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Volume 72 Number 1790 Friday, October 20, 2006	Page 682
ISSN 1522-4325
Analysis & Perspective
Prior Art Open Collaboration Is Medicine for Our Ailing Patent System Manny W. Schecter

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Patents

Litigation of invalid patents drains the economy of resources that would be better spent on innovation. One way to improve patent quality is gather public submissions of prior art that patent examiners might otherwise overlook. The author discusses an open source project for collaborative peer review of prior art that is already underway, providing responses to concerns that have been raised about such a system.

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Schecter is associate general counsel, Intellectual Property Law for IBM Corp., Armonk, N.Y. He can be reached at schecter@us.ibm.com. Beth Noveck of New York Law School and several of Schecter's colleagues at IBM contributed to this paper.

When I embarked on a career in patent law, I never expected I might also play doctor some day. (I am not a medical doctor!) Patent systems were created to promote innovation. Unfortunately, the U.S. patent system is ill. Innovation is being stunted by the enforcement of invalid patents. Litigation reform would treat a "symptom" by attempting to reduce wasteful patent litigation. However, it is the root cause that should really be addressed: the issuance of invalid patents by the U.S. Patent and Trademark Office. Before I describe the medicine that can help our patent system, I first review the symptoms.

About a hundred patent lawsuits reach trial per year.¹ Most of these lawsuits include a challenge to the validity of the asserted patents, and in those that do, over 40 percent the of patents at issue are determined to be invalid.² Patent litigation expenses typically exceed $1million per patent, and often greatly exceed that figure.³ Assuming average patent litigation expenses to be $1 million to $10 million per patent, and assuming that patent lawsuits generally involve more than one patent, the litigation of invalid patents drains our economy of at least hundreds of millions of dollars per year.

The foregoing figures only account for the cost of patent lawsuits reaching trial---less than 4 percent of the approximately 3,000 patent lawsuits filed each year reach trial.⁴ In addition, the 4 percent figure overlooks the far greater number of settlements reached prior to the filing of suit. Thus, the innovation tax caused by invalid patents is literally billions of dollars per year.

How significant is this amount? Apple Computer, considered by some to be the most innovative company in the world,⁵ spends about $500 million on research and development per year.⁶ An apple a day may keep the doctor away, but an Apple (actually, more) per year, in this context, is holding innovation at bay. The money we collectively spend on enforcing, disputing, and litigating invalid patents would be better spent on innovation.

The grant and (especially) the assertion of invalid patents stunt innovation. Alleged infringers are forced to expend considerable resources in their defense, whether they succeed or not. If there is litigation, the expenses escalate. If alleged infringers of invalid patents do not successfully defend themselves, they must pay unnecessary royalties and/or comply with an injunction. One should certainly be able to enforce valid patents, and honest disputes will occur, but it is hard to see the good in settlements and litigation over clearly inappropriate patents.

Surely the framers of our Constitution and all but the most recent of lawmakers could not have anticipated this problem now faced by our patent system. They most likely did not intend to tax innovation, and they certainly would not have done so had they anticipated not only the innovation age but also the litigation age in which we now find ourselves. The PTO can hardly be blamed for issuing invalid patents considering how overwhelmed and under-resourced they are, and considering the expansion of patentable subject matter that includes new fields where prior art is difficult to locate. Congress is now trying to help by attempting to enact patent reform legislation, but it is constrained by industry representatives that cannot reach consensus as to the needed reforms. In addition, most of the patent reforms currently under consideration focus on litigation.⁷ Optimizing patent infringement remedies is certainly a worthy effort, but why not prevent the problem at its source? If one has an allergy, one can take medicine to relieve the symptoms, but it is better still to avoid exposure to the allergen.

Instead of putting our heads in the sand, we need to innovate to find new ways to reduce the volume of invalid patents issued by the PTO. We need to improve the quality of patent examination. At one time, patent examiners were considered the most knowledgeable experts about prior art in their respective technologies. That was when prior art existed in hard-copy form and the PTO had the best and most organized prior art collection. Today, thanks to computers and the Internet, prior art is predominantly in soft-copy form and more easily distributed. Patentable subject matter has also expanded into areas for which prior art is not as accessible to patent examiners (e.g. software and business methods). As a result, patent examiners are no longer in the same position of advantage. In fact, the opposite may be true because patent examiners' technical counterparts in industry have more resources and more opportunities to exchange information about their field. Patent examiners need our help.

