But when that presumption of validity has been historically challenged in Federal District Courts, courts have invalidated claims 85.8% of the time.  To illustrate, of the 283 times a District Court made a ruling on patent validity between 2007 and 2011, Court’s have invalidated claims 243 times.  See here.

And when those invalidity rulings have been appealed to the Federal Circuit Court of Appeals, the Appeals court affirmed those invalidity rulings 70% of the time. See here.

And after the America Invents Act created Inter Partes Review (IPR) as another avenue to challenge patent validity, patent validity statistics have taken a sharper downward spiral.  As of March 2014, the Patent Trial and Appeal Board (PTAB) granted 80% of all IPR petitions filed, and the PTAB cancelled 95.2% of all claims for which trial was instituted, and cancelled 82.9% of all claims that were initially challenged by the petitioner.  See here.

Why are patent invalidity rates so high?  How can we have confidence in a government-issued patent when the vast majority of patents are later determined to be invalid, when held under scrutiny?

Our patent system’s rampant validity problem stems from a systemic issue with our monetization system.  When a patent’s value is tested in the market, it necessarily involves an adversarial confrontation in which another entity is accused of patent infringement.  But when that entity is charged with patent infringement, its knee-jerk reaction is to challenge the patent’s legitmacy, whereby the patent falls dead more often than not.

Hence, our system is designed such that when a patent holder monetizes its asset in the marketplace, it is immediately barraged in a field of crossfire–a field which few patents cross unscathed.

Does it make sense to design a system in which every time a patent is brought to market, it’s legitimacy is immediately challenged and will likely be batted down as invalid?

Of course not.  This is an incredibly inefficient vehicle to bring patents to the market.

How do we correct this systemic problem?

We need a better, more efficient monetization system.  We need a system that enables government-issued patents to be brought to market in a non-adversarial manner, and in a manner that doesn’t immediately cause its validity and legitimacy to be tested.

How do we rework our patent monetization to enable an easier road-to-market strategy for patent assets?

The answer lies in creating an open market in which patent assets can be brought into the open market, and where the open market assess its value–not a court of law.

One proposed monetization vehicle is a patent exchange which I so often write about–an open, free market in which shares of patent assets are bought and sold on the open market.

We’ll see when the patent market finally wakes up to this realization.

The latest round of proposed amendments would allow the government to create a class protected from corporate veil piercing–holding investors and those outside of a protected class with interest in patent assets personally liable, where their infringement accusations in litigation fail to meet the “objectively reasonable” test.  But protected from veil piercing would be inventors, law firms, universities, and companies with a track record of commercial activity.

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The thinking here: threatening personal liability against investors will disincentivize those outside of the protected class from purchasing patents and filing lawsuits that may fail to meet the objectively-reasonable test.  This in turn will reduce frivolous lawsuits, thereby reducing wasteful litigation and promoting innovation.

Seems simple enough, but will it work?  Will the creation of a protected class of patent holders reduce the potential for litigation abuse and thereby promote innovation?

Unfortunately no–the protected-class approach will not only (1) fall short of reducing the potential for litigation abuse, but will also (2) threaten the capitalistic underpinnings of our Patent Clause, so much so Adam Smith, respectfully referred to as capitalism’s “Founding Father,”  would turn in his grave.

(1) Why will the proposed protected-class legislation fall short of reducing the potential for litigation?

The proposed legislative amendments will not reduce litigation–it will simply shift the class of entities asserting patent lawsuits.  Instead of traditional patent financers, patent monetization knowledge will shift to those in the protected class and to those that are well funded enough to move into a protected class.

As an example, well-funded patent financers will continue to operate by purchasing low-value operating companies and having them hold patent assets to litigate.  By owning an operating company, even well-funded “trolls” can fall within a protected class.

Hence, the latest proposed legislative amendments will not eliminate litigation or its potential for abuse–it will only serve to shift the class of entities asserting patent lawsuits to those within the protected class.

(2) Perhaps most importantly, the proposed legislative amendments will be wholly and absolutely detrimental to America’s innovation market.

Why?

To understand this, we must understand how capitalistic economies promote innovation–Adam Smith clearly laid out the framework in the well-known An Inquiry into the Nature and Cause of the Wealth of Nations.

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Put simply, division of labor produces the greatest improvement of society’s productive powers, including innovation.  See Wealth of Nations, Book 1, Chapter 1, “Of the Division of Labor,” I.1.1 (emphasis added) (“The greatest improvement in the productive powers of labour, and the greater part of the skill, dexterity, and judgment with which it is any where directed, or applied, seem to have been the effects of the division of labour.”)

