Time to Restore Patent Property Rights
by James Edwards
30 Dec 2015
If you believed property rights are critically important, then you’d call for Congress to preserve, protect and vigorously defend intellectual property rights.
A great place to start restoring this property right would be with administrative postgrant review proceedings.
This would seem a no-brainer for conservatives, who typically claim that private property and the “original intent” of the Founders in constitutional matters are fundamental tenets of America’s organizing document. Conservatives often espouse property rights as being one of the self-evident, inalienable rights the Creator has endowed to each person and that our Constitution secures for each American citizen. In fact, it’s the only right the Constitution itself grants.
Property rights and plain meaning come together as mutually reinforcing in Article I Section 8. The Constitution reads that Congress “shall have power . . . to promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.”
Retired Chief Judges of the Federal Circuit Randal Rader and Paul Michel have warned about the harms being inflicted on property rights by the Patent Trial and Appeal Board, which the America Invents Act set up in 2011. Judge Rader has called the PTAB a “death squad” for patents.
The PTAB, an administrative quasijudiciary, decapitates patents previously issued by PTAB’s agency, the U.S. Patent and Trademark Office, through inter partes review and covered business method review proceedings.
So much for Congress securing the inventor’s “exclusive right” to his invention.
Patent Killing Fields
Inter partes review has become PTAB’s killing field for patents. Put another way, IPR is the execution chamber for someone’s property.
IPR was purported to provide a cheaper way to challenge the validity of “low-quality” patents. What IPR actually does is give anybody a means of challenging any patent’s validity on flimsy grounds at any time during a patent’s term.
That actuality translates into an antiproperty rights vehicle and outcomes. IPR gives challengers a decided advantage and patent owners a significant disadvantage. Patent opponents bear little risk, while inventors and their investors bear tremendous risk. They may well lose the patent – or deed to their intellectual property – for which they already invested heavily in time and money to obtain, robbing the title to their property.
About 4,000 postgrant challenges have been filed since its inception, which far outpaces the numbers Congress initially expected. IPR has invalidated all claims to patentability in 72 percent of its cases, and canceled some of a patent’s claimed patentability in another 15 percent of challenges.
About 60 percent of challenged patents are electrical/computer-related. Their claim cancellation rate of 86 percent differs little from the 85 percent claim cancellation seen for chemical/biotech patents and the 78 percent for mechanical patents.
What makes IPR’s record so antipatent? Or are there really that many “low-quality” patents?
IPR’s antiproperty-right bias is clear. There’s no standing requirement; anyone may bring an IPR challenge. Challengers only have to show a preponderance of the evidence. Patentees have lost the presumption of an issued patent’s validity. PTAB uses a standard in judging patentability claims that’s far broader than a federal court would use. There’s no right to judicial review of PTAB’s invalidity rulings.
And if the patent owner prevails, he or she only gets to keep his or her patent. Inventors are out precious time and money, while the challenger walks away having calling into question that patent’s validity, which often carries dire consequences for the patent owner.
From Bad to Worse
PTAB provides a playground for mischief-making. IPR increasingly enables abusive tactics for gaming the system – not to improve patent quality, but for rent-seeking, intimidation and calculated profiteering.
So-called “reverse patent trolls,” who license IP from a patent holder, use IPR as a gun to the head to devalue that property. “Reverse troll” licensees threaten to file an IPR unless the inventor cuts their licensing fees.
Unlike their better known cousins, who send vast numbers of nuisance demand letters to shake down small-dollar payouts with no real intention of going to court, reverse patent trolls very much intend to follow through on failure to meet their demands for lower licensing rates. IPRs are faster and cheaper for patent challengers and far more likely to go their way than the patent owner’s.
Hedge funds increasingly use IPR challenges to short a company’s stock. They profit from filing IPRs, often against high-value patents such as pharmaceuticals and biotech, causing the companies’ stock to drop in value and profiting off the intentional devaluation by selling the stock short.
Such funds as Hayman Capital Management and Ferrum Ferro Capital have filed IPRs against biopharma patents owned by companies including Allergan, Celgene, Shire Pharmaceuticals, and Acorda Therapeutics. Acorda’s stock value fell 10 percent when the IPR filing was trumpeted.
The Cost to Property Rights
Private property rights are suffering greatly under PTAB’s reign of terror. IPR and its ilk devalue patents, which means they devalue private property.
Postgrant review devalues patents in two ways. One, it calls into question any patent’s validity because at any time it could be challenged and invalidated. Two, it devalues any patent that’s invalidated in whole or in part, because the reviewed patent deeds a smaller amount of property than PTO originally said it did.
Further, postgrant review injects tremendous uncertainty, which disrupts the innovation ecosystem. Uncertainty causes investors to withhold their money, particularly from capital-intensive, IP-centric, R&D-oriented businesses, which are the greatest job creators. This hurts the economy.
Thus, the sectors most likely to make high-value discoveries see access to vitally needed capital dry up. This particularly hampers startups and early-stage companies, such as the more than 900 started in 2014 from technology transferred out of university research.
If you can’t secure and rely on your property right in your discoveries, there’s less incentive to embark on invention. Why bother if some rogue hedge fund or licensee can easily weaponize PTAB?
And society suffers from such an antiproperty-rights, property-devaluation regime. Kyle Bass’s Hayman Capital may have made money off its Acorda stock devaluation ploy. But multiple sclerosis patients lost out because this IPR filing targeted Ampyra, Acorda’s new MS medicine.
Multiply the lost advances across IP-centric sectors, due to PTAB and IPR, and you see the consequences of antiproperty rights policies taking hold in America’s patent system.
James Edwards, patent policy advisor to Eagle Forum, consults on patent and health policy. The views expressed here are his own.