Are PTAB Proceedings Fundamentally Unfair to Patent Owners?

By Gene Quinn
March 6, 2015

UnfairThe America Invents Act (AIA) ushered in a new era for patent law and procedure at the United States Patent and Trademark Office. Among the changes that took effect were the much-debated shift away from the first-to-invent standard and to a first-to-file standard that is far more consistent with the rest of the world, although not identical. Philosophically, the shift to a first-to-file system represents a major shift, but in truth, the U.S. had a de facto first-to-invent system already. It had been years since a small entity (i.e., a company with 500 or fewer employees) had been able to prevail by demonstrating that they invented before another party filed a patent application. For the most part, much of the focus on first-to-file has done nothing more than divert attention from the most significant change from the patent owners perspective. *

There is little doubt that the largest change ushered in by the AIA was the creation of administrative patent trials; namely Inter Partes Review (IPR), Post Grant Review (PGR), and Covered Business Method (CBM) Review. CBM is a variety of PGR that specifically relates to financial software patents. Senator Charles Schumer (D-NY) and others would like to expand CBM to include all software patents, but there seems to be little appetite for that, both within the industry and within the halls of Congress. CBM has been little utilized to date. PGR has been used even less because it is only available to challenge patents issued under the first-to-file regime, which essentially means to patent applications that have a priority date on or after March 16, 2013. Given the backlog of applications at the USPTO there are few patents even still that are available to be challenged. Thus, administrative trials at the USPTO have overwhelmingly been IPRs to date.

IPRs have been the subject of great debate and discussion, with patent owners wondering at what point in time a patent actually becomes a property right if it is susceptible to challenges even after issue. But Congress wanted to specifically create a cheaper, faster, and better means to challenge low-quality patents at the Patent Office. The level of IPR filing is much greater than expected with 2,552 petitions filed by February 26, 2015. When the new IPRs became available on September 16, 2012, the expectation was that there would be less than 400 IPRs filed per Patent Office fiscal year for the first four years of availability. The present filing rate is 2.5 times this expected maximum rate. And present trends do not indicate that the peak has been hit. In fact, it is not uncommon for there to be two or more IPRs filed against a single patent with some examples of many more than two. This multiple attack phenomena has been referred to by some eminent commentators as “gang tackling” of the patent using the new IPR proceeding.

But all of this begs an essential question: Are post grant administrative trials at the Patent Office fair? Many believe that the rules are significantly stacked against the patent owner, a sentiment I personally share.

Phil Johnson has had a long and illustrious career as a patent attorney. For 20 years he was one of the preeminent patent litigators in the U.S., and then for another 20 years he was Chief Patent Counsel for Johnson & Johnson, which is a multinational life sciences company that has significant interests in medical devices, home health care, biotechnology and pharmaceuticals. Johnson was also a significant private sector player with respect to the America Invents Act. A strong supporter of the reforms, Johnson became a fixture at conferences, speaking on panels and giving keynote addresses all over the U.S. supporting the AIA. He testified to Congress numerous times, and walked the halls of the Capitol to let everyone know his views in support of patent reform. But recently Johnson has been raising important questions about patent administrative trials as they have come to be implemented by the PTAB.

Rob Sterne and Caren Yusem had an opportunity to speak with Johnson on the record as a part of the Thomson Reuters webcast series on the New Business Models and Intellectual Property. Sterne and Yusem are the moderators in this extensive video webinar series that explores the new patent landscape and its impact on the innovation life cycle in the U.S. and Europe. The series currently has 24 webinars available for on-demand download and with more live webinars planned in March. The series goes in-depth on important issues of the day with a litany of industry A-listers, and Johnson easily qualifies. I’ve been provided with first access to the transcript.

