Wealth of Ideas Newsletter

House Judiciary Subcommittee Offers a Solution in Search of a Problem – Part 2

Last month, the House of Representatives’ Judiciary Committee’s Subcommittee on the Courts, Intellectual Property, and the Internet Subcommittee held a hearing to examine patent litigation activities at the U.S. International Trade Commission (ITC). In last month’s feature article, we summarized the testimony of the first three witnesses who appeared before the subcommittee. This month, we summarize the testimony of the second three witnesses.

The stated purpose of the hearing was to review how patent disputes are handled by the Commission with the goal of determining if the ITC produces results that are fair to litigants, beneficial to the U.S. economy, and complementary to the work of U.S. district courts. However, it soon became obvious that the true purpose of the hearing was to find a way to weaken the ITC’s patent enforcement capabilities in an effort to weaken U.S. Patent rights.

House Committee Chairman Bob Goodlatte set the tone for the hearing when he stated that “the IP subcommittee will review how patent disputes are handled by the International Trade Commission in an effort to ensure fairness for American businesses. Recent alarming statistics indicate that patent assertion entities, commonly referred to as patent trolls, have used the ITC to exploit our patent laws. These ITC cases can result in injunctions that can keep imported goods out of the U.S. market. There are certain steps that the ITC can take to correct these problems and the Committee looks forward to a thorough examination of these potential patent litigation reform solutions.”

Goodlatte’s tone was supplemented by Subcommittee Chairman Darrell Issa who added that “In recent years, however, the International Trade Commission has been co-opted as a forum to assert weak or poorly issued patents against American businesses. We look forward to hearing from the witnesses on how we can reform this process to avoid unnecessary and costly litigation.”

Six witnesses testified before the subcommittee:

  • Deanna Tanner Okun, former Chairman of the International Trade Commission and currently a partner at the Adduci, Mastriani, & Schaumberg law firm
  • John Thorne, a partner at the Kellogg Huber Hansen Todd Evans & Figel law firm
  • Mark Whitaker, a partner at the Morrison & Foerster law firm
  • Fiona Morton, the Theodore Nierenberg Professor of Economics at the Yale University School of Management
  • Thomas Stoll, the principal at Stoll IP Consulting
  • Dominic Bianchi, General Counsel at the U.S. International Trade Commission

The Subcommittee specifically addressed in this hearing Section 337 of the law that established the International Trade Commission back in 1916, the authority the ITC has to issue injunctions that block the import into the U.S. of products that infringe U.S. Patents.

Deanna Okun, a former chair of the ITC, provided the title for this article when she testified that the proposed changes to ITC law are “a solution in search of a problem.” Ms. Olun defended the work of the International Trade Commission and said that “There is a direct link between the protection of U.S. IPR and American competitiveness. Section 337, by serving as a mechanism for protecting U.S. IPR, promotes economic growth and domestic job creation. Innovation is a primary driver of U.S. economic growth. IP-intensive industries account for more than $5 trillion in value added, or approximately 35 percent of U.S. gross domestic product.”

The fourth witness was Fiona Morton, the Theodore Nierenberg Professor of Economics at the Yale School of Management, and she specifically addressed standard essential patents (SEPs) and F/RAND (Fair and Reasonable Royalties) commitments as regards the International Trade Commission.

She began her testimony by stating that “the mere threat of an eventual exclusion order gives the patent holder the leverage to extract inefficiently high, above-F/RAND, royalty rates during settlement negotiations. A patent holder that has already obtained an exclusion order has even more power to increase its profits through a higher royalty.”

She added that “There is no sound economic reason why an exclusion order is needed to adequately compensate an SEP owner who is involved in a dispute with a willing licensee over validity, infringement, and reasonable royalties. If the SEP owner’s infringement claim succeeds, it will receive a reasonable royalty calibrated to reward the inventive activity with an appropriate return. Moreover, the royalty will reflect the court’s determination that the asserted patent is valid and infringed. This may result in a ‘certainty premium’ that could raise the court-determined F/RAND royalty above the level that would be freely negotiated for patents of uncertain enforceability, giving the potential licensee the incentive to settle prior to litigation for an ex ante F/RAND rate. The royalty may also include interest to compensate the patent holder for any delay in receiving its payments.”

The fifth witness before the subcommittee was Thomas Stoll, principal of Stoll IP Consulting LLP and an advisor to the White House on IP policy for the last several years. He began by stating that “The misappropriation of intellectual property is a real threat to innovation and to investment in research and development in the United States. Similarly, the abuse of enforcement proceedings can do real harm to businesses. While ITC filings by all patent owners, including non-practicing entities, certainly spiked in 2011, over the last few years the ITC has made great strides in reducing the risk that ITC proceedings can be misused. The ITC’s own statistics show that the number of investigations instituted has dropped to historically consistent numbers and that the number of filings by non-practicing entities is lower than they were before the jump in overall filings.”

