ETHIC Act is the Wrong Way to Reform IP

Intellectual property (IP) rights help drive the American economic engine, generating billions of dollars in growth and supplying the cutting-edge innovations on which many households and businesses rely. However, these protections are only as robust as the legislation defining them. Under the 2011 America Invents Act, a new body called the Patent Trial and Appeal Board (PTAB) was created to hear and decide disputes related to patent validity. As a result of this board, patents have become too easy to invalidate. Now, proposed legislation such as the Eliminating Thickets to Increase Competition (ETHIC) Act would risk making it even more difficult for innovators to hold onto the exclusive right to profit from their creations.

Introduced by Rep. Jodey Arrington (R-Texas), the ETHIC Act targets “patent thickets,” or clusters of patents on products (such as pharmaceuticals) that are allegedly put into place to shut out competition. Rep. Arrington is concerned that “loopholes in our current patent system allow manufacturers to file for duplicative patents that delay competition.” He, and a bipartisan group of lawmakers, aims to fix this by limiting patent holders’ options in court. The ETHIC Act limits patent holders to defending one patent per “group” of similar patents against a generic or biosimilar competitor, supposedly making it difficult for companies to thwart competition with a wave of duplicative patent lawsuits.

In defining the relevant group of patents, the government would look to “terminal disclaimers,” which are filed by patent holders when they are first applying for their patents. These disclaimers come into play when the U.S. Patent and Trademark Office (PTO) is concerned that the prospective patent is not different enough from a patent already on the books. As legal scholar Kevin Hickey explains, “Applicants can overcome that rejection—and potentially receive a patent on the invention claimed in the application—if they are willing to surrender part of any resulting patent’s term through a terminal disclaimer.” Going by the logic of the ETHIC Act, patents referenced on terminal disclaimers are duplicative by definition—and patent holders’ own admission. Therefore, only one patent per patent-disclaimed group should be asserted in court.

However, as longtime patent lawyer and inventor Brad Pedersen notes, companies filing terminal disclaimers may say less about patents’ similarity to other patents and more about legal incentives. According to Pedersen, companies are often moved to “file a terminal disclaimer as the cost of opposing such a rejection in terms of increased prosecution costs or increased potential for prosecution estoppel is not worth the fight.” Patent holders would rather “admit” that patents are duplicative than brace for a prolonged fight with the government. Using those admissions to limit patent holders’ legal remedies, as proposed in the ETHIC Act, is an inefficient way to approach patent reform.

There are far better ways than the ETHIC Act to walk the line between protecting IP rights and ensuring low barriers to competition. The best starting place is the USPTO, which determines when proposed patents are too similar to other patents and therefore drives the filing of terminal disclaimers. Reforms can ensure greater technical training of examiners and provide examiners with the artificial intelligence tools needed to search for prior art. This way, time-crunched and undertrained examiners are under less pressure to deem patents that sound similar to other patents as unpatentable. The USPTO should also set up periodic audits to examine the work of “outlier” auditors who, for example, find proposed patents to be too similar or trivially different to other patents far more than the average examiner. Enhancing examiner monitoring will ensure more careful evaluation of proposed patents.

Examination reforms are a far better and fairer alternative to the ETHIC Act. Lawmakers must carefully parse IP bills to ensure continued prosperity and innovation.