered business method,” or CBM, review procedure gave inventors threatened with a lawsuit the ability to petition the PTO to review — and potentially rescind — these types of patents on the ground that they were vague, abstract or overly broad. But the AIA did not extend this retrospective post-grant review authority to the many other business method patents that are currently providing ammunition to patent trolls. That’s why the administration and reform advocates have called on Congress to expand the CBM review to allow parties to challenge a broader range of business method patents. In layman’s terms, expanding the CBM program would make it harder for patent trolls to litigate invalid business method patents; instead of going to court, a business could petition the PTO to review the patent being asserted and would obtain a preliminary determination of validity within six months for a fraction of the cost of litigation.
To date, the USPTO PTAB has granted 18 out of 23 applications for review. A grant is issued based on a determination by the expert board that at least one claim is likely to be invalid, so the bar is high. As Congress seeks to strike the right balance between preserving the rights of patent holders to enforce valid patents and making it harder to engage in abusive litigation based on asserting business methods patents of dubious value, it would do well to adopt a tailored expansion of CBM to enable the PTO to weed out more of these patents outside of litigation.
To be clear, expanding the CBM provision would not make it easier to challenge valid patents as some have alleged. Patents for “technological inventions” are specifically excluded, as they are under the existing CBM proceeding, and the standard for PTO Board review is high. None of the proposed reforms, including the expansion of CBM, would disadvantage valid patents or in any way limit the rights of patent holders to assert valid patents. What these reforms would do is make it a bit easier for small businesses and inventors to fight back when faced with suits based on business method patents that should not have been issued in the first place. Congress should heed the administration’s call by enacting legislation that includes a narrowly tailored expansion of the CBM review proceeding. It should also ensure that the PTO has the resources it needs to discharge that additional responsibility and to do all of its critical work. Reform legislation that includes a tailored expansion of the CBM proceeding would level the playing field for innovators and restore confidence in the patent system so it can continue to be the engine of innovation.
Peter C. Pappas was chief of staff of the U.S. Patent & Trademark Office from 2011 to 2013. He is a consultant to Google.