I am repeating myself over and over: the AIA 2013 can be a blessing for inventors and small companies, especially for those who stay ahead of the curve.
I found the following article on one of the most famous websites in the patent space.
The thesis of the article is this: “Disruptive Startups Cannot Survive in a Post-AIA Patent Landscape”
That sounds like a contradiction to me.
Let’s analyze it.
The author of the article is a successful business founder, and he is the CEO of his company. Neither his name nor the name of his company are important here. Let’s call his company “Unicorn”, although it is currently not one: the current market capitalization is about US$ 330 Mio. But it once was a unicorn, please check out its stock chart as of 17 Nov 2022:
Wikipedia says that the company went public back in 2006, at US$7.00. The graph above shows that the stock price dropped to an all-time-low value of US$ 0.17 on 24 April 2020, and it went back to US$ 8.37 on 30 July 2021. That is a gain of 4,900% in only 15 months’ time, and it sounds like Bitcoin gains. It possibly is.
From far, I would say that a share price between US$0.7 and US$1.8 is considered to be “normal”, based on the historic data.
I believe that it would be worth having a closer look at the IPO which was done back in 2006. And what has happened over the past 2 years? What caused that hump in the stock price of the Unicorn?
But that leads away from what I am supposed to write about: what has all this to do with patent law?
How It Is to Work at Unicorn
Here comes Unicorn’s Glassdoor Rating:
I have never seen a lower Glassdoor approval rating of a company CEO before: only 38% of the employees are approving him. Something is seriously wrong here.
The Author Talking
The author begins his article with the following thesis:
The U.S. patent system is now actively working against disruptors like us and decisively in favor of Big Tech companies.
I do not think that this can be true.
First, it is unclear what the author defines as the “U.S. patent system”. Probably he thinks that this comprises the patent office, and the court system. Possibly also the lawmaker, and the legal profession in the form of lawyers and patent attorneys/agents.
Second, it is unthinkable that one of the players of this “U.S. patent system” actively engages against companies like the Unicorn. So what is the meaning of “actively working” in the author’s statement?
What I believe is that the author tried to use the “U.S. patent system” for the benefit of his company, and this has fired back on him.
And the article is about ventilating the lamentations of the author to a broader basis of listeners.
Background Info About the Unicorn
Here is what the author says about his Unicorn:
I founded (Unicorn) in Irvine, California, over 20 years ago to develop the most sophisticated memory module technology in the world. We succeeded, shipping over a billion dollars of product and partnering with top companies, such as IBM, HP and Dell, to power their high performance computers. (Unicorn) continues to invest heavily in R&D in the U.S. We hold more than 130 patents, many of which have been designated as standards-essential. Our memory technology has benefited consumers, businesses and the U.S. military as it is now an integral part of advanced computers deployed in a variety of industries.
Not bad at all, but: sales of US$ 1,000mio over a period of 20 years translate to annual sales of US$50mio. And that makes a Unicorn?
Take this as a warning. Times are changing right now and a company valuation that is a multiple of its sales revenue was definitely not “normal” before the year 2001 when the dot.com bubble burst. You may not remember this, but I do because I was 35 years old when that happened.
What Happened to the Unicorn
Here is what confirms what I have said above. The author and his Unicorn got themselves into some trouble, by leveraging on the “U.S. patent system”:
When we began the company, we were under the impression that securing a U.S. patent was the high-water mark of innovation and that this would protect our inventions against infringement. A patent, we believed, would allow small innovators like (Unicorn) to compete with large incumbents that wield enormous market power. It’s a maxim in business that Goliaths leverage scale to grow while Davids must innovate to survive. Historically, the patent system has helped even the playing field between the large incumbents and disruptive newcomers. However, after an unprecedented, decade-long fight against one of the largest companies in the world, I’ve come to the conclusion that this is no longer the case. The U.S. patent system is now actively working against disruptors like us and decisively in favor of Big Tech companies.
Let these statements melt in your mouth, it is a list of common myths:
- securing a U.S. patent is the high-water mark of innovation
- this would protect (our) inventions against infringement
- a patent allows small innovators to compete with large incumbents that wield enormous market power
- historically, the patent system has helped even the playing field between the large incumbents and disruptive newcomers
- “Goliaths” leverage scale to grow while “Davids” must innovate to survive
Let’s bust these myths one by one, from an objective point of view.
