Patents Under The Trump Administration

By Russell Binns, Allied Security Trust

Law360, New York (January 27, 2017, 3:29 PM EST) —

The biggest news of 2016, the presidential election, has become the biggest topic of speculation for early 2017 — what to expect under a Trump administration, and the intellectual property sector is no different. Trump had no stated patent policy during the election and no one really knows what will occur, but IP will probably be a low priority and it may be years before any legislative changes. Probably the top four priorities will be a U.S. Supreme Court appointment, confirmation of cabinet appointments, Immigration reform and health care. The top three IP issues, when they come up, will be patent-eligible subject matter under Section 101, the Patent Trial Appeal Board, and litigation reform. That, however, hasn’t stopped everyone from trying to read the tea leaves and figure out what may occur under the Trump administration regarding patents and discuss what they think could occur or what they would like to see occur.

At each of the conferences I’ve attended since the election and in many of my discussions with financing, legal, licensing and nonpracticing entity executives since, it is clear that everyone is trying to figure what IP policy may look like under the new administration. What sorts of appointees will he put in place? Will Trump find ways to stimulate innovation? Will he seek to create a more stable U.S. patent system, which many believe has been weakened under the Obama administration? The following is my latest thinking on the topic.

At a high level, what we know about the Trump administration that may be relevant to IP policy is the following:

• Trump thinks brands are very important
• He wants China to pay for IP piracy and wants to name a trade enforcement czar to address trade abuses
• He had a grandfather who was a decorated inventor
• The Trump administration will give many public policies a fresh look
• Independent inventors may get more attention, as they are the steel workers of the IP industry
• The tech industry is out of favor (but Trump must make reconciliation with tech as it makes up so much of the economy); and
• Trump, who comes from a real property background, would most likely view intellectual property with more of a property rights view.

All of this indicates to the pundits and experts we should expect a patent system where it is harder to invalidate patents and easier to enforce patents, consequently leading to more litigation.

Trump’s Appointments

Trump can affect policy largely through appointments (U.S. Patent and Trademark Office, Federal Trade Commission, White House advisers and lawyers, judges, trade czar, commerce secretary, etc.) who champion his policy agenda, and through amicus filings and arguments by the PTO and U.S. Department of Justice. Trump’s appointments will therefore make the most significant differences to what is in store for IP.

Vice President Mike Pence led the transition team, and it should be noted, he has experience with IP. When he was in Congress, he sat on the Judiciary Committee and the IP subcommittee. He was one of the champions that led the faction seeking to do away with the best mode requirement in patents, as he considered it a litigation waste. One of the first advisers named to the Trump administration was Joshua Wright as Trump’s antitrust adviser, and he is considered strongly pro-IP. Also, Ken Blackwell is on Trump’s transition team and is very conservative, opposed patent reform, and has written critically on post-grant reviewsand inter parte reviews at the patent office.

Trump actually spoke at the Intellectual Property Owners Annual Meeting in 2007 in New York (I was there). However, he shed no light on his patent views, though he did boast about the huge amounts of money he spends on attorneys, and did comment that although lawyers can sometimes make his life difficult, no one loves attorneys as much as he.

The Director of the U.S. Patent Office — Who’s Next?

As an Obama appointee, Michelle Lee, director of the USPTO, along with all other Obama appointees submitted her letter of resignation on Jan. 20. There was and is plenty of speculation on who will be the next director. Most believe it will take at least four months if not longer from appointment of a new director to confirmation, but the new director can have an immediate impact on the patent office and on PTAB proceedings once confirmed. This is a very important role, and on Jan. 4, the American Intellectual Property Association sent a letter to President-elect Trump recommending that his top priority be appointment of a qualified executive to serve as director.

As Trump has no particularly good relationship with the tech industry and since there have been two electrical engineers in a row as director, many think this is the time we’ll see the appointment of someone from the pharmaceutical industry. Recently though Rep. Darrell Issa, R-Calif. — who often represents the interests of tech companies, has stated that Director Lee will stay as director of the USPTO, but there has been no confirmation of that. She has stated she would be open to and would like to remain in the position.

Another name that has been submitted to Trump and would likely be on a short list is former Federal Circuit Chief Judge Randall Rader. He has a lot of experience with patent cases, international patent law, and served as a lawyer in the Senate on IP issues. The name, however, that is discussed the most for the position is Phil Johnson, head of IP policy at Johnson & Johnson, and he has confirmed interest in the position. His name was suggested after David Kappos resigned, but Sen. Chuck Schumer, D-N.Y., shut down his confirmation partly in response to objections from the tech industry. Kappos is a former president of the Intellectual Property Owners organization and a long-time lawyer for Johnson & Johnson. He was also one of the “gang of six” from various IP organizations to make recommendations on how the PTAB and IPRs should operate. He believes many of his recommendations were ignored, and currently thinks PTAB proceedings are bad for innovation, particularly in the biotech and pharma industries.

PTAB Proceedings and Section 101 Under Trump

The two most important IP matters to be fixed/changed in 2017 under Trump are: PTAB proceedings and Section 101. The PTAB first.

There has been considerable speculation whether the PTAB has diverged from its original intent. Certainly multiple attacks on the same patent were not anticipated. A Trump administration could change two aspects of IPRs with the stroke of a pen:

1. Stop all initiations/grants of IPRs immediately; and

2. Change broadest reasonable interpretation immediately so that the PTAB uses the same standard as district courts, and makes invalidity slightly more difficult.

