“The Case for Restoring Inventors’ Rights”
David Wanetick’s seventh book on patents touches on the inequality of arms between the inventor and the institutions meant to uphold the patent system and large patent holders. He starts by recognizing that the vast majority of business people and innovators are not remotely as successful as those characters profiled in business books. That is the main theme of the book, picturing a sad truth: most members of the small business and independent inventor communities merely struggle to survive, assuming the patent system protects their innovation, but soon to discover that the system dysfunctions.
The author loses no time and immediately sets out where the book is about: IP laws in the US are far from fair. It’s unfair, to cite a few complaints he has,
- that patent examiners take way too long to review patent applications
- that a government tribunal acting like a kangaroo court wantonly invalidates patents on a wholesale basis
- that corrupt judges in “foreign countries” pressure patentees to accept minimal lump-sum royalties for perpetual licenses
- that the Court of Appeals for the Federal Circuit regularly extinguishes decades of excruciating sacrifice and millions of dollars of investment with one-word verdicts
- that rightful inventors are held liable when infringers introduce cancer-causing agents into their knock-offs
- that patentees are forced to pay to settle meritless, tortious interference suits brought against them by infringers
- that infringers fabricate prior art and then force legitimate patent applicants to present such forgeries to patent examiners under the fear of being subject to inequitable conduct charges based on failing to disclose prior art
- that product-producing patentees must compete against infringers who subcontract out the manufacturing of their infringing items to Chinese-prison laborers
- that infringers continue to produce infringing products for years and years after they agree to settlements that call for them to only sell their remaining inventories.
Well, that promises something. And the author makes it true: you can’t possibly accuse him of going too short. Later on in the book, the author presents no fewer than 35 cases that are explained in detail and which substantiate these objections.
We are introduced to the main character in the book, Inocencia Erfinder. Apart from running a small restaurant business (“Concordia Diner”) she also is an inventor and throughout the book, she is confronted with the US patent system and figures as a victim of what the author – an experienced patent attorney – describes as a malfunctioning patent system.
The book consists of three parts: in Part 1 we get to learn, in excruciating detail, what hurdles a young entrepreneur has to overcome before becoming slightly successful. Part 2 consists of a conversation Inocencia has with her patent attorney, clearly the eyes, ears, and mouth of the author. Part 3 is a compilation of the 35 cases the author presents as proof of a malfunctioning patent system. Especially small inventors have to spend loads of money to defend their rights, mostly against powerful counterparts, and are being confronted with administrative judges who don’t spend the time and effort to award or protect inventors with the proper federal patent rights granted to them.
Political views
Much of Part 1 and the first half of Part 2 is clouded by the author’s unvarnished political views. The book does not do that any good, especially because it starts with that. It is also unnecessary because the author’s broad experience makes the reader long for proof of a non-functioning or malfunctioning patent system. An expectation that is amply fulfilled in the third part by the 35 cases that are extensively described to prove the flaws in the patent system. As an example, the word “liberal” – especially in the US predominantly used to describe left-wing political ideas – is used often to describe situations or subjects that are unrelated to the core of the book: a flawed US patent system. This damages the persuasiveness of the arguments presented and deprives the reader, especially in the first part and the beginning of the second part, of the motivation to read on. In the first part, the various “problems” of a starting entrepreneur are discussed in detail, such as getting the necessary permits, the fake reviews on social media about Innocencia’s restaurant, her struggles with activist employees, finding the right advisers, and other matters that will undoubtedly come across the path of a young entrepreneur.
Complaints about Inocencia’s “Concordia Diner” profit margins being lower than what employees earn, complaints that employees do not pay enough attention to what employers do for them, the few days off the entrepreneur gets compared to her employees, the time her children spend on school, complaints about public school teachers, even the MeToo movement calling men “male chauvinist pigs” and “jerks”, low-level quality of conferences Inocencia attends, and so on, are concerns that many an entrepreneur may agree with but that will not captivate the reader who is waiting for what is to come about the U.S. patent system.
Fast Forward
But fast forward to the part where – after significant investment and trial and error – Inocencia manages to invent a versatile robot that automates food preparation. Through a question-and-answer format that follows between Inocencia and her patent attorney, the various aspects of patenting her invention are discussed, taking the reader through a good chunk of the book – from pages 46 to 110 – through all aspects of patents and inventions. Innocencia gives her opinion and asks (informed) questions, while the patent attorney not only answers her questions about case law but also casually substantiates his opinion concerning case law, presenting a very informative and entertaining duet to the reader on all aspects of patenting and the shortcomings of the patent system that are encountered.
