Archive for fatigue factors
After seven years of working with intellectual property and innovation in China, I’ve seen some of the ups and downs as well as the gross misunderstanding of Chinese innovation and IP in the West. I’d like to briefly summarize what I’ve seen.
First, when it comes to innovation in science and industry, graduates of Chinese universities are not the drones and clueless copyists that many in the West seem to think they are. Yes, they have been through intense educational processes that emphasize memorizing tons of material and respecting what teachers say, but this hardly means they cannot think for themselves or innovate. In fact, the mastery of material that they have obtained gives many of them the skills needed to apply sound principles in creative ways. he truth about innovation is that in many cases, skills and knowledge matter, and the more you have at your fingertips, the more you can do with it.
But yes, in an innovation session, a facilitator is likely to find a lot of people looking down at the ground and not contributing. This can often be due to having the wrong people in the room and not providing the right setting and incentives. If the boss is there, people might be afraid of showing him or her up or afraid of saying something risky and possibly wrong. So get the boss out of the room. Then turn your event into a competition. Have incentives for contributing. It can be as simple as “no bathroom break until we have 10 ideas in the board” or prizes for the team with the best concepts. But once it becomes clear that there are reasons to contribute and little risk in contributing, you’ll face the problem I see most now: getting the group to slow down and limit their responses. “I just needed 5 concepts, not 30, but thank you!” A friendly competition brings out the best in many Chinese innovators, and I’ve been deeply impressed with their creativity and insights.
Innovation is very healthy in China. China is leading the world in innovation in many targeted areas, greatly outpacing the West in areas such as nanotechnology, green energy, AI, etc. You haven’t seen the power of great smartphone apps until you’ve seen how people are able to use WeChat over here for so many things: paying utility bills, ordering and paying for meal, participating in free videoconferences, sending gifts, finding when the next bus is coming to your stop, reserving seats at a movie theater, easily forming groups to share text, photos, and videos for an upcoming or current event, etc.
China has wonderful brands, cool business models, increasing quality and safety, brilliant entrepreneurs, and a booming market in many fields. It’s a dazzling and beautiful place with great hope for the future.
On the other hand, there are some great “fatigue factors” that make things tough on some innovators and entrepreneurs. The biggest issue may be the uncertainty in regulations. Here in Shanghai, for example, thousands of entrepreneurs who have spent years building their businesses in small shops along many classic streets of Shanghai suddenly found that all the shops in certain areas would be torn down to beautify the street or convert it to high-end hotels or something. Many times all that happened was that a flourishing market was eviscerated and sterile walls were left lining a street that suddenly was missing the flavor it had nurtured for decades. The purging of small businesses has been painful to watch and has also been frustrating to local residents who can no longer get the goods and services that used to be around the corner. Now they have to travel to go to larger stores that are less convenient and often more expensive.
Last week, I was thrilled to learn that the Central Committee of the Communist Party in Beijing sent out a very wise directive to cities in China urging them to be cautious about unnecessarily closing shops and markets on their streets. It noted that this process is removing important economic zones that convey a crucial part of the flavor of China. Amen! I grieve for the thousands who lost their jobs over these painful sweeps, and hope healthy local businesses and markets can continue to thrive for the good of both the entrepreneurs and customers like me. How I miss some of those little shops and businesses that have been such a precious part of my experience in Shanghai.
Unpredictable rule changes can hurt innovators in many ways. Some innovators just get a business going only to learn that a new rule now forbids the import or sale of a product they brought to China. Others learn that an area that was zoned for industry is suddenly no longer open to their business and perhaps an entire factory has to move. These things happen in the West as well, but the process here is less visible and harder to cope with in many cases, in my opinion, so those creating businesses here need to be both flexible and diligent in understanding the needs and plans of government so they can foresee problems or adapt to them quickly. I’m not saying it’s overwhelmingly difficult, but innovators and entrepreneurs do need to be prepared watchful, and always have a plan B. That’s good advice for any nation, of course.
The challenges from rule changes may be most severe for large companies, where a policy change can affect huge areas of one’s business or involve formidable costs. On the other hand, large companies often benefit greatly from relationships with other entities that can give them great advantages in innovation. And fortunately, the government is often understanding of the impact that rule changes can bring, such as the requirement to move a factory, and will often offer incentives that take way much of the pain and make the change possible.
Part of the good news is that officials at all levels in the country are increasingly recognizing the importance of aiding and not hindering innovation and entrepreneurs, and so in spite of some of the risks of rule changes, there is a general climate of encouragement and help for innovation. This can benefit large and small companies. It helps to be involved, to unite with good organizations to stay informed and build increasing influence, and to also be close to your community, making sure that your business is involved in bettering the community and lifting others. Such organizations and innovators who aren’t just looking out for themselves but recognize the greater good and seek to serve can have lasting impact on this nation.