Myth #1: “Securing a U.S. patent is the high-water mark of innovation”
There is nothing about “securing” here. All you need to do in order to obtain a granted patent in any jurisdiction of this world is to file a patent application with a patent claim that describes something that is novel and inventive. Yes, there are some additional restrictions, but if you look at the technical area of the Unicorn, these are the two main requirements that apply for obtaining a granted patent, be it in the USA or elsewhere.
If your patent application is drafted well then it is almost impossible to not receive a granted patent for the claimed invention: limit your claim as much as needed and you will get a granted patent for the subject matter of the claim. You can trust me: my team and I have prosecuted more than 18,000 patents over the past 30 years, in the most important markets of this world, and we have lost only a few patent applications because of a negative decision of the patent office. Most patent applications that did not convert into a granted patent were abandoned by the applicant, mainly because of cost reasons.
In short words, there is nothing to be proud of a granted patent.
This bold statement comes with a big “BUT”. Patent law is three-dimensional, and that is overlooked by simple-minded spirits.
Yes, you can get a patent for almost anything in the technical area of the Unicorn. These criteria lay out the dimensions “x” and “y” of the patent system. But there is a third dimension: will that patent help you with your company’s patent strategy? That is the difficult part of using any patent system in this world, including the “U.S. patent system”. Can you secure a patent claim that helps you with your business plan. The word “secure” is chosen well in that context. While it is simple to get any granted patent it is often difficult to get a patent that is useful for your business.
Myth #2: “A granted patent protects (our) inventions against infringement”
No, the patent systems in this world do not automatically protect patented inventions against infringement. There is no “patent infringement police” who would watch what the market participants do.
All what the patent systems in this world can do is to provide a basis for claiming damages and injunctions against third parties by the patent owners, if they believe that their patents are infringed. That is a big difference.
And claiming damages and injunctions does not mean that you will be successful in doing so.
Being right and getting justice are two different things.
You are welcome.
Myth #3: “A patent allows small innovators to compete with large incumbents that wield enormous market power”
That is complete nonsense, and it always was.
A patent infringement lawsuit is a long and exciting journey. There are many defenses that are only known to patent litigation experts, and it can always come out that a patent is declared partly or fully invalid, because of many reasons. This is why it is not recommended to sue an alleged patent infringer for infringing only one single patent. It is always better to base one’s patent infringement claims on at three or four patents, if possible. And patents that are asserted in court should be drafted in a very careful manner so that they are considered “litigation grade”, please check out my screencast video “Patent Application Types And When To Apply Them For What” (click here). Never try to assert a “non-litigation grade patent” in court.
Needless to say that in some countries, patent litigations are more expensive than in other countries. With the USA being the most expensive country for such a venture, followed by UPC land, the UK, and Singapore. And in some countries can be extended more than in other countries.
As a patent attorney with soon 30 years of experience in the area of Intellectual Property, I would say that patent litigation is not what most companies should invest time and money into. And especially start-ups and small companies should stay away from such activities unless they have a large war chest, filled with plenty of gaming money. That does not mean that patents are useless, they can be useful for plenty of other motives: please check out my screencast video “Motives For Filing A Patent Application” (click here).
Myth #4: “Historically, the patent system has helped even the playing field between the large incumbents and disruptive newcomers”
The truth is: the patent system was never designed to help disruptive newcomers in the form of under-funded founders or sole inventors. If you do not believe me then watch the movie “Flash of Genius” (2008). It is a wonderful movie. It is a story of a man who had his invention copied by the Ford Motor Company. It took him years to prove this, and it cost him his marriage.
Ironically, the movie was also a box office flop. Every sole inventor should watch it. The movie lost millions of dollars for the people who put up the money to produce a movie about something that people don’t care anything about: inventors. How many times have you paid to go to a movie about an inventor? Somebody had a great screenplay, and he was convinced that if he could just raise $20 million, the public would pay $80 million to see the movie. Basically, this someone also was an inventor. He thought he was going to create a market for his artistic invention. He got people to put up the money to do it. Then, as I would have predicted, it lost all the money they sank into it.
If a large company that has a lot of money to spend on lawsuits uses an invention that is patented by someone else, it will take a lot of money to assert these patents against that large company. This is the basic economic reality of the patent system. And it was never different, even before America Invents Act 2013 coming into force.
