In certain corners, it’s now commonplace to estimate value of technology by the number of patents protecting an asset. But it’s critically important to remember that an issued patent is only the beginning.
As a bundle of rights, a patent represents only a potential value — a promise that patent rights are valid and can be enforced against competitors to control commercial activity. But assessing validity and enforceability requires a relatively complex and nuanced legal analysis. What is more, recent developments in the law have redefined validity and enforceability two key areas discussed below that may, in some cases, decrease a patent’s value.
Conditions of patentability have been tightened
Key developments in the law have armed accused infringers with powerful tools to prove a patent’s invalidity.
In four decisions in almost as many years (Bilski v. Kappos, Mayo Collaborative Servs. v. Prometheus Labs., Inc., Assn. for Molecular Pathology v. Myriad Genetics, Inc. and Alice Corp. Pty. Ltd v. CLS Bank Int’l), the Supreme Court confirmed that patents may not cover laws of nature and abstract ideas. Those decisions call into question the validity of granted patents to inventions in various technologies like software and medical diagnostics.
In 2011, Congress changed the law to grant patent rights to the first inventor to file a patent application, replacing the first-to-invent system. On the one hand, early filing strengthens rights as the first-filed application becomes invalidating prior art as to later-filed applications of competitors. But early disclosure could spur an inventor to file an application based on a less than completely worked out invention. Since its 2010 decision in Ariad Pharms., Inc. v. Eli Lilly & Co. the Federal Circuit has consistently reaffirmed that a patent application’s disclosure must clearly identify what the inventor has actually invented and is entitled to claim. Validity questions arise if the patent contains too few details about the invention. Inventors must now balance the risk of waiting for completeness against the risk of being scooped by a competitor, regardless of who was first to make the invention.
In the seven years since the Supreme Court decided KSR Int’l Co. v. Teleflex, Inc., most would agree that courts’ application of the law makes proving a patent claim obvious in light of the prior art somewhat easier. For example, recent Federal Circuit decisions have clarified that a person of ordinary skill in the art need not have been motivated to combine knowledge in the prior art in a manner limited to the actual invention. Instead, the analysis more broadly considers the scope of the relevant prior art and whether the invention is a significantly different non-obvious departure over what was known — arguably a broader base of information to draw upon.
Valid patents face enforcement challenges
Aside from validity issues, changes relating to enforcement present other challenges that must be overcome.
Patent litigation has been long recognized as a costly proposition. On average, it takes several million dollars to bring cases to resolution through trial, largely because of document-intensive fact discovery, expert witness fees and other hard costs associated with a complex litigation. While strategies abound to limit costs, few patent owners are in a position to bring suit indiscriminately. More often than not, litigation costs weigh heavily in a decision of whether to enforce valid patent rights.
Even if a patent owner can prove an accused infringer liable and defend the validity of the patent-in-suit, remedies may not be available to provide a commercially attractive outcome.
In the past, a court finding liability for infringement would more often than not issue a permanent injunction, under the assumption that patent infringement constitutes irreparable harm. But today, almost 10 years after the Supreme Court’s decision in eBay Inc. v. MercExchange, L.L.C., injunctions are the exception, not the norm. Courts grant injunctions in predictable ways that reflect the infringing product or process, the nature of the marketplace or the relevant business activities of the parties. But gone are the days that proving patent infringement will automatically put your competitor out of business, and a patent owner surely cannot count on that result.
Finally, the law provides for damages for patent infringement somewhere in the nebulous range between “adequate to compensate for the infringement” and “[not] less than a reasonable royalty.” But damages law continues to change — parties propose new theories almost as quickly as courts reject existing ones. This uncertainty makes it difficult to predict which damages theories may govern future infringement and provide economic reward to a patent owner who ultimately decides to take the plunge and sue her competitor.
Of course, accused infringers are well aware of the obstacles to be overcome in successfully enforcing a valid patent. Although multi-million dollar awards for patent infringement make headlines, the reality is that successful enforcement is difficult, even for the strongest patents. With this knowledge, it shouldn’t be surprising that competitors in some fields see great economic advantage in knowingly infringing existing patents today, taking their chances in court tomorrow, if at all. One might question whether the law has struck the proper balance between economic reward and invention disclosure in a way that, in theory, will encourage further information sharing and innovation.
Despite these challenges, patents remain one of the most powerful tools available to protect intangible assets and build value for individuals and organizations that develop new technologies. Patents also remain the single-most efficient way to inform the public about the potential value of innovations. It remains to be seen whether the financial rewards of patent ownership keep up with the changes to validity and enforcement.
Those considering the value of any patent would be wise to consult legal counsel to evaluate its strength as a valid enforcement tool to impact future commercial activity in the marketplace.