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Current and Former Federal Circuit Chief Judges Defend Patent System Benefit to U.S. Public

Tuesday, November 27, 2012

The thousands of licenses and agreements made possible by a strong U.S. patent system far outweigh the inefficiencies of patent litigation so often cited by the press and other critics of patents, Chief Judge Randall R. Rader of the U.S. Court of Appeals for the Federal Circuit said in a Nov. 14 speech.

His predecessor, Paul R. Michel, pointed to the “unprecedented success at building industry and commerce” in the United States as evidence, from a comparative law perspective, of the benefits of awarding and protecting patent rights. “Every major technological invention in the 20th century was developed in the United States,” he said.

Both were speaking at a session in Washington, D.C., titled, “Patents and the Public Good,” sponsored by the Washington, D.C., and Northern Virginia chapter of the Licensing Executives Society.

Attacks From Press, Posner, and Federal Reserve.

Raymond Van Dyke of Van Dyke Law, Washington, D.C., moderated the conference and provided an overview of the “beating in the press and in the court of public opinion” that the patent system has taken recently.

Though the jurists were keen to attack the popular press for misrepresentation of issues, two recent publications that cannot be ascribed to journalists were of particular concern to Van Dyke and the judges:

• Judge Richard A. Posner of the U.S. Court of Appeals for the Seventh Circuit listed “general problems posed by the structure and administration of our current patent laws, a system that warrants reconsideration by our public officials,” in “Why There Are Too Many Patents in America,” published July 12 in the Atlantic Monthly.

• The Federal Reserve Bank of St. Louis issued a working paper in September titled, “The Case Against Patents,” which began, “there is no empirical evidence that [patents] serve to increase innovation and productivity, unless the latter is identified with the number of patents awarded--which, as evidence shows, has no correlation with measured productivity.”

 

“With the negativity abounding, it would be best to reconsider the hyperbole and review the positives of a strong patent system to our nation and the world,” Van Dyke wrote in the conference materials.

Patent System Enables Licenses, Agreements.

Rader contended that the value in the patent system is evident in developments that the press does not cover: “the thousands of licenses and agreements facilitated by the monetization of ideas,” which are made possible only because of the existence of a strong patent system.

The chief judge's comments were often directed to complaints that software should not be patent eligible under 35 U.S.C. §101, and often in the context of complaints that the smartphone patent wars proved that litigation over software patents is killing innovation.

Referring in particular to the highly publicized fights around the world between Apple Inc. and Samsung Electronics Co., he complained that the press does not report that 40 percent of Apple's parts are made by Samsung. “They're working together, cooperating as they compete,” Rader said. Indeed, he said it was one of the virtues of the patent system that it brought the two companies together. He asked, “Where's that talk in the press?”

“For every point of conflict, … there are a thousand agreements that did not result in litigation,” Rader estimated. “For every dispute that's considered so controversial, … thousands of agreements and market efficiencies are achieved by the patent system that far outweigh the inefficiencies of litigation.”

He further contended that the availability of patents in the United States can create connections among multiple international participants in any one invention as well as all follow-on innovations. A software innovation, for example, Rader said, could be initiated by work done by a programmer in India, with system analysis in Japan, implemented by a startup in Germany, funded by a research clinic in Boston. That happens only through cooperation, Rader said, and the cooperation results from that software programmer in India filing a patent application.

“The patent system brings the rest together,” he said. “The patent system permits worldwide cooperation on the problems of mankind.”

No Data, Statistics, Study Support Critics' Claims.

Michel began his speech with statistics showing that the percentage of patents litigated has remained about the same, roughly 1.5 percent, for quite a long time. The amount of litigation today, he said, then, is not surprising in that “there are more patents, we're a bigger country, and there's much more economic activity.”

Though he acknowledged that cases are taking longer to come to a conclusion and are more costly than they should be, he rejected the criticism that there has been a spate of frivolous lawsuits. He said that the proof would be evident in the number of cases where plaintiffs were sanctioned for frivolity, but there have been none. “So how can I accept the idea that the country is besieged by frivolous lawsuits?” he asked.

