Seven PTAB policy changes for the next USPTO director

Time for changeMost readers of this blog know that the Supreme Court denied cert in late 2016 on the question of Patent Trial and Appeal Board constitutionality. I represented two of the Supreme Court petitioners. In passing on the question, the Supreme Court unfortunately kept in limbo the legitimacy of agency trial outcomes that revoke private property rights with neither Article III trial court review nor jury fact-finding. It may not be long, though, before another petitioner convinces the Supreme Court to hear the issue.

But why should patent holders await Supreme Court attention? The next Director of the Patent Office will have enormous power to turn things around. He or she can make the currently lopsided system fair to all stakeholders. Congress built the mechanism into the very Act of Congress that gave birth to the PTAB. The Director holds plenary discretion to deny any petition, for any reason. For example, concerning Inter Partes Review, 35 U.S.C. § 314(a) states only that the Director shall “not authorize” PTAB proceedings unless the petition meets the “reasonable likelihood” threshold. Congress never required the converse. That is, Congress does not require the Director to institute a PTAB trial every time a petition does meet the threshold.

Beyond discretionary authority, the Act gives a wide berth for the Director to prescribe regulations. For example, 35 U.S.C. § 316(b) permits the Director to consider a number of factors when making those regulations: “the effect of any such regulation on the economy, the integrity of the patent system, the efficient administration of the Office, and the ability of the Office to timely complete proceedings.” The Director “shall prescribe” a regulation “setting forth the standards for the showing of sufficient grounds to institute a review under section 314(a).” 35 U.S.C. § 316(a)(2). Using the proper factors, the Director can certainly characterize a petition that threatens profound unfairness to a particular patent owner as one that impinges on “the integrity of the patent system,” and thus should be denied.

From my experience in the trenches of PTAB proceedings, and my experience in advancing the constitutional challenges, I came up with a list of helpful suggestions to bring back fairness. None of these suggestions will require Congressional intervention, and most or all should be feasible without regulatory rulemaking. The next Director can restore trust in the patent system and value to patents by making the playing field even in the following ways.

1. Exercise Director discretion to prevent serial attacks on the same patent

The AIA empowers the Director to exercise anti-harassment discretion. 35 U.S.C. §§ 315(d), 325(d). Yet so far the Director and her subordinates have ignored reasonable requests by patent owners to exercise that discretion. The next Director should institute a “one and done” policy, and put reasonable limits on attacks against the same patent. One form this might take would be, for example, three attempts at institution, and if trial is instituted and the claims confirmed, an absolute bar on future petitions. These bars should be global, preventing serial attacks by anyone for such “protected” patents.

The Director’s statutory power and duty to protect patentees from harassment has a clear legislative history.

In the June 1, 2011 House Report to accompany H.R. 1249, the Committee explicitly invoked its understanding that “the USPTO is to address potential abuses . . . under its expanded procedural authority.” H.R. Rep. 112-98, at 48. The House Committee had profound concerns that the legislative changes to “current administrative processes” (i.e., conversion of inter partes reexamination to IPRs, PGRs and CBMs) should “not be used as tools for harassment” through “repeated litigation and administrative attacks on the validity of the patent.” Id. The House Committee presciently warned that “[d]oing so would frustrate the purpose of the [legislation] as providing quick and cost effective alternatives to litigation [and] would divert resources from the research and development of inventions.” Id.

The key sponsor of the AIA in the Senate concurred. During the final Senate Debate on the AIA, Senator Pryor confronted the bill’s sponsor, Senator Leahy, with his own profound concerns about Section 18 (later known as CBM Review). 157 Cong. Rec. S5428 (Sept. 8, 2011). The colloquy merits an extended quotation (emphasis supplied):

Mr. PRYOR. I would like to ask my colleague from Vermont, the Chairman of the Judiciary Committee and lead sponsor of the America Invents Act before us today, to further clarify an issue relating to Section 18 of that legislation. Ideally, I would have liked to modify the Section 18 process in accordance with the Cantwell amendment. It is of crucial importance to me that we clarify the intent of the process and implement it as narrowly as possible.

As I understand it, Section 18 is intended to enable the PTO to weed out improperly issued patents for abstract methods of doing business.

Conversely, I understand that Section 18 is not intended to allow owners of valid patents to be harassed or subjected to the substantial cost and uncertainty of the untested review process established therein. Yet I have heard concerns that Section 18 would allow just such harassment because it enables review of patents whose claims have been found valid both through previous reexaminations by the PTO and jury trials. In my mind, patent claims that have withstood multiple administrative and judiciary reviews should be considered presumptively valid. It would not only be unfair to the patent holder but would be a waste of both PTO’s time and resources to subject such presumptively valid patent claims to yet another administrative review. It would be particularly wasteful and injurious to legitimate patent holders if the “transitional review” only considered prior art that was already considered in the previous administrative or judicial proceedings. Can the Chairman enlighten me as to how the PTO will ensure that the “transitional process” does not become a tool to harass owners of valid patents that have survived multiple administrative and judicial reviews”?

