The question typically comes up like this:
Between IPRs, Alice (patent eligibility) and a bevy of other decisions (particularly damages decisions), 2014 was a horrible year. Do you think we’re at the low tide mark and things will improve in the patent market in 2015?
My short answer—“no.” Here are my top five predictions:
Patent reform – broadly, changes in the law and rules applicable to obtaining, enforcing, or invalidating patents made by Congress, the courts, or the USPTO – will reach a peak in 2015.
Does anyone remember that the “big thing” in the America Invents Act (AIA) in 2011 was supposed to be “first to invent” and “harmonizing our US system to the rest of the world”? The reality has turned out to be a little different.
We can expect the same with further reform in 2015. The only question in my mind is whether patent reform will get wrapped into broader tort reform. If it does, it will slow things down. My expectation is that until there is a change in the Oval Office, Congress will not tie patent reform and tort reform together.
On the legislative front, look for new patent legislation to be signed into law in the first half of 2015. It came close in 2014—it will happen in 2015.
It’s nice to hear some counseling that it’s better to delay reforms until the impact of the AIA and key court decisions are better understood. It is naive to expect that reason, reliable data, potential harm, and unintended consequences will slow down reform (see, for example, an interview with Mark Lemley in IAM).
Only patent wonks are aware that the Bessen and Meurer “studies” regularly quoted by reform advocates to support reform are of “suspect quality.” The drivel served up by these two charlatans has been repeated so often it’s now accepted as fact. See our post “More Bogus Patent Statistics.” At some point (maybe after a few more outrageous editorials or after someone in Congress asks who is sponsoring their “research”), credible peer reviewed research will be presented and considered by our policy makers in Washington, but not in time for the next round of “reform.”
Anticipate that the House of Representatives will lead the way and the Senate will follow with a more limited bill. The House and Senate versions will go through a reconciliation process where the final bill that’s sent to the President will look more like the House version than the Senate version. Key elements likely to be present include:
While I’m fine with the concept of these changes, the bill will undoubtedly be poorly drafted and simply lead to more disputes.
It is also likely that judicial “patent reform” will continue as well. The Supreme Court already has a couple of cases due for decision and at least the one (on district court claim construction) has the potential to lead to further lack of clarity in patent litigation.
More significantly, I believe we’re only a single vote change away on the Supreme Court and Federal Circuit from effectively eliminating business method patents. A resignation and a new appointment at either court, or a change of heart by one judge, could have massive implications for the patent market.
The AIA introduced several new ways to challenge patents at the patent office -- and their popularity far exceeded our expectations.
While recent data shows a slight decline in the “killing fields” impact of the inter partes review (IPR), the overall rate is still extremely high. IPRs have done a lot to change the market and this will continue. After a slow start for the first seven or eight months the new procedure existed – an average of 20-30 IPRs filed per month – the rate has skyrocketed. There have been 150 IPRs filed per month for the last eight months. You can see the data here.
The objective of establishing a faster and less expensive means to confirm the validity of patents is one I support. While far from perfect, IPRs bring down costs and are far more efficient than court proceedings. If you are going to lose, you would much rather lose in the first round than after spending a fortune and losing on appeal.
There’s a slight concern that something equivalent to the USPTO’s no-longer-secret SAWS program—that started out as a way to stop stupid inventions (e.g., crust-less PB&J sandwiches) but was expanded to delay “sensitive” applications—will be imposed upon the PTAB, but I have confidence the PTAB judges would not buy into this and will execute on their charter.
For 2015, look for the overall number of IPR filings to continue to increase – but not for the reason you might think.
Even though IPRs were ostensibly put in place to help weed out weak patents allegedly being asserted by Non-Practicing Entities (NPEs), in 2015 the number of IPRs filed against NPEs will decline as the number of NPE suits falls.
Look for an increase in IPRs filed against patents owned by operating companies – both by other operating companies and by others. Businesses will catch on that IPRs are a very effective way of clearing out annoying patent impediments—and far cheaper than licensing.
The recent decline in patent lawsuits filed is not a fluke – I expect it to continue.
Lex Machina reported that patent suits filed in September 2014 were down 40% compared with September 2013.
Look for litigation in 2015 to continue this trend – I expect that the total cases filed in 2015 will fall over 50% compared with 2014. The decline can be attributed to the growth in IPRs, the Supreme Court’s Alice decision and, most significantly, mandatory/presumptive fee shifting.
Financial products will emerge to address fee shifting, much as they have in Europe, but it will take a while for the US patent market to adapt.
All of the above factors – patent reform at both the legislative and judicial levels, the Supreme Court weakening patents, and IPRs – are part of a process that’s reducing the value of patents in a dramatic fashion. These aren’t just obscure issues that only a patent nerd could love – they’re real issues that have a major effect on the entire intellectual property ecosystem.
It may not have been the goal of Congress and the Supreme Court, but the combination of the AIA and recent Supreme Court decisions, especially Alice, have had the effect of wiping out billions of dollars of value in patents, especially software patents. If some of the more recent 101 (what is patent eligible) decisions are upheld, we are only beginning to understand what Alice means.
In our blog post from back in August, “Patents, GAAP, and Balance Sheets,” we talked about how the environment has changed in a way that damaged the value of many patents, and we asked
Given these dramatic changes, why haven’t we seen major write-downs of the acquired patent assets of large corporations? There are many, many patents whose value has been impaired by these issues, yet the problem remains invisible to the investor community.
Expect the investor community to finally notice. I expect to see the first lawsuits filed for failure to write down the value of patents that were purchased or that are on the books as part of an acquisition. If an acquisition any time in the last few years resulted in a significant allocation to software patents, those assets aren’t worth now what was paid for or allocated to them then – and the companies have been hiding or ignoring that fact. Reality will hit soon.
Needless to say, a dramatic decrease in patent litigation means there will be a dramatic decrease in the need for patent litigators.
Downsizing happens in the legal market on a fairly regular basis. In the late 1980’s large law firms helped lobby for fixes to shareholder lawsuit abuse—they were wildly successful and within a few years of enactment many of these big firm lawyers had to retool. The impact on patent lawyers will be more significant simply because there are too many of them.
Look for staff and lawyer reductions in the big law firm IP departments starting with associates in 2015 and continuing with partners in 2016. Some of the major firms are staffed 40 to 60% above what the demand is going to be next year.
The changes will be painful. Large and boutique patent litigation firms, you’re going to need to adapt and morph. Smart firms won’t wait, and might even start the process at the end of 2014.
I hope my predictions are off the mark. Because if they are accurate, there will be an overall negative impact on the US economy.
Yes, there will be some savings from reduced patent litigation. But I believe this will be more than offset by negative implications for investment in innovation and start-ups.
The proposed patent reforms for the most part benefit the well funded at the expense of the innovative underfunded companies. Eroding patents takes away one of America’s most important competitive advantages. If we make it easier for certain “big tech” companies to rip off other people’s IP, we also make it easier for foreign companies to rip off America’s IP – which is not the approach we should be taking when other countries are taking steps to strengthen their patent systems. What’s good for Google is not necessarily good for America, but it may take time before Congress wakes up to this.