SBA Publishes Study Regarding Impact of Small Business Patenting

Anthony Breitzman and Diana Hicks have published a report for the Small Business Administration (SBA), titled "An Analysis of Small Business Patents by Industry and Firm Size." The study is the third in a series that examines small business patent activity.

The study specifically looked at "innovative firms" that were selected from a database of 1,293 technology firms having 15 or more patents issued between 2002 and 2006. Using this database, the authors analyze the relative strengths of small and large technology businesses, including information such as the industry and technology within which the firm patents and the importance of the patent. What did the study find?

The results demonstrate that small businesses that innovate are indeed special and that the technology they create helps define the cutting edge in a number of industries. The report presents a convincing case that small firms in emerging industries are one of the greatest engines of American economic growth.

More specifically, the study found

• Of the 1,293 firms reviewed in this study, 504 had 500 or fewer employees, 760 had more than 500 employees, and no size information could be obtained for 29 firms. Thus, 40% of the firms with 15+ patents were small firms. This number is slightly lower that 2004 (41%) but significantly higher than 2003 (33%).

• Small firms obtain many more patents per employee than do large firms. This result is quantified to show that this is not a small-firm large-firm phenomenon, but is actually a firm size issue at all levels. In particular, even within the small firm domain, companies with fewer than 25 employees will have a higher patent-to-employee ratio on average than firms with 50 employees, which will in turn have a higher patent-to-employee ratio than firms with 100 employees, and so on.

• Small firm patents "outperform" large firm patents on a number of impact metrics including growth, citation impact, patent originality, and patent generality. The metrics have been validated and shown to correlate with increases in sales, profits, stock prices, inventor awards, and other positive outcomes. "This suggests that the patents of small firms in general are likely to be more technologically important than those of large firms."

• Although small firms make up only 6.5 percent of all the patents in the database, they patent at a higher rate in some technologies, particularly health-related. Ranked by broad technology areas, most small firms fall in health-related technologies (biotechnology, pharmaceutical, and medical devices) and information technology categories communications/telecommunications, semiconductors, computer hardware and software).

Read/download the (68 page) report here.

NOTE: The study also has an interesting section on "Hot Patent" and "Emerging Cluster" methodologies for evaluating patents that is worth a read.

Next Stop - Chip Away the Presumption of Validity?

When the FTC released their report in October 2003, titled "To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy" (link), a big commotion was made over the proposition that the "clear and convincing" standard was not justified:

[A]s many have noted, the PTO is underfunded, and PTO patent examiners all too often do not have sufficient time to evaluate patent applications fully. These circumstances suggest that an overly strong presumption of a patent’s validity is inappropriate. Rather, courts should require only a “preponderance of the evidence” to rebut the presumption of validity.

At the time, many practitioners scoffed at this proposal, and dismissed it as an academic pipe-dream. Since then, this concept has been gaining ground, and has found at least a modicum of traction at the Supreme Court:

"Assuming that we sweep [the TSM test] aside and say it's been incorrect, what happens to the presumption of validity of, of patents which the courts have been, have been traditionally applying? Does it make any sense to presume that patents are valid which have been issued under an erroneous test for the last 20 years?"

- Justice Scalia, KSR v. Teleflex, oral arguments (p.23)

"We need not reach the question whether the failure to disclose [prior art] during the prosecution of [the patent in suit] voids the presumption of validity given to issued patents, for claim 4 is obvious despite the presumption. We nevertheless think it appropriate to note that the rationale underlying the presumption - that the PTO, in its expertise, has approved the claim - seems much diminished here."

- KSR v. Teleflex, slip. op. (p. 22-23)

Now, Doug Lichtman and Mark Lemley have released a draft paper titled "Rethinking Patent Law's Presumption of Validity" where they advocate the abolition of the "clear and convincing" standard for all patents. Instead, they propose the introduction of a 2-tiered patent system, where only the applicants that apply for "gold-plated" patents would get this presumption.

