In August, real estate agents in Texas fended off a company’s demands for royalty payments for a feature of many websites: the ability to show prospective home buyers where local schools, parks and grocery stores are. Administrative law judges at the United States Patent and Trademark Office found that the patent claims were simply not valid.
A few months before, in February, judges at the patent office put an end to “Project Paperless,” an attempt to extract royalties from small businesses using off-the-shelf scanners to scan documents to email. The litigants pressing for payment, the judges determined, had no right to the technology.
In September last year, they stopped Teva Pharmaceutical from extending its exclusive right to sell the blockbuster multiple sclerosis drug Copaxone, and fend off generic drug manufacturers for years after its original patent expired, simply by patenting the method to administer it in a 40-milligram dose three times a week.
In the five years since it began its work — a result of the America Invents Act of 2011 — the Patent Trial and Appeal Board has saved companies more than $2 billion in legal fees alone, according to Joshua Landau, patent counsel at the Computer and Communications Industry Association, offering an expeditious and relatively cheap avenue to challenge patents of doubtful validity.
The benefits of stopping bad patents from snaking their way through the economy have been even greater.
Companies no longer have to pay ransom so the threat of lawsuits over dubious royalty payments — filed by aggressive litigants known as trolls — will go away. Consumers no longer have to pay for bogus intellectual property covering, say, a method to take their pills. The appeal board has rejected questionable patent claims over technology to clean up polluted groundwater and wastewater, over podcasting, and over a system that Los Angeles wanted to introduce that looks a lot like E-ZPass.
“It probably hasn’t made patent trolls go away, but it’s changed their demands,” noted Mark Lemley, a law professor at Stanford University. “Now they sue and ask for $50,000 rather than sue and ask for $1 million.”
After years of aggressive intellectual-property claims, experts argue that the new panel is helping to push patent law in a much-needed direction: to relax its stifling effects on the economy.
“At a high level, we have made an impressive amount of progress over the last five to 10 years in getting the patent system more into balance,” said Carl Shapiro, an expert on competition policy at the University of California, Berkeley.
But for all the benefits of culling faulty intellectual-property rights, the board is under existential threat. Next week, the Supreme Court will hear a challenge that the Patent Office’s new procedure is unconstitutional because invalidating a patent amounts to an unlawful takeover of private property.
The accusers in the case, Oil States Energy Services v. Greene’s Energy Group, argue that taking private property is something only a court — not a government agency like the Patent Office — can do.
It’s hard to tell how the Supreme Court will rule. Patents are not standard-issue private property, like a plot of land. They are granted by the government to encourage innovation, a public good, because inventors might not invent without a period of exclusivity over the fruits of their idea.
Beyond the constitutional questions, I would suggest to the justices on the court that they consider the ramifications of their decision on the United States economy.
Charging royalties for ideas that are obvious or were concocted so long ago that they are already in the public domain — like making a call by touching numbers on your smartphone screen, or fastening your trousers with a zipper — exact a cost but provide no benefit. Striking down a bad patent is less about confiscating property than about discovering that the property right should not have been awarded in the first place.
Stringent intellectual property laws seem to be doing little to encourage real innovation and entrepreneurship. Indeed, an increasingly robust body of research finds that the gradual strengthening of patents has hindered innovation rather than foster it.
The patents Teva was trying to uphold, which the Patent Office tribunal shot down, were designed not to establish its exclusive rights over a new technology but to prolong its exclusive rights to an old one. Its case is not unusual: Researchers are finding that more and more pharmaceutical companies are recycling and repurposing old medicines rather than inventing new ones.
Researchers at the University of California Hastings College of the Law found that three-quarters of the drugs associated with new patents in the records of the Food and Drug Administration were not new drugs coming on the market, but existing drugs. Pharmaceutical companies extended their exclusivity over blockbuster drugs 80 percent of the time, attaching new patents on dosage and other aspects that had nothing to do with the original invention.
Here’s how it works: Pharmaceutical companies start moving doctors to the tweaked formulation before the initial patent runs out, so that by the time it expires nobody is prescribing the original drug. That gives them an extra 20 years of exclusivity in which they can charge patients and their insurance companies exorbitant fees. Society has nothing to gain.
In a brief to the court, the Initiative for Medicines, Access and Knowledge — a nonprofit group arguing for broader access to affordable medicines — argued that the Patent Office’s panel “is an important and necessary tool in the fight to lower drug prices because it allows the timely removal of unmerited patents, which promotes competition.”
Tahir Amin, a co-executive director of the initiative, added that “there are a lot of patent trolls trying to extort rents from low-quality patents.”
The Supreme Court has in recent years shown itself sympathetic to the argument that patent protections have become too restrictive. On half a dozen occasions since 2013, it has overturned decisions by Federal District Courts granting patent rights over what were ultimately fairly intuitive processes.
Notably, the Supreme Court’s 2014 decision in Alice Corporation v. CLS Bank International held that where a patent claim is based on an abstract idea, which is not patentable, using generic computer implementation does not transform that idea into a patentable invention.
Corporate interests are not aligned in this case, though. Pharmaceutical companies despise the Patent Office’s new powers. Information-technology corporations, which incorporate thousands of ideas into one gadget and see themselves as victims of patent trolls, are strong supporters of this relatively cheap and expedient avenue to challenge patents once they have been written.
The Goliaths of technology are, of course, out for themselves alone. Yet in this case they are aligned with the economy’s interest. For too long, innovation has been narrowed to fit patent holders’ argument for sacrosanct property rights. For these rights to hold, however, at the very least we need a system to undo those that prove to be invalid.