Innovation is real in China and is becoming stronger and more important every year. It is a great place to pursue innovation and a great place to develop and enforce meaningful IP. More on the IP issues later. For now, give China a chance and look beyond the stereotypes that are often projected as if they were facts. China has changed greatly in the past two or three decades. Come see what’s really happening over here!
Under the America Invents Act, the United States Patent and Trademark Office (USPTO) was given broad new powers to “correct” past mistakes in issuing patents through the power given to the PTAB, the Patent Trials and Appeals Board. The PTAB is an administrative law that decides issues of patentability, formed on September 16, 2012 under the America Invents Act. Their impact on patents, innovation, and the US economy has far exceeded anything contemplated when Congress debated this provision. They have become the “go to” route almost anytime significant patent litigation is underway, and the results have been devastating to patent holders. Large numbers of seemingly valuable patents have been invalidated and patent holders have faced huge costs and losses as opponents can launch repetitive assaults that need to be defended at great cost. For many of us in the innovation and IP communities, the term “patent death squad” sadly seems appropriate.
The PTAB consists of numerous “judges” who conduct trials on the patentability of patents that have already gone through years of examination at the USPTO. It’s a painful burden that often results in the USPTO saying, “Sorry — we messed up completely when we granted your patent that you struggled so many years to prosecute. Should never have been issued in the first place.”
But who are these “judges” that are causing such havoc? Gene Quinn of IPWatchdog.com has done some great investigative journalism and revealed that these judges are a far cry from what one would expect in terms of their legal experience. Many have just a few years of experience, which helps explain some of the surprising decisions they have rendered.
See “PTAB Judges Shockingly Inexperienced Compared to District Court Judges” by Gene Quinn at IP Watchdog, March 6, 2018. A short excerpt follows, but see the original article for key data and some incisive comments afterwards.
Inexperienced PTAB Judges
What was most astonishing is just how inexperienced many patent judges of the PTAB are compared to federal district court judges. For example, many PTAB judges were appointed to the PTAB at a time when they were associates, and in some cases junior associates.
This study uncovered several shocking revelations. First, 12.64% of PTAB judges were appointed with less than 5 years of experience prior to their appointment as APJs (i.e., 5 years or less removed from graduating from law school), while some PTAB judges were appointed with as little as 2 years of experience. Indeed, 7.47% of APJs had 4 or less years of experience when they were appointed to the PTAB. More than one-third (36.21%) of PTAB judges were appointed with 9 years or less of experience….
The America Invents Act (AIA) invests PTAB judges with extraordinary powers. For example, overwhelmingly institution decisions are not appealable. Yet, there have been numerous lawyers with shockingly little experience appointed to the position of patent judge, and vested with the power to make decisions that cannot be reviewed by any Article III federal court.
A book on World War II teaches a lesson for today on innovation. In Churchill and Orwell: The Fight for Freedom by Pulitzer-prize winning author Thomas E. Ricks (New York: Penguin, 2017), we learn about some of the reasons England struggled to defend itself effectively in dealing with Germany. A key problem discussed by Ricks was England’s poor state of preparation with inadequate machinery, feeble industrialization, weak supply chains, etc., that made it hard to fight a serious war and led to embarrassing disasters like the rapid loss of Singapore, their supposed fortress in southeast Asia. Close to home in Europe, Britain had a hard time just moving troops around — they often had to walk — and the Brits were amazed at how quickly their American cousins could mobilize when they came to the rescue. Why was England so poorly prepared?
England, as you will recall, was the birthplace of the Industrial Revolution, yet by the time of the War, they were awkwardly behind in many of the basic technologies they would need. How could this happen? Ricks comments are insightful:
Managed by family members more interested in reaping dividends than investing in new machinery and other gear, “British firms were unable to adopt modern, best-practice technology,” concluded business historian Alfred D. Chandler Jr. As a consequence, Britain’s brilliant university research generally did not make the transition into factories. Britain had led the first Industrial Revolution of coal and steam power, but generally sat out the “Second Industrial Revolution” of the late nineteenth and early twentieth centuries, built around oil, chemicals, metals, electricity, electronics, and light machinery, such as automobiles. By the end of the 1940s, it would have neither an empire nor an economy capable of competing with those of other major powers. As Correlli Barnett put it, the reality was that by the time World War II ended, the British “had already written the broad scenario for Britain’s postwar descent to the place of fifth in the free world as an industrial power, with manufacturing output only two fifths of West Germany’s.” Interestingly, Barnett was the keeper of the Churchill Archives at Cambridge University from 1977 to 1995. [Ricks, pp. 203-204]
Something similar happened in China, which once led the world in innovation and GDP, but from the Qing Dynasty until the late 20th Century, in part due to apathetic leaders unwilling to invest in or even open the doors to innovation and technology, China missed out on much of the Industrial Revolution. Only through massive reform and exerted effort in recent decades has China begun its return to a position of global leadership in innovation, IP creation, and economic growth.
