Help is on the Way!

These were the words from new USPTO director Andrei Iancu when I spoke to him last Thursday at the AIPLA Spring meeting in Seattle (Tangible IP was a sponsor).  I’ll come back to this in a minute.

By now however, anyone who follows the IP world (even distantly) knows that a couple weeks ago, the Supreme Court issued its long-awaited decision in the Oil States case and came down 7-2 (with a strong dissent from Chief Justice Roberts and newly-appointed Justice Gorsuch) in favor of maintaining the PTAB, with warts and all. Justice Thomas, not particularly known for his IP chops, wrote the majority decision. The Court was careful to point out that its decision should be construed narrowly and should not prevent arguing that the invalidation of patents by the PTAB may constitute a “taking” of a property right under the US Constitution, or that it violates due process. Nevertheless, with the stroke of a pen, SCOTUS reversed a century old precedent by declaring that a patent was, in its very essence, a “public franchise” (whatever that means) rather than private property. This statement by itself is certainly not what patent owners wanted to hear because it now makes it clear that the government can take away (at any time) what it granted in the first place, and this may further muddy the waters as to what a patent really is. Some pundits have read in the decision a not too subtle invitation to reargue the issue more squarely on the constitutional aspect, and this is precisely what happened last week when an inventor whose patent had been invalidated by the PTAB filed a class action lawsuit against the USPTO and the PTAB. So, here we go again!

However, on the same day it issued the Oil States decision, the Supreme Court also decided another patent case, SAS, where it concluded by the narrowest of margins (5-4) that the PTAB must address and decide on ALL patent claims that an Inter Partes Review petitioner raises as being invalid. Until now, it would only address a subset of claims that it wanted to discuss, leaving a lot unresolved. Opinions diverge a bit as to what this means in practice, but the consensus seems to be that this will favor patent owners by forcing petitioners to do their homework on all claims they intend to challenge, knowing that an adverse decision will provide the patentee with a stronger estoppel protection in a subsequent court case. On the other hand, it gives the PTAB even more discretion and, especially if the standard of proof for invalidity in IPRs is reconciled with the one used by the courts (see below), this could make PTAB decisions even harder to challenge down the road. This wouldn’t be such a bad thing if any of us had faith that the PTAB could act as a neutral and competent tribunal. But sadly, that is not the reputation it has earned over the last 5 years.

Which bring us back to my discussion with Director Iancu.  On behalf of all inventors and patent owners out there, I told him, in no uncertain terms, that I talk to you day in day out and hear your deep frustration and anger about your valuable inventions being copied with impunity by more established players. I told him that you have lost faith in the US patent system’s ability to protect your investment and innovations. “Can I tell our readers that help is on the way”, I asked him?  His response was a clear “yes, you can” and so far, he seems to mean it. Indeed, we have already seen several initiatives launched since Mr. Iancu took office 3 months ago, such as the new guidelines regarding Alice (following the Berkheimer decision), as well as a May 9th proposal (currently open to public comments) to finally reconcile the PTAB standard for determining validity (aka as the BRI for Broadest Reasonable Interpretation) with the one used by the Courts (aka the “Philips” standard), something the Supreme Court had the opportunity to fix last year in Cuozzo, but refused to do. 

Other highlights about my conversation with Director Iancu worth mentioning are that he seems to believe the patent-troll narrative is pretty much a thing of the past and that there is growing bipartisan support behind passing *some* version of the STRONGER Patents Act in Congress, which was filed a few months ago. It is also clear from his public remarks thus far that the PTAB is up for an in-depth review of its practices and, shall we say, agenda.
What is the net effect of all this?

Time for a prediction: I believe that the IPR institution rate at the PTAB will continue to fall gradually (it has already gone from 80% to slightly above 60% according to the latest USPTO statistics (see table below).

More importantly, having been on the other side of the fence during my 15 years in the patent group at Microsoft, I know how large corporations approach these matters and I strongly believe that once the invalidation rates fall below 50%, which should occur in the next year, we will have reached a tipping point where lawyers will have to start telling their management that filing an IPR is a less than 50% proposition (i.e. no longer the slam dunk it used to be) and that it could damage their chances in court if the PTAB refuses to institute a petition, let alone decides to uphold the validity of the claims being challenged. If you add to this some reasonable expectations that the impact of Alice might also decrease rapidly if the recent case law making this an issue at trial (vs. summary motion) continues to hold, we may soon live in a different environment than the one we have seen in the past 5 years, which is none too soon!

So, if you are looking to acquire patents, you should hurry, as we have already seen a lot more interest lately from buyers who are trying to close deals while valuations are still relatively low. If you are looking to sell, this is a good time to start engaging as the next months should offer gradually more favorable market conditions.

We are off to INTA, the largest annual meeting of IP professionals (close to 10,000) who are descending onto our beautiful city of Seattle for what promises to be a packed event. Tangible IP is also a sponsor of INTA and I will be present through the conference. For those who have asked to meet, I and others on the team will be at booth #349 and we look forward to talking to you.

Buyers & Sellers:
Undoubtedly, the biggest news of the last few weeks was HGGC’s proposed acquisition of RPX for roughly half a billion dollars. Many RPX shareholders are not happy with this valuation and have sued or threatened to sue the company.

Meanwhile, Altaba Inc. (formerly Yahoo Inc.) has had to reduce the valuation of its Excalibur Portfolio for the third time this year, dropping the price from $675 million to $640 million. The decision to reduce the portfolio’s valuation comes as a surprise following the company’s addition of Thomas McInerney as the new president last year, who firmly held his strategy to become more aggressive towards IP infringement.

Marathon Patent Group assigned a number of patents to Fortress Investments Group. Unwired Planet International and Samsung also made transfers. Unwired Planet made headlines last year with a significant decision providing guidance on fair, reasonable, and non-discriminatory (FRAND) royalty rates for patents (Unwired Planet v. Huawei Technologies).

Winners & Losers:

The courts have been busy these past few weeks… A divided SCOTUS was called to determine whether a company’s loss of profits can be obtained as a result of patent infringement that occurred overseas. The dispute involved two oilfield service industry giants, Schlumberger, and ION Geophysical Corp. The bench ultimately reversed the appellate court’s decision to bar Schlumberg from recovering $93.4 million in lost profits.

Additionally, a judge has rejected a jury’s verdict which awarded more than $200 million in damages to Merck. The decision was based on the equitable defense of “unclean hands.” The judge invoked Mercks’ misconduct both in their business practices and during litigation. Ouch.

Also noteworthy, a ruling from a federal district court punctuated the paramount importance of meticulously drafting your patents in a decision affecting Droplets and E*Trade Bank. Due to the incompleteness of its priority claim dating back to 1999, Droplets’ patent claims were ultimately invalidated over its own PCT. This provides a teachable moment, noting in today’s volatile market, every detail counts.

Finally, the Berkheimer Ruling has played against Hulu this past week. A district judge denied the summary motion presented by Hulu establishing that the patent eligibility was a question of facts to be determined by a jury. Regardless of the outcome in the Hulu case, there is no denying this will be a much more expensive endeavor for Hulu now. 

Handshakes:

A couple recent and notable transactions include Tel-Aviv-based Corephotonics, a pioneer in dual camera technologies, who shook hands on a significant licensing deal with Oppo, the Japanese smartphone’s manufacturer. Meanwhile, in the US, Corephotonics is embroiled in alegal battle with Apple over dual-lens cameras utilized on several iPhone versions.
Similarly, TiVo entered into a second crucial licensing agreement with Australia-based company, Telstra. TiVo’s increased efforts in Research and Development in 2017 are paying off!