FTC Puts Patent Trolls On Notice

from the crackdown-time... dept

While the Senate moves forward on a patent reform bill that won't solve any of the significant problems with our patent system (and will make certain aspects worse) and the Patent Office itself has apparently decided to throw in the towel on improving patent quality, it looks like the FTC has finally realized that perhaps it needs to step up and try to fix at least part of our severely broken patent system. Paul Alan Levy points us to the news that the FTC has released a massive 300 page report (pdf and embedded below) about the patent system, in which it clearly comes out against the problem of patent trolls, which it euphemistically refers to as "patent assertion entities." The report chooses this term, rather than the more common "non-practicing entities" because it notes that some non-practicing entities can be good (i.e., universities), and the real problem tends to be with operations who are focused just on using patents to sue.

The report notes that such trolls are a serious problem in the marketplace, as they appear focused on hindering innovation from companies that have actually innovated, rather than on "developing and transferring technology." Even better, the FTC actually notes the key claim we've been making for years (and which almost everyone else in government has ignored), that the "invention" stage is only one part of the ongoing process of innovation:

Increasing activity by patent assertion entities (PAEs) in the information technology (IT) industry has amplified concerns about the effects of ex post patent transactions on innovation and competition. The business model of PAEs focuses on purchasing and asserting patents against manufacturers already using the technology, rather than developing and transferring technology. Some argue that PAEs encourage innovation by compensating inventors, but this argument ignores the fact that invention is only the first step in a long process of innovation. Even if PAEs arguably encourage invention, they can deter innovation by raising costs and risks without making a technological contribution

The key point that the FTC makes is that one of the key problems here is that patents are (often on purpose) written to be quite vague, meaning that they totally fail to serve their purpose as giving notice for what they cover (and for actually teaching anything). Part of the report appears to be heavily influenced by the research of Bessen and Meurer, which went into great detail on the notice problem with patents, and just how costly it has become to various industries.

The key suggestion, then, from the FTC is for the US Patent Office to get rid of vague patents, by raising the bar on rejecting "indefinite" claims. Currently, like so much of the USPTO, the bar used to determine if a patent claim is indefinite is quite low. The FTC is hoping that the USPTO will raise the bar. Along those lines, the FTC is urging patent examiners to make sure that what a patent actually covers is really much more explicit, including establishing a clear record in the proceedings while reviewing the patent to establish what it actually covers, rather than allowing vague and indefinite language through. In fact, the report seems to suggest that the USPTO would be better off focusing on eliminating indefinite claims even more than judging nonobviousness.

On top of that, the FTC asks the courts to be much more aggressive in limiting ridiculous damages awards for patent trolls, especially condemning the widespread use of questionable "expert witnesses" who come up with unrealistic "rules" for how much a company should have to pay for infringing a patent.

I was also happy to see that the FTC clearly spent time exploring the fact that so much patent infringement has absolutely nothing to do with anyone "copying" the inventions of someone else, but rather independent invention. While it does not come down in favor of an independent invention defense yet, it does seem open to it, if some of the other recommendations in the report do not succeed in cutting down on the problems of the patent system. Its main worry appears to be that changing the liability for "inadvertent" infringers would create a dramatically different patent system, for which there's not enough economic evidence to know what will happen. Of course, we could point out in response that all of the changes put in place that massively increased the scope of the patent system were done with a similar lack of economic knowledge. However, I am pleased to see that the report at least calls for more research to see how such changes might impact the market.

On the whole, I definitely don't think the report goes far enough in its recommendations, but at this point, that's a pretty small quibble. This is one of the few times that we've seen a government agency really research and acknowledge many of the key problems with the patent system, and then suggest real changes to fix those problems. The FTC clearly spent a lot of time on this, and spoke with many of the top experts in the field, citing some fantastic research on the subject.

Of course, the big question is will it matter? There are lots of recommendations for improving the system -- with many directed at the PTO and the courts. But what if they're totally ignored (as seems likely)? Would the FTC take a stronger stand in going up against patent abusers? That would be quite a step, and would generate plenty of attention, but given where the system stands today, it seems like it might be necessary. Kudos to the FTC for actually pulling this report together, rather than going with the typical bland assertions about how patents automatically increase innovation and therefore more patents are, without question, better. There's a lot more in the report, but on the whole, it really does seem to recognize the massive problems inherent in the patent system.

Filed Under: ftc, idefiniteness, notice, obviousness, patent trolls, patents