The Patent Reform Act of 2007 (PRA) : A Contra Opinion by Irving S. Rappaport, Esq.

We previously posted our pro opinion about the Patent Reform Act of 2007 (PRA) here at Law Pundit.

Irving S. Rappaport, Esq., of Palo Alto sent us a contra opinion which – in the spirit of fair and democratic dialogue – we publish below with his permission (we have converted the document from .pdf format, we have linked cases and URLs online for purposes of this text document, we have moved the footnotes to the end of the text, prior to the appendix, and fixed some typos):

Irving S. Rappaport, Esq.
1500 Edgewood Drive
Palo Alto, CA 94303

I am the former Chief Intellectual Property Counsel to Apple Computer, National Semiconductor, Data General Corp, Bally Manufacturing, and Medtronic. I believe the 2007 Patent Reform Bills will harm our economy and should not be passed.

Despite the rhetoric of the current naysayers, I strongly believe our patent system is working and stimulates innovation in all industries, without exception. The patent system is not perfect, but it continues to enable both startups and large companies to leverage patents for competitive advantage.

The U.S. patent system has always been the bedrock of the U.S. economy because it rewards innovation. The Founding Fathers recognized this (as well as the potential for abuse) when they established the patent system in 1790. The system was reformed in 1793 and again in 1836, when the USPTO was established. Despite regular criticism of “inefficiencies” and “obvious inventions” the system has played a crucial role in building the economic strength of the U.S. The U.S. Patent and Trademark Office is doing a reasonable job, given the recent explosion of information. From 1965 to 1987, the number of new utility patent applications filed annually rose steadily and slowly from 95,000 to 128,000, or about 35%. By comparison, in the last 20 years the number has more than tripled to 426,000 annual filings in 2006.1 Some have pointed to this dramatic increase as proof enough that the system is out of control. However, those decades showed a similar acceleration in the growth of the economy. From the mid-1960s to the mid-1980s, the S&P 500 more or less doubled. Since the mid-1980s it has increased nearly eight-fold. Furthermore, there are more engineers and scientists alive today than in all of recorded history and more U.S. patent applications are being filed annually from outside the U.S. Just in the U.S. the science and technology employment zoomed from about 200,000 people in 1950 to almost 5.5 million in 2000. (See Appendix A)

Critics also contend that the current patent system has led to an explosion of litigation. But this is not what the numbers show. From 1970 through 1986 there were between 800 and 1100 new patent infringement cases filed each year. From 1987 through 2005 the numbers rose from about 1200 a year to approximately 2,500 annually over the last 9 years of the period. Of those cases, about 100 go to trial each year and the remaining 2,400 are settled. In my opinion these numbers suggest the system is in balance and working. In 1970 the number of infringement cases brought represented about 1% of the applications filed. In 2005 that percentage was down to 7/10 of 1%.2 If anything, litigations have declined as a proportion of filings. An examination system will never be perfect and yes, many patents that issue have little or no economic value. However, our free-market system ensures that the valuable ones will rise to the top.

Many people in numerous industries have concerns that the Patent Reform Act of 2007 will further weaken our patent system by limiting choice of venue for patent suits, changing to a first-to-file rather than a first-to-invent system, which favors large corporations, revising the standards of willful infringement and inequitable conduct, providing post-grant review of patentability, and unnecessarily limiting infringement damage recoveries.

Some of the large high-tech companies supporting the legislation do so from the greed of not wanting to pay licensing fees for using other people’s inventions. I believe some of the companies supporting the present bills have such a stranglehold on their industries that they no longer need patents and can delay the cycle of creative destruction resulting from new patented inventions that exists in our current system, a dangerous reason for change. While the current patent system levels the playing field for small and large entities alike, the Patent Reform Act of 2007 would tilt the playing field towards the large, incumbent corporations – the very supporters of the bill.

With very cheap labor now available in many countries, the weakening of our patent system may undermine one of the few competitive advantages many U.S.-based companies still enjoy. Economists know a patent system is the best way to build domestic innovation. In fact the Chinese are studying the U.S. system closely. Chinese patent applications have exceeded two million applications and are increasing at 25% per year. In 2005, 1,115 patent infringement cases were filed in China.3 Consider a scenario where the U.S. greatly weakens our patent system and the Chinese put a very strong patent system into place. Such result could be very detrimental to the U.S. economy.

One final reason to refrain from radical patent reform right now is that several recent Supreme Court decisions in
KSR v. Teleflex, eBay v. MercExchange, and MedImmune v. Genentech, have already created considerable new uncertainty and weakened our patent system. MedImmune makes it easier for licensees to bring declaratory judgment actions to invalidate patents. eBay makes injunctive relief more difficult to obtain. Injunctive relief is the fundamental power inherent in a patent system. Without it, deeppocketed infringers need only be concerned about making payments for infringement, but not about losing their markets. The most recent ruling, KSR, makes it easier to invalidate patents under the “obviousness” test.

The KSR ruling has already begun to change some fundamental assumptions about the validity of previously issued patents, often in unpredictable ways. The “obviousness” test has been shaped by the case law preceding and following the passage of the 1952 Patent Act and represents close to 100 years of jurisprudence and thinking of our best legal minds. As a result of KSR, there is no longer a clear test for obviousness and many cases decided in the last few months demonstrate the slippery slope of finding any combination of known elements to be obvious.

Rushing passage of a bill with additional significant changes to our patent system on the heels of these landmark Supreme Court decisions is unwise, untimely and unnecessary, and support for the bill is misguided. Most media accounts of the changes are uninformed, and support from a handful of large high-tech companies appear to give the bill legitimacy. In fact, these companies are lobbying hard to make their current competitive advantage permanent. But these are not reasons to make further untested, sweeping changes to our patent system. The system needs some time to absorb the latest landmark court decisions, which have already weakened our system. Even these bill’ supporters admit passage will further weaken the system.

Instead of weakening the patent system, Congress should be searching for ways to strengthen it. For example, Congress should increase the resources of the USPTO and outline measures to improve the processes used to examine patents prior to issuance. In addition, Congress should establish special patent courts with judges having years of training in patent law. We have learned by experience that the Court of Appeals for the Federal Circuit has added to the quality of appellate review to patent cases. We should expect the same from our district courts.

My 45 years of patent law experience confirms that a strong patent system is what allows for development of innovative products and services. Without the exchange of limited exclusive patent rights, investors will have no reason to invest money in America. Keep America’s economy strong by not adopting changes that will stifle patentable inventions and have potentially disastrous effects on our economy!



Irving S. Rappaport

2 Admin. Offc. of U.S. Courts, annual reports

Appendix A

[LawPundit note: we do not reproduce the two tables in Appendix A but only link to those tables online]

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