Patently Uncertain: Patents and the Courts

Mon, 23 Sept 2024

Paul R. Michel, Former Judge on the U.S. Court of Appeals for the Federal Circuit, discusses how a series of U.S. Supreme Court decisions and other efforts have been deleterious to a strong patent system, how the U.S. is ceding our global leadership to China and other nations that are strengthening their IP systems instead of weakening them, and bipartisan legislation being championed by IP leaders in Congress that will help revive the American patent system as an engine of growth, global leadership and technological superiority.

Transcription

Giachino (00:05.0380 - 00:23.0450)

Welcome to IP Protection Matters. I'm your host, Renee Giachino. Today I have the esteemed pleasure of being joined by Paul Michel, a former judge on the U.S. Court of Appeals for the Federal Circuit. We'll be talking today about patents and the courts. Your Honor, welcome to the program.

Judge Paul Michel (00:23.0459 - 00:25.0508)

Thank you, Renee. It's a pleasure to be with you.

Giachino (00:25.0520 - 00:47.0889)

First, let me thank you for your more than 22 years of serving on the Court. And I know in that time you judged thousands of appeals and wrote over 800 opinions. A third of those, if my data statistics are correct, were in patent cases. What were the biggest changes you saw in IP case law over your 22 years?

Judge Paul Michel (00:48.0000 - 02:40.0520)

Most of the changes of concern came after the conclusion of my 22 years. I retired at the end of May 2010 in order to be able to speak out on patent policy issues and other controversial matters. What I saw in the 22 years that I did serve on the Court was a great strength in the patent system. It arose from several sources. First, the creation of the Federal Circuit in 1982 specializing in patents among other disputes. And secondly, some helpful Supreme Court decisions, such as the case called Chakrabarty, that broadened eligibility for modern inventions to be considered for patenting. And there were developments in the Patent Office that also were very encouraging.

So patents grew steadily stronger, clearer, more enforceable and more valuable throughout the late 1980s, which is when I started, through my retirement date in 2010. There were clouds on the horizon because of Supreme Court decisions in 2003 and 2004, but they hadn't really bitten hard yet. But in the 14 or 15 years since I retired, those Supreme Court cases and others, particularly the four on eligibility, were implemented with a vengeance by the Federal Circuit and lower courts and have caused a complete change from a strong patent system to an embattled and weak patent system.

Giachino (02:41.0119 - 03:21.0320)

So, let's go back to the creation in 1982. There was a mandate from Congress for the Federal Circuit to impose some uniformity in patent law. Do you believe the Court accomplishes this charge? Perhaps it did during your tenure and these black clouds have become even heavier since your departure and what seems to be people moving away from the IP protection that we saw during your tenure. Do you believe the Court accomplishes this charge?

Judge Paul Michel (03:21.0919 - 05:24.0997)

I think in the earlier era, the Court was very successful and the system grew greatly in use, value, strength and benefit to the economy and American technological leadership around the globe. In the years since, the trend has been strongly in the other direction and there have been repeated interventions by the Congress, by the Patent Office, by Executive Branch agencies and also by the Supreme Court, all of which have been very deleterious to a strong patent system.

There was an outcry about so-called patent trolls, which was a minor problem. But the exaggerated propaganda was so powerful that it took hold in the media and with politicians and others. That fueled the anti-patent movement over the last 14 or so years. The interventions by the different actors or governmental actors that I've mentioned were all uncoordinated with one another and they were all reactions to problems that were real, but that were extremely overstated.

And so the reactions were overcorrections from multiple sources in a very uncoordinated way. No one seemed to be paying attention to the cumulative effect of what the Supreme Court was doing on eligibility and on injunctions, or what the Patent Office was doing on examinations, the Patent Trial and Appeal Board, what the Federal Trade Commission was doing, and so forth. And the Federal Circuit, instead of being a strongly pro-patent court became an anti-patent court. So the Federal Circuit, in my view, became not the major source of trouble, but yet another source of trouble.

Judge Paul Michel (05:25.0000 - 08:07.0000)

The Supreme Court deserves much more responsibility or blame, but the Federal Circuit Court didn't help because it expanded the Supreme Court decisions that I mentioned on obviousness - the KSR case in 2004, the eBay case barring injunctions in most instances in 2003 and then from the 2010 to 2014, the four cases on eligibility that we shorthand call Alice/Mayo.