There is an entire area of the patent law that deals with designing around existing patents such that these patents are not infringed. Another way of making life difficult for smaller companies is to look at an invention, and then develop new ways of improving it and filing new patent applications for these improvements. That is called “blocking for the future”. Or patenting developments that are otherwise associated with the original invention. That is called “inventing on top of”. These two measures create a kind of barrier around the earlier invention. They give the inventor the original credit, but they shave off all the credits for the future developments of the invention.
In very short words, patents are basically useless for a small under-funded company if the owner plans to use them in litigation. The following problems in asserting patents against alleged infringers apply worldwide, and not only in the U.S.: no or very limited injunctive relief, no easily applicable damages models, obviousness determinations untethered, patent invalidations happening in 50% to 80% of the cases, court venue chaos, astronomical costs, and decades spent at the patent offices and in the courts for creating and protecting inventions. And as there is a figure for the likelihood that a patent will be invalidated in an invalidation proceeding that weakens all patents, so all patents have less value.
The patent system is not dead for small applicants, though. There are still many good reasons for filing patents, and I have even put together a short screencast movie about this (click here).
But as a small fry, filing patents with the goal to squeeze out license fees from much bigger players will almost never work out.
Myth #5: “Goliaths leverage scale to grow while Davids must innovate to survive”
Now let’s analyze this statement. The CEO is talking about a “Goliath” and about a “David”.
This is a hint to a story in the 1st book of Samuel, chapter 17, of the Bible. Goliath stands for the godless Philistines, and David is a Child of God. Goliath is tall in stature and strength, with an impressive sword. David is a small boy, too weak even for wearing armor, not to speak of fighting with a sword. Goliath is full of arrogance, while David is swiftly realizing that the only way to win this uneven fight is to rely on his trained method of using a sling and a stone. He was sure to win that fight, first because he is a Child of God (while Goliath is obviously not) and because he has earlier used the sling and stone successfully against bears and lions. So why would this method not work against an arrogant enemy of God?
As used in the context here, the “Goliath” is used for the Google company. And the Unicorn company is “David”. Does the CEO want to claim the moral high ground for his Unicorn company here?
Next one: the CEO tells us that big companies (the “Goliaths”) are supposed to (only) leverage scale for growth while innovation is left for smaller companies. I find this statement laughable in the context of the Google company which is always among the 20 biggest patent filers in the U.S.
Next one: the CEO tells us that small companies (the “Davids”) are supposed to (only) innovate. I can almost hear the CEO’s trembling voice when I read the verb “to survive” in this context. Can you now see the bad use of rhetoric in this sentence?
The tagline “Goliaths” leverage scale to grow, while the small companies must innovate” is simply a wrong statement and a gross oversimplification. Most people who use the term “innovation” cannot properly define what they want to say. I have written an entire article about that (click here), please check it out if you cannot define “innovation” yourself. The contrary is true: both large companies and small companies need to innovate in order to survive. And both large companies and small companies need to penetrate the existing markets in order to survive.
I can already see where this is heading. A minority of the inventors and IP people in the U.S. believe that the America Invents Act (AIA) 2013 was the one isolated change of law that turned a paradise for inventors into a dire strait. It destroyed the patent system. It caused the Unicorn company to lose a case against the Google company. The U.S. will lose all its innovation because of that law. Heaven will collapse over us.
But let’s see how our CEO continues his story:
Repeated Patent Attacks
Starting in 2005, (Unicorn) began working with Google. Our early breakthrough design in advanced memory modules helped power Google’s search engine at a time when it was gaining dominance. But, after several years of partnership, Google stopped purchasing our products and decided instead to build and consume infringing knock-offs. Faced with blatant theft of our intellectual property, (Unicorn) approached Google to initiate licensing discussions. Google instead preemptively sued us in 2009 and we responded in kind.
Following this, Google – in concert with their partners – challenged the validity of our ‘912 patent in proceedings before the United States Patent and Trademark Office (USPTO). This challenge initiated a stay in the patent suit that lasted at first for a decade, and, incredibly is back in effect. This initial challenge, a pre-America Invents Act (AIA) inter partes reexamination, eventually resulted in the USPTO upholding our patent as valid. However, following the passage of the AIA in 2012, the ‘912 patent reexam result was subjected to a PTAB review. Years later, the Board validated the ‘912 patent’s reexam result. Following that, even more reexaminations were pressed by more entities, with the examiner affirming claims of the ‘912 patent again, and then the PTAB finding the claims valid – again – in 2018. Finally, in 2020, the U.S. Court of Appeals for the Federal Circuit affirmed these multiple decisions and conclusively (or so we thought) found the ‘912 patent was valid – over ten years after our dispute with Google first began. All the while, our patented technology has been used by Google and other implementers free of charge.