He continued, “To the extent the ITC had a patent-troll problem, it appears the Commission has addressed it. U.S. Patent laws are extremely beneficial to society. They provide the incentive for inventors and companies to invest in the development of ground-breaking new technologies knowing their investment can be protected. Start-ups and other small companies armed with IP are often a better bet for investors than those without, often allowing them to secure the funding they need to grow.

"Abraham Lincoln described the beneficial effect that patent laws have on innovation as ‘add[ing] the fuel of interest to the fire of genius.’ They also aid society by encouraging the disclosure of that ‘genius’ by even the smallest of companies, without fear that their new ideas will be stolen. The ITC is charged with preventing unfair trade practices including the theft or unauthorized use of intellectual property. It can prevent products made using misappropriated patented technologies from entering the United States. It also has the extraordinary authority to issue general exclusion orders barring all imports that infringe a patent, and not just those of the importer or manufacturer.

"While we still have great domestic manufactures like Boeing, Corning and many other household names, many of our products are imported from overseas. The ITC now is the only tribunal with the authority to issue broad injunctive relief in every case in which it finds infringement. In fact, injunctive relief is the only form of relief available in the ITC; a complainant cannot recover damages there. Until relatively recently, it was almost a given that if a patent owner prevailed in a district court case the court would award an injunction.”

Stoll explained what a patentee must do to receive injunctive relief from the International Trade Commission. “In accordance with 19 U.S.C. §1337(a)(3), a party claiming that it has been harmed by the importation of infringing products must show that someone is making or selling the patented product in the United States, and that their investment in a U.S. industry that requires protection. Specifically, the patent owner must first show that it or its licensee is practicing at least one claim of the asserted patent. An entity need not make the patented invention, but may base its claim of an industry in need of protection on the products of its licensee. Second, the patent owner must show that the relief sought is needed to protect a significant investment in plant and equipment, or employment of labor or capital, or that there is substantial investment in the patent’s exploitation, including engineering, research and development, or licensing.”

The sixth and final witness was Dominic Bianchi, the General Counsel for the United States International Trade Commission. He explained that “Intellectual property holders often file complaints under section 337 because they desire a relatively quick resolution to their disputes. The USITC is statutorily charged with completing its investigations expeditiously, and the USITC’s procedures are specially designed to meet this mandate. The average time to evidentiary hearing in a section 337 investigation is about 9.5 months, and most investigations are completed within 16-18 months.

“As I outline below, the Commission’s Section 337 proceedings provide a technically sound and fair process to resolve allegations of IP infringement and other unfair acts and methods of competition by imported articles that harm U.S. industries. Similar to the federal courts, a section 337 investigation includes all aspects of patent disputes, including topics relating to (1) validity; (2) infringement; and (3) remedy. Unlike the federal courts, the Commission does not institute an investigation before the sufficiency of the complaint is assessed. Once instituted, the USITC develops a complete administrative record based on discovery and provides a full and fair opportunity for the parties to present testimony and cross-examination at a hearing and to provide legal briefing. The Commission staffs its investigatory process with IP experts and lawyers and qualified administrative law judges (ALJs) solely dedicated to adjudicating IP cases.

“Moreover, the statute requires the Commission to focus upon whether complainants have adequately established a domestic industry before a violation may be found. Further, the public interest is required to be considered in every investigation where a violation is found and an appropriate remedy is being considered. Finally, the Commission has procedures to address potentially case-dispositive issues, including domestic industry within a matter of months."

He summarized by testifying that “The USITC applies section 337 and the substantive law involved to the facts of each investigation presented to it. The Commission has made a concerted effort to develop procedures that will increase efficiencies, and reduce cost and still ensure a fulsome record. The Commission routinely seeks input into its process and diligently considers feedback from its stakeholders on ways to improve its processes and procedures.”

After hearing from the six witnesses, the Subcommittee on the Courts, Intellectual Property, and the Internet Subcommittee adjourned and has taken no actions on this issue.

House Judiciary Subcommittee Offers a Solution in Search of a Problem – Part 1

With the recent lack of progress with several anti-patent rights bills brought before Congress in this session, the anti-intellectual property rights lobby has turned its efforts toward the alternate remedy available to patentees whose patents have been infringed, the International Trade Commission.

On April 14, The House of Representatives Judiciary Committee’s Subcommittee on the Courts, Intellectual Property and the Internet held a hearing to examine patent litigation activities at the U.S. International Trade Commission (ITC). The purpose of the hearing was ostensibly to review how patent disputes are handled by the Commission with the goal of determining if the ITC produces results that are fair to litigants, beneficial to the U.S. economy, and complementary to the work of U.S. District Courts. The underlying purpose for the hearing was clearly designed to explore how to weaken the enforcement authority of the ITC with the goal of weakening patent enforcement.

