Regardless of whether it’s accurate to use the word “recession”, the Commerce Department’s recent report that real gross domestic product (GDP) decreased at an annual rate of 0.6 percent in the second quarter makes it clear that the U.S. economy is facing many headwinds. Since 2007, domestic manufacturing capacity has fallen by almost 10 percent, while consumer purchases of goods are up about 45 percent over the same period (not counting high-tech). Due to this widening gap between supply and demand, the U.S. is highly susceptible to shocks in the global trading system.
At a time when additional domestic manufacturing capacity is greatly needed to meet our country’s consumer needs at affordable prices, government leaders must take action to protect America’s hard-working, job-creating manufacturers from unnecessary — and avoidable — threats to their businesses.
The backbone of Ohio is manufacturing. The state’s manufacturers provide higher-than-average wage jobs for 668,000 people in our state and add nearly $118 billion to the annual gross state product. More than $50 billion in manufactured goods from Ohio are exported every year, largely thanks to the small businesses who comprise more than 99 percent of all Ohio businesses. Frivolous patent litigation far too often steals financial and human capital away from their productive endeavors, such as hiring more workers, funding research and development, and investing in and rolling out new technologies to expand business operations.
Non-practicing entities (NPEs) — or more aptly named “patent trolls” — are most often the culprit, responsible for 73 percent of all patent litigation in the second quarter of 2022. These trolls don’t make or produce anything, but rather they obtain the rights to one or more patents in order to chase profits through licensing or litigation. They’re notorious for attempting to enforce vague, low-quality patents through hardball legal tactics. And, unfortunately, manufacturers are too often forced to pay off these trolls — even when their claims lack merit — to avoid protracted, high-cost litigation. According to the Harvard Business Review, patent trolls cost defendants $29 billion per year, and more than half of these lawsuits are against U.S. manufacturers.
Processes at the United States Patent and Trademark Office (USPTO) must be improved to eliminate overly broad, “bad” patents that are weaponized by patent trolls. There are only 8,100 patent examiners at the PTO and between 600,000 and 650,000 new patent applications every year. The examiners must grant a patent unless they find a reason to not do so within the 19 hours, on average, that they have to review each patent application. It’s no surprise that some bad patents get the stamp of approval. More resources should be devoted to application review in order to minimize such mistakes.
Additionally, what’s called “inter partes review” (IPR) must be accessible to American manufacturers so that they have a fighting chance to defend themselves against predatory patent lawsuits. Created by Congress in 2011, this patent review process offers a fair, cost-efficient way to challenge the validity of a patent before the Patent Trial and Appeal Board (PTAB) to determine whether a questionable patent should have been issued in the first place. This common sense tool needs to be preserved.
The average cost of inter partes review through a hearing before the PTO’s PTAB is around $275,000 — far less than the $600,000 to $5 million cost of District Court litigation. Additionally, the IPR process takes 12 to 18 months, compared to the average patent lawsuit, which consumes five years or more.
Thankfully, legislative efforts are underway to improve patent quality and strengthen IPR for weeding out low-quality patents.
Now is no time to leave our state’s and America’s job creators defenseless against patent trolls that contribute nothing to GDP. Washington right now has an opportunity to help protect Ohio and U.S. manufacturers from abusive patent litigation.
Ohio’s Members of Congress need to reinvigorate the IPR process to give us manufacturers a fighting chance against patent trolls – funded by law firms, foreign sovereign wealth funds, and hedge funds – that are scheming to get rich quick on the backs of productive American employers. Correcting these issues in the U.S. patent system will fuel innovation, economic growth, and the competitiveness of Ohio businesses.
Beau Phillips is executive director of US*MADE, a coalition of U.S. manufacturing companies and trade associations. Joe Price is the Government Affairs Advisor for the Manufacturing Policy Alliance of Ohio.