We thought that after multiple reexam validations, multiple PTAB approvals, and an affirmation by the Federal Circuit, we had finally been given a quiet title to our invention. We were wrong.
The Fight Continues
Despite this patent being found valid FIVE previous times, including by the Federal Circuit Court of Appeals, Samsung, working in collaboration with Google, filed yet another IPR against the ‘912 patent earlier this year. Congress never intended IPRs to be used to endlessly harass patent-holders. Yet, the PTAB, now under its fourth USPTO Director since the case commenced, has just instituted this challenge. Google, with a market capitalization of over $1 trillion dollars, has now leveraged the system to avoid facing a trial for infringing our seminal patented technology for 13 years.
When you read this story, what is your impression?
Did I promise too much in my above refutation of Myth #4: “Historically, the patent system has helped even the playing field between the large incumbents and disruptive newcomers”?
Do you have the impression that this was a successful venture? I don’t. I feel rather depressed, instead.
That is what we learn early in life: Don’t bring a knife to a gunfight.
The CEO Has Now Realized What Is Going On
The CEO continues:
Unfortunately, this is part of a common and predictable playbook for Big Tech companies. Rather than take a license, they exploit the AIA’s IPR process to hold-out and use the technology for free with impunity. The judicial system is not fast to begin with. The IPR process adds years on top of this to tie the hands of patent holders and deny them their day in court. Google and Samsung alone brought 1,185 PTAB challenges between 2012 and 2021. They are not challenging “bad” or “low quality” patents per the original intent of the IPR process. The reality is that Big Tech companies rarely challenge bad patents; they tie up the best patents that pose the greatest competitive threat. The decision to hold out is based on business necessity, not legal merit.
Yes, he is right. Battles in court are not always fought only on the merits of the case but also by leveraging procedural law. If he realizes this only now then this is a bit late. Why did he not actively leverage procedural law?
I have seldom read a more naive statement than this.
Now About the Remedy
This is what our CEO is suggesting going forward.
An Institutional Fix is the Only Way Forward
(Unicorn) will continue to innovate. But I could not in good faith encourage young entrepreneurs with new ideas to assume the U.S. patent system will not be misused by Big Tech. The U.S. patent system was established under the Constitution to promote innovation and encourage practitioners to create disruptive technologies from which the benefits can flow to society at-large. For hundreds of years, the system was the underpinning of our innovation ecosystem and helped make the American economy the most powerful in the world. Over the decade of its existence, the AIA has upended this fundamental precept. A patent today is no longer a quiet title to protect your innovation. Nor is it an incentive to innovate, as it does not protect innovation. Rather the best patents are an invitation to endless, duplicative challenges by the biggest companies, allowing them to hold out for years while they use the patented technology for free.
Congress needs to end serial and abusive attacks on legitimate patents and patent holders. It can be done; the current system is not what the legislators envisioned when the AIA was passed. The market response to the systemic weakening of our patent system is evidenced by inventors taking their patent applications to China, where the numbers of patent issued has grown dramatically over the past few years while the U.S. patent issuances have remained stagnant. At a time when our country is investing hundreds of billions in the semiconductor industry in order to preserve our global competitive advantage, the legislature should roll back the pernicious fallout of the AIA and preserve the original intent of the patent system, which helped to create our competitive advantage in the first place.
I am surprised that the CEO is not requesting a change of the U.S. constitution. The many allegations in the two paragraphs above culminate in the term “serial and abusive attacks on legitimate patents and patent holders”.
What I can say is that the changes that he is requesting are unlikely to happen, for many reasons.
The solution is easy. It would clearly be pragmatic.
Our CEO went through the first 3 stages of pain, and he barely scratched the 4th stage “depression”. Which may come soon if the stock price of the Unicorn company continues to fall.
The question is rather whether our CEO would understand the concept of “acceptance” which is the 5th stage of pain. Without acceptance, chances are high that the Unicorn company will soon be a penny stock again.
What a good example for life that CEO is. Don’t copy it.
Martin “Pain” Schweiger