This division-of-labor principle is reflected in our innovation industry–some specialize at inventing and creating patented discoveries, others are better suited at financing, others yet are inclined towards manufacturing, and yet others are more skilled at marketing and distribution.

To maximize the power of the division-of-labor principle to our innovation industry, Smith explained that we need to do two things: (1) increase the innovation market size and (2) maximize exchangeability in the innovation market.

(1) Regarding the market size, this sets the upper bound of the division-of-labor principle.  The larger the market, the greater potential for the division-of-labor principle to take foothold in the market place.  See Wealth of Nations, Book I, Chapter III, “That the Division of Labour is Limited by the Extent of the Market,” I.3.1 (emphasis added) (“As it is the power of exchanging that gives occasion to the division of labour, so the extent of this division must always be limited by the extent of that power, or, in other words, by the extent of the market. When the market is very small, no person can have any encouragement to dedicate himself entirely to one employment, . . .”)

(2) Regarding exchangeability, Smith explained that the power of exchange is the driving force behind the division-of-labor principle–one man’s surplus is exchanged for another’s surplus.  See Wealth of Nations, Book I, Chapter III, “That the Division of Labour is Limited by the Extent of the Market,” I.3.1 (“As it is the power of exchanging that gives occasion to the division of labour . . . .”)

And this power of exchange is the catalyst behind commercial growth and activity in any capitalistic society, including one that aims to promote innovation. See Wealth of Nations, Book I, Chapter IV, “Of the Origin and Use of Money,” I.4.1. (“Every man thus lives by exchanging, or becomes in some measure a merchant, and the society itself grows to be what is properly a commercial society.”)

So we can learn two things from Adam Smith.  To promote innovation we must, one, increase the market size for innovation–we need more people specializing as inventors, financiers, manufacturers, distributors, and marketing specialists.  And two, we need to maximize exchangeability–not only maximize exchangeability of the above skill sets, but also maximize exchangeability of patent assets–the asset class of innovation.

By maximizing the market and increasing exchangeability in the innovation market, Adam Smith instructs that this will promote the division-of-labor principle, which will in-and-of-itself propel innovation.

So if that’s the goal, then why is the proposed protected-class legislation so contrary to these tenants of capitalism?

How is it so contrary?

1. By limiting the innovation market to just those that fit within a protected class, this reduces the overall market for innovation.  Notably, those outside the protected class will be removed from the innovation market.

And who are those outside the protected class?  Patent financiers–investors, fund raisers, brokers, valuators, monetization specialists.

Alarmingly, the protected-class legislation is attempting to remove this specialization–patent financing–from the innovation market.

But if we strip patent financing from the innovation market, then the successful inventors will be the ones blessed with financial means or an innate ability to raise capital.  The successful start-up companies will be the ones with a bankroll or that have in-house patent valuation and fundraising knowledge.  The successful law firms will be the ones that have monetization expertise and a large war chest to fund multi-front enforcement campaigns.

Removing the patent-financing specialization from the innovation market will force others in the protected class to adopt this specialization, on top of their native specialization.

But this contravenes the division-of-labor principle.  If we want to promote innovation, we want more specializations, we want more people specializing in each segment, and we want them exchanging knowledge and expertise.  We don’t want to artificially strip specializations from the market, but this is exactly what the protected-class legislation is attempting to achieve.

As such, the protected-class legislation contravenes the division-of-labor principle and will hurt our innovation market–we don’t want this.

2.  The proposed protected-class legislation will artificially and significantly reduce the alienability, or exchangeability, of patent assets.

Unlike currency, gold, or real estate, a patent’s value will be determined by those wielding it, rather than the intrinsic worth of the patented discovery itself.  Why would we possibly want to limit patent exchangeability in such a manner?

Because the protected-class legislation artificially removes specializations from the market to the detriment of the division-of-labor principle, and reduces alienability of patent assets, it is entirely contrary to the tenants of capitalism and will therefore fail to promote innovation in our capitalistic economy.

Put simply, the proposed legislative amendments of forming a protected class will not promote innovation–it will be detrimental and damaging to it.

So, what’s the solution?

Instead of trying to regulate litigation abuse through legislation aimed at attacking one group (patent financiers), why not let the courts regulate it?  Aren’t judges in the best position to determine if litigation abuse exists in a given case, and aren’t they equipped with the authority to regulate it?

But isn’t that how we got into our present state to begin with, by solely relying on the court system?

Perhaps, but perhaps that’s why we’re also seeing the Supreme Court make a strong statement of its intent to curb litigation abuse in Octane Fitness.  In it, they lowered the bar and gave district courts more discretion to award attorney fees and award sanctions where it sees fit.

As represented by Octane Fitness, we are seeing the courts take an activist role to curb litigation abuse.

