Filer Drawer Containing Patents Folder

Trends in Patent Law: Tips for a Smart Corporate Strategy

Recent changes have made patents harder to get and enforce. It is likely, however, that some aspects of those trends will reverse in the future. Understanding the specifics will help companies design strategies to protect their technologies or to weather patent claims made by others.

Since the United States issued its first patent in 1790, attitudes toward patents have swung every few decades from generous issuance and enforcement to tightened restrictions.  The 1980s began an era of increased issuance and enforcement of patents, leading to practices many viewed as abusive.  In reaction, over the past decade or so, there has been a significant tightening of standards for issuance and enforcement of patents.  The number of patents granted and patent lawsuits filed leveled off and -- in some respects -- even fell.

The present, relatively restrictive environment poses challenges or opportunities, depending on a company’s technological position.  Inevitably, however, in due course attitudes toward patents will grow more positive.  The evolution of policies toward patents makes it important for companies to plan now for the likely evolution of patent policies, both in acquiring their own patents and avoiding entanglements with others’ patents.

The Rise of Patents

In the 1960s and 1970s, patents were very difficult to enforce.  Courts in some parts of the country were notoriously antagonistic toward patents.  This led to a highly uncertain environment for enforcement.  In addition, antitrust investigations and lawsuits made companies wary of accusations that they were misusing their patents by seeking or vigorously enforcing them.  As a result, many argued that patents no longer incentivized inventors and therefore impeded innovation, holding back productivity and economic growth.

In response, Congress sought to reinvigorate the patent system.  In 1982, it created the Court of Appeals for the Federal Circuit to handle all appeals from patent cases.  From the outset, that court’s decisions tended to be friendlier to patents, and plainly provided a more reliable environment for their enforcement.  The comeback of patents was reinforced in 1988 when Congress changed the law to narrow the situations in which companies could be accused of misusing their patents.

Because of those changes, patenting and patent lawsuits underwent a sustained and dramatic upswing.  In the 25 years between 1982 and 2007, patent application filings increased from 117,987 to 484,955 annually, and patent issuances rose from 63,276 to 182,899.  With significantly more patents, companies increasingly sued to achieve marketplace advantages, or at least to obtain licensing royalties to achieve returns on their R&D expenses.  Only 1,171 patent lawsuits were filed in 1991, but this grew to 1,840 in 1996, 2,520 in 2001, reaching a peak of 6,114 in 2013.

This upswing at times overwhelmed the ability of the Patent Office and courts to properly evaluate which inventions should be patented and when they were being infringed.

The Pullback

Many felt the pendulum had swung too far.  Patents on seemingly insignificant advances sometimes prevented competing companies from bringing their own innovations to market.

Even more striking was the rise of “patent trolls” – individuals or small companies that did not actually practice the inventions in their patents, but instead enforced even marginal patents to force quick monetary settlements.  Targets of the trolls complained that putting complicated patents before juries put them in a dauntingly unpredictable position, effectively forcing them to settle doubtful patent claims.  One particular court – the Eastern District of Texas – proved very popular.  With about 1% of the country’s population, it rocketed to the most popular district for bringing patent lawsuits, ultimately receiving 40% of the total in 2015.

These concerns prompted a tightening of standards for obtaining patents and bringing lawsuits on them.  Since 1990, the Supreme Court has issued decisions tightening the requirements for obtaining and enforcing patents in a dozen ways.  Among other things, it limited patents on laws of nature and abstract ideas, such as business methods.  These changes have proven particularly important in technologies related to computers and life sciences.  Courts have also emphasized that patents must cover inventions that are clearly defined and are fully described in the patents’ text.

Congress reinforced the judicial trends by enhancing the ability of the Patent Office to revoke wrongly issued patents – over 7,000 challenges have been filed to date and most patents challenged have been revoked or trimmed back.

The result is that new patents have become more difficult to obtain and many existing patents, issued in more lenient times past, are now harder to enforce in court.  Patent owners’ success rate in court has fallen since the mid-2010s and the number of cases filed has fallen by a quarter.

What Happens Next

The current patent-unfriendly environment does not mean, however, that businesses should abstain from seeking patents on their own inventions or ignore patent threats they receive from others.  Over the two centuries since the patent system was established, the strength accorded to patents has periodically risen and fallen, but always with readjustment in time.  A strengthened patent climate will eventually emerge, within several years or perhaps in a decade or two.

With the prospect of a stronger climate comes opportunity.  Given the long timescales for obtaining patents and resolving lawsuits, companies should seize that opportunity now by taking steps to protect their competitive advantages as well as ensuring their freedom to operate once the pendulum swings again.

Tips On Getting Ready

The likelihood of renewed strength of patents adds some new twists to the patent-related steps many companies have followed for years:

1.  Identify the technologies that are key to your business, focusing on recent innovations and future technological directions.

2.  If your company has come up with an idea key to its business, apply for a patent.  This puts your company in line to obtain a patent that may be more valuable (whether in terms of royalties or leverage for cross-licensing) in a future, more robust enforcement environment.

Applying promptly can also prevent others from obtaining patents that may block your company’s future activities.  In 2013 the United States shifted from its prior practice of awarding patents to the first to invent to one in which the first inventor to file an application receives the patent.  This puts a premium on acting quickly, by filing a formal or a provisional patent application.  If your company waits, and another company independently comes up with the same idea afterward, but files its application first, the competitor will prevail.

In considering what ideas are most patent-worthy, avoid the types of innovations that are now perceived to be unpatentable – such as abstractly stated business methods or inventions much broader than what the patent concretely teaches.  By understanding the ways in which patent enforcement has been weakened in the present environment, businesses can better improve their position when a more patent-friendly climate returns.

3.  If someone else has a patent (or has applied for a patent) on technology important to your business, consider whether your company can obtain rights to use the technology by collaboration or licensing.  Once legal trends reinvigorate the environment for patent enforcement, obtaining rights may be more expensive.

4.  If your company receives a demand letter, don’t ignore it.  Take reasonable steps to review the allegedly infringed patent to assess whether the demand is viable.  Consider getting a lawyer’s opinion if the question seems close.  If you ignore demands because of the present, relatively weak enforcement climate, you may regret it when any resulting lawsuit comes to trial after the climate becomes stronger.

Louis Touton is a partner in the Intellectual Property Practice in the Los Angeles office of Jones Day. He can be reached at [email protected] The views and opinions set forth herein are the personal views or opinions of the author; they do not necessarily reflect views or opinions of the law firm with which he is associated.

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