The Federal Circuit extended all of those and many other Supreme Court decisions that I haven't mentioned. So the Court has become at least patent-skeptical if not actually patent hostile and unbalanced. Not all the judges and not every decision, but compared to the earlier era, the Court is very different and not only has it weakened patents, but it has undermined the uniformity that you correctly say was the reason for its creation in the first place. In the 1980s, 1990s and beyond, it did provide uniformity, clarity and strength to the patent law. And now the uniformity is hugely reduced. There are inconsistencies at every level, including at the Federal Circuit level.

The net impact for the country has been terrible. For example, our main strategic rival, which is now also our main economic and technology leadership rival - China - is now said by a famous think tank study to be equally or exceeding the U.S. in 37 out of the 44 modern technologies. That's an ominous development. And nobody seems to be paying attention. It's the natural result of two things. China has invested countless zillions of dollars to ramp up its technology, improve its court system, improve its patent office and strengthen its patent system. And meanwhile, we have weakened ours. It's underfunded and poorly led in many respects. We still are suffering from the overreaction to the patent trolls and other propaganda, because although the problems were nonexistent, they were relatively minor and common in all areas of law.

Judge Paul Michel (08:07.0239 - 10:23.0460)

So we're suffering terrible consequences and they're getting worse by the day. One measure is that U.S. venture capital money that used to be spent almost entirely in the U.S. - about 90% - is now down to 50%. Half of U.S. venture capital money is backing startups in other nations, including China. How crazy is this!

Not only that, but venture capital money, and I just use that as a barometer because there are other sources of money that are important too, is migrating away from backing technology in favor of safer investments in hospitality, entertainment and things of that sort. This is very harmful to the development of technology and global competition. Not only with China, but we're losing out to our European commercial rivals as well.

Our eligibility law is a mess. It's clearer and broader in every European country, China, Japan and Korea. On injunctions, they used to be routine here and now they're rare because of the impact of eBay. But in Europe they are routine. In Asia they are routine. Even in China they're routine.

So all the things we've done to weaken our patent law, rival nations have gone in the opposite direction and greatly strengthened their patent law. The gap has now become very wide and we're going to suffer technological leadership. This will have implications for national security, economic prosperity and job creation in our own economy because we're hurting the growth of our own companies through these well-intentioned but harmful policies. I'm spending the majority of my time in my retirement trying to help change the public conversation and inform policymakers in Congress, the media and elsewhere of the dire threat that we face.

Giachino (10:23.0729 - 11:26.0960)

It is astonishing to learn the role that the courts have played, including the Supreme Court as you've talked about, in unwisely undermining America's global economic leadership. You gave a lot of numbers and a lot of data. I'll add to that one recent analysis that pegged the cost of IP theft to the U.S. economy at as much as $600 billion a year. You mentioned China, our principal strategic rival. The Chinese government is running roughshod over American patents. They've been doing it for years and routinely helping themselves to IP from our American firms. I hate to always be the bearer of doom and gloom and I'm hopeful that maybe there's some optimism down the road. You recently predicted that the RESTORE Act could possibly pass. How soon might that be? And would it be soon enough?

Judge Paul Michel (11:27.0179 - 13:14.0479)

The RESTORE Act would restore injunctions to their historic availability. It's maybe the most important of the three initiatives pending in the Congress to restore patent strength, not only on injunctions, but on other issues as well. I think it will eventually pass. How fast is hard to say. The other two Acts would reform the eligibility mess and straighten out the procedural problems at the Patent Trial and Appeal Board where patents can be attacked simultaneously and repeatedly in the courts and also in the Patent Office. So those three bills would go a long way to reviving the American patent system.

The bright note on the sunny horizon is that there are some extremely well informed, thoughtful, strong bipartisan leaders, particularly in the Senate, but also in the House. The prime examples are Senator Chris Coons and Senator Tom Tillis, who are the top two officials on the IP subcommittee of the Senate Judiciary Committee. They're the authors of these bills along with Senator Cotton with respect to RESTORE. So there is great hope for reviving the American patent system as the engine of growth, global leadership and technological superiority. So I'm spending most of my time and so are dozens of other people trying to help the leaders in the Congress move these bills forward as rapidly as possible.

Judge Paul Michel (13:14.0650 - 14:22.0284)

I think they will all pass eventually. But it won't be easy because there is highly organized resistance by well-funded and very determined sectors of the economy, particularly the big tech companies who don't want patents strengthened because they see patents as a cost that they would rather skip. There are other powerful interests who are well-funded, well-organized and well-resourced. Together these opponents employ scores of lobby firms and law firms and make campaign contributions to try to block progress on the three reform bills that Tillis and Coons have proposed. So it won't be easy. I think in the end they will pass. The only question on my mind is whether it be soon enough or will it be so far down the line time wise that China will be miles ahead of us and we'll be racing to try to catch up.