Six witnesses testified before the Subcommittee:

  • Deanna Tanner Okun, former Chairman of the International Trade Commission and currently a partner at the Adduci, Mastriani, & Schaumberg law firm
  • John Thorne, a partner at the Kellogg Huber Hansen Todd Evans & Figel law firm
  • Mark Whitaker, a partner at the Morrison & Foerster law firm
  • Fiona Morton, the Theodore Nierenberg Professor of Economics at the Yale University School of Management
  • Thomas Stoll, the principal at Stoll IP Consulting
  • Dominic Bianchi, General Counsel at the U.S. International Trade Commission

House Committee Chairman Bob Goodlatte, a Republican from Texas, set the tone for the hearing when he stated that “the IP Subcommittee will review how patent disputes are handled by the International Trade Commission in an effort to ensure fairness for American businesses. Recent alarming statistics indicate that patent assertion entities, commonly referred to as patent trolls, have used the ITC to exploit our patent laws. These ITC cases can result in injunctions that can keep imported goods out of the U.S. market. There are certain steps that the ITC can take to correct these problems and the Committee looks forward to a thorough examination of these potential patent litigation reform solutions.”

Rep. Goodlatte’s approach was matched by Subcommittee Chairman Darrell Issa, a Republican from California, who added that “In recent years, however, the International Trade Commission has been co-opted as a forum to assert weak or poorly issued patents against American businesses. We look forward to hearing from the witnesses on how we can reform this process to avoid unnecessary and costly litigation.”

The Subcommittee specifically addressed in this hearing Section 337 of the Trade Act of 1930 that gives the ITC the authority it has to issue injunctions that block the import into the U.S. of products that infringe U.S. Patents.

Deanna Okun, a former chair of the ITC, began her statement with a summary of the importance of innovation to the U.S. economy, and the role the ITC plays in protecting American innovation. She pointed out that innovation is a primary driver of U.S. economic growth, and that IP-intensive industries account for more than $5 trillion in value added and approximately 35% of U.S. gross domestic product. IP-intensive industries account for over 60% of U.S. exports and over 30% of U.S. employment!

Ms. Okun explained the importance of patent rights: “Constitutionally protected patent rights incentivize investments in innovation, a key engine of economic growth. Indeed, the U.S. economy is highly dependent on the innovation produced by universities, small businesses, and start-ups, which deploy significant investment in research and development and licensing programs. Notably, IP licensing is one of the few industries in which the United States enjoys a significant trade surplus, delivering billions to the U.S. economy every year.

“Licensing revenues facilitate a cycle of innovation, allowing IP owners to fund the research and development of future creations. According to the U.S. Chamber of Commerce, more than 50 percent of annual economic growth is attributable to technological innovation.

“Critics claim NPEs are easily satisfying the domestic industry requirement through dubious investments in efforts to license their patents. Consequently, they propose amending Section 337 to require complainants who rely on licensing to prove a domestic industry to show that the licensing activities led 'to the adoption and development of articles' that practice the asserted patent. This proposal is both unwise and unwarranted.

“The relief afforded by the ITC is often essential to ensuring meaningful protection of U.S. IPR. A U.S. company cannot easily obtain relief in district court against an infringing foreign manufacturer. Such a plaintiff must first establish personal jurisdiction over that manufacturer, which is typically accomplished through the company’s U.S. affiliate. Where a foreign manufacturer does not have a domestic affiliate, therefore – and many do not – it may be impossible to establish jurisdiction in federal court. Sometimes it is impossible even to identify foreign manufacturers. In such circumstances, the ITC’s in rem jurisdiction ensures that U.S. companies harmed by infringing imports can obtain effective relief.”

Ms. Okun added that “against this notable backdrop, Section 337 filings have decreased markedly in the past few years. The proposed ‘reforms’ are, therefore, a solution in search of a problem. Instead of seeking statutory changes that would weaken the ITC’s ability to combat foreign infringement, those who claim to want to reduce abusive patent litigation should applaud what is already happening at the Commission.”

John Thorne, as a patent litigator that represents infringers, and spent a portion of his career at Verizon, took – not surprisingly – a different approach from Ms. Okun. He began his testimony making two points. “First, despite Congress’s requirement that the ITC limit the availability of its parallel patent forum to protect a domestic industry involving ‘significant investment in plant and equipment,’ ‘labor or capital,’ or ‘engineering, research and development, or licensing.’ [17 U.S.C. § 1337(a)(3)], the ITC has become hospitable to hedge funds and legal entrepreneurs whose only ‘industry’ is the enforcement of patents and investments in patent enforcement. Second, one of the reasons for the ITC’s increasing popularity has been its willingness to creatively stretch its authorizing statute to allow it to hear new kinds of cases that go beyond the simple stopping of infringing articles at the borders.”

