Let's wait and see: a perspective on post-AIA patent reform.

• Author: Turner-Brim, Phyllis
• Position: America Invents Act of 2011 - Thirty-Fourth Annual Federalist Society National Student Symposium

Twenty years ago, patent law was somewhat of a backwater practice, little noticed by corporate executives and business leaders outside of the patent arena. (1) Today, the environment has greatly changed. (2) Patent law issues are now regular fodder for the front pages of the New York Times, the Wall Street Journal, Bloomberg, and other notable media outlets, (3) as there is frequently a great deal of controversy concerning the strength, quality, and enforcement of patent rights. (4) However, it is important to consider what precipitated this change.

What has changed is that the importance of Intellectual Property (IP) intensive industries in the U.S. economy has become clear. (5) The economy is increasingly based on high-tech and knowledge-based industries instead of traditional manufacturing. (6) According to the U.S. Department of Commerce, IP-intensive industries contribute more Oran five trillion dollars annually to the U.S. economy. (7) In addition, forty million jobs are attributed to IP-intensive industries. (8) Countries such as the United States, where IP protection is strong, have a significant advantage attracting research and development (R&D) investment. (9) There is a strong positive correlation between U.S. GDP and U.S. patenting activity. (10) For example, the "smartphone wars" present a $500 billion prize to the winner, or winners, as the case may be. (11) The smartphone wars, in particular, have a number of active "theatres" for engagement in the patent arena. (12)

IP law and patent law, in particular, are currently experiencing study and reform efforts. (13) There are all kinds of studies, task forces, and research efforts around patents and patent-related issues. (14) We are on the heels of the America Invents Act of 2012 (AIA), (15) the largest patent law reform effort in generations. (16) Yet there are calls for additional reforms, particularly by those focused on patent litigation. (17) Some critics declare that the patent system as currently constructed is "killing" innovation. (18) The U.S. Patent and Trademark Office (USPTO) is under attack for issuing so-called "junk patents," (19) and reformers claim that patent litigation is running rampant and is a drag on the economy. (20) What is fact and what is fiction?

The reformers are leveraging questionable and anecdotal evidence to support their calls for additional reforms. They claim there has been an explosion of patent litigation fueled by non-practicing entities and that patent litigation is killing innovation. (21) This so-called litigation explosion, however, has been debunked by credible studies. For example, a recent Docket Navigator report indicates that in 2014, patent litigation filings in the U.S. district courts were down substantially compared to 2013. (22) The AIA, through its provisions establishing patent office trials, seems to be achieving its goal of directing certain parties and issues to the USPTO's Patent Trial and Appeal Board for resolution as a cheaper and quicker alternative to, or certainly to shortcut, litigation in the federal district courts. (23) Is additional reform urgently needed? Given that the AIA is still in its infancy (24) and that the federal courts continue to actively address many of the issues that the reformers claim are a scourge on the patent system, (25) the prudent course is to take a wait-and-see approach to evaluate the effectiveness of the recent reforms prior to engaging in additional reform.

What is the state of play on some of these critical issues? In general, the rate of patent litigation is at or below historical trends, relative to the number of issued patents. (26) And the percentage of litigation filed by non-practicing entities (NPEs), patent assertion entities, or pejoratively, "patent trolls" (27) continues to represent seventeen to twenty percent of patent litigation. (28) A recent study by Cotropia, Kesan, and Schwartz (29) found that the perceived increase in NPE litigation is primarily driven by the revised joinder rules of the AIA. (30) The abusive practice of sending scores or even hundreds of questionable claim letters has been, and is being, adequately addressed by the Federal Trade Commission and state attorneys general. (31) The courts, including the U.S. Supreme Court, have provided crucial guidance on many of the issues that have been identified as problematic: fee shifting, (32) inequitable conduct, (33) end-user protection, (34) and eligible subject matter. (35) The AIA and judicial action have created several avenues for alleged infringers and others to invalidate questionable patents. Yet the reformers want more. The proposed reforms are targeted at entities whose business is strictly licensing, including NPEs, patent-assertion entities (PAEs), or "trolls." (36) The government should not be in the business of legislating to advance or impede one business model or another. That is an important purpose of the free marketplace.

The accusation that patents are killing innovation and squelching opportunities for tech entrepreneurs is not supported by the facts. In 2014, venture capital funding soared to its highest level since the peak of the...