China has sent clear public signals that it intends to become an even stronger intellectual property power. To remain the world’s innovation leader, the United States needs its patent system to be up for the task of handling new threats from foreign competitors.
Some criticisms have recently been thrown at the U.S. Patent and Trademark Office (USPTO), claiming that large companies use its patent quality review processes to take advantage of other innovators. This argument misunderstands patent review and overlooks that upholding high patent quality standards protects American manufacturers and innovators from unjust attacks. Reliable review is necessary for a strong patent system, which positions the United States to outcompete adversaries.
Patents encourage innovation and private enterprise, but not all patents are created equal. Patents are government-granted monopolies that give patent holders the exclusive right to profit from the patented product.
Government employees issue these monopolies, and they make mistakes just like everyone else. When incorrectly granted monopoly power falls into the hands of those who want to exploit it, it harms genuine innovators. Patent validity review at the USPTO weeds out patents that shouldn’t have been initially granted and protects against the abuse of monopoly power.
American patent law was influenced by the experience of England, where monarchs notoriously abused their power to give undeserved monopolies. Those monopolies increased the prices of products consumers wanted, and a public outcry resulted. The Founding Fathers feared government grants of unjust monopolies, so they allowed Congress to grant patents only for a limited time and rejected any legal presumption that a granted patent was valid. In 1817, James Madison, the Father of the Constitution, wrote, “Monopolies tho’ in certain cases useful, ought to be granted with caution, and guarded with strictness against abuse.”
Allowing people to appeal initial patent grants so any unjust and illegal monopolies can be quickly corrected is as American as apple pie. So, I am concerned when I see criticism of the USPTO’s Patent Trial and Appeal Board (PTAB) using its congressionally granted authority to review and weed out low-quality patents being used to harm American manufacturers.
More than 60 percent of all patent infringement litigation in the United States is brought by patent trolls. Patent trolls don’t make products of their own. They purchase low-quality patents and try to monetize them through lawsuits against productive companies. Patent trolls are often backed by investment entities, foreign and domestic, who are rarely required to reveal themselves and can control lawsuits without anyone being the wiser. Patent infringement lawsuits are expensive and time-consuming for defendants. Patent trolls know this, so they use litigation as leverage to extort settlements. If this isn’t an abuse of monopoly power, I don’t know what is.
Analysis of patent troll activity has shown that they are most likely to target manufacturers and that companies of all sizes are at risk. The U.S. patent system needs checks in place to combat this behavior, which is where the PTAB comes in. Through PTAB review, the USPTO can assess patents being weaponized in lawsuits and decide whether they should have been issued in the first place. PTAB removes weapons from patent trolls’ arsenals by correcting past mistakes and invalidating low-quality patents.
The legal battle between Intel and the patent troll VLSI Technology has been cited in criticism of the USPTO’s review authority, but it is a perfect case study for the review’s value. The difference between Intel and VLSI couldn’t be greater. Intel is a semiconductor manufacturer; VLSI is a shell company that makes no products. Intel uses patents to innovate; VLSI purchases unused, foreign-owned patents to sue American companies. Intel has made historic investments to create jobs and build more products in America; VLSI uses lawsuits as investments to generate profit for the investment management firm that owns it.
Intel was ordered to pay VLSI billions of dollars after its petition to the PTAB was denied because of a bureaucratic rule that has since been changed. PTAB was created by Congress to weed out invalid patent grants so expensive, abusive litigation could be avoided. The Intel and VLSI case is precisely what they had in mind.
The idea that patents would be collected by entities that never made any products and used to sue productive American businesses would have appalled the Founding Fathers. Invalidly granted patents encourage abuse of government-granted monopolies and threaten American manufacturers that produce goods consumers need.
The USPTO’s patent review processes must be protected so that American innovators and manufacturers have a shield against patent trolls’ abuse of monopoly power. As competitors like China bolster the patent systems, the United States must do the same.