He continued. “Prior to 2006, no ITC investigation had been brought by any non-practicing entity. RPX Corp., a public company whose data are relied upon by many operating companies, reports that in 2012 more than half the companies sued at the ITC for patent infringement were sued by non-practicing entities (NPEs). In the most recent three years, NPEs accounted for about one quarter of the ITC’s patent docket measured by the number of companies sued in those years.”

Since NPEs sell no products of their own, they do not actually want the only remedy the ITC can grant. They are in business to extract royalty payments. An exclusion order is simply a means to create hold-up and extract greater royalties. Following the Supreme Court’s decision in eBay v. MercExchange [547 U.S. 388 (2006)], federal courts have denied injunctions to NPEs in 75% of cases, and when the injunction was contested it was denied in 90% of cases. The one forum that has continued to issue virtually automatic injunctive relief (in the form of an exclusion order) is the ITC.”

To his credit, Mr. Thorne added that “The ITC made a deliberate choice not to follow the Supreme Court’s decision in eBay and the Federal Circuit upheld that choice.”

He testified that the “ITC grants exclusion orders whenever it finds a violation of Section 337, including in instances where a district court would deny injunctive relief under eBay. NPEs take advantage of the diverging standards by filing at the ITC concurrently with district courts to increase the threat of injunctions to defendants or by filing at the ITC after district courts deny injunctions in order to get a second bite at the apple.”

Representing the anti-IP rights lobby, Mr. Thorne had several recommendations for the Subcommittee to consider:

  • The ITC should not open an investigation when a district court remedy is available.
  • To discourage forum shopping between the ITC and district courts, the ITC should follow the same rules established by Congress and the courts for district court cases.
  • NPEs should not be treated as a protectable domestic industry.
  • However, as the current statute provides, ex ante licensing that promotes new uses of patented technology (leading to the adoption and development of articles that incorporate the patent in question) may be a protectable domestic industry if it is substantial and if the other requirements are satisfied.
  • In proving a domestic industry based on licensing, a complainant should not be permitted to draw its licensees into the proceeding unless they agree.
  • The ITC should identify and resolve dispositive issues, such as domestic industry or standing, early in the case.
  • The ITC’s 100-day “pilot program” should be used in many more cases, and should always be available when there is a question regarding domestic industry as often occurs in NPE cases.
  • Because these cases may raise important questions of law, immediate appellate review should be allowed.
  • Exclusion orders should issue only if they are in the public interest. The ITC should terminate a case at any time during the investigation if the ITC determines an exclusion order would not be in the public interest.

Mark Whitaker, who is President-Elect of the American Intellectual Property Law Association, specifically addressed H.R. 4829, the “Trade Protection Not Troll Protection Act,” a bill currently before the Subcommittee. He began his testimony as Deanna Okun did, reminding the Subcommittee of the purpose of the ITC. “Congress intended that the Commission provide owners of intellectual property rights broad protections against a wide range of unfair acts of importation. Section 337 of the Trade Act of 1930 was intended to broadly cover unfair methods of competition and unfair acts in the import of articles.”

Mr. Whitaker provided some history. “In 1974, Congress significantly revamped Section 337 principally into its modern form. The amended provisions authorized the newly created International Trade Commission to impose remedies, whereas the prior version authorized the Tariff Commission to make recommendations to the President.”

He went on to explain how the ITC addresses the issue of NPEs who bring actions before it. The ITC gathers data on the NPEs that bring 337 investigations, and divides them into one of two groups (1.) Entities that obtain patents based on their research and development, and license those patents to manufacturers; and (2.) entities that purchase patents strictly to monetize them. In 2014, only three NPEs in the three complainants in the second category brought 337 actions before the ITC, just two in 2015, and just one in the first quarter of 2016.

Mr. Whitaker was critical of H.R. 4829’s requirement that a licensee join the patentee in filing a 337 action as a co-complainant. “This would require, for example, a research and development entity such as a university, to persuade one or more of its licensees to agree to be a co-complainant in order to make use of Section 337. Thus, this change could result in barring those beyond non-practicing entities that exist solely to monetize patent rights, such as universities and laboratories, from proceeding against infringing imports at the ITC. At bottom, such a change indelibly limits the property rights enjoyed by such entities as compared to others.”

He was also critical of a provision of H.R. 4829 that would allow the losing party to appeal to the Federal Circuit to request a stay of all further proceedings. “This measure would also apply to all Section 337 investigations, not only those brought by non-practicing entities. From the stand point of intellectual property rights holders, the ability to obtain expeditious relief against unfair imports is one of the most important features of Section 337. Adoption of this provision, however, would potentially delay relief in Section 337 for as much as a year or more in many investigations. This provision would also have the anomalous effect of encouraging those who lose before the Commission to drag out the appeals process as long as possible to engage in conduct the Commission had found to be in violation of the statute.”