Instead of proposing short-sighted legislation that is entirely contrary to the capitalistic underpinnings of our economy and future, why not let the courts do their job?

And does your mouth salivate when you see a perfectly-cooked, juicy filet?  Do you satisfy your hunger pangs when you bite into a glazed, marbleized ribeye steak?

If you answered yes to the above questions, then you grew up on a tradition of eating meat and probably can’t imagine life without it.

And if that’s the case, then the idea of synthetic meat may make you feel uneasy.

Synthetic meat?

Yes, we can now grow and replicate meat in the laboratory from live animal cells, without the need to raise and butcher livestock.

In fact, the world’s first laboratory-based burger was taste tested in London in August 2013.   It was grown in the laboratory from muscle cells of a cow, and grown in a ring pattern to create a burger patty.

When compared to animal meat, the testers noted that while the cultured meat had the texture and juiciness of animal meat, it lacked taste.

Although it may be 5 to 10 years before we see synthetic meat in stores, the fact is that environmental, health, and demand considerations will likely render it a necessary alternative to animal-based meat in the next coming decades.

Why?

Let’s take a bird’s-eye view of our meat-production industry: most obviously, it’s one that produces meat on a very large scale.

To produce such meat, we grow grains, channel water, clear land for grazing, and utilize fossil fuels to raise a living organism, complete with fully-functional organs to support respiratory, circulatory, and digestive systems.

These life-support systems enable growth over a several-month period, which leads to the production of flesh.  To accelerate flesh production, we may feed animals grains outside of their natural diets, inject growth hormones, and limit their mobility to maximum flesh production from their caloric diet.

And when the flesh reaches its apex over the animal’s lifetime, we strip it of its flesh, thereby contributing to our meat market.

What’s wrong with this meat-production method?

It is limited to a meat-conversion process–we convert grains and water to raise a living organism, which in turn produces flesh over its lifetime.  This process of meat conversion is grossly inefficient and not sustainable.

Why?

Because meat conversion is one of the most taxing, wasteful, and draining production methods our country has ever utilized.

As examples, more than one-third of all raw materials and fossil fuels used in the U.S. are devoted to raising animals for food.

To illustrate, cows must consume 16 pounds of vegetation to create 1 pound of flesh.  To account for such inefficient flesh production, more than 80% of the corn and 95% of the oats we grow are used to feed livestock.  The world’s cattle alone consume a quantity sufficient to feed the entire human population.

That’s just food.  Regarding water, more than half of all fresh water in the U.S. is used to raise animals for food.  It takes 2,500 gallons of water to produce one pound of meat.

Regarding land usage, 45% of the total land mass in the U.S. is used to raise animals for food.  And 87% of all agricultural land in the U.S. is used to raise animals for food.

And as a result of clearing approximately 260 million acres of U.S. forest to create agricultural land to produce feed for livestock, the meat industry has been blamed for more than 85% of all soil erosion in the U.S.

It doesn’t stop there.  According to the Environmental Protection Agency, raising animals for food is the number-one source of water pollution.  And according to the Worldwatch Institute, at least 51% of global greenhouse-gas emissions are caused by animal agriculture.

The combined effect of crop-conversion inefficiencies, water usage, soil and tree loss, and waste has such a detrimental effect on our environment, the Union of Concerned Scientists lists meat-eating as the second-biggest environmental hazard facing the Earth.

And by 2050 it is estimated that we will need to increase our meat production by 70% to meet the world’s meat demands.

Our meat-conversion methods aren’t sustainable–it is too inefficient and wasteful to raise and sustain a living organism, to indirectly produce flesh.

Synthetic meat offers an alternative to produce flesh directly, free from a taxing conversion process.

Even back in 1931, Winston Churchill had the foresight to see this as a scientific inevitability: “We shall escape the absurdity of growing a whole chicken in order to eat the breast or wing, by growing these parts separately under a suitable medium.”

But can synthetic meat really save the day?  How will it taste?  Can you actually see yourself making a switch to synthetic meat?  How will Thanksgiving meals feel the same if the turkey isn’t even real?

These are understandable concerns–growing up on animal-based meat is a cultural phenomenon most of us are used to, and it isn’t easy to switch.

To address these concerns, let’s take a closer look at the history and development of the patented discoveries surrounding synthetic-meat technology–a closer look reveals that synthetic meat only has the potential to have the look, feel, and taste of animal meat, but it will far surpass it.

The concept of in vitro meat came from NASA in 1995 from its effort to supply meat for astronauts on extended space journeys.  The FDA approved the process in 1995 and NASA began researching ways to produce it.

Dutch scientist Willem Frederik Van Eelen is credited with inventing a process for creating cultured meat on an industrial scale.  In December 1998 he filed for a patent on his discovery, WO9931222 entitled “Industrial Scale Production of Meat from In Vitro Cell Cultures.”