While Johnson may have been a primary supporter of the AIA while it was being debated, he now raises the same concerns about legal proceedings you hear from patent owners throughout the industry. According to Johnson, one of the biggest concerns with respect to the administrative patent trials created by the America Invents Act is “whether these proceedings are providing the level of due process and fairness to all parties in them that they should be.” Johnson explains that the patent administrative proceedings are quite different than any previous contested cases at the Patent Office. Prior to the AIA, a contested case at the USPTO meant an interference proceeding, which related to the Office reaching a decision about which of two or more parties were entitled to receive a particular patent claim. “Due process and fairness is much more important now because these new proceedings are intended to assess and affect patent owners property rights and, as such, due process is required of administrative proceedings.”

Johnson also explains that the PTAB must go out of their way to provide due process because certain of the PTAB decisions are not appealable. I myself have raised this as a real concern. There seems to be something uniquely unfair about an agency decision that cannot be appealed to an Article III judge. I’m not a Constitutional Law scholar, but I think it is accurate to recognize that granting unelected agency officials ultimate, king-like decision making powers runs counter to the spirit of the Constitution. I suspect a strong argument could be made that such dictatorial powers granted to the PTAB (by and through the statute in conjunction with Federal Circuit interpretation) are unconstitutional.

Indeed, the issue of proper due process is critical, according to Johnson, because “the PTAB is now both deciding on the institution of and the conduct of these IPRs and PGRs, and of course, they’re issuing the final decisions.” There is no doubt that given their outsized authority, the way the PTAB has evolved is reminiscent of a tribunal that acts as judge, jury, and executioner. At times I am also reminded of the old Westerns where a particularly vile villain would be apprehended. The crowd would scream for him to be hanged and some law abiding Sheriff would appear and say something like: “No! We are going to give this man a fair trial and then we are going to hang him!”

Picking up on the due process issue raised by Johnson, Sterne pointed out that 70% to 80% of those claims challenged in inter partes review (IPR) proceed to trial. Sterne asked: “Does such a high number of claims moving forward into a trial suggest that there may be a due process issue?”

Johnson wasn’t prepared to say that the statistics suggest potential due process violations, but he did acknowledge the one-sided nature of the statistics, which is not what people anticipated when the AIA was under consideration. When you see proceedings coming out with a very high success rate for the patent challenger, you have to consider whether challenged patents are simply a subset of patents that disproportionately is made up of bad patents, or whether there are good patents being killed unnecessarily. You need to ask were quality patents that found themselves “put into a procedure that was not fair for one reason or another to produce results that would have been different than the results that we see when the same types of patents are considered in another forum,” Johnson explained.

Where Johnson talks about the reality that the PTAB process is constructed to produce results different than would be seen in other forums, he is talking about how the Patent Office employs what is called the “broadest reasonable interpretation” when interpreting challenged claims. Recently, in a split panel decision, the Federal Circuit found that the broadest reasonable interpretation is the appropriate standard to employ at the PTAB, but there was a strong dissent from Judge Newman who pointed out that administrative patent trials were supposed to be a cheaper, quicker alternative to district court litigation to challenge low-quality patents. If administrative trials are a district court alternative, it makes no sense for the PTAB to employ a stricter standard than is applied to review issued patent claims in district court patent litigation.

“The PTAB studiously ignores what happened during the original prosecution of the case because many people don’t realize that to arrive at the broadest reasonable interpretation, the PTAB looks at the language of the claims and the language of the specification and nothing else,” Johnson explained. “If the same issues, the same arguments, the same prior art was considered, deference should be given by the PTAB to the decision of the examiner unless there’s a very clear showing that it was just for some reason dead wrong.”

Sterne expressed that he sees little or no weight given to the original prosecution and examiner decisions both at the PTAB and in reexaminations, which is indeed very troubling. This prompted Sterne to ask whether the Patent Office is providing “sufficient oversight so that patent owner’s rights are being protected sufficiently through harassment by multiple IPRs?”

“Well, I think a lot of people in the stakeholder community are very disheartened by the fact that the Office seems to be willing to grant plainly duplicate petitions,” Johnson said. “I’ve heard some call it a blatant abuse to get around the page limits provided in the rules. And I think no one thinks that that it’s a good idea for the Office to grant successive petitions on the same grounds or the same prior art… that has already been decided before the Office.”