Mr. Whitaker concluded that “While the purpose behind H.R. 4829, to ensure that the resources of the ITC are focused on protecting genuine domestic industries, is applauded, the work the Commission has already been able to accomplish in this effectively eliminates the need for a number of provisions in the bill. In addition, any future amendments to Section 337 should be exhaustively studied and considered so that they do not impose unintentional consequences to those beyond non-practicing entity cases.”

Next month, we summarize the testimony of the other three witnesses.

The Innovation Continuum: Putting Things in Perspective

At the recent NPE 2016 Conference in New York, a topic that came up repeatedly was the role that NPEs (or PAEs as the Federal Trade Commission calls them) play in the entire innovation experience – what we call in this article the “Innovation Continuum.” For the purpose of this article, we prefer the term “patent licensing company” to describe an enterprise that generates most of its income from licensing patents and other intellectual property.

First of all, let’s define the “assertion” in Patent Assertion Entity. The goal of any patent licensing company is to generate income by licensing its patents. At NPE 2016, we heard over and over again how patent licensing companies contacted infringers of their patents with the goal of working out a license, but their efforts were universally rebuffed, leaving them with no alternative but to assert their patents against the infringers. So clearly, assertion is not the goal. Assertion, in fact, is a subset of licensing.

There are many participants in the Innovation Continuum, and each has a role to play.

  • Independent inventors and institutional inventors (those who work for a business, university or other institution): Create inventions and file for patents on those inventions
  • Universities, research labs, hospitals and other innovation institutions: Employ the innovators who create inventions, and then file for patents on those inventions
  • Businesses of all sizes: Employ innovators who create inventions, file for patents for those inventions, and sell patented products to produce a return on their innovation investment
  • Patent practitioners: Help inventors, universities and businesses secure patents
  • Patent litigators: Assist patentees in the licensing of their patents, ensuring a return on the innovation investment of the patentee
  • Patent licensing firms (i.e., NPEs or PAEs): Provide liquidity for the asset class known as “intellectual property” and insure that a return is made on the innovation investment of the inventors and assignees of the patents it monetizes
  • Patent brokers: Connect sellers with buyers and licensors with licensees
  • Venture capitalists and private equity firms: Provide capital to fund technology-based businesses

The Innovation Continuum is a “continuum” because it has many steps that collectively create a total that is greater than the sum of the parts, and it has diverse elements that are all part of the whole but loop back on themselves as processes are repeated. The key element here is producing a return on the innovation investment.

  • An independent inventor files for a patent on his or her invention. As an independent inventor, he is both the inventor and assignee of the patent.
  • An institutional inventor – often a researcher, scientist, engineer or other professional – files for a patent on an invention, and the patent is assigned to his or her employer.
  • When a patent is assigned to a university, it seeks to license the technology with the goal of receiving a return on its innovation investment through licensing revenue. If a business infringes a university’s patent, the university will assert the patent to collect what is due it for the use of its intellectual property. Earlier this year, Carnegie Mellon won a multi-million dollar award from Marvel Technology for infringement of Carnegie Mellon patents by the semiconductor company.
  • When a patent is assigned to a business, the business “practices the patent” – that is, it produces a product that uses the invention covered by the patent. Part of the profit the business makes on the sales of its patented products produces a return on the business’s innovation investment. If a competitor of that business infringes one of the company’s patents, the company will assert the patent to collect what is due it for the use of its intellectual property. That is why Apple sued Samsung.
  • However, if a business receives a patent, but it does not practice the patent, what options does it have? Businesses change direction from time to time. A business might spend years developing technology in a specific area and filing for patents on that technology, only to find itself focusing on other technologies in other industries as markets, competition and opportunities change. In that case, a business will sell its patent to another business or to a patent licensing company, or partner with a patent licensing company to monetize its patents. The revenue generated by the sale of the patent or its monetization by the patent licensing company produces a return for the company on its innovation investment.
  • An independent inventor receives a patent, but without the means to produce a product that uses his invention, the inventor either sells the patent to a patent licensing company or partners with a patent licensing company to monetize his patent. The revenue generated by the sales or monetization of the patent produces a return on the independent inventor’s innovation investment.
  • The licensing fees collected by universities enable them to invest in additional research, develop yet more inventions, and file for patents on those inventions.
  • The profits on the sale of patented products enable a business to invest in additional research, develop yet more inventions, and file for patents for those inventions.
  • Revenue from the sale or monetization of unpracticed patents enables a business to invest in additional research, develop yet more inventions, and file for patents for those inventions.
  • Revenue from the sale or monetization of his patent enables an inventor to perform ongoing research, develop yet more inventions, and file for patents for those inventions.
  • Venture capital and private equity firms invest in businesses so those businesses can commercialize their technology – often covered by patents – and produce a return that funds additional innovation, produces a return for investors, and creates jobs for Americans.
  • When a start-up fails, the investor can often sell the patents to a technology licensing company to recoup a portion of its investment. In this element in the Continuum, the patent licensing company provides a key service – liquidity for an asset class.
  • A healthy demand for patents insures that patents have value, and that rewards innovation, and that, in turn, funds future research and innovation.

