Q&A Interview: IP Industry Roiled by Recent Decisions and Legislation, Says Sterne & Yusem

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The legal practice of intellectual property (IP) rights is heating up, to say the least. On June 22, the Supreme Court ruled in Kimble v. Marvel, and upheld a controversial precedent that parties paying royalties on a patent can cease payments once the patent expires. Add that decision to a recent spate of court rulings and legislative initiatives that have dramatically altered several core IP standards, and you have the recipe for a dramatically unsettled legal and business landscape the effects of which will only be amplified in the future.

Legal Executive Institute recently spoke to two IP experts, Rob Sterne and Caren Yusem. Sterne is one of the leading patent attorneys in the United States and Founding Director at Sterne, Kessler, Goldstein & Fox; Yusem is the founder of Olympic IP, and specializes in business and investment strategies for IP-related assets.

Legal Executive Institute: You both recently produced an IP conference that attracted a lot of attention. Why do you think a conference about changes in the IP space resonated so strongly?

Sterne: The dramatic changes that have occurred in the patent environment in the US over the past two years—both with Supreme Court decisions and with legislative action—have changed how we litigate for patent owners and defendants today. The American Invents Act legislated new contested proceedings at the USPTO [US Patent & Trademark Office] which have had a startling effect on patent owners. And the way the USPTO has implemented this new form of litigation has also been dramatic.

Caren Yusem

Caren Yusem

Yusem: The seismic changes in the legal structure of IP have had a parallel effect on business owners, corporate leaders and investors. Growth companies and innovators—small business owners, new companies, research institutes and universities—are struggling under difficult and expensive legal conditions to commercialize important ideas and maintain their competitive edge.  Fewer important ideas are protected in the current environment. One investor in early stage life science enterprises told me that half of his colleagues in that space have ceased offering investment to enterprises who lack patent protection due to another Supreme Court decision, Myriad [Association for Molecular Pathology v. Myriad Genetics which heightened the restrictions on patenting natural phenomenon], or invalidity proceedings at the USPTO. Penicillin, for example, wouldn’t be patented today.

LEI: IP industry watchers have suggested that the Supreme Court’s eBay decision in 2006 was one fundamental change, in which the Court changed the standard for obtaining an injunction and rejected the prior presumption of irreparable injury if there was patent infringement. What have been the overall effects of how these rulings and new laws have been implemented?

Sterne: The impact has been that innovation in the United States—which is supported by patent protection—has been harmed in a big way and it’s starting to really be felt, because the people who fund innovation by small companies, individuals and universities and other highly innovative sources of activity in the US economy are very concerned about their ability to get a fair rate of return for their investment.

Yusem: Unenforceable patents are less valuable and also draining growth companies, small business owners and inventors. Major US patent portfolio deals we’ve discussed in webinars are going for a fraction of their price only a year ago—I’ve heard 1/30th of the negotiating price, and even lower.

Robert Sterne

Robert Sterne

LEI: Why has enforceability become such an issue?

Yusem: Because the Supreme Court’s eBay decision changed how injunctions are granted in patent cases, and patent holders lost the presumption of irreparable harm in infringement cases. Injunctive relief is less readily available in the US, which means the infringement may continue during litigation to stop it. Since the US courts in only certain circumstances will enjoin infringement with an injunction, US patent owners are turning to Germany or the UK, where injunctive relief is reported to be more readily available and less expensive. The lack of injunction emboldens many competitors to infringe with impunity.

LEI: Are US companies already looking to file their patents outside the US?

Sterne: It’s the enforcement that’s making the critical move to Europe, but several important technology labs told us that they may file patents in Europe first. Traditionally, innovative companies filed patents in the US and then filed in additional jurisdictions abroad. And the most effective way to reach global settlement with an infringer was to litigate in the United States. That trend is starting to reverse, and the trend is now to look to Germany or the UK for a global settlement. And that’s a dramatic change. Dramatic.

LEI: That is a big change. If you’re a US lawyer in the IP space, what can you do now if you’re seeing your clients go overseas to get relief from courts because they can’t get it here?

Sterne: Open up an office in Germany.

Yusem: Attorneys tell us their clients are increasingly requesting that they open up overseas offices, but it’s being done by a handful of US firms so far and has obvious limitations for US litigators.

LEI: What do you see as the impact for US law firms or for the US patent industry in general?

Yusem: Patents are growing in value elsewhere. While Europe, China and others are building patent systems that emulate the American model—which is the gold standard absolutely—the enforceability of US patents is weakening. Very recently, it is reported, that government-backed “patent aggregators” in China have started to acquire US patents at low prices. Inventors and innovators are telling us that the remedy for abusers of the patent system in the US has hurt patent owners across the board—it’s like throwing the baby out with the bath water.

More importantly, the situation has geo-political implications. These dynamics could threaten America’s ability to compete globally, which among other things, relies on the ability to introduce progressive innovative products to the global market place, protect a proprietary competitive edge and create new jobs at home.