Some possible changes to expect to the PTAB and IPRs under a Phil Johnson regime include:

• Close IPRs to the public and require a declaratory judgment level of threat to have standing to bring an IPR
• Provide more bite to the estoppel provisions
• Narrow the proceedings to the original intent of just anticipatory 102 and obviousness 103 prior patents and publications
• Require deference to prior examiner decisions and have a presumption of validity;
  Do away with BRI in PTAB proceedings
• Make amendments easier
• Look at how PTAB judges are appointed and how their bonuses are paid
• Have the director or the director’s designee oversee what IPRs are initiated (and decrease the institution rate to make IPRs rare)
• Extend the time for an IPR on good cause; and
• Require more precedential decisions to prevent contradictions between PTAB panels, which are currently occurring.

Patent Reform

Patent reform will most likely be a low priority for the new administration. The Innovation Act (H.R. 9) was intended to address runaway lawsuits, attorney fee shifting, and stays. These issues have been addressed by court decisions recently, and no one expects H.R. 9 to go anywhere in the next Congress.

The Strong Act from the Senate, which addressed the presumption of validity in the PTAB, may have more appeal in the coming Congress, but will also be a low priority. Though Sen. Chris Coons, D-Del., is expected to resubmit it next year.

Patent Litigation Landscape

The patent litigation landscape:

2015 had the second highest number of litigations in history, 15 percent above 2014. Sixty-seven percent filed by NPEs, and 66 percent in high tech with 80 percent of those filed by NPEs;

2016 had decreased patent litigation but primarily just due to a slow-down in Q1 of 2016. Sixty percent in high-tech. For the year, it is the lowest litigation level in the past six years;

Twenty-five percent of district court cases have an associated IPR;

Most jurisdictions stay cases pending an IPR, except the Eastern District of Texas — where most patent cases are file — only stays 40 percent of cases; and

600 active district court judges, and consensus is that most are not prepared to rule on validity motions consistently

There has been an emergence of China as a patent litigation forum. As of now, the success rate for foreign patent owners in enforcement actions is 100 percent! There is thinking that Chinese patent litigation may influence Trump, especially if a Chinese company enforces patents against a U.S. company and enjoins them from shipping products out of China.

Section 101 — Patent-Eligible Subject Matter

There are over 100,000 patents that cannot be properly valued due to the U.S. Supreme Court Alice decision, and I believe there is a growing consensus that most if not all Section 101 cases could be decided as a 102 novelty or 103 obviousness case.

One fix to Section 101 issues is to get rid of the judicially created exceptions to Section 101 (laws of nature, natural phenomena, and abstract ideas). Recent Federal Circuit cases encourage this position, but it may be two steps forward, one step back regarding any real advancement. It is simply too soon to tell whether we are just moving sideways on patent subject matter eligibility. The problem is that the ambiguity left in the wake of Alice has left many patent owners uncertain about the value and enforceability of many of their patents. And has left district court judges struggling to apply the Supreme Court precedent evenly on a case-by-case basis. Alice and other related Supreme Court cases have muddied the waters terribly.

The Supreme Court has hesitated to clear up the waters by ruling on another Section 101 case, rejecting a number of cases, and has not taken a policy position, except Justice Stephen Breyer, who has come out as anti-patent. It seems likely that they are rejecting cases because they aren’t clean and have too many other issues. The Supreme Court has heard 25 Section 101 cases with a whopping 40 percent having dissents, making Section 101 cases the highest rate of dissent of any patent issue at the Supreme Court.

Given the lack of judicial clarity, I think it is likely that legislative change is the best avenue to any Section 101 fix, and congress should do away with the exceptions, and let innovative ideas live or die based on their novelty or non-obviousness.

IP Investors and Strength of the U.S. Patent Market

A number of IP investors I have spoken with believe that patent rights are the most inefficiently priced asset in the market, and that higher prices for patents would fuel innovations. The inefficient valuation is likely due to a lack of reasonable, predictable damages based on economic contribution. Patent valuations are down by 66 percent since 2011. There is concern that innovators are avoiding standard-essential patents leading to possibly less interoperability, and standard-setting bodies are suffering from it. It is believed that the U.S. is conceding its patent leadership to other countries and that makes non-U.S. patents excellent leverage for better settlements, particularly where injunctions are available, such as in Germany.

It is my belief, and many IP investors I’ve recently spoken with agree, that the pendulum is swinging back to more valuable patents going forward. Public NPE values have increased post-election and performance is improving, particularly for the largest public intellectual property companies.

It should be noted that among Federal Circuit judges, 11 have voted for patent eligibility in software cases. However, Judge Haldane Robert Mayer has expressed his anti-patent bias, and the stocks drop of public patentees that find Judge Mayer on their panel.

IP investors, particularly litigation finance outfits are finding strong demand from more large operating companies that want to take litigation expense off their books and finance it. Should interest rates continue to rise beyond the recent December rate increase, there may be more companies looking to litigation finance rather than relying on lines of credit.

Deal Flow in 2017

So what will drive deals in 2017? Monetizing large portfolios shouldn’t be the first impulse. IP Investors believe portfolios should be separated into verticals with some being collateralized, some used for litigation, and then some set aside for sale. The sum of the parts is worth more than the whole to the investor community. Also, German and Chinese patents should be or will be used as leverage to drive deals.

In conclusion, we are certainly living in interesting times, and there will be a lot for all of us to work through over the coming years.

Russell W. Binns Jr. is CEO of Allied Security Trust in Princeton, New Jersey, and former chief intellectual property counsel for Avaya Inc.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.