Additional Concerns with the Leahy-Smith “America Invents” Act

According to Jason Rantanen and Lee Petherbridge, there is a problem with the Leahy-Smith America Invents Act (AIA). The problem lies in the possible exploitation of a new procedure that the AIA introduces to patent applicants. As a result of this possible exploitation, there may be a reduction in the quality of information available to the patent office when it is making its determination on whether to issue a patent. Furthermore, it can be expected that the patent office will get it right less often than before and therefore more low-quality patents (those that do not meet the requirements for patentability) are likely to be issued. Finally, this new procedure also reveals previously non-existent risks to the integrity of the patent system.

The AIA currently provides an applicant with two options when securing a patent. The first option requires the applicant to pay the cost of disclosing relevant information throughout the initial examination of patentability. The probable effect of this first option is likely to result in more expensive and time consuming prosecution as well as permit a narrower amount of claims. The second option provides an applicant with the choice of whether to pay the cost of disclosing relevant information throughout the initial examination of patentability. This option is likely to result in a cheaper and quicker prosecution as well as permit a broader amount of claims. The difference in the secondary effects of the two options can be found in option two, which throws the cost of information about patent scope and patentability from the applicant to “higher cost providers” such as the patent office, courts, and competitors. The problem with the AIA lies within the second option.

Before the program, patent law had a supplement to prevent the possible harmful effects of using option two, the inequitable conduct doctrine. This doctrine forced a “low probability but high cost sanction” on an applicant caught choosing the second option. However, under the new AIA procedure, patent applicants can choose not to disclose relevant information of patentability despite their knowledge of such information throughout the initial examination. Therefore, the patent applicants are obtaining a questionable patent at best and, depending on strategy, may disclose the information later on through in what Representative Waxman referred to as a “get out of jail free card” in his statement to Congress on June 24, 2011. This in turn averts the influence of inequitable conduct fundamentally and even though there remains the possibility of a criminal sanction, its effectiveness is skeptical given the extreme level of conduct that seems to be required in order to impose such a sanction.

By reducing the risk in choosing option two, the program now makes this option more appealing to the patent applicant. For example, if a patentee encounters a competitor who would like to take the matter to court subsequent monetization of a patentee’s broader claims, the patentee may go on the defensive and call upon a supplemental examination. The benefits of using a supplemental examination reveal its appeal to patent applicants as well as the risks associated with choosing an option two.

For one, it permits a patentee to erase the behavior they carried out during the initial examination, thus removing at least one option for challenging the patent, and therefore strengthening the patent by increasing the chances of it not being found unenforceable. Secondly, supplemental examination allows for a patentee to place an increased amount of “challenging art” into the file before litigation. As a result, the patentee benefits from both “patent office externalities that favor the allowance of claims” and “from judicial norms that express a reluctance to invalidate claims based on art that the patent office considered in connection with the patent.” Lastly, competitors will be unable to determine which choice a patent applicant made, whether it was option one or option two, therefore compromising their ability to respond strategically. Consequently, the inability of competitors to distinguish between option one and option two will make it improbable that an option one patentee will get the benefit of the cost acquired by selecting that option.

With this seemingly increased risk of augmenting the number of low-quality patents through AIA’s new procedure, an already well known relationship between low-quality patents and competition surfaces. The outcome being that low-quality patents can cause competition to be pricier due to the possibility of competitors having to pay “supramarginal” cost prices owed to patents that should have never been issued. Furthermore, the cost of research and development could also increase due to low-quality patents because future innovators may be required to pay rents on patents that should have never been issued. Finally, there is a possibility that low-quality patents would make market entry increasingly difficult and costly because new applicants may be also be required to pay rents for patents that never should have been issued, and have to defend “nuisance suits” against such patents, which may cost up to “four to five million for middle of the road cases.”

Lesser known but naturally flowing from logic is that in a world that permits supplemental examination there is a possibility that low-quality patents may also reduce capital investment grounded on a patent or small number of patents. This is because before supplemental examination is invoked, all patents should be thought of as slightly less likely to be enforced successfully because they are slightly more likely to be viewed as invalid and therefore worth. Therefore, in a world that permits supplemental examination “the value of a patent, or a small portfolio, such as a small business or a start-up might own, is worth marginally less” and investors would therefore be inclined to pay less for it.

On the other hand, the opposite effect is more likely to occur with firms that hold large portfolios of patents in a supplemental examination world because, despite the possibility that their portfolios could end up being slightly less valuable, if those portfolios remain large then there should be good chance of enforcing relevant patents. Therefore, large firms should be able to obtain lower-priced patents as well as enforce more of them. As a consequence, these larger firms may be preferred over the smaller firms and start-ups that attempt to enter a market in such a world.

In conclusion, possible exploitation of the AIA’s new procedure may result in the reduction of the quality of information available to the patent office when it is making its determination on whether to issue a patent, therefore perhaps increasing the issuance of more low-quality patents, and thus revealing risks that were previously non-existent. This is largely due to the supplemental examination alternative that is available to a patentee when choosing an option. Therefore, until further analysis of the AIA is made and its overall effects on the patent system are uncovered, the problem will remain.

For further reading, the full article can be found here.

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