Patent examiners need better access to more information, but helping them is a challenge. Today, while members of the public are permitted to submit prior art to patent examiners for their use in examining patent applications⁸ , they rarely do so.⁹ Multiple factors contribute to the low rate of third party submissions. First, third parties are often not aware when patent applications of interest to them are published. Second, third parties may not be aware that they can submit prior art references to patent examiners. Third, the law currently prevents third parties from submitting commentary to patent examiners along with the prior art references. Without commentary, third parties fear that patent examiners will fail to appreciate the references submitted. Finally, and related to the foregoing, third parties are aware that a reference of record is of less value in later attempting to overcome the presumption of validity should a patent examiner issue a patent. The concerns relating to the third and final factors can be reduced if third parties can submit prior art references to patent examiners with commentary. Fortunately, third parties can submit prior art references, with commentary, to examiners with the consent of patent applicants (such submissions are sometimes referred to as "protests").¹⁰ In addition, each of the recent patent reform legislative bills introduced in Congress includes a provision that would allow the same, but without the requirement for consent.

Third-party submissions of prior art with commentary will help examiners, but we can improve patent examination another notch. We can harness the power of open collaboration enabled by Internet communications and combine it with third-party submissions of prior art with commentary. Using open collaboration, we can make it easier for the public to help patent examiners find and appreciate prior art. Public knowledge can become a resource that patent examiners can access, and not in a way that will overwhelm the patent examiner with extraneous information. The public can help--- not disadvantage---the patent examiners.

The enabling project has already begun. Those involved in the project use different names for it including Open Patent Review, Community Patent Review, Peer to Patent, and Patent Peer Review. The project was jointly established by my employer (IBM), the USPTO, and New York Law School, with support from members of the open source software community. The project is spearheaded by Professor Beth Noveck of New York Law School and, as of this writing, Microsoft, Hewlett Packard, Red Hat, Intel, GE, Oracle, and others---big and small---have pledged their support or indicated their desire to participate in a pilot slated to begin in the spring of 2007. The Omidyar Foundation has also provided a significant grant to help launch the pilot.

The project will enable interested members of the public to easily bring applicable prior art references, with commentary, to the attention of patent examiners. During the pilot, at least until patent reform legislation is enacted, many of the project participants will consent to allowing third parties to submit prior art with commentary to patent examiners for some of their published patent applications. Hundreds of published patent applications for software inventions will be included in the pilot.¹¹ A system will be built to allow third parties (also known as "peers") to identify and collaboratively consider references that are prior art to the inventions sought to be patented. When the collaborative deliberations are complete, the system will rate the prior art references similar to the way other online systems rate products or vendors. The ten best submitted references will be identified and forwarded to the patent examiner along with the commentary, both sorted and searchable. Metrics will be developed to track the success of the system and to adjust the aforementioned ratings.

There are challenges. As news of the project has spread, so has feedback expressing concerns---and each concern has been addressed. The most frequently expressed concerns and brief explanations of their resolution are listed below. More information can be found at http://dotank.nyls.edu/communitypatent. Project participation is open to all (subject to the ability to maintain coordination) and the USPTO has endorsed the project in its latest strategic plan.¹²

Concern: Peers lack the knowledge to effectively participate in the review process. Explanation: Peers need not attempt to substitute for patent practitioners. Plain language patent education and process instruction will be provided and the rating system will deemphasize the impact of poor prior art reference submissions.

Concern: Peers will not participate because they are not paid to do so.

Explanation: The same was once said about open source software developers that have since collaborated extensively. The broad public impact of wrongfully issued patents will catch the interest of many potential peers, including peers from businesses, individuals, professors, students, etc. Peer review participation would appear to be an excellent university participation project.

Concern: Peers will cause their employers to be subject to enhanced damages for willful infringement.