 

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* I do recognize that the AIA substantially changed what prior art can be used against an application. Prior to the AIA it was not possible for a foreign application to be used as prior art against a U.S.-filed patent application. This change is perhaps the most significant change because it impacts all applications, and to some it is synonymous with a shift to first-to-file. However, most other countries that have first-to-file rules would not find a foreign-filed patent application to be prior art as of its filing date, thus this piece is not inextricably intertwined with a first-to-file regime.

The Author

Gene Quinn

Gene Quinn is a Patent Attorney and Editor and founder of IPWatchdog.com. Gene is also a principal lecturer in the PLI Patent Bar Review Course and an attorney with Widerman Malek. Gene’s specialty is in the area of strategic patent consulting, patent application drafting and patent prosecution. He consults with attorneys facing peculiar procedural issues at the Patent Office, advises investors and executives on patent law changes and pending litigation matters, and works with start-up businesses throughout the United States and around the world, primarily dealing with software and computer related innovations. is admitted to practice law in New Hampshire, is a Registered Patent Attorney and is also admitted to practice before the United States Court of Appeals for the Federal Circuit. CLICK HERE to send Gene a message.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 13 Comments comments.

  1. Sean Connolly March 6, 2015 10:12 am

    Nice write up. I’m definitely in the “pro-patent” camp, but I am also a fan of IPRs. I think the high institution rate has a lot to do with the cost of the IPR proceeding. These are not inexpensive, and I expect there is a strong self selection bias that keeps week claims from being filed at a high rate.

  2. EG March 6, 2015 10:14 am

    Gene,

    David Boundy has already pointed the potential due process and APA problems of IPRs: http://patentlyo.com/patent/2015/02/administrative-attorneys-technologies.html . The fact that the Federal Circuit “blipped” over these problems in Cuozzo Speed Technologies is disturbing to say the least.

  3. Anon March 6, 2015 10:35 am

    EG,

    I have heard (and myself have spoken) of one possible source of this “blipping” over of the problems:

    The AIA purposefully chose not to include a severability clause. This means that if even one section of the Act is found to be unconstitutional, the entire act is jeopardized. The courts are not at liberty to slice out only the offending section.

    The finding of this flaw will have an absolutely massive effect. Not just the immediate timeframe from the decision to any remedial action by Congress, but the entire timeframe of the Act will be affected. And every nuance and ripple, from the opening of satellite offices (except Detroit which was separate) to the elimination of marking suits, to the prosecution of every application affected by the AIA changes in 102/103/112.

    A similar “gambit” is known in the political world: the South Koreans call it the Chaebol Effect.

    We have a name for it (from banking): Too Big to Fail.

    But sooner or later, the courts will not be able to evade this issue. For me personally, sooner is better. All that we are doing in the meantime s piling up the effects to come, building up the pressure that will be unleashed in a veritable tsunami.

  4. angry dude March 6, 2015 12:25 pm

    Why would I want a patent if it can be killed by the very same office granting it with 75% of probability ?

    Thanks but no thanks

  5. Simon Elliott March 6, 2015 7:52 pm

    I too am troubled by IPR as it exists.

    If IPR is meant as a cheaper version of litigation, then we should have a presumption of patentability, deference to the previous examination, and the same burdens of proof. If an IPR is meant to supplement PTO’s regular examination, then the patent owner should get to amend the claims.

    I can understand that the PTO cannot gold-plate everything. But if prior art was missed during regular examination, and is cited during IPR, it is fundamentally unfair to the patent owner to require them to defend the claims under BRI, without amendment, and with less judicial review.

  6. Roger Meyer March 7, 2015 9:15 am

    I heard a high-level former USPTO official, who had considerable input on the creation of the AIA and the administrative patent trials in particular, mention that there was considerable concern that the APTs might be susceptible to a strong constitutional challenge and that the ability to amend the claims was added so as to give the trials some aspect that would distinguish them from an Article III court. Of course, now we’ve seen the nigh impossibility of being allowed to amend in any event.

