10t17t2017
`
`Guest Post: America lnvents Act Cost the US Economy over $1 Trillion I Patently-O
`
`America's leading patent law source
`
`Guest Post: America lnvents Act Cost the US Economy
`over $1 Trillion
`O June 8, zor5 J AIA Trials, IPR, PGR t Dennis Crouch
`By Richard Baker, President ofNew England Intellectual Property, LLC
`
`The American Invents Act, passed into law in zott, is one ofthe biggest changes to US patent
`laws in the past fifty years. Its sweeping reforms changed our system from the "First to Invent"
`to a "First to File" system, and created a new method for infringers to invalidate patents. While
`many aspects of this legislation had impacts on inventors, the most striking impact has been the
`devastating financial impact of the post grant review process, The post grant review process, or
`more specifically, the inter partes review ("IPR") procedure allows any entity to request that the
`US Patent Office initiate a review of a valid, issued US Patent. In the two and a half years since
`the first IPR was filed,77oA of all patent claims reviewed have been invalidatedfr].
`
`To obtain a patent in the United States, an inventor must submit his invention to an
`examination process before a patent examiner. This process involves several years and often
`many vigorous debates between the examiner and the inventor in papers that are exchanged. If
`the examiner is convinced at the end of this proceeding that a patent is warranted, the US
`Patent Office issues a patent to the inventor. By the time a patent issues, there typically is a
`significant examination of the merits of the patent claims.
`
`In essence, the IPR procedure is a request for the Patent Office to admit that they made a
`mistake and reverse themselves on the validity of the patent. The problem with this reversal is
`that the inventor has relied on the patent to build a business or to initiate licensing discussions
`based on his faith in the original decision of the Patent Office. This is similar to a property
`owner building a house based on the issuance of a deed to the property. A reversal of the
`patent, or of the deed, after the fact impacts the investments rnade in the invention.
`
`Some have argued that the IPR procedure is weeding out the weakest patents in the United
`States, but experience has shown that the opposite is true. The IPR procedure is only being
`used against the best United States patents. This is because of pure economics, The cost for a
`company to file and prosecute an IPR to a decision by the Patent Trial and Appeal Board
`C'PTAB) is between $zoo,ooo and $5oo,ooo. No corporation can afford to file an IPR unless
`the patent in question is a significant threat. In fact, a review ofthe IPRs filed in the past
`rnonth or two shows that almost every patent that is IPR'ed is involved in litigation (the few that
`are not in litigation are in the pharmaceutical arts). Only a small percentage ofall patents are
`used in litigation or licensing; these patents are considered the top tier of all patents. It is these
`patents that are the subject of IPRs, Given the high rate of invalidation at the PTAB, most all
`patent litigation defenses now invol'r'e an IPR ofthe patents in suit.
`
`To quantifu the financial impact ofthe IPR proceedings in the AIA bill, we need to first assess
`the impact on the price of an average US patent. The lore of the US patent brokers, individuals
`who help inventors and companies to sell their patents, is that the price ofan average US patent
`has dropped about 66Yo since the institution of the AIA IPR procedure. According to Scott
`
`httpsJ/patentlyo.com/patenV2015/06/america-invents-trillion.html#_ftnref4
`
`1t6
`
`ALL 2106
`MYLAN PHARMACEUTICALS V. ALLERGAN
`IPR2016-01127, -01128, -01129, -01130, -01131 & -01132
`
`

