This post is one in a series of reports on significant issues for startups in 2017. In the past year, the startup community's voice helped drive notable debates in tech and entrepreneurship policy, but many of the startup world's policy goals in 2017, such as immigration reform and an open internet, remain unfulfilled. Check back here for more year-end updates and continue to watch this space in 2018 as we follow policy issues affecting the startup community.
The discussion on the problem of abusive patent litigation continued in 2017. Patent trolls, armed with low-quality patents, are able to extract settlements from startups and small businesses, adversely impacting the companies that can least afford these threats. Since startups and small businesses are key drivers of innovation and job growth, troll threats against them are particularly stifling to American economic growth and prosperity.
While patent trolls remain a problem, in 2017, startups started to see some relief from nefarious patent litigation. The decrease in patent litigation abuse stems largely from meaningful Supreme Court rulings and the continued implementation of the Leahy-Smith America Invents Act (AIA) at the United States Patent and Trademark Office (USPTO).
At the Supreme Court:
Delivering a blow to patent trolls, the Supreme Court unanimously reversed the Federal Circuit’s decision in TC Heartland v. Kraft Foods Group Brands LLC, ruling that defendants in patent cases can only be sued where they are incorporated or have a regular and established place of business. The decision will make it significantly harder for patent trolls to file lawsuits in jurisdictions that are patent-friendly but otherwise unrelated to the claims at issue—most notably the Eastern District of Texas, where almost forty percent of patent cases were filed last year. Engine and tech companies, filed briefs in the case on behalf of startups and followed up with significant praise for the court’s decision.
Additionally, the Supreme Court decided Impression Product Inc. v. Lexmark, holding that the printer company, Lexmark was pushing patent law too far in trying to restrict another company, Impression Product, Inc., from selling replacement cartridges for its printers. The case impacts startups by giving more rights to resellers, refurbishers, and tinkerers of patented products.
Despite these victories, the Supreme Court will be issuing another potentially monumental ruling next year in Oil States Energy Services, LLC v. Greene’s Energy Group, LLC. The case will decide if the USPTO’s Inter Partes Review process is unconstitutional, potentially undoing the best avenue for startups to challenge bad patents.
At the USPTO:
As with many government agencies, 2017 brought a change in leadership at the USPTO. After the departure of Director Michelle Lee, President Trump nominated Andrei Iancu, to lead the agency. This change comes at a crucial time for the agency as key provisions of the AIA are implemented and starting to see real progress for patent quality. Director Iancu, an experience patent litigator, has not made clear where he would like to reform the USPTO. We are hopeful that his remarks on “stability” will continue the good work done by Director Lee to improving patent quality.
In 2017, Engine submitted comments to the USPTO regarding the important tools that the Supreme Court’s ruling in Alice v. CLS Bank, and relatedly, Section 101 of the Patent Act have given startups to significantly curtail the issuance of low-quality, abstract software patents (a favorite weapon of patent trolls). Additionally, Engine has commented on the importance of the Patent Trial and Appellate Board in invalidating low quality patents.
Congress did not take up any new patent legislation in 2017, however, there was a lot of talk about patent reform on Capitol Hill. This included Engine’s President, Julie Samuels, testifying in front of the House Judiciary Committee’s Subcommittee on Courts, Intellectual Property and the Internet on the impact of bad patents on American businesses. Julie spoke to the weaknesses in the patent system and the progress that has been made to weed out low quality patents by Congress, the courts and the United States Patent and Trademark Office. Congress also held hearings on the venue debate after TC Heartland, and tribal sovereign immunity issues after a pharmaceutical company transferred their patent to a Native American tribe to avoid USPTO validity hearings.
The only worrisome legislation that was introduced was the “STRONGER Patents Act” introduced by Sens. Chris Coons (D-Del.) and Tom Cotton (R-Ark.) in June. The bill would completely gut the IPR system and would overturn decades of Supreme Court precedent on patents. This radical piece of legislation would leave startups without any of the tools they currently have to protect themselves from patent trolls. Furthermore, it would make investing in a technology startup much riskier, deterring investment in a sector of the economy that has been steadily growing for a decade So far, the bill has very little support.
What to Expect in 2018:
2018 will likely be another important year for the patent system. At the Supreme Court, startups will be focused on the Oil States v. Greene case. At the USPTO, startups will be anxious to see which direction the Director Iancu, a relative unknown, will take the system. In the House of Representatives, Chairman Goodlatte, who is winding down his final year at the top of the House Judiciary Committee may push for small tweaks to the patent system. In the Senate, while there will be a continued effort by Sen. Coons and others, radical change to the patent system is a big lift in an election year. Overall, we must stay vigilant in protecting the gains we have made in increasing patent quality and litigation reform.