  7. Anon March 7, 2015 10:09 am

    Roger,

    Do you think that “amendment” without the power of “amendment by right” is a distinction that makes a difference?

  8. Paul F. Morgan March 7, 2015 11:01 am

    Glad to see repeated what I had been saying long before the AIA was adopted, that the “…focus on [the limited effect of] first-to-file has done nothing more than divert attention from the most significant change .. by the AIA .. the creation of [new post-grant] administrative patent trials.”
    However, the argument that they give “little or no weight .. to the original [application] prosecution and examiner decisions” is not well supported. Because almost all AIA post-grant trials are based on on new and much better prior art never considered in the original application prosecution. Which is what one would expect from the far more extensive prior art searches done by those using these proceedings, because about 80% of them are in litigation already. Also there are all the controlling Sup. Ct. decisions that have occurred since most such patents in suit were issued.

  9. Anon March 7, 2015 12:33 pm

    Paul,

    I think that you overstate your position solely on the choice of “new and much better prior art never considered in the original application prosecution.

    First, I have seen NO such validated findings of “better,” and at least anecdotally, the art being presented, while meeting the “new” designation” is also art that can be considered merely cumulative.

    Second, the fact that different art being presented in what is in essence a new examination does NOT reflect in favor of the scheme set up. If indeed this is merely a new examination on different art, then what appears fair to the process would be to have a amendment by right secured for the patent holder. You are not addressing the very issues of this thread considering that aspect of fairness. Your argument that merely different art is used in the post-grant trials does not help you with the critical questions. In fact, it hurts you in those critical questions, for HAD that different (and perhaps better, perhaps not) art been available in the first instance, the applicant would have had EVERY ability to make amendments and reach the proper level of granted protection.

    The scheme here suffers because of the aim. An aim to eliminate a granted right that does not include the aim to preserve any portion of what would be considered a proper level of right for any NEW art (be that art “better” or not).

    Further, let me remind you that ANY faltering of ANY portion of the America Invents Act brings down the entire ship. Because of this magnitude of risk we must be MORE diligent (not less) that there is no “wink-wink nudge-nudge let’s avoid the too-big-too-fail” influence. The creators of the Act had every opportunity to include a separability clause, and it would be a gross miscarriage of justice to penalize patent holders by lifting Lady Justice’s blindfold and putting a thumb on the scale just to preserve the Act in its entirety.

  10. Simon Elliott March 8, 2015 3:44 pm

    Anon: I don’t see why an attack on IPR would bring down the entire AIA ship. The courts, including SCOTUS, have ample tools in their judicial armory to sever one aspect of the AIA from another. Merely holding that due process requires the right to amend during IPR would change the nature of the IPR, and would only require a change in PTO practice. No change in rules or statutes required.

  11. Anon March 8, 2015 4:37 pm

    Simon,

    The statute (current) would be deemed in violation of the constitution. You mistake remedy of changing the statute with the nature of the statute itself.

    Remember: when the statute was being built, there was a severeability amendment proposed – and rejected. I do not think that you are grasping what that means. So no, the courts, including SCOTUS, do NOT have ample tools precisely because of the way this particular statutory change went down. The courts cannot choose an option that Congress explicitly rejected.

    One single hole below the water line sinks the entire ship.

  12. Simon Elliott March 9, 2015 12:43 pm

    Anon: I still don’t get it. Can you explain?

    As I see it, the Court can conclude that IPR is a supplement to examination (not a replacement to Art III case or controversy) and require that there is a right to amend during IPR. Such a requirement would not invalidate any portion of the statute. It would be consistent with the US constitution, because you are merely doing an examination at the PTO, in a different form.

  13. Anon March 9, 2015 1:57 pm

    Simon,

    The Court cannot rewrite patent law on the fly like you are assuming they can (they lack constitutional authority, which soley provides to Congress that authority).

    No amount of “interpretation” can fix the error.

    Combine these two with the notion that I have supplied (Congress chose NOT to have separability), and the ONLY option for the Court is to throw out the law in its entirety.