In the paper industry, which I’ve been close to for many years, it’s clear that the American paper industry has largely fallen into the same trap that nearly cost Britain its freedom and did cost many lives unnecessarily. The American paper industry has largely failed to invest in new technology and relies heavily on antiquated paper machines and pulp mills that are decades behind what we have in Asia (China and Japan in particular). Their slower, less efficient machines and less efficient plantations put them at a distinct cost disadvantage. Instead of taking steps to compete better, the US industry too often tries to rely on protective legislation to raise tariffs on imported paper and make everyone in the nation pay much more for their paper than they should. The real problem is not Chinese competition, but American businessmen falling into the same pattern that nearly cost Britain the war: focusing on immediate profit and dividends while neglecting the future.
Each industry, whatever it is, needs to build for the future with investment in innovation and a willingness to boldly cope with the threats and opportunities of disruptive innovation. If your industry is dominated with leaders who feel like they can just milk their business as a cache cow with no need to invest in the future, that industry will fail.
Be careful about the vehicle you’ve been driving. As sturdy, tangible, useful, and inventive as it looks to you, it may turn out to be merely an abstraction, perhaps nothing more than the mere idea of “transportation” or “going places,” making it unworthy of the thousands of patents protecting its numerous technologies — if the USPTO and America’s elite judges get their way. An abstract automobile? You don’t want to be caught dead driving one. Unfortunately, since the USPTO’s Patent Trial and Appeal Board (PTAB) just ruled that an MRI machine is abstract and thus not patentable under the odious and vague principles of the Supreme Court’s recent Alice decision, it could be that automobiles and virtually every other machine under the sun could be next on the anti-patent chopping block. Your trusty Toyota or your faithful Ford are about to go abstract on you, courtesy of the USPTO. Look out.
In the PTAB’s elite view, as Gene Quinn explains, all the physical wizardry of the mighty MRI machine as claimed in a recent patent application for an improved MRI is just an abstract idea based on the abstraction of “classification.” It defies logic and defies the requirements of the Alice decision and the USPTO’s rules for applying Alice, but the PTAB has become a patent munching zombie that doesn’t seem bound by logic or law. They are one of the strongest forces promoting innovation fatigue. Many innovators are just giving up or going to other nations where IP rights are more meaningful.
The anti-patent forces that have taken hold of far too many influential posts in America view property rights and especially intellectual property rights as a barrier to the ideal society they envision. If only we could get rid of patents, they seem to think, drug prices would fall and Obamacare, for example, would not be such a disaster. But the bounty some intellectuals promise by weakening property rights is an illusion, for without IP rights, what is the incentive to take on the risks and costs of innovation if you cannot benefit from the occasional successes that come from your uncertain work? If your hit product can be taken and marketed by others who did not have to spend so much time and money developing it, then the inventor is often at a competitive disadvantage to everyone else. Why bother?
America’s war on patents is a war on the future of innovation. It’s a war we cannot afford to lose.
As I watch the decline of the US patent system, I have to marvel at how much loss the world is facing through the crushing barriers to innovation and job creation in the U.S. Once the beacon of innovation for the world, now would-be innovators are afraid to take the risks required to bring their new products and services to the market because they cannot get the protection that should be theirs when IP rights are strong. If a Google or Microsoft takes their invention, the great equalizer of patents will not be there for them.
In the name of advancing innovation, Congress created a monster called the American Invents Act. This was done without input from the small inventors and entrepreneurs of the world, where most innovation and job creation occurs. It was based on input from the giants like Google who despise patents (other people’s patents, that is). But thanks to the AIA, there is now a host of new ways to destroy patents and they are being used with startling effectiveness.
A key component of the war on patents is the new “patent death squad,” that Patent Trial and Appeal Board. Based on the statistics from their work, there is little hope left for patent owners. See Gene Quinn’s excellent report, “Misleading PTO statistics hide a hopelessly broken PTAB” at IPWatchdog.com. Startling, troubling, but accurate.
The war on innovation also includes action from the courts, especially the Supreme Court, which has given judges bold new weapons to invalidate patents by calling their subject matter “abstract” — a deadly word that is vague, which the Supreme Court has not even attempted to define. The possibilities for patent destruction under the Supreme Court’s new Alice test are immense, and I’ve seen some great innovations blown apart with that weapon.
The USPTO, now led by a Google attorney, has repeatedly taken a hostile attitude in how they interpret laws and create policies regarding patent examination. The results are shameful.