In this month’s IP News section of our Wealth of Ideas newsletter, there is an interesting article that illustrates just one element in the Innovation Continuum: Liquidity for the patent asset class. Two companies – Metaswitch Networks and Genband – sued and then counter-sued each other. And while these are both fine companies – and we totally support their defense of their intellectual property rights – it is interesting to note that of the seven patents that Metaswitch asserted against Genband, four were for inventions that Metaswitch did not develop in-house. Four of the seven patents were purchased from Nortel Networks. Of the seven patents that Genband asserted against Metaswitch Networks in its counter-lawsuit, only three were home-grown. Two were purchased from an inventor, and two from Data Connection.

Our point here is that since both Metaswitch Networks and Genband are market participants – and not NPEs – the “patent reformers” do not criticize their assertion of their patent rights. But Metaswitch’s and Genband’s willingness to buy patents to supplement their in-house intellectual property helped to maintain liquidity for an asset class that is critical to American innovation and American competitiveness in an intensely competitive global marketplace.

If our elected officials and the judges they appoint understood the Innovation Continuum, we would NOT have the weakening we have of intellectual property rights by Congress and the judiciary.

Out of 2,600 Challenges, Patent Trial and Appeal Board Has Invalidated 571 Patents

Since the Patent Trial and Appeal Board (PTAB) replaced the Board of Patent Appeals and Interferences (BPAI), a total of 2,600 petitions for Inter Partes Review were filed with the Board. Of these, 571 patents (22%) were invalidated as a result of all claims being ruled unpatentable. There were 114 patents that survived with only some claims ruled unpatentable. And 107 patents survived with all claims intact. We take a look this month at some Patent Trial and Appeal Board statistics, but first a little background.

The America Invents Act (AIA) was enacted in September 2011, and the law replaced the Board of Patent Appeals and Interferences with the Patent Trial and Appeal Board effective September 2012. The AIA also introduced three new proceedings before the U.S. Patent and Trademark Office (USPTO) regarding challenges of patent validity.

Inter Partes Review: This proceeding replaced the Inter Partes Reexamination. The law stipulates that there be a limit of 281 proceedings per year through 2016 to avoid overwhelming the PTAB. This proceeding applies to patents issued as of September 2012 or later. An Inter Partes Review differs from a Post Grant Review in two important aspects.

An Inter Partes Review can only be requested nine months or later from the issue date of the patent since the Post Grant Review (described in next paragraph) covers recently issued patents. Second, an Inter Partes Review can only be based on patents and printed publications. While this limits the scope of an Inter Partes Review, it also limits the estoppel affect. While an accused infringer who had previously requested an Inter Partes Review may not raise an invalidity defense based on patents and printed publications during litigation, the accused infringer can challenge at trial the novelty and non-obviousness of the invention based on evidence of public use or sale, insufficient disclosure or patentability ineligibility.

Post Grant Review: This new proceeding, also created by the America Invents Act, replaced the Ex Parte Reexamination. It enables a third party to request a review of an issued patent during the nine months following the issue date of the patent and before any declaratory judgment of invalidity has been filed by the requester. Post Grant Reviews apply to patents filed as of March 2013 or later.

Unlike an Ex-Parte Reexamination, the third party in the filing of a Post Grant Review must be identified. The request can be based on any ground of invalidity except failure to disclose the best mode. That means that a patent can be challenged in a Post Grant Review on the basis of novelty, non-obviousness, sufficiency of the description, and patentability eligibility. Novelty and non-obviousness can be challenged based on patents, publications, evidence of public use, products offered for sale, and other forms of public disclosure. A request for a Post Grant Review is not granted automatically. The request must establish that it is “more likely than not that at least one of the claims challenged is unpatentable,” or that there is a novel or unsettled legal question that is important to other patents or patent applications.

Transitional Program for Business Method Patents: The AIA established this proceeding for businesses that were sued for patent infringement of a business method patent that is not for “a technological invention.” The law authorizes this proceeding through 2020.

The Numbers: The USPTO, as a federal agency, operates on an October 1-through-September 30 Fiscal Year, so the numbers are presented for those periods.