`

`1011712017
`Guest Post: America lnvents Act Cost the US Economy over $1 Trillion I Patently-O
`Bechtel of AmiCOUR IP Group, an experienced patent broker, "US Patents have lost z/3rds of
`their value since the AIA was passed in 2011."
`
`A bigger sampling of deal values can be found in IPOfferring's Patent Value Quotient Annual
`Report of patent sales[z]. This report has been issued from zorz through zor4, giving us three
`years of sales data to analyze. The deals listed in these reports may not represent all patent
`sales, as this list consist of deals Iarge enough to be material and thus publicly reported as well
`as deals that brokers chose to report to lPOfferrings. Furthermore, there is no readily available
`data from before 2012 to see deal values before the AIA was passed. However, these reports
`show the dramatic drop in patent values over 13,564 patent sales in 93 deals over a three year
`period.
`
`ear
`
`L2
`
`o3
`
`L4
`
`PatentValue
`
`Sales
`
`Patents Sold
`
`Average Price
`
`2,949,666,ooo
`
`L,OO7,9O2,750
`
`467,731,502
`
`-2o14
`
`66%
`
`54"/"
`
`8+%
`
`6,985
`
`3,73L
`
`Z,B48
`
`-47%
`
`-2!.o/o
`
`-59%
`
`$422,286
`
`$27o,t43
`
`$;64,232
`
`'1,60/o
`
`-39%
`
`-6r%
`
`This chart shows a dramatic drop in the average price per patent over the three year period,
`with values dropping 6t%o from $4zz,z86 per patent to $164,232. In that timeframe, the
`number of patents sold dropped from just under Tooo to z8oo, showing a decrease in liquidity
`in the patent market. The overall sales dropped from $g Billion to well under one half billion in
`patent sales per year, orby 84%o.
`
`But this decrease in value of US Patents should be expected given the invalidation rate ofthe
`Patent Office's IPR proceedings. lf 77o/o of all valid patents are canceled through this new
`proceeding, then the risk adjustments on patent values should also decrease by roughly the
`same amount. While our empirical data is showing a 6o-7o0/o drop in values, the theoretical
`impact should beZZ%, Perhaps this is reflecting an inefficiency in the market, suggesting that
`patent values will drop another to-t5%o in the next year or two. Or it could indicate that our
`samplings are not fully reflecting the actual decrease in values.
`
`One could suggest that the Alice u CLS Bank Supreme Court decision also had an impact.
`However, the Alice decision only impacts software patents, and the IPOfferrings numbers come
`from all fields. The IPOfferrings numbers can be seen across three years since the AIA was
`implemented; Alice was decided less than a year ago and at first was not seen as a big change in
`patent law. Only in the past 4-5 months has Alice been expanded by the lower courts to impact
`a wide set of software patents, thus possibly impacting the value of software patents.
`
`https://patentlyo.com/patenU201 5/06/america-invents-trillion.html#-ftnref4
`
`2t6
`
`ALL 2106
`MYLAN PHARMACEUTICALS V. ALLERGAN
`IPR2016-01127, -01128, -01129, -01130, -01131 & -01132
`
`

`

`1011712017
`Guest Post: America lnvents Act Cost the US Economy over $1 Trillion I Patently-O
`Experienced brokers are seeing that software patents with Alice issues are simply not being
`sold, with buyers afraid to spend anything on these patents and sellers holding until the law
`settles in this area. Thus we believe the IPOfferrings numbers are primarily showing the impact
`of the AIA IPR procedure with only a minor impact from the Supreme Court's Alice decision.
`
`The decrease in value of patents means that the valuations of companies with US patent assets
`are also devalued accordingly. If a hypothetical company has patent assets on the books (much
`of which may be in Good Will if the company purchased the patents from others) at $ r Billion
`from a pre-2o11 acquisition, these assets should be written down to about $39o Million based
`on the impact of the AIAIg].
`
`This raises many questions on the overall impact of the AIA's IPR procedure on the United
`States economy. Using one methodology to evaluate the impact, we look at the US economy
`and approximate the impact from top down. Intellectual capital (patents, copyrights, and other
`forms of economic ideas are worth about $9 Trillion in the United States[4]. So a 6r%
`markdown of patents (and their resulting goodwill when small companies are bought)
`corresponds lo a 6tok markdown of a portion of the $9,2 Trillion. Say patents are worth about
`z5% of the overall value of intellectual capital[S], or about $z.g Trillion, then a 6r% Ioss in value
`is 9r.37 Trillion decrease in the value of the US economy based on the impact of the AIA bill.
`The American Invents Act bill cost the economy about $r.37 Trillion, or an amount equal to
`abor*7o/o of the US GDP.
`
`Another way to look at the impact of the AIA starts with the count of the number of US Patents
`in force, about z.r Million according to Professor Dennis Crouch of the University of Missouri
`School of Lawl6l. Given our zorz IPOfferings value of $4ez,ooo per patent, the value of
`patents to the US economy was $886 Billion. The AIA dropped the value to one third, leaving
`gg++ Billion in value. This one act of Congress, the IPR proceeding of the AIA bill, destroyed
`$S+6 Billion of the US economy using this methodology,
`
`While additional study is required to refine the macroeconomic impact of the AIA IPR
`procedure, it is clear that this bill has wiped out about $r Trillion of value in the US economy.
`
`But this number is probably greatly underestimated, as it only incorporates the first order loss
`in value. It does not include lost opportunities, disincentives to innovation, the inability to raise
`money due to the decrease in collateral, and the loss of jobs without those investments. We
`leave this analysis to economists in future studies.
`
`Given the huge impact of the AIA and its IPR proceedings on the US economy, on corporate
`valuations, and on the value provided to individual inventors, it is time for Congress to
`reevaluate this procedure to assure that a much greater percentage of patents survive the IPR
`process.
`
`[r] US Patent and Trademark Office, "Inter Partes Review Petitions Terminated to Date (as of
`tf t5f zol.g)", downloaded from
`http://r,vww.uspto.gov/sites/default/files/documents/inter_partes_review_petitions_terminat
`ed_to_date% 2ooro/o2ol'(%zozor5.pdf on 6 May zor5. In the proceeding where the USPTO
`
`https://patentlyo.com/patenV201 5/06/america-invents-trillion.html#-ftnref4
`
`J/O
`
`ALL 2106
`MYLAN PHARMACEUTICALS V. ALLERGAN
`IPR2016-01127, -01128, -01129, -01130, -01131 & -01132
`
`

