Surprisingly, patent issuance is a weak indicator of validity.
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.
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.