The US Inventor PREVAIL Amendment Harms US Inventors

In June 2023, the Promoting and Respecting Economically Vital American Innovation Leadership (PREVAIL) Act was introduced in the Senate and the House (S.2220 and H.R.4370) to address the extraordinary cost and absurdly high patent invalidation rate of the Patent Trial and Appeal Board (PTAB).  

The corporate lobby claims PREVAIL fixes the PTAB and its astronomical 84% patent invalidation rate. The sad truth is PREVAIL does almost nothing to accomplish that. It fails to address the primary reason for the PTAB’s failure – incentives working on the PTAB force it to invalidate patents at a substantially high rate. (see here and here).

The Balancing Incentives Amendment

For eleven years, US Inventor (USI) has done hard and effective work to thwart the corporate lobby’s false narratives bringing the focus back to small inventors and startups and U.S. innovation and to get legislation introduced, including the Balancing Incentives Act (BIA).  The BIA requires that “the patent owner consents to the filing of the petition” before the PTAB can institute a trial.

USI offered the language of the BIA as an amendment to PREVAIL (BIA Amendment).  SPARK Innovation strongly supports the Balancing Incentives Act and the BIA Amendment.

BIA and the BIA Amendment will immediately correct the PTAB’s extraordinary 84% patent invalidation rates by correcting the perverse incentives that drive the PTAB to invalidate patents and creating incentives for fair play.

That change cannot come soon enough. Largely due to the PTAB, early-stage investment in U.S. startups, particularly those commercializing critical emerging technologies, is significantly depressed. Because China made its patent system strong while the U.S. government gutted our patent system, China overtook the U.S. in A.I. startup funding almost a decade ago. As reported by The Verge, a 2018 report by C.B. Insights showed that “[China] accounted for 48 percent of the world’s total A.I. startup funding in 2017, compared to 38 percent for the U.S.” Reuters reports that startup funding is down 30% in 2023. China has now taken the global lead in 37 of 44 technologies critical to our national security and economic growth last year.

Of course, multinational corporations profit by stealing inventions from startups. Then they engage the PTAB to eliminate patents protecting the stolen inventions so they can keep them These powerful predatory infringers strongly oppose BIA and the BIA Amendment.

But Congress is becoming aware of the PTAB’s shenanigans and the impact on U.S. economic and national security, so there is significant support for BIA and the BIA Amendment. Right now, PREVAIL cannot pass without the BIA Amendment, and it cannot pass with it. Even if it could pass in the Senate, it still must pass the House, where opposition is even stronger.

Despite all that, PREVAIL’s proponents are pushing it to markup anyway in hopes of increasing the odds PREVAIL being reintroduced in the next Congressional session.

USI’s New Amendment Harms Most of its Own Members

Despite PREVAIL being legislatively dead, USI is helping to resurrect it by significantly altering the BIA Amendment in ways harmful to most of USI’s members. 

The BIA Amendment originally added “the patent owner consents to the filing of the petition” to the list of requirements that must be met before the PTAB can hold a trial.

USI’s changes define a “patent owner” as an independent inventor if the “title to the patent is held by an inventor named on the patent (or by an entity controlled by such an inventor) and the inventor has the authority to enforce the patent or otherwise settle an outstanding dispute with respect to the patent.”

USI’s new amendment effectively means that if you are the inventor and you have rights to enforce the patent or otherwise settle an outstanding dispute, you can avoid the PTAB’s 84% kill rate. You will still face the validity challenge in federal court, but that kill rate is less than 10%. Everyone else is forced into a PTAB trial whether they like it or not.

But who is not protected by USI’s language?

Under current law, any named inventor independently has the authority to enforce the patent or otherwise settle an outstanding dispute. When a patent has multiple named inventors, consent by one named inventor means the patent will be tried at the PTAB even if the other named inventors do not consent. 

If the inventor dilutes ownership in the corporate entity below 50%, the inventor will not have the authority to enforce the patent or otherwise settle an outstanding dispute. In many cases, a named inventor must dilute to less than 50% ownership to attract resources, investors, partners, cofounders, executives, and key employees. Startups often hire engineers who advance the initial patented technology by inventing and patenting more features and enhancements. These patents are assigned to the company but are not protected under the USI amendment. In most cases, if the inventor attempts to commercialize an invention, it is not protected.

Radically Different Values Depending on Who Controls the Patent

USI’s new language creates a radically different value for the same patent solely depending on who owns it. This harms independent inventors who simply want to keep inventing new things and avoid getting caught up in litigation. No purchaser would be able to avoid the PTAB’s killing fields, so the patent would have little value in an open sale. USI’s new language will make every inventor a litigant pushing America’s most creative minds out of U.S. innovation and into the courtroom.

That differentiation also destroys the economic model of early-stage startup investment. If an inventor forms a company to commercialize the invention, patents are often the only collateral capable of attracting that investment. Thus, patents protect the investor against the catastrophic failure of the startup. If the startup fails, its investors take control of the patents to return the investment but are subjecting the patents to PTAB’s 84% kill rate. This effect depresses investment into early-stage startups and encourages predatory infringement because if huge multinationals steal the invention, they can kill the patents protecting it.

Huge Political Changes Only Weeks Away

When China flew a balloon over the U.S., every American was watching. China has shown it is aggressively expansionist with its takeover of Hong Kong, faux blockades of Taiwan, naval hostility in the China Sea and the Phillippines, support of Russia’s Ukraine war, and many other threatening actions globally. The bi-partisan China Select Committee in the House has held many hearings illustrating how China is threatening the U.S. militarily, culturally and economically.

In the mix of all that, an independent think tank in Australia reported that China now leads in 37 of 44 technologies critical to our economic and national security. China can steal its way to technological parity with the U.S., but they are now ahead of us.  That can only happen if China is innovating at a faster rate than we are. Over the last 20 years, China has strengthened its patent system, and we gutted ours, which is a major reason for this national and economic security disaster.

Republicans and Democrats introduced RALIA and BIA in the current congressional session. These bills return the patent system to its state before the US government gutted it. Overall, most Republicans support these bills, while most Democrats oppose them.

The Trump election victory changes the political dynamics. The presidency, the House, and the Senate are all in the hands of Republicans who will be acting on a mandate to reform government. The Trump administration promises to change administrative power like no other administration since FDR created so much of it.

In only a few weeks, the new political environment will dramatically change opening a very real possibility of passing RALIA and the BIA.

PREVAIL was introduced as part of the Strong Patents Act in 2015 and the Stronger Patent Act in 2017. These bills were parted out into three separate bills, one of which is PREVAIL. If PREVAIL fails again, it will be the third failed attempt, making it unlikely to be reintroduced next year. Adding to that, PREVAIL’s primary sponsors are Democrats, who will be in the minority. However, USI’s new amendment could help PREVAIL get reintroduced.

USI Sealed Its Position

There was no good reason for USI to push their new language to amend PREVAIL.

PREVAIL will probably not be marked up on Thursday. Even if it is, there is no path for it to pass. It is too controversial to attach to some must-pass legislation and there is little time left to get floor votes in both the House and the Senate.

USI is only helping PREVAIL’s advocates set the stage for its reintroduction next year in the new Congress. Unfortunately, USI set its position in stone; it will not be credible to argue against PREVAIL with USI’s amended language.

USI has also clearly defined its constituency: independent inventors who own and control their patents.  Anyone who does not fit into that small set of inventors is not important to USI management. That certainly includes startups, small businesses, and most other independent inventors.