The politicians and their gargantuan backers are winning the war against IP and innovation in the US. It’s time for Congress to pare back the damage they have done with the AIA, and for champions of innovation to rise and demand a more equitable system.
The great challenge in innovation is not coming up with a discovery or great invention. The challenge is in making it stick, in nurturing it and growing it so that it spreads and changes the world. Numerous antibodies and barriers are ready to snuff out every great idea, even when it offers a solution that the world is clamoring for. The story of scurvy in the British Navy, as shared in Chapter 10 of Conquering Innovation Fatigue, illustrates this principle.
Scurvy cost the lives of thousands of sailors and soldiers around the world for centuries. For the British Navy, that disease was one of the greatest challenges it faced. On long voyages, 30% or more of the crew might die from scurvy. Through confusion and error among England’s educated elite regarding scurvy, misinformation about its cause and its cure would persist into the 20th century. However, there was credible medical information in the early 1600s pointing to citrus fruits as a key aid in preventing and curing the disease. [See Stephen R. Bown, SCURVY: How a Surgeon, a Mariner and a Gentleman Solved the Greatest Medical Mystery of the Age of Sail (New York: St. Martin’s Press, 2003).]
Physicians on land and at sea would later provide evidence in the mid-1700s that citrus or other fresh fruits and vegetables reduced the risk of scurvy, but this knowledge was not only ignored or resisted by those in the Navy, it was resisted by the mainstream European medical community who perpetrated a form of “strategy fatigue” by making a general understanding of the nature of disease their primary quest, being uninterested in “merely empirical” work aimed at curing a given disease. For example, the work in the 1730s of physician John Bachstrom in Holland pointing to fresh fruits and vegetables as the decisive cure for scurvy was dismissed by the medical community of his day, for he was “a mere empirick” in the eyes of his elite peers. [Kenneth J. Carpenter, The History of Scurvy and Vitamin C (Cambridge, UK: Cambridge University Press, 1988), pp. 44-45.]
The adoption of the innovation of citrus fruit in treating scurvy took more than compelling evidence. It took someone with powerful connections to champion the innovation. This man was the prominent Scottish physician, Sir Gilbert Blane, who was only 4 years old when a detailed study on the cure for scurvy was published by James Lind in 1753 – only to be ignored for decades. (To be accurate, the information from Lind and others was obscured by terrible confusion about physiology and disease, and continued to point to the dangers of various “airs” and climatic factors as key contributors to scurvy, obscuring the fact that it was a nutritional deficiency.) [See James Lind, A Treatise of the Scurvy. in Three Parts. Containing an Inquiry Into the Nature, Causes and Cure, of that Disease. Together with a Critical and Chronological View of What Has Been Published on the Subject, Edinburgh: Printed by Sands, Murray and Cochran for A Kincaid and A Donaldson. Portions of the original reproduced online by the James Lind Library. Also see Carpenter, op. cit., pp. 51-52.]
In London, Blane became the private physician to Lord Rodney and sailed with him to the West Indies in 1779. Blane’s efforts to keep sailors healthy were increasingly successful, and through his connections to Rodney and others naval leaders, Blane was able to give lectures to senior leaders and gain support for improved practices across the entire navy. Drawing upon past work and a further demonstration of his own, he would introduce compelling evidence to naval leaders that lime juice prevented scurvy, leading the Navy to adopt lime juice in its global operations beginning in 1795. [David Nash Ford, “Biographies: Sir Gilbert Blane (1749-1834),” Royal Berkshire History (Finchampstead, UK: Nash Ford Publishing, 2005).] For nearly two centuries, the British Navy had been closed to a safe, inexpensive innovation from outsiders that solved what may have been its most vexing and costly problem. The citrus “sales pitch” fell on deaf ears until someone with the right connections to senior management could deliver it. It’s a tragic lesson of the dangers of closed innovation, of organizational rigidity, of devaluing the work of innovators, of listening to the wrong voices, of “not invented here,” and the importance of delivering the story of an innovation to the right people, through those who have the right contacts. It doesn’t need to be this way, but it often is. Thousands of needless deaths over centuries: welcome to the fruits of innovation fatigue.
Incidentally, innovation-related lessons from scurvy continued long after 1795. Though citrus juice was adopted in the British Navy, the nature of the disease and the reason for the cure were still unknowns. Without careful efforts to preserve knowledge and best practices, erosion can quickly occur. Thus when the Royal Navy undertook arctic expeditions in the 19th century, the leaders took with them a belief that good hygiene, good morale, and regular exercise prevented scurvy. Not surprisingly, scurvy was a recurring problem in these voyages. In the 20th century, when Robert Scott trekked into the Antarctic, tainted canned food was believed to be a cause of scurvy. The connection between vitamin C and scurvy was not discovered until 1932. Likewise, we have seen many organizations lose best practices, healthy processes, and even technical capabilities and knowledge when efforts weren’t taken to preserve and pass on what they had.
