Patent Validity–A Lifeless Field of Paper Scraps

The United States Patent & Trademark Office (USPTO) examines and issues every U.S. patent and their respective claims.  When issued, the patent and its claims enjoy a legal presumption of validity–nothing controversial here.

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.


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