He next took Posner to task for a comment in the Atlantic Monthly article. Posner distinguished industries--such as pharmaceuticals--for which the patent system's incentive offers a net economic benefit, from those where “the cost of a specific improvement may be small, and when that is true it is difficult to make a case for granting a patent. The improvement will be made anyway, without patent protection, as part of the normal competitive process in markets where patents are unimportant.”

Michel said, “What factual data [did Posner supply] in support of that statement? Zero. No data. No statistics. No study.”

The former chief judge laid much of the blame for the misinformation in the press, however, at the feet of “special interests with tons of money who are very angry about the patent system because they get sued [for patent infringement].” He identified about a dozen large information technology firms in Silicon Valley, Calif., and large banks in New York City as the primary culprits.

Those firms fought to weaken the patent system in the patent reform debate that led to the America Invents Act, Michel said. But are those firms really suffering? Apple is one of those firms, Michel said, and it is now “the wealthiest company ever in the history of mankind anywhere on the planet.”

Continued Attacks in Congress.

Michel warned that attempts to further weaken patents are continuing. To those who believe that Congress will not do anything more to limit patent rights because of “patent fatigue” after the AIA debate, he said, “Don't bet on it.”

He cited the persistent rumor that members of the Senate and House Judiciary Committees are pursuing a “technical amendment” to the AIA that would in his view actually be substantive (119 PTD, 6/21/12), and two recent legislative developments recently that show “Congress's antagonism to the patent system”:

• H.R. 6245, the Saving High-Tech Innovators from Egregious Legal Disputes Act of 2012, or SHIELD Act, would allow a court to give full costs, including reasonable attorneys' fees, to an accused infringer of a patent covering computer hardware or software that won its case (149 PTD, 8/3/12).

• Both judiciary committees have held hearings to limit the ability of the International Trade Commission to issue exclusion orders barring imports of infringing goods (139 PTD, 7/20/12, 134 PTD, 7/13/12).

 

Flaws? Sure. But Compare to Other Countries.

Michel then turned to his argument for a strong patent system based on comparisons between the United States and other countries. Look at Europe further, he said. The country with the strongest patent system on the continent is Germany, he contended, which is also the strongest economy there and now has a huge export surplus.

The success of industry and commerce in the United States is a logical consequence of the connection between patent protection and incentives for investment, he suggested.

First, he said, echoing arguments made by politicians throughout the recent pre-election debate, “Almost all new job creation can be attributed to startups.” The question, accordingly, he said, is: “If startups are so important to the creation of jobs and job creation is so important to the economy, where do the startups get the investment to form and grow?”

Michel said that the investment community funds startups only to the extent that it can predict returns worth the risk, and the risk can be mitigated proportional to the strength of the protection of a startup's intellectual property.

Administration's View in Question.

Michel noted that the patent system is also facing potential criticism within the executive branch. The Department of Justice and the Federal Trade Commission will hold a hearing Jan. 10 that they say is aimed at exploring “the impact of patent assertion entity (PAE) activities on innovation and competition and the implications for antitrust enforcement and policy.”

Michel was skeptical about the ability of the DOJ and FTC to assess the patent system. He pointed to past FTC studies, such as its 2011 report, “The Evolving IP Marketplace: Aligning Patent Notice and Remedies with Competition” (45 PTD, 3/8/11). “These are academics who know a lot about economics but almost nothing about patent litigation and patent claims,” he said.

In addition, the Government-Industry-University Research Roundtable, a division of the National Academy of Sciences, is planning a forum on patents, which, Michel said, will start from “the premise that the patent system is bad.”

Stephen A. Merrill, executive director of a different National Academies division--Science, Technology, and Economic Policy--later countered Michel's criticism. “That the Academy would be swept along by and align itself with critics of the patent system is antithetical to the way our projects originate, committees are formed and vetted, studies are conducted, and their conclusions and recommendations reviewed,” Merrill told BNA.

A representative of the GIURR division did not respond to an inquiry about that organization's planned forum.

By Tony Dutra  


Michel is a member of this publication's advisory board.

 

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