The patented discovery was the first of its kind.  In it, Van Eelen teaches a process of industrial-scale production of meat grown in vitro from anchor animal cells, in a manner that does not require de-boning and that is free of tendon and fat cells.  His goal was to teach a method of producing meat on an industrial scale that doesn’t require the production of animals, loss of life, and harmful growth hormones and antibiotics.

But the patented technology lacked one key ingredient–it failed to account for taste.  In his patent, Van Eelen taught avoiding the use of fat cells, but fat is what gives the meat its taste.

In Sept. 2004, inventor Jon Vein addressed the issue of taste and further developed the technology in his European patent EP 1789063 B1, entitled “Tissue Engineered Meat for Consumption and a Method for Producing Tissue Engineered Meat for Consumption.”

In it he teaches adding cartilage and fat cells to the muscle cells, to produce meat with more flavor.  He also teaches growing the cells around a three-dimensional support structure, to resemble different muscle tissues such as tenderloin, shank, chicken breast, drumsticks, lamb chops, fish fillet, and lobster tail.

But industrial-scale production of in vitro meat may still be problematic, because growing meat with a mix of fat and muscle cells and off of a support structure may be too imprecise for replicable, industrial-scale production.

Modern Meadow addressed this problem in the latest of patented technology surrounding the field–it has successfully applied 3D-printing technology to tissue and meat: 3D bioprinting.  Its patent application relating to meat has yet to be published (patent applications are published 18 months after filing), but Modern Meadow filed a similar patent application on March 28, 2013, WO2013149083 entitled “Engineered leather and methods of manufacture thereof,” which discloses a method of 3D printing leather.

With 3D bioprinting, we can isolate ingredients down to a molecular level and meld and organize the cells and stack them in layers.

3D bioprinting offers a precision that is arguably lacking with growing meat in vitro.  And with the right mix of ingredients, we can create almost anything.

Although there are more patentable discoveries yet to be uncovered to get there, 3D bioprinting offers an opportunity not only optimize taste by creating the perfect mixture of muscle and fat cells, but also meat off of the bone and bone marrow to enable the recreation of the tastiest part of meat–that which grows on the bone.

Perhaps most revolutionary with 3D bioprinting: we can create meat that is free from the limitations of the animal’s actual physiology.

If the filet is your favorite type of meat from a cow, why keep it limited to 6 oz?  Why not create a 36 oz filet with the most tender muscle cells, with fat cells to marbelize it, and have it grow on a bone to enhance its taste even further?

What is impossible for animal meat can now become a reality with synthetic meat–we can print meat that tastes better and gives us more of the type of meat we want.

Still further, we can print skin and and texture to enable the most creative chefs to dream masterpieces in meat presentations.

So if the taste of cultured meat can exceed what is possible with animal meat, what about the culture surrounding meat?  Doesn’t it bring families together and enhance collective appreciation knowing that an animal gave its life for the meal?

Well, this will take an adjustment in thinking.  Can you be satisfied that a turkey had to donate a part of itself (its cells), for you to enjoy your meal?

If you can, then you are one step closer to enjoying and appreciating what this revolutionary technology has to offer.  Synthetic meat will enable you to get more of the meat you want, without the detrimental costs to the animals, environment, and our limited natural resources.

I hope this article helps you think of synthetic meat from a different perspective, and that you’ll actually look forward to its development and integration into the market.  

Do you look for investment opportunities with early-stage, high-potential startup companies, in which you can obtain significant ownership equity?

If you are an angel investor or VC, new patent legislation threatens to eliminate these investment opportunities, entirely.

Why?

The Innovation Act (H.R. 3309) and similar legislation (S. 1612, Patent Litigation Integrity Act) currently being rushed through Congress will make patent assets extremely risky to legitimately enforce.

How?

The proposed litigation threatens to impose a loser-pays, bond-requirement system.

What does this mean?

If you believe in good faith that a competitor is practicing your startup’s patented idea without authorized use, then you can’t enforce the patent without taking on significant risk of paying your competitor’s legal fees if you lose.

As an example, if you assert a patent against a competitor and if the court rules the patent is invalid (this happens), then you will be required to compensate your competitor for all of its legal fees.  Worse yet, your competitor can potentially force you to pay an upfront bond, to hold your money in escrow prior to you initiating an infringement lawsuit.

Why is this problematic?

How can you trust that the United States Patent & Trademark Office (USPTO) is issuing valid patents?  If you rely on them in good faith but they happen to be wrong (they are later invalidated), then you pay for it, not them.

Who is holding the USPTO accountable for issuing legitimate patents?

Unfortunately, no one.