(The above is based on an section of Conquering Innovation Fatigue, Chapter 10.)
The steady loss of IP rights in the United States is alarming. Big companies like Google and Apple tend to preserve or expand their market power and in IP battles, they tend to get their way through their money, influence, friends in high places, and market clout. But for lone inventors and smaller companies, the IP landscape has become forlorn. The patents that were essential for establishing a business and protecting themselves from outright theft (including theft from the big companies that tend to get their way) are now much harder to obtain. Once obtained, they are much harder to enforce. Patent opponents are now given broad new powers to invalidate patents. Incredibly, the IPR system (inter-partes review) that allows a challenger to easily attack an already issued patent is resulting in nearly 80% of challenged patent claims being found invalid.
What this means is that the USPTO, charged with the responsibility of issuing only valid patents, after all the rejections and challenges they give to inventors in the patent prosecution process, is essentially saying that their quality control process is so bad that they have goofed 80% of the time and issued claims that never should have been allowed. Something is seriously wrong here.
The vast new uncertainties in America’s IP system is crushing innovation. Innovators are wondering why they should file in the U.S. Some are going to other nations to launch their business. Others are abandoning hope. This comes at a dark time on the economic landscape when we need innovation and hope more than ever before. Giving Google more power than ever to crush competitive patents is not the answer. Eliminating software and knowledge-economy-based inventions as patentable subject matter is not the answer. Allowing patents to be easily invalidated is not the answer.
Americans need to demand a return to respect for IP rights and create an innovation-friendly society again.
Abraham Lincoln said that the patent system “added the fuel of interest to the fires of genius.” Today the fires of genius and the fire of innovation itself is getting doused with something less helpful than fuel. These fires are being cooled and, in some cases, extinguished with harsh attacks on the IP rights that once enabled and motivated lone inventors and small businesses to take the fruits of their genius to the market.
The owners of small businesses, the people who generate most of the innovation and business growth in the United States have good reason to be worried. Their ability to attract funding through valuable intellectual property is being compromised. Their ability to protect their products and innovations from the power of corporate giants is being whittled away. This has come from many quarters, but there is a widespread anti-patent movement driven by politics and misinformation. It’s the bitter fruit of a bitter anti-property rights movement that exaggerates the threat of a few bad actors to justify widespread weakening of property rights in ways that will hurt the economy and our society for years to come.
We have seen a recent series of Supreme Court cases that have made it much harder to obtain patents and enforce them. We have seen massive changes in US patent law that make it easier to invalidate patents after they are granted and make it harder and more costly to stop infringers if your patent survives. Now the bogeyman of “patent trolls” is held up as a threat to America that requires more sweeping “patent reform” to make it even harder to enforce a patent, and it looks like both parties are united in a quest to do “something big” to shake up the IP rights that helped drive the American economy for so many decades. Corporate giants benefit from this reform as it clears away the annoyance of other people’s IP rights standing in the way of their marketing muscle. But the economy as a whole and the rights of many are hurt in this process this amplifies innovation fatigue .
Several recent articles highlight just how serious the problem has become. Louis Carbonneau in “Toxic Asset: The Gradual Demise of the American Patent” (IPWatchdog.com, December 10, 2014), surveys the radical changes in the past two or three years:
On the judicial front, in 2014 we saw no fewer than 5 Supreme Court decisions going against patent holders on the various subjects of obviousness (a key test for patent validity), what constitutes “abstract ideas” (which now undergo a more stringent test for patentability), business method patentability, indefiniteness (how you construe claims), reasonable royalty (how you calculate damages), willful infringement (how you punish the “bad actors”) and fee shifting (making losers pay for winners legal fees). All of these decisions have collectively made it harder for patent owners to: i) maintain the validity of duly issued patents (previously presumed by law), ii) pursue infringement claims, ii) prove damages (let alone treble damages), iv) have open discussions with potential infringers prior to litigating, and have left the unsuccessful patent owner at risks of paying millions in legal fees to the other side if the judges so decides.
Parallel to judicial reform at the federal courts, recent US patent reform with the American Invent Act (AIA) introduced a new post grant review mechanism called Inter Partes Review (IPR) which allows a party to challenge the validity of any issued patent before the Patent Trial & Appeals Board (PTAB). Strangely, despite the PTAB being an emanation of the same USPTO that delivered all these patents in the first place, there is no longer a presumption of validity before the PTAB for the patents being challenged while other rules make it easier to invalidate patents based on prior art.
