Patent Unfairness

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A new administrative tribunal is killing patents and hampering innovation

On August 22, a federal appeals court severely criticized the Patent & Trademark Office for deliberately packing the number of administrative judges in a tribunal known as the Patent Trial & Appeal Board (PTAB) in order to get the preordained results they wanted to reach. Unfortunately, such abuses are common at the PTAB.

Congress created the PTAB in 2011 to address concerns about low-quality patents being mistakenly granted by the Patent Office. The PTAB would be staffed by technical experts and be more accessible, cheaper, and faster than federal courts in canceling these “bad patents.” This theory was not put into practice. The PTAB instead has imposed enormous costs on patent owners and created destructive uncertainty for the innovation economy.

For starters, the ease of filing a PTAB petition to challenge a patent’s validity has invited much mischief. Anyone can file as many petitions as they want in challenging the validity of any patent, and they can file it for any reason whatsoever, such as by an activist organization dedicated to eliminating all patents on computer software. Moreover, there is no harm in filing a petition, just the comparatively cheaper filing fee than the costs of litigating in federal court. The only person who can lose before the PTAB is the patent owner.

PTAB petitions have been filed by hedge fund managers seeking merely to profit from short selling a company’s stock when its price drops in response to the filing, by trade associations solely advancing the immediate commercial interests of their members, by activists and policy advocacy organizations, and even by people with personal vendettas against patent owners.

The PTAB also has adopted rules that tilt the balance against patent owners. It applies, for example, a much lower burden of proof to invalidate a patent than do federal courts. It also routinely prohibits patent owners in revising their patents to fix the quality problems, despite Congress expressly providing for a right to amend patents in the 2011 law creating the PTAB.

These and other problems, including the packing of the PTAB judges condemned by a federal court, are the cause of the PTAB’s extremely high kill rates of patents. For example, it has a 98% invalidation rate of patents on commercial innovations known as “business methods.” One former federal judge has referred to PTAB hearings as “death squads for patents,” and proving that this seemingly heavy-handed rhetoric was not off base, the former chief judge of the PTAB embraced this designation.

These problems are particularly hard-felt by individual inventors—just ask Josh Malone, inventor of “Bunch O Balloons,” a device that attaches to a water hose and can fill one-hundred, sealed and ready-to-use water balloons in 60 seconds. Mr. Malone is a classic American success story: He received a patent for his invention, ran a successful crowd-funding campaign to start his business, and ultimately licensed a manufacturing company to sell his invention.

It was a smash success—which meant that copycats began selling knock-off versions, including the “Balloon Bonanza” made by TeleBrands. When Malone sued TeleBrands in court, the judge issued a preliminary injunction against Telebrands, prohibiting it from selling its knock-off product. TeleBrands appealed its loss in court, and it also began selling its infringing product with slight variations and under a different name.

But TeleBrands also did what is an increasingly common occurrence since 2011: it filed a PTAB petition challenging the validity of Malone’s patents. While TeleBrands’ appealing was still pending, the PTAB granted its petition, held a hearing, and canceled one of Malone’s patents. Malone ultimately prevailed in the court appeal, but this this did not bring an end to his legal odyssey. With his legal costs now $12 million (and counting), the PTAB is still reviewing Malone’s other patents, and TeleBrands is now arguing anew before the trial court that because the PTAB invalidated one of Malone’s patents, the court should withdraw its injunction.

Malone’s tale is now typical for all innovators. Accused infringers and commercial competitors now exploit the PTAB as a way to harass inventors, small businesses, and other innovators. The PTAB was supposed to address the problem of low-quality patents; it now threatens all patents, undermining the foundation of the American innovation economy.

Mr. Mossoff is a Professor of Law at GMU’s Antonin Scalia Law School

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