What does this mean for you if the new patent legislation passes?

Patent assets become an extremely risky and unreliable investment.  When looking for your next investment opportunity, consider passing on startup ventures that rely on patent assets as security for their competitive edge and business model.

Why is Congress considering such drastic measures to patent reform?

They are attempting to rid our patent system of litigation abuse—but in doing so, they are threatening to undermine the legitimacy and enforceability of all government-issued patents.

This will serve to undermine the angel-investor/VC business model.

Is there a better way to achieve patent reform?

Yes–we need to strengthen our patent monetization system by building it upon open, free-market principles, not by weakening our litigation system.  You can read more here: http:/ /www.investinip.com/how-do-we-achieve-patent-reform/

What can you do about it?

1. Educate yourself—read more here: http://www.investinip.com/letter-senate-december-7-2013/

2. Contact your Senator immediately–the Senate will be voting on the Patent Litigation Integrity Act (S. 1621) at 10 AM EST on December 17, 2013.  You can contact your Senator here: http://www.senate.gov/general/contact_information/senators_cfm.cfm

3. Ask your Senator to preserve the venture-capitalist and angel-investor business model by rejecting the Patent Litigation Integrity Act (S. 1612).

4. Instead of weakening our litigation system, ask your Senator help make our patent monetization system better by structuring it around open, free-market principles (read more here: http://www.investinip.com/how-do-we-achieve-patent- reform/).

5. And share (e.g., LinkedIn, Twitter, Facebook) this link with your colleagues and encourage them to contact their Senators—your business depends on it.

I am writing to you because you will be asked to vote on the upcoming Senate version of the already-passed Innovation Act (S. 1612, Patent Litigation Integrity Act).

Your vote has the power to adversely impact not only our country’s economy, entrepreneurial potential, and foothold in the free world, but also erode the Constitutional underpinnings of our Patent Clause.

Before making a decision to pass a rushed bill, I hold before you the Constitution, which you have sworn to uphold.

And before casting a vote that would offend our Founding Fathers, consider a more sound alternative to patent reform, one built upon open and free-market principles and rooted in the Constitutional underpinnings of our Patent Clause. (http://www.investinip.com/how-do-we-achieve-patent-reform/).

Firstly, before making a vote to attempt patent reform, ask yourself: what is the problem with our patent system?

If “TROLLS” immediately pop up in your mind (the practice of filing frivolous lawsuits to obtain nuisance-value settlements), then like most people you’re fixated on a symptom, rather than the underlying problem.

All current legislation, including the Innovation Act, address nothing other than symptoms, to an underlying, systemic problem to our patent system.  Because of this, the Innovation Act and all other pending legislation will fail to achieve patent reform.

So, what’s the underlying problem with our patent system?  How do we achieve patent reform?  I discuss this here (http://www.investinip.com/how-do-we-achieve-patent-reform/).

To uncover the problem with our patent system, we need to first identify how we utilize our current-day patent system.  And then for each, we need to identify the mechanisms we employ to enable those uses.

So what do we use our patent system to achieve?

They are (1) enforcement and (2) monetization.

(1) Enforcement

This is the classic “right to exclude.”  (read more here — http://www.investinip.com/patent-basics-what-is-a-patent/).

To illustrate, let’s say you’re attempting to launch a product or service and another market player infringes on your patented idea and competitive advantage, you have a Constitutional right (via our Patent Clause) to enjoin that competitor from further infringing activity, or obtain royalties for their continued infringement.

This enforcement function serves to protect investments into entrepreneurial endeavors and technological advances–the foundation of scientific progress and economic development.

And what mechanism do we use for enforcement?  Litigation.

(2) Monetization

Our current-day patent system also includes a monetization component–a tool by which a patent holder can obtain royalties from patented ideas that are valid and legitimately infringed (these actually exist).

This creates an opportunity to liquidate the value of the asset.

Regarding whether liquidity of an asset is important and whether we should keep it in our patent system, these are interesting questions that I’ll be discussing in another post on www.investinip.com.

Regardless, we have a system that enables patent monetization.

Given that, what mechanisms do we use to enable monetization?  The same one as enforcement–litigation.

And this is exactly where the problem lies.

Litigation is great for enforcement, but horrible for monetization.

Why?

Because litigation is a closed, monopoly-driven model–this is perfect for the court system (read more here — http://www.investinip.com/patent-exchange/).  But for a monetization system, we need an open, free-market model–just like we use for everything else.

Why an open and free market?

A free market, because this will enable price discovery in which the market determines the proper value to attribute to a given technology asset.

And an open market, because we want the entire investment to community to participate, not just a handful of patent experts.

So how would we create an open and free-market patent monetization system?

