Rethinking patent law's presumption of validity.

• Author: Lichtman, Doug

INTRODUCTION: THE "BAD PATENT" PROBLEM I. THE PRESUMPTION TODAY A. Deference to the PTO B. Patent Certainty II. LAYERED PRESUMPTIONS A. Eliminate the Clear and Convincing Evidence Presumption B. Gold-Plated Patents C. Deference to Adversarial Determinations III. OBJECTIONS A. Layered Presumptions Favor Patent Applicants Who Have Adequate Resources over Individual Inventors and Start-Ups B. Reducing the Presumption of Validity Will Encourage Frivolous Validity Challenges and Wasteful Searches for Obscure Prior Art C. Trained Patent Examiners Are Better at Determining Validity than Generalist Judges and Lay Juries D. The PTO Will Have Incentives to Grant Bad Gold-Plated Patents E. Presumptions Don't Matter Anyway IV. EFFECTS ON CURRENT STAKEHOLDERS CONCLUSION INTRODUCTION: THE "BAD PATENT" PROBLEM

The United States Patent and Trademark Office (PTO) is tasked with the job of reading patent applications and determining which ones qualify for patent protection. It is a herculean task. One problem is resources. The PTO expects more than 450,000 new patent applications to be filed in 2007. (1) To accurately evaluate the merits of all of those purported inventions would cost billions. Add to that the administrative costs of both interacting with all of the relevant lawyers and documenting the entire process, and the required budget would make patent application fees prohibitively expensive. (2)

Information is a second significant impediment to PTO review. Patent applications are evaluated early in the life of a claimed technology, and thus at the time of patent review there is typically no publicly available information about matters such as how well the technology has been received by experts in the field or whether consumers have deemed the technology to represent in some way an advance over existing alternatives. Worse, patent examiners cannot solicit these sorts of credible outsider opinions, not only because for many technologies it is unclear at the early stages who the relevant experts and customers might be, but also because patent evaluation is at least in part a confidential conversation between applicant and examiner, (3) designed to keep an applicant's work secret in case the patent application is ultimately denied. (4)

Given all this, it is hardly a surprise that the PTO makes mistakes during the initial process of patent review, granting patents that, on the merits, should never have been issued. (5) The real surprise is that the law makes issuance mistakes hard to reverse.

The culprit is a legal doctrine known as the presumption of validity. Under that doctrine, courts are obligated to defer to the PTO's initial determination that an invention qualifies for patent protection unless the defendant can show by "clear and convincing" evidence that the PTO erred. Thus, if the PTO issues a patent covering a technology that the purported inventor did not in fact pioneer, defendants face an uphill battle persuading the courts to overrule that errant determination. The theoretical justification is that patent examiners have expertise when it comes to questions of patent validity, and if patent examiners have decided that a given invention qualifies for protection, judges and juries should not second-guess the experts. (6) But the reality is that PTO expertise is brought to bear under such poor conditions that any advantages associated with expertise are overwhelmed by the disadvantages associated with insufficient funding and inadequate outsider information. Contrast that to court review, where information is a natural product of the adversarial process, and where financial constraints are reduced because only a tiny fraction of all issued patents end up sufficiently valuable and contentious to warrant litigation.

Thus, the presumption of validity backfires. Rather than protecting accurate initial decisions from inefficient later meddling, the presumption precludes what would often be a worthwhile second look. As a result, courts today regularly enforce overbroad and undeserved patents, and strategic applicants continue to apply for undeserved patents knowing that there is a good chance the PTO will err.

This is a substantial, real-world problem. Under normal circumstances, a patent holder earns a living first by patenting a genuine invention, and then by telling potential customers about the technology. The patent in this instance protects the inventor from having his idea stolen, but the patent is worth nothing unless and until the associated inventor can find customers for his idea. The system thus encourages both the creation of new ideas and their dissemination. Patents that are issued wrongly, however, do not follow this pattern. A patent holder whose patent covers a technology that was already obvious to those skilled in the art has a strong incentive to sit quietly after the patent is issued, knowing full well that other parties will stumble onto that same obvious technology in time. When that happens, the patent holder can step forward, threaten litigation, and in the end extract royalties from infringers who neither knew of nor benefited from the patent holder's work. (7) Sadly, a large and growing number of "patent trolls" today play this exact strategy, using patents on obvious inventions quite literally to tax legitimate business activity.

What to do? One tempting idea is to increase PTO funding, making possible more rigorous up-front screening of patent applications. That would obviously help weed out bad patents, but the drawback is that most of the money would be wasted. As one of us pointed out years ago, most patents lie dormant after issuance. (8) They claim technologies that ultimately fail in the marketplace. They protect firms from competitors who, for other reasons, never materialize. They are lottery tickets filed on the speculation that a given industry or invention will take off. Patents in these categories will never be read, never be licensed, and never be asserted in negotiation or litigation. Money spent perfecting these documents, then, is money thrown away. (9) That obviously is unfortunate to the extent that those dollars are tax dollars. It is also unfortunate, however, if those dollars belong to patent applicants, because every dollar an applicant invests in the patent process is a dollar the applicant cannot spend in other ways promoting and developing the patented invention.

Our proposal, therefore, aims not to improve the overall quality of PTO review, but instead to change the presumption of patent validity to more accurately reflect the realities of current patent practice. The goal is to discourage the filing of bad but not good patents, (10) and at the same time to empower the PTO to better distinguish between the two. Our overall point is not that patents should never be accorded a strong favorable presumption. It is instead that presumptions must be earned.

Specifically, we propose three related reforms: First, the strong "clear and convincing evidence" presumption of patent validity that today is accorded to every patent by default should be removed and replaced with a much weaker presumption that accused infringers could rebut under a "preponderance of the evidence" standard. With this weaker presumption in place, patent examiners would still play their customary role in terms of evaluating claim language and ensuring that applicants comply with the patent system's many rules about the form and content of patent disclosures. Patent examiners would also continue to weed out the most egregious applications and to force inventors to commit up front to details about their claimed accomplishments, thereby limiting the risk that a patent holder will be able to strategically alter details during litigation. Patent examiners, however, would no longer themselves make a definitive ruling with respect to validity. Examiners, instead, would document their reasons for allowance, and those reasons should certainly be considered by later decision-makers, (11) but there would be only a modest presumption that the examiner's validity analysis was, in fact, correct. Courts would be free to deem that presumption fully rebutted in cases where the evidence, on balance, ultimately suggests that patent protection is inappropriate.

Second, and in essence to fill the hole created by the first reform, either Congress or PTO officials should create a new opportunity for patent applicants to "gold-plate" their patents--funding and submitting to a vigorous review process in the PTO, and in return earning a significant presumption in favor of patent validity. The procedure would be entirely optional. Applicants who forgo it would still be able to defend their patents in court should that need arise. Applicants who opt for this approach, however, would enjoy surer protection. Courts would be allowed to consider evidence that was not considered by the examiner at the time of this intense review, but courts would need to overcome a significant threshold before being allowed to second-guess the PTO's evaluation of evidence that was in fact considered. In order to provide funding sufficient to actually run an intense evaluation, the fees associated with this supplemental review would have to be significantly higher than current fees. (12) Those higher fees would discourage patent holders from too readily invoking the process, allowing applicants to sort their inventions into those that need early additional review and those that don't. (13)

Finally, in addition to this proposed new form of PTO review, there are other procedures that result in reliable patent evaluation; either the courts or Congress should make available a presumption of validity in those settings as well. For instance, when a court or the United States International Trade Commission evaluates a patent in the context of litigation, that evaluation should be accorded substantial deference in any later litigation...