Finally, on the political front, in 2013 the US House of Reps. passed the Goodlatte bill, which would erode rights conveyed to all patent holders despite being primarily directed at NPEs. It is now expected that the new Republican led Senate will revive the bill -currently on hold- in early 2015 and, with a rare showing of bipartisanship from the White House, it is expected to be signed into law. At the same time, 27 US States have passed or are in the process of passing laws that make it harder for people to assert the patents they own.
Carbonneau goes on to explain that in recent Federal Circuit cases, patent owners are being crushed, and in Inter Partes Review (IPR) cases before the USPTO, nearly 80% of the owners of challenged patents are being told by the USPTO that their patents are not valid over the prior art that the USPTO itself supposedly considered before granting the patent in the first place. Carbonneau puts it rather wryly:
The most interesting statistics come from the PTAB [the USPTO’s Patent Trial and Appeal Board, which processes IPR cases] because it only focuses on validity issues based on prior art; the very same prior art patent examiners are supposed to have found and analyze prior to issuing a patent. Since patents going through IPRs are usually the same ones that being litigated, you would assume that owners did a lot of due diligence before investing in a costly patent lawsuit. Well, the PTAB is declaring 77.5% of reviewed patents invalid! And this is not limited to “abstract” software; patents related to biotech and pharmaceuticals, medical and mechanical devices, are being invalidated at an even higher rate! Remember, this is an offspring of the very same agency that inventors paid thousands of dollars in the first place to review applications and issue their patents. Now, after having to pay a quarter to a half million dollars in legal fees (average cost of an IPR procedure for a patent holder), the same agency is telling patentees nearly 80% of the time: “Very sorry we made a mistake; we would not have allowed your application had we looked more carefully for existing prior art. And no, there is no refund available.”
Personally, I cannot think of any industry that could survive more than a month with a nearly 80% defective rate, let alone by forcing you to spend a fortune for the “privilege” to confirm that indeed your title was invalid in the first place! Only a government can come up with such a broken system and get away with it.
The impact of these anti-patent efforts has been a surprisingly sudden break from the trend of increasing IP litigation, with litigation in 2014 down about 13% from the previous year according to a new 2015 PwC report on patent litigation. The problem of explosively increasing patent litigation, a common excuse to justify the slashing of patent rights, is not supported by the data.
Richard Lloyd, writing for the IAM Blog, draws this observation from the PwC report:
Of these three classes [of patent litigants considered], NPE [non-practicing entity] companies have been successful 31% of the time in patent cases brought since 1995; this compares with a success rate for universities and non-profits of 48% and a lowly 18% for individual inventors. Individual patent owners also do far worse with damages pay-outs, getting a median award of $3 million compared with $11.5 million for company NPEs and $16.2 million for universities/non-profits.
There could be many reasons for individual inventors doing relatively badly. Although the PWC study doesn’t provide any, it’s easy to speculate that small inventors may have lower average quality patents to begin with, while they probably don’t have the same kind of litigation savvy as other NPEs and are much less likely to have access to the same kind of litigation expertise that larger, better funded patent owners can turn to.
But what PWC’s numbers also strongly suggest is that the US patent litigation system is strongly stacked against small, patent owning entities. Bearing this in mind, it is worrying that the main packages of reform proposed in the House of Representatives (the Innovation Act) and the Senate (the PATENT Act) are only going to penalise them further.
Lloyd notes that potential irony now that many lone inventors, recognizing that they have little chance of winning and have almost no chance of affording the punitive legal bills they may face if they sue and lose, may be more likely to turn to NPEs (“patent trolls”) for help as the most practical way to realize any benefit from their work.
There is a need to rebuild an innovation climate in the United States, starting with educating our leaders about the need for IP rights and the value of patents. If we don’t teach this lesson from within, it will eventually be taught rather loudly from without, for Europe and China are both moving to strengthen IP rights and strengthen IP enforcement. Europe’s Unitary Patent system could be a boon to IP there, though much remains to be seen, but the changes in China are strong and dramatic. That nation has gone from no patents and no IP system in the early 1980s to the world’s biggest source of IP generation and IP litigation, with many changes steadily strengthening the nation’s IP system. There is a long ways to go for China still and there have been some setbacks, but at current rates we can see China becoming a leading source of global innovation while the US loses its lead.
Will the flames of innovation be largely quenched in that nation? Much depends on what we do with IP rights now, the rights that will shape our culture and economy for decades to come. May the fires of genius be encouraged with something other than the cold water Congress and Courts have been sloshing.
Many leading IP professionals working with the US patent system are growing increasingly concerned about the weakening of the IP system there. Some are so concerned that they are wondering what steps can be taken to save it. Save it from what, you might ask? Save it from erosion of the basic property rights that the Constitution sought to protect. Solve it from the capricious destruction of the incentives that inventors need to create and share their work. Save it from judges and politicians who see patents and property rights as problems.