It’s actually incredibly simple–the template for an open, free-market monetization system is already in use today, and it is used to monetize and trade on numerous other asset classes–the stock exchange.

So why not patents?  Why not an open, free-market patent exchange?

It’s all laid out here (http://www.investinip.com/how-do-we-achieve-patent-reform/).

Now, while we are considering a patent-exchange approach to patent reform, let’s also consider the ramifications of the Innovation Act, and all other legislative measures that attempt to implement a loser-pays, bond-enforcement system.

On the surface, the Innovation Act and similar legislation seem like a great fix.

They will disincentivize the filing of frivolous lawsuits, because defendants will now have an opportunity to fight and recover costs on cases with merit to defend.

Moreover, identifying the real parties-in-interest will uncover all troll activity, and repeat offenders can be flooded with bond requirements.

The Innovation Act and other legislation like it will finally provide defendants with sufficient leverage to fight back against the trolls.

What’s wrong with that?

Well, have you considered the collateral implications?

If not, there is a serious price to pay.

The collateral implications threaten to stifle small-business innovation, angel-seed investments into entrepreneurial endeavors, and research-and-development efforts.  See, e.g., here (http://www.investinip.com/letter-congress-december-4-2013/).

How?

In a loser-pays, bond-enabled system, innovative and daring individuals with an idea, guts, and a patent won’t be able to attract investment capital, because the patent asset on its own would be too risky of an investment.

Why?  Because if I’m an investor and the patented idea is the startup venture’s competitive advantage, even if I believe in good faith that a competitor is infringing and impinging on our marketshare, how can I rely on the patent asset?  If I win, great.  But if I lose, I run this risk of paying excessive legal fees, which alone could tank the business.

How can I rely on the patent asset to back my investment?  Even when a competitor is legitimately infringing, it becomes too risky to even attempt to enforce the patent.

Instead of investing in the smaller ventures that are solely patent-based, the investor will instead invest in more well-funded operations, ones that are backed by more than just patent assets.

What will this mean?

The passage of the Innovation Act and similar legislation will be the dawn to a massive drop off of angel-seed investments into small-business ventures, particularly those that are patent-backed and where their competitive advantage relies on a patented idea.

This will serve to cripple small-business America and our entrepreneurial spirit–the foundation of our country and the very thing the Patent Clause is meant to protect.

Moreover, a loser-pays system will completely undermine the United States Patent and Trademark Office’s legitimacy (read more here — http://www.investinip.com/legitimacy-uspto-loser-pays-system/).  How can I trust the USPTO is issuing valid patents?  If they are wrong, I pay for it, not them.

Voting for the Innovation Act or similar legislation will plant seeds of doubt in the legitimacy and value of government-issued patents.

The result?  We’ll see a significant dropping in U.S. patent filings–a signal to the rest of the world of a weak patent system.

While the short-term gains of the Innovation Act and similar legislation may seem appealing, we must consider patent reform from a broader perspective, and a perspective rooted in the Constitutional underpinnings of the Patent Clause.

To achieve patent reform, we need to improve our monetization system, not weaken our patent system.

Vote to shoot down S. 1612 and support patent reform from a more holistic perspective, one that is aligned with open, free-market principles, and the Founding Fathers’ intent behind our Constitution’s Patent Clause (http://www.investinip.com/how-do-we-achieve-patent-reform/).

Our Patent Clause and America’s patent regime hang in the balance.

I hope you will read this and discuss amongst other policy makers.

Thank you for your consideration.

May God Bless our Patent Clause.

Gau

Let’s say you file a patent application and the USPTO issues you a patent.  You believe someone is infringing and you file a lawsuit.  Unfortunately for you, the patent is ruled invalid–you lose, you pay.

As you reach in your pocketbook to pay the defendant’s legal fees for defending the case, you think to yourself: if the USPTO didn’t issue me the patent in the first place, I never would have filed on it.  But because I relied on the USPTO’s issuance as a presumption of validity, I’m the loser.

How would I adjust my behavior?  I will simply stop relying on the USPTO’s issuance of a patent as a presumption of validity.

A loser-pays system will undermine public trust and confidence in the legitimacy of the USPTO.

The results?

We’ll see a significant drop in (1) patent filings, which signals to the world that America’s innovation is trending downwards, and (2) investment capital into start-up ventures, particularly those that moderately-to-significantly rely on their patented ideas as the backbone of their business model.

Before we pass rushed bills through Legislature, let’s consider the impact of our decisions, particularly those that would undermine America’s foothold in the free world and cripple its economy.

We haven’t spoken before–I was President Obama’s student in Constitutional Law (University of Chicago School of Law, 2005).