A multitude of subjects are reviewed, from what is patentable and the limitations that both the highest court and the patent granting authorities have imposed, about the hiring of patent brokers, the functioning of USPTO examiners, the flawed institution in the patent granting process: the Patent Trial and Appeal Board, about patent trolls, the bad effect of the inter-partes-review procedure on the possibilities of patent owners to exercise their rights, the awards of damages after an established patent infringement, the role of paid “amicus briefs”, the extremely brief “Rule 36” affirmations from the Federal Circuit, and the predominant role played by giants like Apple and Google in patent invalidity lawsuits.
Client-patent lawyer exchange
The client-patent lawyer exchange is often interluded by an inset in which a case is being mentioned that supports the views of the fictional patent lawyer Worth mentioning here is the Christy Case. David McCutchen founded CDC Larue Industries in 2003, manufacturer of industrial vacuums that capture the hazardous silica that is liberated when cement floors are grinded. Without effective industrial vacuums, workmen operating floor-grinding equipment would breathe cancer-causing silica. David invented how to get a vacuum’s filters to self-clean with only the vacuum motor pulling ambient air through the valves and through the filters, which invention made additional blower motors unnecessary. After being granted a patent in 2006, David’s son, Chris, approached potential licensees among which Black and Decker. Because Black and Decker allowed the license negotiations to continue without much progress and the patent holder was sure that they also applied the invention, he proceeded to sue B&D for patent infringement. Before the case could be presented to the jury, B&D filed an inter-partes-review against granting the patent.
Such proceedings are handled by the Patent Trial and Appeal Board (PTAB), made up of administrative judges, appointed (not for life) by the Secretary of Commerce. (As an aside: in early 2021, the US Supreme Court will consider whether this nomination process is constitutional). The PTAB spent 20 minutes to hear the case (one judge present, the other two Skyped in) and invalidated claims 1-18 of the patent. In an equally short 20 minute appeal hearing before the Federal Circuit, the patentee could not get the verdict reversed. Ten years after grant, the patent was invalidated. In a “postscript” the author writes that in 2019 he spoke to the inventor who mainly focused his anger on the PTAB:
“What infuriates Chris is the PTAB. That body’s uninformed and, at best, disinterested pseudo-judges invalidated 18 patent claims after listening to the assignee’s arguments for no more than twenty minutes. How could Chris, or any other rational observer (let alone impassioned inventor) feel otherwise? How could three administrative judges issue an equitable verdict if they didn’t understand the basic technology resident in the patent before them? With so little attention paid to the inter partes review proceedings—two administrative judges didn’t even attend the hearing in person—how could those judges so quickly conclude that 18 claims were invalid when those same claims and related prior art spent three years under intense examination by skilled examiners?”
Part 3 of the book – Case Law
Most of the book is taken up by “Part 3”, where 255 pages deal with 35 patent disputes in which all the author’s criticisms seem to converge. In the context of a book review, it goes too far to list all the matters mentioned here. However, to get an impression of the author’s working method. I do that by only briefly summarizing the cases, unlike the author who goes into detail about the invention, the procedures followed, and the criticism he has of the results, in some cases – where relevant – citing relevant case law.
The prolific inventor
Ted Tsao, an immigrant from China accumulated more than 40 patents, mostly related to cloud computing. Ted’s inventions inarguably eased the use of computers: earlier in the web computing era, it was difficult to manage and share files by using web browsers. These browsers were often blocked due to the low speed of the Internet and the problems that existed with web protocols such as HTTP. The patents got tremendous attention and scrutiny by experts, leading to a favorable licensing deal with a Silicon Valley technology company. When Ted became aware in 2016 of Yahoo infringing his patents, he sued Yahoo for patent infringement in the District Court in San Jose, California. The court invalidated all four patents-in-suit without going through claims construction in Markman hearings. (The author explains that claims construction proceedings are important because it is at this stage in patent litigation where each word in the claims are defined. Without claims construction, the litigants do not know what they are arguing about.) Rather than trouble with technicalities that would have arisen in a claims construction proceeding, the judge invalidated the patents-in-suit by holding that they were ineligible due to their covering non-patentable, abstract ideas. For instance, the judge essentially held that the multi-tasking feature associated with unblocking browsers no more novel (in the words of the author) “than a person multi-tasking by tying his shoe, chewing gum and listening to songs through an iPod while tripping on LSD”, thus ignoring the 2016 Enfish LLC vs. Microsoft Corp decision which held that improvements in the way computers operate are patent eligible: Ted’s inventions improved computer functionalities by solving specific problems relating to bandwidth constraints, managing folders, and sharing information. Ted appealed this decision at the Court of Appeals for the Federal Circuit in November of 2017. In a one-word decision (“Affirmed”) on July 17, 2018 that court upheld the District Court’s invalidation of all four of Ted’s patents-in-suit.
