Patent Disputes Hit Manufacturers the Hardest

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As fear over the spread of coronavirus intensifies, researchers around the globe are scrambling to find a cure. The antiviral drug remdesivir is showing promise, both in the United States and China. Yet as seen all too often, patent disputes have emerged between U.S. pharmaceutical company Gilead and Chinese researchers working on a cure. Disputes like this often grab headlines, as do patent wars between tech giants like Apple and Qualcomm. But most conflicts over patents fail to garner this kind of attention. In fact, most people who find themselves entangled in a patent struggle lack the resources of large pharmaceutical and tech companies, leaving them vulnerable to patent litigation that can end in bankruptcy.

American manufacturers are often the target of patent litigation. These companies are not giant multinationals; rather, they are small sporting goods businesses that make fishing tackle or golf equipment, or a cooking appliance business, or even a diet company. They are not household names, and they typically do not have deep pockets to fight abusive patent litigation. 

This is exactly the case for Jeff Queen, who owns and runs Queen Tackle in North Carolina with his son. Queen has a patent pending for his fishing tackle company, but recently a much larger competitor accused him of patent infringement and filed suit. Even though the competitor never indicated to Queen which patent he was breaching, Queen was put in the position of dipping into his savings in order to engage legal help.

Understanding how Queen found himself in this position, and the larger problem of patent abuse today, requires an understanding of our patent history. This dates back to the U.S. Constitution, which provided Congress the authority “To promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.” In effect, the law provides inventors with a short-term monopoly as an incentive to innovate.

While economists have demonstrated the economic losses associated with monopolies, it was believed that the benefits of the additional innovation outweighed the costs of the temporary monopoly. The United States Patent and Trademark Office was created to oversee the system, with patent examiners reviewing applications to ensure that the system did, in fact, promote innovation and the “progress of science and useful arts.”

While Americans have proved to be innovative, the patent system isn’t without some problems. With so many potential patentable items on the market, the USPTO is often overloaded. By some accounts, PTO examiners have less than one full day on average to determine a patent application – a frighteningly short amount of time to evaluate molecular makeups or dissect complicated technology.

But the real problem emerges if and when the PTO makes a mistake. For many years, if a company was charged with patent infringement, they were forced to take the case to court – a lengthy and expensive process that favors the more well-funded party.  Discovery, expert witnesses, and lawyer fees mean that most small businesses face a heavy burden when faced with patent litigation.

The result is made worse by the rise of “nonpracticing entities” that collect and hold patents for the sole purpose of filing infringement claims. They do not license them or use them to sell a product. They simply threaten legitimate businesses into submission – and large payouts. Other companies, wanting to stifle competition and maintain their monopolies game the patent system with “patent thickets” that make it impossible for new entrants to gain access to the market.

The 2011 America Invents Act responded to such abuses, in part, by creating the inter partes review process (IPR) – a review board at the USPTO comprised of intellectual property experts. This provides businesses a lower cost opportunity to challenge bad patents that should not have been granted in the first place. Some suggest it has saved billions of dollars in legal fees since going into effect. Most importantly, the IPR has been able to eliminate large numbers of undeserving patents. And fewer than 1 percent of these decisions have been challenged, suggesting the process is working.   

Despite the success of the IPR, some see it as a threat to their monopoly positions and are working to weaken or eliminate the IPR process. Special interests opposed to the IPR process will continue to press Congress to interfere and upend procedures that are working, strengthening the grip of patent holders and increasing the potential for patent abuse.

Every patent dispute doesn’t come with an alarming coronavirus headline. But abusive patents persist, and too often they hit manufacturers the hardest. The economy is struggling under COVID-19. Protecting innovation and investment is important; but it shouldn’t come at the expense of small businesses, economic growth, and job creation. When it comes to human flourishing and advancement, we need to stop abusive patent litigation in the bud.

Wayne Brough is president of the Innovation Defense Foundation.

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