I am writing you, because our patent system is broken, and the current system and proposed legislation (e.g., Innovation Act–HR 3309) fail to address our needs.  I propose a solution that can meet our needs (http://www.investinip.com/how-do-we-achieve-patent-reform/).

I would like for you to consider the ideas proposed here, and bring this up for discussion amongst policy decision-makers.

Our system is broken and, worse, we are failing to attack the fundamental problem behind patent trolling.  Instead of fixing trolling, proposed legislation will serve to weaken the American patent regime, undermining its ability to fulfill its Constitutional mandate. The effect will be to chill the incentive to invest in technological advances and entrepreneurial endeavors.

We must consider all perspectives before we make a decision to pass rushed bills, the economic ramifications of which have not been properly explored.

Admittedly, I am a troll–I monetize patent assets and have made a career of it (http://www.investinip.com/about-invest-in-ip/).

I’m here to tell you two things and ask for one: (1) the current legislation won’t stop trolling activity, (2) the current legislation and current-day system fail to meet a Constitutional threshold, and (3) there is a better solution that is incredibly simple, yet profoundly impactful to promote scientific and technological progress, as well as the Founding Fathers’ intent behind the Constitution’s Patent Clause.

(1) Current legislation won’t stop trolling

Now the trolling strategy will adjust to filing more patents in a single lawsuit–this is a power-in-numbers approach.  The more claims you assert, the greater the chances of one sticking.

If one valid claim is found to infringe, then the well-funded, multi-patent plaintiff can offset its own fees and go long for a full-scale jury verdict.

The current legislation won’t stop trolling, because the well-funded trolls will remain, they will file multi-patent lawsuits, and they will be willing to go the distance.

Defendants still face the risk of high patent-exposure, and will now be conflicted in terms of whether to fight to recover fees or pay to settle and avoid risk.

Hence, the current legislation will not solve the problem–litigation and trolling will continue, while smaller in quantity, it will be larger in scale and with greater risk.

(2) Current legislation fails to meet a Constitutional threshold

A patent owner’s “right to exclude” is a Constitutional protection afforded to all patent holders.  This is the fundamental backdrop that incentivizes investments into new technology and entrepreneurial endeavors–this is the backbone that supports scientific progress.

With a loser-pays system, it would undermine an individual’s or entity’s Constitutional right to enforce a valid and infringed patent against a multinational, well-funded corporation.  To illustrate, the proposed loser-pays system will chill investments into startup ventures and technological advancements, because the underlying patent assets would be more risky to legitimately enforce.

(3) The solution?

We need to fix our patent monetization system, not weaken our litigation system.

To start, what is the fundamental problem with our patent system?

Answer: our only recourse for monetization is through litigation.  This is problematic for several reasons, which I lay out here: http://www.investinip.com/how-do-we-achieve-patent-reform/

But instead of weakening the litigation system to curb litigation abuse, why don’t we create a better monetization system?

The model is simple–in fact, there are numerous asset classes monetized in the free market, the models for which provide a well-proven templates.

And solution is incredibly simple, yet profound: an open, free-market patent exchange.

Notably, such an exchange furthers our Founding Fathers’ intent behind the Constitution’s Patent Clause (see, e.g., http://www.investinip.com/patent-exchange-furthers-the-founding-fathers-intent-part-1-of-4/)

What is a patent exchange?  Why a patent exchange?  You can read more here: http://www.investinip.com/how-do-we-achieve-patent-reform/.

I am writing to you, because you swore to uphold the Constitution, and I believe it is your Constitutional duty to consider this perspective.

Not only will the proposed legislation fall short of meeting its real objective of curbing troll activity, but there is a downside we must consider, and it is our Constitutional responsibility to reflect upon its collateral effects.

I ask that you read the materials provided here, and help other policymakers consider a patent solution from another perspective–a more holistic perspective.

Thank you for your consideration.

Best,

Gau

Why?

Because the incentives and resources employed to invalidate a patent during litigation are highly skewed and dwarf the incentives and resources employed to examine and issue the patent at the patent office.

(1) Litigation

Patent validity is truly tested in litigation.  When a defendant is charged with patent infringement, which could occur rarely or up to several times a year, it will prospectively spend millions of dollars to defend its case at trial, all under a dark cloud of potential infringement liability, which could pose an additional risk of several million dollars.

Because of the inherent risk to those charged with patent infringement, a defendant is strongly incentivized to invalidate an asserted patent.  If a killer prior art reference exists, the defendant is incentivized to uncover the earth to find it, no matter how obscure or buried. 

And because of this strong incentive, defendants typically invest hundreds of thousands of dollars to invalidate an asserted patent, including undergoing extensive prior art searching around the world, and retaining highly-qualified (and expensive) experts to support its case for invalidity. 

