A Look Forward on Patent Reform

SENATOR HATCH IS THE CHAIRMAN OF THE SENATE REPUBLICAN HIGH-TECH TASK FORCE

Our nation’s patent system has been in need of serious reform for many years. So-called “patent trolls” — entities that don’t actually make or sell anything but that instead buy patent licenses merely to extort settlements — have become a serious drain on our economy. According to one study, patent trolls and their frivolous lawsuits cost our country nearly $80 billion per year.

Earlier this year the Supreme Court struck an important blow against patent trolls. In a case called TC Heartland, the Court put a stop to rampant forum-shopping by these abusive plaintiffs, holding that patent litigants can bring suit only where a defendant is incorporated or has a regular and established place of business.

This afternoon, I will convene a meeting of the Senate Republican High-Tech Task Force to discuss TC Heartland and how the case has impacted the patent litigation landscape. My colleagues and I will hear from a number of patent experts regarding TC Heartland’s effect and what Congress can be doing to improve our nation’s patent system.

Among the topics we’ll be discussing is whether Congress needs to provide further guidance on where patent plaintiffs can bring suit. Although TC Heartland limited patent trolls’ ability to forum-shop, some unanswered questions remain. For example, case law on what constitutes a “regular and established place of business” is not well developed. The answer to this and other questions will determine TC Heartland’s success in reducing abusive patent litigation.

Another topic we’ll be discussing is how we can better screen out unsound patents earlier in the litigation process while ensuring that valid patents survive review. In 2012, Congress passed the America Invents Act. This legislation, which I helped author, established an inter partes review, or IPR, process within the Patent and Trademark Office (PTO) to more quickly adjudicate claims of patent validity.

Under the IPR process, an accused infringer can seek a ruling from the PTO that the patent the party is alleged to have infringed is in fact invalid. IPR proceedings are narrower in scope than traditional trial court litigation and allow for much more limited discovery, with the result that they tend to be both faster and cheaper than traditional litigation. As one might expect, IPR proceedings have become increasingly popular with parties accused of patent infringement.

IPR supporters say the process cuts down the costs of patent litigation and enables patent troll victims to more cheaply rebut frivolous claims. Opponents respond that the standards for proving invalidity in IPR are too low and that the IPR process too often eradicates sound patents. In addition, the Supreme Court is scheduled to hear arguments this term that the entire IPR process itself is unconstitutional. Clearly, this is an issue that warrants Congress’s attention.

Finally, at today’s meeting we’ll be discussing what sorts of limits Congress should place on what can and cannot be patented. The traditional rule has been that “anything under the sun that is made by man” is patentable. But there are also exceptions. And in a line of cases over the last decade, the Supreme Court has applied those exceptions in a way that has caused considerable uncertainty for technology and life sciences companies.

In two of those cases, Mayo and Myriad Genetics, the Court cast doubt on the ability of life sciences companies to patent treatments that derive from natural processes. In Mayo, the Court invalidated a patent for determining the proper dosage of naturally occurring metabolites to treat autoimmune disorders. In Myriad Genetics, the Court invalidated a patent on a gene sequence that could be used to detect elevated risks of breast and ovarian cancer.

The third case, Alice, involved a patent on a computer system to manage risk in escrow arrangements. The Court struck down the patent on the ground that it was directed toward an unpatentable “abstract idea” — managing risk through third-party escrow — and that the act of implementing that idea through a computerized process did not transform the idea into patentable subject matter.

These cases have potentially significant consequences for drug and software patents. If treatments derived from natural processes cannot be patented, life sciences companies may find their intellectual property rights sharply curtailed. Already we’re seeing lower courts move in this direction, with a recent case out of California casting doubt on the ability of dietary supplement companies to patent any of their products. And if software patents for business methods like third-party escrow are wholesale invalid, business software developers may turn their attention to other products.

These are complicated issues without easy answers. But one thing is clear: Whether it be patent trolls or even reforms to subject-matter eligibility, Congress needs to be part of the dialogue. As Chairman of the Senate Republican High-Tech Task Force, I plan to focus intently on these matters in the coming months, with an eye toward introducing legislation where appropriate. We must do all we can to ensure our patent system functions smoothly, effectively, and efficiently.

SENATOR HATCH IS CHAIRMAN OF THE SENATE REPUBLICAN HIGH-TECH TASK FORCE, AND A MEMBER AND FORMER CHAIRMAN OF THE SENATE JUDICIARY COMMITTEE.

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