Giachino (14:22.0604 - 15:15.0549)

It's not just that folks want patents not to be strengthened. We're definitely seeing a movement of trying to weaken patents. Coming back to your comment about these wonderful bipartisan leaders that we have in Congress who are working together. This is what it took 40+ years ago with the Bayh-Dole Act. Now we've got people trying to march in and weaken that bipartisan legislation, which I think we should credit as one of the strongest pieces of legislation to come out of Congress as a bipartisan effort that really spearheaded America's global economic leadership.

Judge Paul Michel (15:15.0559 - 17:41.0420)

The Bayh-Dole Act has been a huge success. It's created many thousands of new companies. It has created thousands of new inventions. It has hugely boosted the economic power of the country. It has been intact for over 40 years. And now the current Administration is trying to gut it to misuse it as a price control mechanism because they're upset about the price of some patented drugs.

The solution to the high cost of drugs for some people who can't afford it is to fix the finance system for health care, not to wreck the patent system. But politicians sometimes give in to the temptation to do something that's harmful in the long run but sounds good in the short run to uninformed people. So, the attack on the Bayh-Dole Act is very serious and very worrisome. It's one of a half of a dozen attacks that are going on simultaneously.

There are also efforts to prevent small patent-owning companies that lack the resources to enforce their patents from being able to have access to funding from outside sources. But otherwise they can’t enforce their patents because they don't have six years and six to ten million dollars to enforce their patents that are attacked in the Patent Office and the courts repeatedly. It's very expensive and very daunting. So that's yet another line of attack on the patent system.

And there are others. The Federal Trade Commission is trying to get the Food and Drug Administration to intervene in the patent examination process to try to make it much harder to patent important human health medications.

So the attacks are multiple, simultaneous and they're all serious. If I had to pick one, that's maybe the most serious, I might pick the Bayh Dole Act march in attack, but they're all serious.

Giachino (17:42.0260 - 18:03.0844)

So we know one way or another we're going to have an administration change from the elections in November. The next presidential administration will materially influence the trajectory of IP policy, whether that's through key appointments or potential legislative actions. Could it have any impact on the courts, do you think?

Judge Paul Michel (18:04.0155 - 19:41.0430)

Sure. Administrations appoint judges. As I mentioned, the Federal Circuit has gone from being strongly pro-patent to being somewhat anti-patent. And there will be appointments in the coming years. So the administrations in power will have the chance to appoint people who will either help revive the patent system or further weaken it. So that's one thing that they will come out of the election.

Another thing is that there is a huge lack of understanding in the media of what the importance and function of patents is. People act as if patents are some kind of prize to make inventors feel good, but the main function of the patent system is to incentivize high risk investments in developing new products and new companies and helping them grow. That's the most important function. And that's the very thing that's so weakened by all these recent developments. That explains the flight of venture capital money and corporate money. If the general counsel tells the CEO of the company, “You are thinking about a new research project or product, but I can’t guarantee you'll be able to protect it by our current patent system and therefore all your investments may end up having no return.” What happens then? The CEO cancels the project.

Giachino (19:41.0589 - 19:43.0599)

Where's the incentive? There is none.

Judge Paul Michel (19:43.0609 - 19:52.0390)

The risk is too high and the benefit is too low. And that's exactly the incentive system that is at the heart of patents.

Giachino (19:52.0400 - 20:30.0069)

Right, it’s that reliability for the inventor and the investor. That's what has led us to the position that we held for so many years that as you said, we are rapidly losing and are going to continue to lose until we take a stand that IP protection matters and recognize what some of these biggest threats are to IP protection today.

Our guest has been Paul Michel, former judge on the U.S. Court of Appeals for the Federal Circuit. I want to give you the last word. So I'll thank you now for joining us and leave the microphone open for you to share your parting thoughts.

Judge Paul Michel (20:30.0119 - 20:58.0362)

Renee, you're much more important to the future of the patent system than I and others are. And the reason is that you help inform people. You're a teacher and that's what's needed. There's an enormous amount of propaganda out there and an enormous amount of ignorance out there. There's no way that we're going to revive the patent system, except by educating the public and the policymakers, which is at the heart of what you're doing. So I applaud your work.

Giachino (20:58.0432 - 21:16.0212)

Well, thank you very much again. I thank you for all of your years of service and continued service seven days a week, 365 days a year. Undoubtedly. It is not going unnoticed. Thank you again for your time today. Of course, we would love to have you join us again sometime.

Judge Paul Michel (21:16.0251 - 21:18.0569)

Anytime. My pleasure. Thank you.