(2) Patent examination

This picture is starkly contrasted with patent examination and issuance at the patent office. 

The patent office sees hundreds of thousands of patent applications a year and has been consistently facing a growing backlog of cases. 

When an applicant files a patent application, it is assigned to a single examiner.  This examiner is tasked with understanding the patent application’s invention and claim scope, search for prior art, issue rejections when the claim scope is too broad, and allow patent issuance when the claim scope is appropriate.

But with the sheer volume of cases and the current backlog, patent examiners experience considerable pressure to move its cases forward.  Namely, examiners are judged not by the quality of examination or the relevance of prior art it uncovers, but by the movement of it cases, either by issuing rejections or allowances. 

Because of this pressure, rather than providing a thorough examination, the examiner is incentivized issue rejections off of the first-found marginal references, rather than spending more time to find better prior art.  As such, it isn’t uncommon for examiners to issue rejections and allowances based on relatively weak art, without consideration of the most relevant references.

Because of the above contrast between incentives and resource allocation during litigation and patent examination, patent issuance is a weak indication of validity–no wonder we see such a high invalidity rate of patents asserted in litigation.

The new AIA law attempts to address these issues by enabling third parties to submit prior art during examination and enabling a post-grant review process, within 12 months of issuance.  But time will tell if the new AIA procedure will sufficiently tip the scales to enable patent issuance to become a better indicator of validity.

Believe it or not, extensive patent signifies market vitality–you see patent litigation only in the most lucrative industries in which innovation is rapidly occurring (e.g., mobile-device and semiconductor industries).  If a market is small (e.g., less than US $500M annual revenue) or doesn’t experience rapid advances in technology, you won’t see much patent monetization/litigation.

Take the cleantech industry as a case study—this is a market in its infancy in which startup companies are springing forward, pushing the technological frontier. 

Right now we don’t see many patent lawsuits.  Why?  Because no cleantech technology has significantly penetrated the market, and no cleantech company is earning enough revenue off of a product or service to justify a patent lawsuit.

If we don’t see patent litigation pick up in the cleantech industry, it could mean one of two things: (1) we as a society have found another way to monetize patent assets (I’ll discuss more about this when discussing a patent exchange), or (2) the cleantech industry never grows to experience market penetration (I’m assuming we will see sustained innovation in the industry).

But if we see an increase in patent litigation/monetization, it means the cleantech industry is experiencing market penetration and innovation, and that cleantech companies are earning substantial revenue and are becoming significant market players.

These are all good signs, but the question still remains: would an increase in patent litigation stunt the cleantech industry’s growth, because the cleantech companies themselves would be mired in expensive litigation?

That’s a fair question, but think of it from the other perspective—wouldn’t increased patent litigation and monetization create more opportunities for cleantech companies to earn licensing revenue, to supplement their bottom line?

And wouldn’t cleantech companies themselves be best positioned to monetize IP in the cleantech space?  After all, the cleantech companies are the ones creating the IP and are on the ground floor of the market’s development. 

All-in-all, patent litigation and, monetization more generally, signifies market vitality and innovation, and creates more opportunities for generating licensing revenue. 

Patent litigation and, more generally, monetization are powerful tools—learn to wield and utilize them. 

At its core, patent infringement comes down to word interpretation—whether the claims of a patent “read” on a product or service.

You’d think word interpretation is a simple task, but you’d be shocked.

Thousands upon thousands of attorneys earn their living and bill hundreds of millions of dollars each year interpreting the meaning of words.  In fact, the entire judicial branch of our government (the other branches being the legislative and executive branches) is solely devoted to word interpretation—particularly, whether the words of a statute, contract, or other legal document apply to a real-world circumstance.

Why does such a seemingly simple task require so many resources?

Without getting too philosophical, a word is an approximation of our experience or understanding of life.  When we create or use words to categorize a concept, thing, or action, we inherently create outliers to this categorization.

It is at these outliers where word interpretation, and thus litigation, begins.

To illustrate, take words describing emotions.  Love, fear, hate, and anger–all these words approximate an intangible feeling.  But where does being upset spill into anger?  At what point does nervousness escalate to fear?

The same is true regarding objects (e.g., as used in system claims).  Take the word “car”—say you define it as a motorized vehicle with four wheels, and that can carry passengers?  But is an ages-10-to-12 playschool motorized car a “car,” as we understand it?

And take the word “send” (i.e., action words used in method claims)—say you define it as causing the movement of an object from one location to another.  But when you have an opportunity to prevent an object from moving from one location to another, but choose not to, did you send it?

These are rhetorical questions to illustrate a point–with any definition we apply to a word, we inherently create outliers and, thus, the seeds for disputes and disagreements, i.e., litigation.