Explanation: Peers will not be reviewing issued patents. One cannot be liable for willful infringement unless one has knowledge of an issued patent. At most, participation as a peer will demonstrate knowledge of a published patent application and the law specifically excludes enhanced damages for provisional royalties relating to knowledge of published patent applications.¹³ In addition, peers will be able to participate anonymously, many potential peers are not employed by businesses fearing willful infringement, and pending patent reform legislation would requires one be on formal notice of infringement or have deliberately copied a patented invention to willfully infringe.

Concern: Patents issued after the review process will enjoy an enhanced presumption of validity.

Explanation: The reviewed patents will be treated like any other issued patents. Use of prior art made of record will not be barred for demonstrating invalidity in subsequent litigation and the presumption of validity will remain unchanged (that is, the review process does not change current law in this regard). Of course, the likelihood that the issued patents will be found valid will be increased because of the concomitant increase in the likelihood that the best prior art references have already been appropriately considered.

Concern: Peers will flood patent examiners with large, unmanageable volumes of prior art.

Response: As already described, only the ten best submitted prior art references will be forwarded to patent examiners. In addition, because the comments explaining the references will also be forwarded, patent examiners should be able to quickly determine the relevance of each reference. Finally, it is likely that peers will only submit prior art references for the most controversial---not all---patent applications.

Concern: Applicants' fear of inequitable conduct will cause them to forward to patent examiners all prior art references identified by peers. That is, applicants might forward to patent examiners the references beyond the ten best identified by peers.

Response: Applicants cope with this issue today. Applicants that become aware of large numbers of prior art references already determine whether to forward all of same to patent examiners, or whether to eliminate forwarding of some references as irrelevant or merely cumulative. Furthermore, applicants will not automatically be forwarded all of the references identified by peers, thereby reducing the likelihood that they could be found to have committed inequitable conduct. Finally, during the pilot, it would be contrary to the spirit of the project to charge an applicant with inequitable conduct after applicant's having consented to protest to help identify the best prior art references for patent examiners.

Concern: The review process will delay patent examination and, possibly, patent issuance.

Response: Patent application pendency is a legitimate concern, but given the broad impact of invalid patents not one that should trump patent examination quality. There is a time limit for protest measured from the publication date of patent examinations. Generally, prior art references will be forwarded to patent examiners before substantive patent examination begins, or very shortly thereafter. As a result, patent examination efficiency, and patent application pendency, may actually improve as patent examiners will be able to more quickly "zero in" on the best prior art references. The pilot will test the efficiency of the review process, and the focus on patent applications for software inventions should ensure that the pilot itself does not negatively impact pendency (because pendency is already so long for software patent applications).

Concern: Participants will subvert the process for their own benefit.

Response: The same concern applies to our current patent system. Patent applicants already game the patent system in various ways. Subversive acts can be addressed as they are discovered. A code of conduct can be created to describe proper behavior, internet addressing can be used to trace improper behavior of anonymous peers, and discrediting prior art references to benefit one's own patent applications should be considered inequitable conduct.

Concern: The submission of prior art references, to the extent done outside of the PTO, will violate copyright.

Response: Patents are not copyrightable and the forwarding of non-patent references to patent examiners is not restricted by copyright. In addition, the principle of fair use may protect the copying and distribution of copyrighted references strictly for the review process, education about proper handling of references can be provided, consent can be obtained for the handling of references, and web links can be used where available instead of making and forwarding actual copies of references.

In furtherance of the improvement of patent examination quality, two additional patent quality initiatives have been launched. One of the other initiatives is about making open source software more available as prior art by taking advantage of the availability of open source software source code. Because human readable source code is publicly available for open source software, it is potentially more valuable for prior art purposes than is proprietary source code that is maintained in trade secrecy. This initiative is a collaborative effort of the open source software community, led by Open Source Development Labs, and endorsed by the PTO in its latest strategic plan.

