There was an important patent law decision by the Supreme Court recently that could have implications for the golf industry, particularly startup or new equipment companies.
The Supreme Court issued a ruling on the case last week, dealing with the Patent and Trademark Office’s ability to reconsider previously granted patents. Where does golf fit in to a constitutional case before the highest court in the land?
Our friend — and patent lawyer — Derrick Brent sent over a summary of the proceedings and impact the ruling will have on pretty much every major golf equipment manufacturer. The following is that summary as provided to us via email this weekend:
Inter Partes Review (IPR)
In 2011, Congress passed the America Invents Act, a bill changing/reforming many aspects of the patent system. One big change was the creation of a procedure called inter partes review (IPR). IPR allows the Patent and Trademark Office (PTO) to reconsider and re-determine the validity/invalidity of previously issued patent claims in certain circumstances. Anyone can challenge a particular patent and its claims, except the owner(s) of that patent.
IPRs have been controversial because of a high rate of PTO decisions invalidating challenged patent claims. Some believe IPRs are good because the PTO gets a chance to review potentially weak/faulty patents previously issued and remove them from the system, preventing costly court litigation on these patents. Others see IPRs as wasteful duplication of effort – the PTO reviewing patents it initially granted – thereby creating uncertainty for patent holders and investors in companies with patents.
Oil States v. Greene’s Energy – Supreme Court (decided 04/24/18)
Oil States sued Greene’s in federal court for using an apparatus/technology that infringed on Oil State’s patent for protecting well heads. Greene’s responded by challenging Oil States’ patent in an IPR at the PTO, parallel to the court case. The federal court issued an interpretation of Oil States’ patent claims (essentially finding them valid), while the PTO issued a ruling that Oil States’ patent claims were invalid.
Oil States appealed the PTO invalidity decision to a federal appellate court, then to the Supreme Court, challenging the constitutionality of the IPR proceeding. Oil States argued that patent rights are private rights, like property, requiring due process by a court to invalidate.
The Supreme Court ruled that the IPR is a constitutional review of a previously granted right. Court ruled that patent rights are public rights, granted by government, that can be altered or extinguished by Congress or proceeding at an Executive Branch agency (PTO).
Amicus Brief by U.S. Golf Manufacturers Council
The U.S. Golf Manufacturers Council is a golf industry trade organization, representing equipment manufacturers.
Per its member listing on its site, USGMC includes Acushnet Company, Bridgestone Golf, Callaway Golf, Cleveland Golf/Srixon, Cobra-PUMA Golf, Henry-Griffitts, Mizuno USA, PING, PowerBilt Golf, SeeMore Putter Company, STX Golf, TaylorMade-adidas Golf, True Temper Sports, Wilson (https://www.sfia.org/ industryaffairs/committees/ golfcouncil/membership)
The organization filed an amicus curiae (“friend of the court”) brief in support of Greene’s position that IPR is constitutional.
USGMC states that the golf industry has an interest in the Oil States case because equipment companies rely heavily on patents to protect technology and innovation. The industry also has an interest in ensuring good quality patents in the marketplace.
USGMC’s main position is that IPR works and is needed for an efficient patent system.
USGMC cites the fact that there have been 7000 requests for IPR submitted since it began. 66% of those requests have been granted, and 80% of granted requests going to final decision have resulted in invalidity of some or all patent claims. These final decisions have been upheld by appeals courts 80% of the time. USGMC believes this shows bad patents are being removed.
IPR is less expensive than federal court litigation – $250-330k vs $3.1M (average costs to final decision, sourced to law journal articles).
IPR establishes more fairness in the system by allowing others affected by a patent to test its validity/quality. Patent application process is between applicant and PTO, and is confidential for 18 months. IPR is a quality control check by third parties who can provide something missed by PTO.
Why Does This Matter for Golf?
The IPR issue, and USGMC’s position, should be of interest to the golf industry as a whole, but particularly to startups, smaller equipment companies, and potential new entrants (collectively “startups”) because the threat of IPRs by incumbent, larger companies could make startups’ patent portfolios less certain or risky, thus making fundraising more difficult.
Investors typically ask startups about their patent portfolios and the strength of protection. It would not make sense to invest in a product that could be copied without liability or one that could be buried by administrative review(s).
The risk of IPRs also has the potential to give larger incumbents a price advantage when negotiating acquisition of a product or patent portfolio from a smaller company.
It should be noted that many of the USGMC members are large incumbents. Cost of membership to the trade association is high – likely well out of the range for a startup. This point is not to question the integrity of USGMC, but merely to point to perspective.
The counterarguments to USGMC’s position and points
The IPR stats do not show efficiency, but rather the risk IPRs pose to patent holders. Granting 66% of requests could show a low bar or threshold in challenging a patent. An 80% chance of cancellation weighs against a patent holder fighting to the end to defend. Basically, why would a large incumbent not challenge a smaller competitor’s patent portfolio with these odds?
If the rates of cancellation are so high, isn’t the real problem on the front end of examination, not the back end? If the PTO is making so many mistakes in patent grants, then does it make sense to use them for review? Which decision is to be trusted?
Federal court litigation and IPR are two different cases and legal questions, therefore making a straight comparison of costs incongruent. Federal court lawsuits, typically, are not brought to determine the validity of a patent – they are brought to determine whether a patent was infringed. The validity of a patent in federal court is a defense for the alleged infringer – one of many legal issues in a patent infringement case. In an IPR, there is only one legal question, a challenge to patent validity – no other legal issues such as infringement. Thus, it makes sense that federal court litigation would cost more because there are more issues than just validity.
The patent application process, confidential for a period of time between applicant and office, was designed to allow newer, smaller companies a chance to build their operations so they could enter the marketplace after patent issuance. The PTO has knowledgeable examiners with access to relevant prior patents and written materials during patent process, as acknowledged by USGMC in its brief.
The purpose of this summary is not to argue for the elimination of IPR or question the validity of USGMC’s position. The purpose is to examine USGMC’s position on IPR, and the implications of that position for startups and potential new entrants in the golf market.