“The claim that there would be uncertainty [if eBay was struck down] sounds rather odd when we have 150 years, almost 200 years, of patent cases where they applied a presumption of an injunction on the basis that this was a property right.” – Professor Adam Mossoff
On the afternoon of Wednesday, September 11, the Senate Judiciary Committee’s Subcommittee on Intellectual Property convened a hearing titled Innovation in America: How Congress Can Make Our Patent System STRONGER. The hearing focused on the STRONGER Patents Act, a piece of legislation that has been reintroduced into both houses of Congress, the Senate portion of which has been co-sponsored by the Senate IP Subcommittee’s Ranking Member, Senator Chris Coons (D-DE), fellow Subcommittee members Mazie Hirono (D-HI) and Dick Durbin (D-IL), Judiciary Committee member John Kennedy (R-LA) and Senators Tom Cotton (R-AR) and Kevin Cramer (R-ND). Sources at IPWatchdog’s Patent Masters Symposium this week said that the bill still faces many obstacles to passage. However, according to Senator Coons’ Office, the bill has wide bipartisan support in the House as well.
The panel for the hearing was evenly split between supporters and detractors of the proposed law, and most of the discussion focused on the injunctive relief and inter partes review (IPR) provisions of the bill.
Tillis Wants to Preserve eBay, Multiple Petitions at PTAB
Senator Thom Tillis (R-NC), Chair of the Senate IP Subcommittee, opened his remarks by discussing his concerns about the effects of the STRONGER Patents Act on the U.S. Supreme Court’s 2006 decision in eBay v. MercExchange. Tillis said he believed that case, which greatly weakened the presumption of injunctive relief for patent owners who prove both validity and infringement of a patent, was correctly decided as both a legal and a practical matter and that a provision restoring the presumption could be abused by patent trolls. Tillis was also worried about the bill’s impact on IPR proceedings, which he called a valuable tool for challenging bad patents in front of judges with technical expertise in an alternative forum that was cheaper and faster than district court. “I’m worried [that] by basically allowing only one bite at the apple at the PTAB, that the many benefits IPR provided our patent system could be undermined,” he said.
Sen. Coons’ opening remarks noted that in the past decade or so, there has been a steady erosion of patent rights in the U.S. patent system. The patent right is only meaningful if enforceable and Coons said he believes that the result of eBay has been to effectively reward patent infringers instead of incentivizing good faith negotiations leading towards patent licensing. Coons added that strong patent rights are crucial to startups, which rely on venture capital funding, as the ability to enforce patents can determine whether or not the startup gets the funding it needs to survive.
Panel Splits on STRONGER Support
Three witnesses opposed the STRONGER Patents Act: Professor Tom Cotter of the University of Minnesota School of Law; Dan Lang, Vice President of Intellectual Property at Cisco Systems; and Josh Landau, Patent Counsel at the Computer and Communications Industry Association. Cotter’s testimony focused on the bill’s attempt to overrule eBay, discussing various reasons why that was unwise, including vagaries in the language on restoring injunctions and the ability for patent owners to leverage injunctions and obtain licensing revenues disproportionate to the value of the patented technology. Lang noted that, while Cisco has seen its own patents invalidated by IPR at the Patent Trial and Appeal Board (PTAB), patents asserted against Cisco would likely remain valid if the presumption of patent validity in IPR was codified under the bill. Landau testified that research and development expenditure statistics show that innovation has thrived since eBay. Further, he argued that the single petition and judicial priority provisions of the bill, which would block serial IPR petitions and bar IPR institutions if a federal court has already ruled that challenged patent claims are valid, could prevent meritorious IPR petitions.
By contrast, three other panelists greatly supported passage of the STRONGER Patents Act: Bradley Ditty, Vice President and General Patent Counsel of InterDigital, Inc.; Professor Adam Mossoff of George Mason University’s Antonin Scalia Law School; and Earl “Eb” Bright II, President of ExploraMed. Ditty welcomed the alignment of the PTAB and district court standards for both claim construction and the burden of proof for proving validity that would be achieved through passage of the STRONGER Patents Act. Mossoff said the bill would “end the willy nilly operations of the PTAB,” a tribunal that has been referred to as a “death squad for patents,” and he noted that Federal Circuit Judges Evan Wallach and Jimmie Reyna have both raised fundamental rule of law questions regarding the PTAB’s activities. “The PTAB and eBay represent a legal one-two punch that has destabilized patent rights today,” Mossoff said. Bright noted that, minus injunctive relief, a small startup has no practical way of removing an infringing product brought by a competitor to market and that, even if that larger company has to pay monetary damages for infringement, such damages are simply a cost of business and the larger company has still captured market share from the smaller competitor.
At the start of the questioning period, Sen. Coons discussed the strong dichotomy in ideologies of those present at the hearing, pointing out that the testimony given by Landau and Bright contradicted each other almost word-for-word. Coons asked those two if they could see any value or truth in the other’s testimony. Landau said that he couldn’t speak to Bright’s personal experience, while Bright, while acknowledging that venture capital funding has increased as Landau said, noted that those investments have been shifting towards late-stage companies and away from early-stage startups. Coons pointed out that both witnesses represent vastly different interests within the patent sector. “To paraphrase, where you stand depends on where you sit,” he said.