The other initiative is the development of an objective patent quality index. Only objective criteria will be used to create the index. An example of the criteria would be whether the U.S. patent examiner was aware of the citation of prior art as particularly relevant by another patent office (e.g. the European Patent Office).¹⁴ Presumably, U.S. patents that issue without the consideration of such prior art are less likely to be valid than those patents for which such consideration occurs. The index will be created by aggregating dozens of such criteria, and normalizing them against, for example, patents in the same technology that are known to be invalid. The project is open because public comment will help shape the criteria, and because the behavior of the patent community will over time alter the criteria and how they are aggregated. Importantly, the patent quality index is not intended to be a direct indication of patent value---it will not address the technical or commercial significance of an invention or the breadth of the claims. This project has not been endorsed by the PTO because it is not permitted to compare the quality of patents it has issued. However, the latest PTO strategic plan calls for quality metrics, and many of the patent quality index criteria could be used by the PTO in aggregated form---not patent by patent---to track patent examination quality trends.

The objectives of all three initiatives include the improvement of patent examination quality and a reduction in the issuance of invalid patents. Apparently, many of us share the same concerns. A recent survey by Intellectual Property Owners Association found that over half of its corporate members believe patent quality to be lacking--and the trend is in the wrong direction.¹⁵ The initiatives described here are just a start at turning the trend around. It is fair to be skeptical, but if you agree that the problems are real, do not just criticize---get involved! If we work together we can help cure the ills of our patent system.

¹ "U.S. District Courts---Civil Cases Terminated, by Nature of Suit and Action Taken, During the 12-Month Period Ending September 30, 2005," Judicial Business of the United States Courts, 2005.

² See, for example:

Paul M. Janicke and LiLan Ren, "Who Wins Patent Infringement Cases?," 34 AIPLA Q. J. 1, 2006.

U.S. Patent Litigation Statistics, University of Houston Law Center, at www.patstats.org.

John R. Allison & Mark A. Lemley, "Empirical Evidence on the Validity of Litigated Patents," 26 AIPLA Q. J. 185, 1998.

³ "Report of the Economic Survey," AIPLA, 2005. Note that AIPLA provides expense figures broken out by damages at risk in suit. The number of suits in each damages at risk category is unknown, so overall average litigation expense is unclear.

⁴ See:

"U.S. District Courts---Civil Cases Terminated, by Nature of Suit and Action Taken, During the 12-Month Period Ending September 30, 2005," Judicial Business of the United States Courts, 2005.

"U.S. District Courts---Civil Cases Commenced, by Basis of Jurisdiction and Nature of Suit, During the 12-Month Period Ending September 30, 2005," Judicial Business of the United States Courts, 2005.

⁵ See, for example, "Top 20 Innovative Companies in the World," Business Week, August 1, 2005.

"Most Innovative Category, Global Most Admired Companies 2006," Fortune.

⁶ SEC 10-K, Apple Computer Inc, filed December 1, 2005.

⁷ See, for example, the provisions of H.R. 5299, H.R. 2795, H.R. 5096, and S. 3818.

⁸ See 37 C.F.R. 1.99.

⁹ The author is unaware of published data in this respect, but PTO officials have publicly indicated the number of such annual submissions for published patent applications to be fewer than 100.

¹⁰ See 35 U.S.C. 122(c) and 37 C.F.R. 1.99.

¹¹ The pilot focus on software inventions results from the widespread criticism of software patent quality, and from a desire to retain the pilot within a single technology center of the USPTO to ease implementation and tracking of progress.

¹² The PTO Strategic Plan 2007-2012 (72 PTCJ 484, 9/1/06 ).

¹³ See 35 U.S.C. 284

¹⁴ The PTO has proposed electronic importation of cited references from the files of the other Trilateral Offices (PTO, European Patent Office, and Japanese Patent Office) using a Trilateral Document Access (TDA) standard of exchange. Thus, to the extent the citation of prior art by the EPO or JPO occurs before the completion of prosecution of the U.S. counterpart application, TDA may assure the prior art references are brought to the attention of the U.S. patent examiner. TDA will not make any difference if the prior art is cited after the completion of prosecution in the US, or if the prior art is cited by patent offices other than the EPO and JPO.

¹⁵ IPO Survey: Corporate Patent Quality Perceptions in the U.S., September, 2005.