No place for fraud in the patent system

The momentum behind patent reform intensified this session after a rare nod from the President’s State of the Union, and the Senate Judiciary Committee has been immersed in negotiations over the legislation.

While everyone knows that abusive patent litigation is a problem, current proposals address only half the issue: true, companies can be dragged into court to defend a frivolous patent suit, but patent owners, too, can be the victims of fraud and abusive tactics at the Patent Office.  Worse, under a loophole in current law, these victims cannot hold the unscrupulous parties accountable.  I know first-hand, as this happened to my company, MH Systems, Inc., which develops and markets a revolutionary technology for protecting the environment. 

Unfortunately, as a recent study suggests, too many small companies with breakthrough inventions are also being subjected to this abuse, which wreaks havoc on their ability to commercialize important inventions or secure venture capital.  While Congress can disagree over many parts of patent reform, one thing we should all agree on is that fraud cannot be tolerated.  When detected, it should be punished, and the injured parties compensated. Yet unless Congress plugs this loophole, small companies relying on the value of an issued patent will continue to be victimized.

The Patent Office oversees “reexamination” and “post-grant review” proceedings, designed so that competitors can challenge a patent’s validity without the need for full-blown litigation.  This is a boon to the system, weeding out bad patents.  But a recent court ruling means that if these proceedings are triggered based on fraudulent or deliberately misleading information, the patent owner can no longer sue for losses which can include the destruction of his company.  The Patent Office can slap the wrist of the party committing fraud, but the inventor can’t seek a remedy in the courts.

While such proceedings are pending, the resulting uncertainty looms like a cloud over a patent.  Knowing a patent is under review drives away companies interested in buying licenses to the technology; inventors must spend hundreds of thousands of dollars to defend themselves before the Patent Office and lose time better spent in commercialization.  Even if the patents are eventually found valid, startups are often forced to sell them for pennies on the dollar.  One judge recently observed that “the loser in this tactical game of commercial advantage and expensive harassment is the innovator and the public, for it is now notorious that any invention of commercial value is ripe” for abusive reexamination.

As I learned the hard way, this danger is all too real. I immigrated from Bangladesh to study marine engineering and, like others attracted by the American dream, I chose to stay.  I developed a system for preventing ecological damage: when ships leave port, they take on ballast water for stability, and when the water is discharged at the next port, whatever species or contaminants carried with it are also released, often altering the local ecology and resulting in unforeseen economic losses.  My company installs systems for treating the ballast water to prevent this.  We reached a deal with a foreign competitor to be our distributor, but later the company decided they’d make more money selling the system themselves and began marketing the invention as their own.  They asked the Patent Office to reexamine my patent using false evidence, and since that time it has been impossible for me to raise venture capital.

Why use fraud?  The incentive is to convince the Patent Office that someone else devised the technology before you did, and that your patent should be revoked.  So, challengers will lie about the date of evidence, or they’ll misquote or fabricate passages, and “redraw” distorted technical diagrams.  Mistranslating foreign documents is another favorite strategy. 

In my case, my competitor misrepresented the science behind ballast water treatment in a way specialists would catch, but it sounded plausible enough for the Patent Office to order reexamination.  The Office, for all its expertise, isn’t perfect, making fraud a plausible gambit; businesses know the agency is overworked and underfunded, and some play on that to their advantage. 

Congress should not selectively address patent litigation abuse, protecting only some in the system while leaving inventors vulnerable.  To do so would leave inventors without equal protection, effectively condoning fraud on the Patent Office.

Inventors deserve a remedy for fraudulent attacks on their patent rights. While there are other important steps that can be taken to restore confidence in our patent system, surely penalizing fraud is one thing we all can agree on.

Husain is the president and CEO of MH Systems, Inc.  He is a marine engineer, inventor of 7 U.S. patents and author of 23 technical papers on ship system related engineering.