Misunderstanding Abounds on Injunctions Post-eBay
On the subject of eBay, Mossoff said that there was a lot of misunderstanding about both that Supreme Court decision and the nature of injunctions. “Remedies scholars who have no understanding, nor do they care one iota about patent law, hate eBay,” he said. “If you ever want to see a staid scholar [get] very upset in the remedies context, mention eBay to them.” Although the Supreme Court said that it was reestablishing a multi-factored test for the issuance of injunctions, Mossoff said that no such test existed in Anglo-American law. He added that he has been rereading every patent decision issued in the 19th century as part of an empirical study and he has found zero references to any such test so far. On the other side, Cotter’s main concern about overruling eBay seemed to be the uncertainty that would arise when the courts have now had 13 years to develop rules under that decision. Mossoff found this idea somewhat untenable:
“The claim that there would be uncertainty sounds rather odd when we have 150 years, almost 200 years, of patent cases where they applied a presumption of an injunction on the basis that this was a property right. You have long-standing case law that courts could cite to and rely upon. In fact, I think one of the reasons why you’ve seen so much uncertainty in this area is because when eBay changed the doctrine, there was no case law-controlling precedence to guide the courts.”
Lang stated that Cisco’s perspective was that eBay reflects sound equitable principles and that monetary damages is the right way to reward licensing companies for the harm they’ve suffered through patent infringement. Lang brought up a patent suit against BlackBerry by a non-practicing entity prior to eBay; that case had caused a lot of anxiety among those within Congress and the federal government given their preference for the BlackBerry platform at that time. Mossoff rejoined by noting that the plaintiff in that case was actually the inventor listed on the asserted patents, whose only ability to get BlackBerry to license was through his ability to get an injunction.
Landau, Bright, Spar Over Patent Awareness in Marketplace
Bright noted that injunctive relief was crucial to companies like his, who need anywhere from $75 million to $100 million in investment to develop a medical device. Without the serious threat of an injunction, Bright said market competitors are encouraged to ignore patents instead of developing alternatives by designing around issued patents. This led to a rather interesting exchange between Bright and Landau:
Landau: “If they didn’t look at the patent and came up with it independently, then is it really fair to take their product off the market for what was their own invention? If the infringing company came up with it on their own, there’s a basic fairness concern in saying, ‘Well, you can’t sell your product even though you came up with it because somebody else came up with it a few months earlier.’”
Bright: “It’s not that they came up with it out of the blue. They came up with it because they became aware of the other company working on it.”
Landau: “But we just took as a hypothetical that they don’t look at other patents. They didn’t become aware of it.”
Bright: “You don’t only become aware by looking specifically at patents. You become aware of it through the marketplace.”
Tillis: “Well, this here has become a first-class debate club and actually I think we can learn a fair amount from that.”
Ending Fee Diversion: One Area of Consensus
As divided as the panel was on the issues of injunctive relief and IPR proceedings, there was one aspect of the bill that received unanimous approval from the witnesses: the elimination of fee diversion at the U.S. Patent and Trademark Office. Cotter noted that recent studies show that patent examiners spend an average of 19 hours examining a single patent application, a statistic that hasn’t changed in about 20 years. The STRONGER Patents Act opponents supported the effects that elimination of fee diversion at the agency would have on issuing higher quality patents. Mossoff noted that the patent quality debate was difficult because of the changing standards of patent quality evaluation, pointing out the impact of previous Supreme Court decisions in Alice, Mayo and KSR. Patents invalidated under the Alice/Mayo framework weren’t invalid because they received an improper examination but rather because the law had changed, Mossoff argued. Further, he noted that there was no empirical study supporting the fact that there are more bad patents today compared with prior decades. “It’s just a general sense, and conventional wisdom is sometimes right but is often times wrong; we would hope that, if we’re talking about certainty and ensuring that we have data, we should be putting together policy prescriptions and hopefully legislation and regulations on the basis of data, not on unconfirmed conventional wisdom,” he said.
Other Stakeholders Weigh In
On September 10, a group of 27 university professors, including Mark Lemley, Margo Bagley, Arti Rai and others, sent a letter to Congress expressing their opposition to the bill. They wrote:
“The changes to IPR set forth in the STRONGER Patents Act are not necessary, given the Patent Office’s discretion over decisions of whether or not to institute IPR proceedings. That discretion allows the PTO to handle the highly fact-specific issues that arise in IPR proceedings on a case-by-case basis to address concerns that might arise about potential abuses of the IPR process. The bright line provisions of the STRONGER Patents Act are both unnecessary and unwise.”
The Innovation Alliance’s Executive Director Brian Pomper thanked Coons and Tillis for holding the hearing and said that the bill would help to reverse the alarming trend of innovation going overseas by restoring injunctions and fairness at the PTAB:
“The PTAB was intended to be a quicker and cheaper venue to challenge the validity of questionable patents, not an easier venue. In practice, it has been easier to invalidate patents in the PTAB than in district court, and the PTAB process has been abused by large corporations who have initiated repeated PTAB challenges against valid patents in ways not intended by Congress or tolerated in district court. This legislation is urgently needed to maintain our patent system’s role as an engine for U.S. economic growth and job creation, as it has done for more than 200 years.”
Note: this article was updated on September 12 to correct a statement indicating that the STRONGER Patents Act has no Republican co-sponsors. The bill does have bipartisan sponsorship.