One man who wants to save our IP system is Rep. Dana Rohrabacher (R) from California’s 48th District and a member of the House Science and Technology Committee. He recently authored a piece for the Washington Times called “Patent ‘reform’ is killing the right to invent: How a congressional misstep could imperil creativity” (March 1, 2015). I agree with much of what he says.
He warns that Congress’s zeal to stop “patent trolls” will actually result in them simply doing the bidding of powerful companies who are annoyed by little guys able to defend themselves with patents. In effect, Congress is being manipulated into apparently “reforming” the US patent system but in reality they will be weakening it for small inventors and making it more friendly to the big empires that see patents as unpleasant sources of cost and annoyance. Here is some of what Rohrabacher has to say:
With the best intentions, and naively going along with the corporate world’s hugely financed publicity machine, Congress is about to stomp on America’s most creative citizens, its inventors.
The target is not the much-hyped “patent trolls.” They are a minuscule matter. What’s at stake is average Americans’ constitutional right to own what they’ve created. We’re really up against corporate lawyers acting like ogres, devouring the little guy’s innovative accomplishments.
Many of my colleagues, without understanding the legislation’s impact, will soon vote on “HR 9,” a misnamed “patent reform,” also dubbed “pro-innovation,” that is anything but. In reality, it deforms our patent system beyond recognition.
This legislation — pushed by my Republican colleague, House Judiciary Committee Chairman Bob Goodlatte, and deep-pocketed multinational corporations — appears on its way, again through the House, to the Senate, thence to an eager President Obama for signing.
When that happens, America’s exceptional system of invention will be shoveled into the depths of mediocrity, there to seep into the murk in which less scrupulous global competitors spend their resources.
In the last session, a bipartisan band of my Republican friends (some of whom made their pre-political marks as patent-holding inventors); members of the Black Caucus; and a heroic Ohio congresswoman, Democrat Marcy Kaptur, failed to dissuade our House colleagues that the bill was not the litigation-curbing effort as advertised.
The bill went to the Senate where, fortunately, it stalled. It’s back, this time resurfacing in the House with just one hearing. A whole class of small inventors, among the many who will be injured, is being kissed off as scarcely deserving a voice. All in a day’s work for the corporate influencers who shaped HR 9 from start to finish.
Just because a measure holds itself up as “tort reform” should not mean it escapes the scrutiny of free-market Republicans. It should instead call for a skeptical second look, and then more throughout its progress. Guaranteed: Such close-eyed analyses of this bill will encourage deep suspicion.
Fair-minded members will find themselves aghast at how this leaves defenseless our individual inventors, small and midsized companies, researchers, even universities who depend financially on their patent portfolios. It is a coup in the making by the biggest and best protected operators….
Legislative reform efforts invariably build on a narrative of great injustice. This one moves wildly beyond the need to fix real abuses, wherein at considerable cost companies must defend their legitimately acquired patents against unscrupulous claimants.
But the term “patent troll,” directed against such bad actors, has been transmogrified by corporate marketers to include legitimate small inventors — many of them minorities, which is why my Black Caucus friends sized up the issue astutely — who are outgunned and outspent when they try to protect their intellectual property.
Almost all infringement cases are brought by people who own a patent legitimately. If not, such cases should be decided in court. There is nothing wrong with bringing such matters to court — a cornerstone, not of crony capitalism, but of the free market itself.
Our economy and culture depend on the disruptive nature of innovation. Our Constitution deliberately made all people equal, giving no advantage to those of social status, wealth or position. The founders, even before they added the Bill of Rights, secured the right to hold patents in the Article I of the Constitution itself, the only right mentioned prior to the amendments.
We all know our country’s history of innovation. Large companies reject new ideas. It is the innovator who challenges the status quo, not the corporation.
Under the proposed bill, the pretrial discovery process — just one part of many dubious sections — tilts heavily against the small inventor, who of course must share his or her secrets with an opposing corporation’s well-armed legal team. In another era, I might have considered this an innocent, unintended consequence of ill-considered drafting. Not now.
I implore my colleagues in both the House and Senate to stop this monster aborning.
In a few days, I’ll be speaking about IP and innovation in China at the RISE 2015 conference in Miami, Florida, sponsored by INDA (a professional organization for the nonwoven fabrics industry). In my presentation, I’ll be sharing my “Dangerfield Theory” of IP and innovation in China. The Dangerfield Theory is based on comedian Rodney Dangerfield, who famously and repeatedly complained that he got no respect. China, in spite of remarkable advances in IP and innovation, continues to get no respect. Like Rodney himself, China is also a heavyweight, now leading the world in patents and IP litigation, and leading in the pursuit of many key technologies. Their innovation and IP is no laughing matter, but continues to just get no respect. This make China like Dangerfield, and for those companies and nations that ignore the threats and opportunities China creates, Chinese IP and innovation will also become “danger field.” Ignoring this field of danger and opportunity is foolhardy. It’s the kind of sleepy, lazy response we seen when a company or nation is beset by innovation fatigue.