Postscript
In a “postscript” the author highlights the fact that the judge’s rush to invalidate patents contrasts with the scrutiny that at least seven teams of patent analysts and patent lawyers applied to the same patent portfolios. Due to judicial haste in destroying a patent portfolio, tremendous licensing opportunities were lost; none of the large companies with whom Ted was in discussions even replied to his overtures after his four patents were invalidated. Ted’s unfortunate experience underscores the point that when one infringer invalidates patents, that infringer destroys the licensing agreements that the patentee has with all of its licensees and may have with potential licensees.
Josh Malone’s Bunch O’ Balloons
After making a success of his Shape Cutter invention, a digital cutter, a machine replacing the variety of known scrapbooking solutions, Josh Malone developed a product that is known in the US as “Bunch O’Balloons”, a rather simple solution for filling up balloons with water. In a breakthrough experiment, Josh placed small o-rings around the necks of empty balloons. Then he shoved tubing down the necks of these balloons. He then drilled holes in caps that cover water hoses. Finally, he placed a connecting pipe from the holes in the caps to the tubes inserted into the balloons. When he turned on his garden hose, tens of balloons were filled simultaneously. He was awarded a patent. The simplicity of the invention was later derided as “evidence” of obviousness. Josh agreed with Zuru Toys to manufacture and sell the Bunch O’Balloons, which fast became a success (by mid-2019 40 million units were sold). With success comes the counterfeit. A well-known IPR infringer, Telebrands – sued for infringement by different parties 70 times – brought knock-offs on the market, Josh sued for patent infringement. Telebrands tried and tested numerous times for stealing designs, dragged Josh into massive litigation, hundreds of motions running into many tens of thousands of pages were filed in these proceedings. Josh estimates that he and Zuru spent as much as $3 million arguing about the meaning of “substantially filled” as in filling balloons up with water (believe it or not: according to the PTAB, “… the specification does not supply an objective standard for measuring the scope of the term ‘filled’ or ‘substantially filled.”) Josh directed more time and treasure to dispel the notion that his Bunch O’ Balloons invention was obvious in light of surgeons using balloons in endoscopic procedures.
In Josh’s case, the PTAB has lived up to former Federal Circuit Chief Judge Randall Rader’s depiction of it as a “death squad killing property rights.” [1] The PTAB initially deemed all the claims on Josh’s first patent unpatentable. Josh appealed and the PTAB reinstated these claims but Telebrands again tried to get the patent invalidated. The PTAB instituted inter partes reviews on all of the claims in Josh’s second, third and fourth patents. The first three of Josh’s patents sustained invalidity attacks in district courts but succumbed to them at the PTAB. In other words, the PTAB canceled everything that the courts awarded. Less than five years after putting Telebrands on notice of its infringement, Josh and Zuru have spent more than $20 million combatting Telebrands, ten times his investments in bringing this invention to the market.
The author raises the question: “Where is the justice in any patentee having to spend anything in the vicinity of $20 million to derive utility from his patents?”, on which he sighs:
“The second certainty that patentees can be assured of is that they will effectively subsidize the infringer’s defense. Infringers are relieved of costs related to research and consumer testing. They save fortunes by limiting their commercialization efforts to promoting products that have already generated significant consumer interest. They lurk in the shadows of the halos created by legitimate manufacturers. When infringers enter the market, they typically sabotage the prevailing pricing structure, steal market share from patentees and cause patentees to expend huge sums of money on patent assertion. As such, inventing companies most often have to sue infringers when their rapidly deteriorating economics coincide with the infringers’ rising prosperity”.
