Job creators, innovators, the backbone of our economy — that’s how most Americans view manufacturers, whom we celebrate on this first Friday in October on Manufacturing (“MFG”) Day. Unfortunately, a small and well-funded group of outliers known as “patent trolls” continues to prey on and threaten hard-working U.S. manufacturers.
Patent trolls, formally known as non-practicing entities or NPEs, produce no goods or services. They make nothing and add no value to our economy. Funded by law firms, foreign funds and hedge funds, they’re created to weaponize low-quality, often forgotten patents, or patents that never should have been issued, to sue productive companies. More than half of patent troll lawsuits target U.S. manufacturers, often with a simple goal to coerce the manufacturer to pay off the troll to avoid a more arduous, protracted and costly litigation process.
In today’s global economy, manufacturers face numerous challenges, from supply chain setbacks to labor shortages, and abusive patent litigation shouldn’t be one of them. Nearly four out of five (78.3 percent) manufacturing leaders listed supply chain disruptions as a primary business challenge in the Manufacturers’ Outlook Survey for the third quarter of 2022, and only one in 10 (10.8 percent) believe improvement will occur by the end of the year. The U.S. Bureau of Labor Statistics recently reported 5 million more job openings than there are unemployed people in the United States, with 850,000 openings in the manufacturing industry alone. Attacks by patent trolls steal resources that could be devoted to problem-solving.
The financial threat trolls pose to manufacturers is significant. The median cost of taking patent litigation to trial — even for a small company with $1 million to $10 million at risk from the litigation — is about $1.9 million dollars per patent. With a typical time to trial of 2.1 years, these defendants face around $900,000 per year in legal fees. Because 91.5 percent of U.S. manufacturing facilities employ 99 people or fewer, according to the Bureau of Economic Analysis, and the average annual cost per job for these small- to medium-sized manufacturers is $81,710, more than 10 percent of a manufacturing company’s employees could lose out on work every year that their employer is involved in often-frivolous patent litigation.
Current law allows manufacturers a way to challenge questionable patents, which are overly broad or vague, but that law is under attack. In 2011, the America Invents Act (AIA) brought the most significant reform of the patent system in the past half-century, fostering a new era of innovation and leading to needed improvements in patent quality. Most significantly, it created a way for manufacturers to defend themselves against meritless patent litigation in cases where the bad patents should not have been granted. The AIA created a process called “inter partes review” (IPR) that allows manufacturers to challenge the validity of a patent before the U.S. Patent and Trademark Office (USPTO). And why shouldn’t they be able to do so? Any time you’re sued, you’re allowed to challenge the validity of the lawsuit in court.
Unfortunately, under its previous director, the USPTO ignored congressional intent and made it much harder for manufacturers to fight bad patents. These “discretionary denials” of lawful IPR petitions force manufacturers to abandon product lines, lay off workers and sometimes even close their doors. At the same time, discretionary denials have made it much easier for patent trolls to be profitable in their get-rich-quick schemes. In fact, patent lawsuits against manufacturers skyrocketed to their highest levels in a decade under recent leadership.
Thankfully, new USPTO Director Kathi Vidal has taken action to get the patent system back on track, including issuing tight guidelines for discretionary denials by the Patent Trial and Appeal Board (PTAB). But we can’t stop there: This Manufacturing Day, Congress should push forward legislation that codifies fair practices at the PTAB, including guaranteed access to IPR, to protect manufacturers against abusive patent litigation. Giving America’s job creators, innovators and gross domestic product boosters a fair shake is the least we can do.
Beau Phillips is executive director of US*MADE, a coalition of U.S. manufacturing companies and trade associations who produce their products in America working to curtail abusive patent litigation. Follow on Twitter @USMADEcoalition.