The tendency of Chinese IP and innovation to be invisible to the West is an issue I raised in 2011 right after the Thompson Reuter Top 100 Global Innovators report for 2011 included nothing from China, Taiwan, or Hong Kong in its list of 100 top innovators based on international patent filings over the past three years. I was astonished at how Chinese IP could be so invisible and overlooked, given that Foxconn/Honghai Precision, the Taiwanese and Chinese partner of Apple, compared to Apple itself actually had 3 times as many US patents in the time period of interest. Honghai had roughly 50 times as many US patents field as some companies that made the list. Other heavy international filers like Huawei, ZTE, and Lenovo were also neglected.
I contacted Thompson Reuters to complain, wondering also if they had made errors in their search or forget to include Honhai Precision in their search terms. I was told that they had done the analysis accurately, relying on a proprietary algorithm that requires a company to file in the US, the EPO (Europe), and Japan for a patent to count as an “international” patent. This definition tends to discriminate against Chinese IP, in my opinion, for Chinese companies, when they seek international protection, are usually content with IP in China and the US, plus some other specific nations, but tend to do relatively few filings with the EPO or with Japan. Japanese companies naturally file their first, just as Chinese companies file first in China. Given the high political tensions between Japan and China, and the relatively small market it is for Chinese companies, the motivation to file in Japan is small, regardless of the quality of the invention. Insisting on filing in Japan rather than China puts China at a great disadvantage and favors the many Japanese companies that make the list. Requiring that a patent be filed in the EPO and Japan in addition to the US sets a very high bar that does not properly reflect whether an invention is good enough to be pursued with international IP.
In 2012, the Thompson Reuters Top 100 Global Innovators report still had nothing from China. Its 2013 report finally mentioned Taiwan, but not Honghai/Foxconn. Only the Taiwanese semiconductor giant TMSC broke into the top 100. But the latest report from the end of 2014 finally mentioned a mainlaind Chinese company: Huawei. It’s about time. It’s not like Huawei just barely broke into the ranks of companies pursuing international IP. For several years they, like ZTE, have been in the top 5 international filers, according to the World IP Organization which administers PCT (Patent Cooperation Treaty) filings. Huawei is actually the world’s #1 international filer and has been for some time. Looks like they managed to barely break past whatever algorithmic blinders Thompson Reuters has, and for that tiny bit of progress, I guess we have to congratulate the folks at TR.
My soft and hesitant congratulations, though, may not be heard amid the roar of complaints that TR is facing for its related report, China’s IQ (Innovation Quotient), which praises China for its rapid rise in innovation and patent filings (in spite of meagre recognition on the Top 100 report). Some loud voices immediately complained, reminding us that Chinese innovation is weak and most of its patents are low quality. On Dec. 13, 2014, the influential magazine, The Economist, ran an editorial, “Patent fiction: Are Ambitious Bureaucrats Fomenting or Feigning Innovation?,” criticizing TR for their positive report on China and reminding us that China’ does not file as high a percentage of international patents as Japan, and suggesting that Chinese innovation and IP is “feigned” by bureaucrats and not driven by real inventions from real innovators. Still no respect!
Yes, there is a problem with poor quality patents in China driven by tax breaks. But that is changing as companies increasingly look to patents as strategic tools for the future, and are striving to increase quality. The quality problems in China may more severe than they are in the US, but the quality is improving, and expensive international filings are increasing, with China now #3 in the world, ahead of Germany, and likely to overtake Japan in a few years.
It’s true that Japanese patents are much more likely to be filed overseas than Chinese patents (something like 30% for Japan versus 5% for China), but this is not necessarily a reflection on the quality of the patent. The economic value is also an important issue. Japan is a small market. Its businesses prosper by selling products to many large foreign markets like the US, Europe, and China. There are strong economic reasons why Japanese companies would seek foreign patent protection. China, on the other hand, represents a huge and growing market. Apart from manufacturing for foreign companies using foreign IP, Chinese companies producing and creating their own products tend to find the Chinese market to be a big enough opportunity to keep them busy for years to come, and rely much less on exporting these to the confusing and uncertain overseas markets in the US and Europe. The economic incentives to seek IP overseas is less for many Chinese innovators than it is for Japanese innovators, and naturally we can expect foreign filings to be somewhat diminished, even when the invention is of high quality.
There is a tsunami of quality IP and advanced innovation coming from China. China is learning and rapidly improving its approach to IP. Those who continue to ignore the threats and opportunities coming from this very change will find that the “Dangerfield Theory of Chinese IP and innovation” ultimately means the joke will be on them.