Ari Rosenberg’s “impressions-per-connection”- invention
As a media advertising professional Ari Rosenberg realized that banner ads on websites did not always sync up with the corresponding site’s visitors. Websites like IGN.com that appealed to young audiences with very little income would be flooded with irrelevant ads from brokerage firms, for example. How would such website ad sales executives respond if their advertisers failed to receive sufficient clicks? Ari’s idea was to flip the prevailing wisdom of compensating unpopular advertisers with more impressions on its head. Ari decided that the most relevant ads should be rewarded with bonus impressions each time viewers clicked on related ads. This way, popular promoters would be rewarded with lower effective advertising rates. These contented advertisers would likely renew their campaigns, benefitting both the website owners
and digital ad salesforces. Ari filed a non-provisional patent application for this “Impressions-Per-Connection” (IPC) and partnered with a company called Snowball (later called “IPG”). By 2007, and within a year of his US patent issuing, Ari entered into his first licensing agreement with Hallmark after months of due diligence, studying the invalidity risks associated with Ari’s IPC patent. Then Hallmark agreed to pay him a 2.5% royalty rate for the online ad campaigns that it sold and that implemented the IPC method.
Soon after some employees departed for Google, Google immediately adapted the IPC system in its advertising system. Plenty of evidence showed Google knew of Ari’s patent for IPC. Confronted with a mighty infringer, Ari found himself traveling all over the country in his search for a contingency law firm to represent him. In 2015 he filed a patent infringement suit against Google in New York. Google responded by filing a petition for review under the so-called “Covered Business Methods” proceeding at the PTAB. None of the CBM judges really understood IPC. It even seemed like one of the judges was trying to demean Ari, by asking questions such as those relating to Ari’s undergraduate education. Ari lost the first round of the CBM proceedings, but quickly filed an appeal. In April of 2019, this appeal was lost when the Federal Circuit issued a Rule 36 decision—“affirmed.” That one word invalidated both of Ari’s patents—patents in which he invested more than $400,000 in legal fees. Ari’s contingency lawyer decided to contain his exposure to Ari’s case and resigned from representing IPC.
The author in his postscript of this sad outcome notes:
Ari played by the rules but Congress and the Supreme Court changed the rules of the game. Congress promulgated the America Invents Act which created the PTAB and the CBM. During these CBM proceedings, Google argued that Ari’s patent lacked an inventive step even though the media was bursting with stories that lavished praise on the inventiveness of Google’s IPC-like advertising platform. Then, the Supreme Court clouded patent eligibility issues with its Alice decision.
(…) the independence of directors of the USPTO became especially important in the post-America Invents Act era. At least at the time of Director Lee running the USPTO, the agency’s directors had tremendous influence over Administrative Patent Judges. APJs may have felt the need to issue decisions that aligned with their politically-appointed directors’ proclivities. After all, directors had the power to hire and fire APJs. Directors had the authority to assign APJs for each panel and to convene expanded panels to re-decide cases when they were not in agreement with the decisions.
I don’t think it will be of any consolation to Ari, but he is not the only patentee who has a right to feel that the PTAB panels are stacked against inventors and in favor of Google (…)”.
Conclusion
Your reviewer read his book with European eyes, only generally knowledgeable of the US patent system, certainly not of its intrinsically different aspects in comparison with the European Patent System. On top of that: US courts have different standards than most European patent courts.
The picture sketched in this book is staggering. The image is powerfully portrayed that mainly smaller, independent innovative discoverers are being overrun by an extremely expensive, complicated, and unfair system. Unfair because the means available to the infringer to take down a patent are disproportionate to those of the patent owner who, despite having been granted a patent, constantly has to “compete” with administrative courts and other “experts” who think they know better than the patent-granting authority.
I am glad that, despite a hesitant start, for reasons outlined earlier in this review – and with which as a European I do not have much affinity – I continued reading. The things the author puts forward have in common that even the greatest optimist cannot escape the impression that something fundamental is really grinding into the patent system. If the United States is to maintain its leadership role in innovation, politicians should take care of what is described in this book.
Severin de Wit, December 2020
“Plight of the Patentee, The Case for Restoring Inventors’ Rights”,by David Wanetick, (c) 2020, published by Business Development Academy.
[1] See on this notion: Mike Mireles in an 2016 article on the IPKat blog, ”US Supreme Court Accepts USPTO “Death Squad (?)” “Broadest Reasonable Construction” Standard”