Supreme Court to weigh in over US patent battleHeat Profit
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It was a good week for Josh Malone, the inventor of Bunch O Balloons, a device for filling a large number of water balloons from a garden hose at the same time.
He had accused another company, Telebrands, of copying his product to sell on television. Two days before Thanksgiving, a federal jury in the eastern district of Texas — long a favourite venue for plaintiffs in patent cases — agreed, handing him $12.3m in damages.
But it is far too early to celebrate. Next week, in a patent office tribunal hearing known as an inter partes review (IPR), three judges will take another look at Mr Malone’s claims — and they have already reached a preliminary view that his water balloon filler is too obvious an idea to warrant a patent.
Mr Malone complains this new process beyond the courts has given unfair advantage to patent infringers: “You can keep going back and filing petitions. It’s an endless opportunity.” And, defending the breakthrough nature of his idea, he adds that “no one thought of it for the first 63 years” after the water balloon was invented.
Like many other small inventors in the US, he is now waiting on the Supreme Court to weigh in on whether this system is fair. The top court is set to hold a hearing on Monday into the constitutionality of IPRs, in what has become its most patent-related case in years.
The reviews were introduced five years ago by the America Invents Act, to make it easier to strike down patents that should not have been issued in the first place. That made them a key weapon in the battle against “trolls”, the patent holders accused of using the high costs and unpredictability of the court system to hold deep-pocketed defendants hostage.
Patent claims in the US have fallen steadily since the new law, with the number of cases this year likely to reach only half the peak 7,000 hit in 2011, according to RPX, which protects companies against patent claims. Defendants in about a fifth of the lawsuits have petitioned the patent office for an IPR, to try to turn the tables and have the patents invalidated.
The lower cost — estimated at $350,000-$500,000, much less than a counter-suite — has made IPR petitions a popular weapon. They have also been effective: more than 85 per cent of challenges were successful in the first 12 months. That has since fallen to around 60 per cent.
This has all eaten into the leverage of patent holders. It was once common to see a large number of legal settlements in the “low millions”, but many have fallen to under $500,000, says Emily Hostage, head of strategic analytics at RPX.
According to Alexander Poltorak, chairman of General Patent, this has cut into the returns for Investors who once funded patents, starving inventors of cash, and few contingency lawyers are interested in taking up a case.
Inventors such as Paul Morinville, a software developer from Ohio, say they are the losers. Four years ago, he says, a licensing firm that had undertaken to monetise his patents cut off the funding, worried by the impact of IPRs, and now he cannot find a lawyer to take up his claims.
IPRs “are simply an easier way to invalidate patents”, complains Randy Landreneau, another individual software inventor. “There’s a whole lot less due process than a court.”
Critics claim that the shift has favoured big tech companies in particular, enabling them to force patent owners to give up their rights for less money. Apple has been the most active, with an average of more than 70 petitions a year, followed by Samsung, Alphabet and Microsoft. But the large patent portfolios of many big tech companies has made this a complex picture, and many have lined up to join in legal briefs before the Supreme Court arguing against IPRs.
Supporters of the reviews, meanwhile, say they are a much-needed corrective for a system that has issued far too many low-quality patents. Patent office examiners spend an average of 18 hours reviewing each application, too little time to research all the evidence that might invalidate a claim, says Daniel Nazer at the Electronic Frontier Foundation.
The balance of power in the US patent system has already shifted in favour of those accused of infringing in recent years, thanks to a succession of Supreme Court decisions. These include eBay v MercExchange (which made it harder for patent owners to win an injunction, one of their most powerful weapons) and Alice Corp v CLB Bank International (which limited the patentability of things like business processes). Whether this has simply righted the balance or allowed the pendulum to swing back too far against the rights of patents holders is now a subject of heated debate.
RPX, which buys up patents to prevent them from being used as legal weapons, says the pricesof many patents have been falling for some time, though the Market is too opaque to generalise. Mr Poltorak puts the price decline from an average of $250,000 to below $100,000.
The link between declining patent values and the level of innovation in the economy is even harder to assess. Mr Nazer argues that steady increases in research and development spending and software company valuations show that IPRs have not hurt. But critics such as Mr Landreneau point to a fall-off in early-stage venture capital Investment as a sign that invention is suffering.
The case before the Supreme Court on Monday — Oil States v Greene’s Energy — could also have a bearing on broader issues. The judges will decide whether patents count as “real property”, and, if so, whether the constitution allows a government agency — rather than a court — to invalidate them. A decision to clip the wings of the patent office would send a message on the limits of the administrative state, says Mr Morinville.