Total Filings: For Fiscal 2014 (October 1, 2013 through September 30, 2014), 1,310 Inter Partes Reviews were filed with the PTAB. There were 177 Covered Business Method Reviews, and just two Post Grant Reviews filed. For Fiscal 2015 (October 1, 2014 through September 30, 2015), Inter Partes Review filings increased by 33% to 1,737, while Covered Business Method Reviews dropped to 149, and there were just 11 Post Grant Reviews.

Technology: Of the total requests before the Patent Trial and Appeal Board in Fiscal 2014 and 2015, the largest share was – not surprisingly – in Electrical/Computer technologies: 962 (65%) in 2014 and 1,193 (63%) in 2015. Mechanical/Business Method reviews were second both years, with 318 (21%) in 2014 and 443 (23%) in 2015. In 2014, there were 114 filings (8%) in Chemical and 92 filings (6%) in Bio/Pharma. The numbers shifted in Fiscal 2015, with 167 filings (9%) in Bio/Pharm and 90 filings (5%) in Chemical.

Acceptances and Denials: Of the 1,310 requests for Inter Partes Review filed Fiscal 2014, 557 were instituted and 193 were denied. Of the 1,737 Inter Partes Review requests filed in Fiscal 2015, 801 were instituted and 426 were denied.

Settlements: In 2014, 106 Inter Partes Review filings were settled before institution and 104 were settled after institution of the review. In 2015, 275 Inter Partes Review filings were settled pre-institution and 189 were settled post-institution.

Trials: Since the inception of the Inter Partes Review under the America Invents Act, 2,600 total petitions were filed. Of those, 1,313 were denied and there was no trial, and 1,287 were accepted and went to trial. Of the filings that went to trial, 495 were settled during the trial, and 792 trials were completed. Of the 792 Inter Partes Reviews that went to the PTAB, 571patents had all claims ruled as unpatentable, 114resulted in some claims being ruled unpatentable, and 107 patents survived with all claims intact.

Analysis: The bottom line is that of the 2,600 patents that were challenged by Inter Partes Review, 571 or 22% were invalidated by the Patent Trial and Appeal Board. Is the glass half full because over three-quarters of the issued patents that were challenged survived the process in some form? Or is the glass half-empty because almost one-fourth of all challenged patents were invalidated?

Here is a recap of the numbers.

AIA Review Filings Fiscal Year: 2014 2015
Inter Partes Review Filings 1,310 1,737
Covered Business Method Review Filings 177 149
Post Grant Review Filings 2 11
Filings in Electrical/Computer 962 1,193
Filings in Mechanical/Business Methods 318 443
Filings in Chemical 114 90
Filings in Bio/Pharm 92 167
Inter Partes Review Filings Denied 193 426
Inter Partes Review Filings Instituted 557 801
Inter Partes Review Filings Settled Pre-Institution 106 275
Inter Partes Review Filings Settled Post-Institution 104 189
Disposition of Inter Partes Review Petitions
Total Filings: 2,600 (100%)
Trials Not Instituted 1,313 (50%)
Trials Instituted 1,287 (50%)
Petitions Denied 786 (30%)
Terminated Before Institution 527 (20%)
Terminated After Institution 495 (19%)
Patents Went to Trial 792 (30%)
Patents Invalidated 571 (22%)
Patents with Some Claims Unpatentable 114 (4%)
Patents with No Claims Unpatentable 107 (4%)

2015 Was an Up and Down Year for Issued U.S. Patents and Patent Applications

We have seen a steady increase in the number of patents issued each year by the U.S. Patent and Trademark Office since 2009. The statistics are in for calendar year 2015, and it appears that the growth trend is slowing. With a concerted effort by the USPTO to decrease patent pendency, some believed that we would see more patents issued in 2015, but that was not the case. Many see the issuance of U.S. Patents to U.S. businesses and universities as a quantitative indicator of American innovation, so we are analyzing the numbers from that perspective.

Issued Utility Patents: There was a slight drop in issued Utility Patents in 2015 to 299,383, down from the 301,643 Utility Patents that were issued in 2014, a decrease of less than 1%. Prior to that, we saw a steady increase in the issuance of U.S. Utility Patents going back to 2010.

In 2007, 2008 and 2009, the U.S. Patent and Trademark Office issued about 167,000 Utility Patents each of those three years. After three years of no significant increase, there was a significant jump in 2010 to 219,908 issued Utility Patents.

From 2010 through 2014, issuance of U.S. Utility Patents grew steadily to 224,876 in 2011, 253,631 in 2012, and 278,518 in 2013. The last year that there was a significant decrease in the issuance of Utility Patents was 2007 when 157,115 Utility Patents were issued, down from 2006 when 173,789 Utility Patents were issued.

