U.S. innovators united on need for immediate patent reform
A few weeks ago, the chief legal officers at some of America's most innovative companies sent a letter to Secretary of Commerce Gina Raimondo asking her to repeal a U.S. Patent and Trademark Office rule that has fueled abusive patent litigation. The companies joining this effort employ over a quarter million American workers and represent industries essential to our national and economic security. It is difficult to get a broad range of American companies to speak collectively on any issue. Their unified voice underscores the need for patent reforms that protect American innovators.
In particular, the letter seeks immediate repeal of the USPTO's “NHK-Fintiv” rule. This rule advantages non-practicing entities that abuse the patent system for financial gain. Patents are a catalyst for invention and economic growth — they incentivize innovation and offer protections for everyone from small inventors to major U.S. manufacturers. Unfortunately, NPEs — sometimes referred to as patent trolls — purchase low-quality patents and use them to extort settlements or judgements from innovators. These trolls do not use patents to build anything. They use them as legal weapons to enrich themselves.
Congress first addressed this problem when it passed the bipartisan America Invents Act a decade ago. The AIA established a process called inter partes review, or IPR, that offered innovators transparent, expert patent review to assess the validity of patents used in infringement claims. This review process allowed the USPTO to weed out low-quality patents — patents that never should have been issued in the first place — and relieve innovators from incurring litigation expenses and facing the prospect of unjustified damage awards.
While the AIA wasn't perfect, it offered protection from the most egregious claims made by patent trolls. The NHK-Fintiv rule, however, undermines the AIA. Under NHK-Fintiv, requests for IPR proceedings are frequently denied if there is ongoing litigation related to the patents at issue. These “discretionary denials” have skyrocketed in the wake of NHK-Fintiv and give patent trolls an edge as they seek massive judgements over low-quality patents that they do not use to produce anything of value. Without a well-functioning IPR system, those targeted by patent trolls have to mount an expensive defense or capitulate to settlement demands.
Data released in Unified Patents' 2021 Patent Dispute Report: Year in Review shows how critical it is that NHK-Fintiv be repealed. Patent trolls accounted for nearly 60% of all patent litigation in 2021. Meritless patent infringement claims will continue to rise as the hedge funds and litigation financiers that back patent trolls see opportunities for massive paydays. For American innovators to be confident investing their time and resources in the next generation of groundbreaking technologies, they must be certain that there is a reliable system for assessing claims that may be brought against them. A fair, balanced, and well-functioning patent system is critical for U.S. economic and technological leadership.
President Biden's USPTO Director nominee, Kathi Vidal, is currently awaiting a vote on the Senate floor. NHK-Fintiv was raised by senators from both parties during her confirmation hearing, but there is no need to wait on a confirmation vote in order to repeal the rule. The USPTO, which falls under the Commerce Department's purview, can act now to repeal NHK-Fintiv. As stated in the letter to Secretary Raimondo, NHK-Fintiv must be repealed immediately “for the sake of the nation's economy, its technological leadership, and workers across our country.”