According to research reports from Allied Security Trust (AST), a company focused on the research on patent transactions in the United States, and IPOfferings LLC, a company focused on delivering consulting services on patent transactions, the scale of global patent transactions has dropped significantly since 2013 both in number of transactions and in amount of transactions, despite the very active patent transactions during 2011-2012.
The Patent Value Quotient Statistics In the Annual Reports Filed By IPOfferings LLC (Unit: US$)
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But it was derived by AST from its analyses that since 2010, 78% of the patent transactions came from Hi-tech industries, while in 2014, over 60% of the transactions were related to communication and software technologies, whereas among transactions related to communications, 70% of them were purchased by non-profit organizations (such as R&D institutes, financial syndicates, etc.) which do not deliver products or services directly.
In 2014, although the number of patent transactions decreased, the number of litigation cases related to patents did not follow it, while the global commercial competition in the field of consumer electronics products was increasingly heated. In view of the aforesaid new trends of patent transactions, the following three possible causes can be potentially attributed to according to the analysis:
- The Procedure of Inter Partes Review (IPR) in the New U.S. Patent Act
In the new U.S. Patent Act after the enforcement of its amendment as of September 16, 2012, the original process of Inter Partes Reexamination was superseded by the procedures of Post-Grant Review (PGR) and Inter Partes Review (IPR) which are litigious.
According to practical statistics, there are only about less than 3% of all American lawsuits related to patent disputes were really settled through litigation procedures. In other words, most of cases involving patent disputes were settled outside the courts due to the really high court costs.
However, in the IPR processes, the rate of patents held invalid by the Patent Trial and Appeal Board (PTAB) of the United States reached 77% (not including the patents actively abandoned by the patentees or patents pending examination by the PTAB). This indicates that the IPR provides a less expensive and quicker way to invalidate a patent than litigation which caused dramatic increase of the possibility of a U.S. patent to be invalidated, and a significant drop in the evaluated values of patents, and thus indirectly affected patent transactions. Some IP Consulting firms even believed that American patents have been devalued by the IPR by two-thirds, which caused a loss of US$ 100 million to the economy of the United States.
- The U.S. Supreme Court's Change of Stance in a Precedent Ruling Issued in 2014
- Patents are now more easily invalidated
The U.S. Court of Appeals for the Federal Circuit (CAFC) has been maintained its Pro-Patent policy, i.e., it tends to protect the patentees. But in 2014, the Supreme Court ruled against the patentees in all 6 cases related to patents examined by it during the same year. This was universally considered in the world of law as an adjustment made by the U.S. Supreme Court to its long existent Pro-Patent policy, making patents more easily to be invalidated. For example, in the case Alice v. CLS Bank, the disputed issue is about whether an abstract idea represented through a computer is eligible for a patent. The U.S. Supreme Court held that it isn't. As a result, commercial methods will not be eligible to be granted with a patent, and software patents will be more easily invalidated due to 35 U.S.C. 101.
In addition, on June 2, 2014, the U.S. Supreme Court established the "Standard for Definiteness of Patent" in the case Nautilus Inc. v. Biosig Instruments Inc., and held that the standard adopted by the CAFC for the determination of the prerequisite definiteness for a long time, which was that "1. whether the claim is 'amenable to construction'; and 2. whether the constructed claim is 'not insolubly ambiguous'; and the Standard for Definiteness will be deemed as being complied with if the tests mentioned above are passed through", did not meet the requirements imposed by the U.S. Patent Act (35 U.S.C.) for definiteness. The U.S. Supreme Court believes patents shall meet "Reasonable Certainty" so that the scope intended to be protected would be apparent to one of ordinary knowledge in the art (See 35 U.S.C. 112(b)).
- Elevated Standard for Patentees To Prove Patent Infringement
Moreover, in January 2007, the U.S. Supreme Court established, in the case Medtronic, Inc. v. Mirowski Family Ventures, LLC., the burden of proof for a patent licensee filing an action for confirmation wherein the patent licensee does not need to be on the premise of violation or termination of a patent license agreement in order to file an action of confirmation with the federal court for the declaration of invalid, not capable of exercising the rights or non-infringement to the patent involved in the license agreement. The CAFC held that a patent licensee who files an action for confirmation of non-infringement to said patent as a plaintiff during the period when the license agreement remains effective shall bear the burden of proof for related facts of infringement. Finally, the U.S. Supreme Court overruled such opinion of the CAFA on January 22, 2014, holding that this burden shall still be borne by the patentee. Since it has been an established principle that the patentee shall produce evidences to prove the facts of infringement, the contents of substantial rights will not be affected by the action for confirmation, and there will be no effect of conversion to the burden of proof.
- The judge of a district court may decide at his/her discretion how to apportion the liabilities for court costs and expenses
The average court costs for a case related to patent is more than US$ 1 million, but in 2014, in the cases Octane Fitness v. Icon Health and Fitness and Highmark Inc. v. Allcare Health Management Systems, Inc., the allocation mechanism for the costs of patent attorneys was changed. The U.S. Supreme Courts held that the judge in a district court may have the discretion to decide one party shall bear the attorney fees of the other. As a result, the likelihood that the patentee who loses the case will be ruled to bear the attorney fees for the other party increased considerably.
- Refrainment to patentee's abuse of his/her dominant position in the market devalues the SEPs
Standards-essential patents (SEPs) are patents formed by a standard organization for technologies commonly used in the standard in combination with patent protection, aimed at promoting market share of the business while offering such patents for use of members of the standardization organization in a cooperation way at charges of patent license fees. Recently, some big high-tech manufacturers, such as Samsung, Interdigital, Ericsson etc., used SEPs as a weapon to impede their competitors. They filed actions for patent infringement which all involved SEPs.
Since SEPs are inevitable, their patentees take dominant positions in the negotiation of license for exercising patents, and together with their higher commercial value, this might easily lead to abuse of rights. Therefore, since 2013, courts and government agencies in various countries and international organizations began to notice the problem of SEP patentees extorting higher patent license fees, and have tried to inhibit their abuse of rights.
For the above reasons, the world patent transactions have been dropped dramatically since 2013. During the past, the United States has always been the center of patent transactions. But under the impacts of the factors disclosed above, patent transactions are likely to be less active in the future, and with a decreased patent values. The future world patent transaction center must meet the following three requirements: (1) Adequate patent reservation; (2) Being an important market for the goods or services to be protected by the patents; (3) The rulings related to patents are sufficiently predictive and deterrent to deter infringement and to guide policy planning.
Although mainland China meets the prerequisites (1) and (2), the results of suits related to patent are still hard to predicted and the amount of compensation is both low and hard to be executed in this country.Therefore, in the future, the patent transaction center likely to be formed will be more likely shifted to Europe because in Europe, there is a Unified Patent Court (UPC) with a sufficiently wide jurisdiction, and its orders can be effectively applied to all European countries; in the meantime, there is adequate patent reserve and the European Patent Office (EPO) produces high level of examination quality.