The notion of "gold plated" patents has been previously proposed (Lichtman et al., "What to do About Bad Patents?"), and can be summed up this way:

[B]ecause legitimate inventors need as much certainty as the law can give them, we would give applicants the option of earning a presumption of validity by paying for a thorough examination of their inventions. Put differently, applicants should be allowed to “gold-plate” their patents by paying for the kind of searching review that would merit a presumption of validity. An applicant who chooses not to pay could still get a patent. That patent, however, would be subject to serious - maybe even de novo - review in the event of litigation. Most likely, applicants would pay for serious review with respect to their most important patents but conserve resources on their more speculative entries. That would allow the Patent Office to focus its resources, thus benefiting from the signal given by the applicant’s own self-interested choice.

The draft paper explores these options and provides some interesting responses to many of the criticisms of this regime.

Notably (perhaps disturbingly?) the paper notes that a first step towards disclaiming the presumption begins in the USPTO, and calls for the Office to actively engage in dulling the presumption:

First, the PTO should disclaim the strong presumption currently recognized in favor of its work. The presumption is for the most part a judicially created rule of deference under which courts acknowledge what they understand to be the PTO’s desire to have its earlier evaluation respected. The PTO should speak up and disavow that desire. Specifically, the PTO should instruct patent examiners to do exactly what they do today but also to include, upon patent issuance, boilerplate language welcoming the courts to revisit the question of patent validity in the event an issued patent ends up in litigation. The PTO obviously cannot, and in any event should not, reject the statutory baseline; that is, challengers should still have the burden of bringing forward evidence that the patent was wrongly issued. However, the PTO should politely decline the heavier presumption that courts today recognize as a matter of course. To the extent that the PTO has valuable arguments and insights to contribute, it can do that by influencing how the issued patent reads and what documents are in the file. The PTO need not wield its influence through the use of a heavy presumption

Read "Rethinking Patent Law's Presumption of Validity" (link)

See "Want to Do About Bad Patents?" (link)

Medical Technique Patents in the Spotlight

While the software community has decried independent programmers that sue large companies on their patents, it appears that this practice has spread to other technological areas as well. Recently, a trend has emerged where doctors are obtaining their own patents, and then asserting them against medical device companies in court. While such litigation has been around for a while, some are speculating that the practice is on the rise.

The most notable example is the case of Medtronic v. Michelson, where doctor Gary Michelson (via his licensing firm, Karlin Technology Inc.) received a $1.35 billion dollar settlement over his patented implants and spinal surgery techniques. Recently, the CAFC upheld an infringed patent on a surgical method for removing a claw from a domesticated cat (Young v. Lumenis).

And doctors suing other doctors was not unheard of, either. In the 1995 case of Pallin v. Singer, eye surgeon Dr. Samuel Pallin sued several of his peers for the infringement of a medical procedure patent covering a new cataract surgery technique. During this litigation, the American Medical Association House of Delegates voted to condemn the patenting of medical and surgical procedures, and prompted Congress to attempt to outlaw the practice. While legislation was enacted to prohibit method infringement lawsuits against doctors, medical device makers can be liable for inducing infringement of a method by a doctor.

Legal and academic organizations such as the American Association of Orthopedic Surgeons estimate that 100 medical process patents are issued each month, which is double the amount in the 1980s. When the USPTO was contacted by the National Law Journal, a spokesman commented that "because we are seeing an increase in medical/surgical method applications," more hires are being sought.

• Read "As Medical Patents Surge, So Do Lawsuits", The National Law Journal (link)

• See also "Patients v. Patents? Policy Implications of Recent Patent Legislation", St. John's Law Review (link), and "Should Patenting of Surgical Procedures and Other Medical Techniques by Physicians be Banned?", IDEA (1996) (link)

• Follow patent-related news storied on Surgery Litigation & Law Weekly (link)