Congress must protect inventors from strong-arm tactics

As Congress returns this session, it’s poised to take up patent reform legislation that many believe is among the few items likely to pass this year, with important ramifications for inventors throughout the nation.

Let’s hope that Congress attends to an under-recognized reality of our patent system: if you’re an inventor trying to get fair value for your patent today, you’re likely to find yourself targeted with the kind of threat Tony Soprano would have approved—“give us our cut, or we’ll put you out of business.”  This was my client's experience and it’s the experience of a growing number of innovators: not long after winning a $368 million dollar jury verdict against a major corporation for using our patented technology, a shell company contacted us demanding its share.  They made an offer that was very hard to refuse: either we hand over 10 percent—$37 million dollars—or they’d attack our intellectual property and undo the jury award we thought we’d won.  By exploiting a crucial flaw in the patent system, they could render valuable patents as worthless as the paper they’re printed on.  Fortunately, my client held firm, but many inventors don’t have the stomach or the means to do likewise.

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The loophole exists in government procedures known as “patent reexamination” or “post-grant review” proceedings.  In general these serve a valuable purpose, allowing companies and concerned citizens to challenge the validity of dubious patents before the expert eyes of the Patent Office, which conducts the proceedings.  But these administrative procedures can be brought on trumped up grounds or for the purpose of harassment.  One recent study published in a Columbia University law journal reported a plethora of misconduct by accused infringers in reexamination proceedings, everything from fudging the dates of key papers to deliberately mistranslating foreign documents to misrepresenting or withholding evidence.  Even more recently, accused infringers have begun to create shell companies in the hope of avoiding any time limitations placed on them by statute.

While these proceedings are pending, the value of a patent becomes murky.  Courts are sometimes reluctant to allow an inventor to enforce a patent that’s under review at the Patent Office, and the value of a valid but virtually unenforceable patent tends to plummet.  With a cloud of uncertainty looming overhead, companies have little incentive to enter into a license to the technology.  This can be catastrophic to startups, which depend on their intellectual property to attract investment and compete with established companies. My client’s stock market value fell by over 20% in the days after a shell company challenged its patents, and though those challenges have been withdrawn, the stock price hasn’t recovered.

Yet the courts have ruled that an inventor, under current law, may not bring suit against those abusing Patent Office processes.  This is a great departure from the typical practice in our system, where victims of vexatious litigation have had the right to sue for abuse of process or malicious prosecution.  Inventors have no such option when they endure frivolous proceedings at the Patent Office.  Moreover, the Patent Office cannot compensate inventors and historically has had difficulty weeding out improper challenges to patents.

Congress has a chance to fix this often exploited hole in the patent system.  It must seize the moment to create a federal cause of action for inventors wronged by abuses of the administrative process which Congress itself has devised.  Like anyone else facing frivolous litigation and strong-arm tactics, inventors deserve a chance at compensation.  When their intellectual property is damaged, and their business imperiled, they shouldn’t be left without a remedy. 

Cassady is a trial lawyer specializing in patent and complex commercial litigation, and is a principal at the firm of Caldwell, Cassady & Curry.  He lives in Dallas and can be reached at jcassady@caldwellcc.com

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