`

`1011712017
`Guest Post: America lnvents Act Cost the US Economy over $1 Trillion I Patently-O
`decided the merits of the Inter Partes Review petitions, 643 claims were found patentable and
`z176 claims were found unpatentable, or //o/o.
`
`[z] IPOfferring's Patent Value Quotient Annual Report is available at
`http : //www,ipoffelings. com/patent-value-quotient. htrnl,
`
`[g] Patents generated internally in a company are not valued on a corporation's balance sheets,
`according the US accounting rules. Only patents acquired in a purchase or a merger are
`included on a balance sheet.
`
`[+] See Kevin A, Hassett & Robert Shapiro, What Ideas Are Worth: The Value of Intellectual
`Capital And Intangible Assets in the American Economy, Sonecon (Sept. 2011), available at
`www.sonecon.com/docs/studies/Value-of-Intellectual-Capital in-American-Economy.pdf.
`
`[5] Robert Shapiro estimates in a private email that patents make up 2S$o% of intellectual
`capital, but states that it varies per industry and per company. Additional research is needed to
`calculate this percentage more precisely.
`
`[6] Crouch, Dennis, "How many US patents are in-force",May 4, zotz, found at
`https://patentlyo.com/patentlzorzlo5/how-many-us-patents-are-in-force.html.
`
`About Dennis Crouch
`l,aw Professor at the University of Missouri School of Law. View all posts by Dennis
`Crouch *
`
`https://patentlyo.com/patenV2015/06/america-invents-trillion.html#-ftnref4
`
`4t6
`
`ALL 2106
`MYLAN PHARMACEUTICALS V. ALLERGAN
`IPR2016-01127, -01128, -01129, -01130, -01131 & -01132
`
`

`

`10t17 t2017
`
`Guest Post: America lnvents Act Cost the US Economy over $1 Trillion I Patently-O
`
`https://patentlyo.com/patenU2015/06/america-inventstrillion,html#_ftnref4
`
`5/6
`
`ALL 2106
`MYLAN PHARMACEUTICALS V. ALLERGAN
`IPR2016-01127, -01128, -01129, -01130, -01131 & -01132
`
`

`

`10t17 t2017
`
`Guest Post: America lnvents Act Cost the US Economy over $1 Trillion I Patently-O
`
`https://patentlyo.com/patenV2015/06/america-invents-trillion.html#_ftnref4
`
`6/6
`
`ALL 2106
`MYLAN PHARMACEUTICALS V. ALLERGAN
`IPR2016-01127, -01128, -01129, -01130, -01131 & -01132
`
`