Issued Design Patents: This category has been up and down. There were 26,000 U.S. Design Patents issued in 2015, up almost 10% from the 23,666 Design Patents issued in 2014. However, with 23,478 Design Patent issued in 2013, 2014 was virtually flat. There was an increase of almost 7% in Design Patents issued in 2013 from the 21,959 Design Patents issued in 2012. With 21,361 Design Patents issued in 2011, Design Patents issuances were essentially flat going into 2012.

Ten-Year Trend: If we smooth out the annual ups and downs, there has clearly been growth in the issuance of U.S. Patents over the last ten years. There were 173,789 U.S. Utility Patents issued in 2006, so the 299,383 Utility Patents issued in 2015 represent a 72% ten-year increase! There were 20,966 Design Patents issued in 2006, so the 26,000 U.S. Design Patents issued in 2015 represents an increase of 24%.

Patent Applications: Another metric of American innovation is the number of patent applications filed each year. While the number of issued Utility and Design Patents goes up and down, Patent Applications have grown steadily. There were 381,866 applications filed in 2015, up from the 379,824 filed in 2014. And 2014 saw an increase from the 346,646 Patent Applications filed in 2013. Over the last ten years, Patent Application filings have increased from 294,165 in 2006 to 381,866 in 2015, an increase of almost 30%! The fact that 30% more applications were filed, but issued Utility Patents grew by 72% over the same ten-year period may indicate that better applications are being filed.

Top Patent Assignees: While many American icons are on the list of the top recipients of U.S. Patents, many foreign businesses are also on the list. IBM has been the leader for the past several years, but it was bumped out of that spot by Samsung* that was issued a whopping 8,119 U.S. Patents in 2015! IBM was second with 6,444. Next was Japan-based Canon at 4,202, followed by Google at 3,356. Qualcomm came in fifth with 2,997 U.S. Patents, and Microsoft was sixth with 2,729 issued patents. Korea-based LG was close behind Microsoft, receiving 2,717 U.S. patents, and Japan-based Toshiba was just as close receiving 2,701 patents. The ninth spot went to Sony with 2,475 U.S. Patents, and Intel finished tenth with 2,326 patents issued to it in 2015.

Of the top ten recipients of U.S. Utility Patents in 2015, six are U.S. companies, two are Korean, and two are Japanese.

Top Patent Applicants: Not surprisingly, the ranking of U.S. Patent Applications pretty closely follows the list of patent recipients. Samsung* filed 9,771 U.S. Patent Applications in 2015, while second-place IBM filed 6,794. Canon was third with 4,186, Toshiba was fourth with 3,319, and Qualcomm was fifth with 3,202. Google was sixth with 2,985 Patent Applications filed in 2015, followed by Intel with 2,977, LG with 2,736, Taiwan Semiconductor with 2,695, and Sony finishing tenth with 2,596. Among the top applicants for U.S. Patents, only four are U.S. businesses. Three are Japanese, two are Korean, and one is Taiwan-based.

Top University Patentees: Significant basic research is performed by universities. The top ten university recipients of U.S. Patents in 2015 are the University of California, MIT, Tsinghua University (China), the University of Texas, Stanford University, Johns-Hopkins, Washington University, Columbia University and KAIST (Korea Institute for Advanced Study). Of the top 50 university recipients of U.S. Patents, 15 are foreign universities.

This chart shows issued U.S. Utility Patents, issued U.S. Design Patents, and U.S. Patent Applications for the last ten years.

Year Issued U.S. Utility Patents Issued U.S. Design Patents Issued U.S. Applications
2006 173,789 20,966 294,165
2007 157,115 24,069 299,768
2008 157,939 25,574 320,224
2009 167,554 23,125 327,921
2010 219,908 22,805 332,966
2011 224,876 21,361 320,905
2012 253,631 21,959 331,239
2013 278,518 23,478 346,646
2014 301,643 23,666 379,824
2015 299,383 26,000 381,886



This chart shows issued U.S. Patents and Patent Applications filed in 2015.

Applicant Issued U.S. Patents Issued U.S. Applications
Samsung* 8,119 9,771
IBM 6,444 6,794
Canon 4,202 4,186
Google 3,356 2,985
Qualcomm 2,997 3,202
Microsoft 2,729 2,315
LG Electronics 2,717 2,736
Toshiba 2,701 3,319
Sony 2,475 2,596
Intel 2,326 2,977
Apple 2,234 2,097
Toyota 1,836 2,367
General Electric 1,823 2,159
Taiwan Semiconductor 1,762 2,695
Global Foundries 1,696 1,813
Seiko-Epson 1,639 1,980
Fujitsu 1,493 1,920
Ford 1,205 1,804

* Samsung was issued patents and filed for patent applications under both Samsung Electronics and Samsung Display, so we combined the two under “Samsung.”