Mr. LEAHY. The proceeding created by Section 18 is modeled on the proposed post-grant review proceeding under Section 6 of the Act. As in other post-grant proceedings, the claims should typically be evaluated to determine whether they, among other things, meet the enablement and written description requirements of the act, and contain patentable subject matter under the standards defined in the statutes, case law, and as explained in relevant USPTO guidance. While the program will generally otherwise function on the same terms as other post- grant proceedings, the USPTO should implement Section 18 in a manner that avoids attempts to use the transitional program against patent owners in a harassing way. Specifically, to initiate a post issuance review under the new post grant or transitional proceedings, it is not enough that the request show a substantial new question of patentability but must establish that “it is more likely than not that at least 1 of the claims challenged in the petition is unpatentable.” The heightened requirement established by this bill means that these proceedings are even better shielded from abuse than the reexamination proceedings have been. In fact, the new higher standard for post issuance review was created to make it even more difficult for these procedures to be used as tools for harassment. Therefore, the rule that bars the PTO from reconsidering issues previously considered during examination or in an earlier reexamination still applies. While a prior district court decision upholding the validity of a patent may not preclude the PTO from considering the same issues resolved in that proceeding, PTO officials must still consider the court’s decision and deviate from its findings only to the extent reasonable. As a result, I expect the USPTO would not initiate proceedings where the petition does not raise a substantial new question of patentability than those that had already been considered by the USPTO in earlier proceedings. Does that answer my colleague’s question?”

Mr. PRYOR. I thank my colleague for that explanation.

(Id., emphasis added).

With these understandings of Congress planted firmly in the record, the bill passed.

The following examples show that such harassment happens frequently, without consequence to the petitioner. Many more examples exist.

Leon Stambler (full disclosure, a client of my firm): In CBM2015-00044, 82-year-old individual inventor Leon Stambler faced the seventh of seven AIA petitions raising substantially the same prior art. The petitioner / alleged infringer used the exact same prior art over which the PTAB had previously denied institution, plus one additional reference that it could have, but did not, raise in its original abandoned petition. In other words, the seventh petition embodied an improper “second bite at the apple” against an elderly patentee. He had already won on the merits, but now faced an opponent who used the patentee’s win against him as a roadmap for yet further attacks, and further clouding of his rights. The PTAB denied repeated patent owner requests for discretionary dismissal. See CBM2015-00044, Paper Nos. 12, 16 (request for rehearing, denial of request for rehearing).

John D’Agostino (full disclosure, a client of my firm): In IPR2014-00543 and IPR2014-00544, another individual inventor, John D’Agostino, had to face an IPR “trial” that followed both denial of a CBM proceeding by the same petitioner over the exact same prior art, as well as a USPTO finding of patentability over the exact same prior art during co-pending ex parte reexamination. See, e.g., IPR2014-00543, Paper No. 28 (discussing prior USPTO proceedings). Not only did the IPR petition reflect another repeated filing, and another “second bite at the apple.” The PTAB also proceeded with its review even after it received word that two separate sets of examiners in the highly skilled Central Reexamination Unit had found the invalidity attack to lack merit. Id. On December 22, 2016, the Court of Appeals vacated and remanded on the merits – gratifying for the inventor – but without commenting on the harassment factors noted above.

2. Exercise Director discretion to prevent inconsistencies with prior court decisions

Similar to the problem of the PTAB encouraging harassment from petitioners who can disregard PTAB decisions favorable to patentability, the PTAB also encourages petitioners to disregard Article III court outcomes. The next Director should take steps to stop this from happening. Here are some examples:

Personal Audio: In IPR2014-00070, Personal Audio faced (and lost) an AIA trial after it had already received a jury verdict of no invalidity from an Article III federal district court over a version of the same prior art, where petitioner EFF used what the patentee claimed to be the same expert testimony content that the infringer, CBS Corp., had presented to the jury, though delivered to the PTAB through a different expert. Even after an infringer’s jury-loss, Personal Audio faced a PTAB proceeding whose intent, Personal Audio suggested, was to circumvent a jury verdict, raising serious Seventh Amendment questions.

Trading Technologies: The PTAB instituted review of subject matter eligibility in CBM2015-00161 after an Article III court had rejected the same attack over the same evidence in a final federal district court order. In early 2015, an Article III Court had issued its final decision that TT’s patents were not invalid for claiming patent ineligible subject matter under 35 U.S.C. § 101. See Trading Techs. Int’l, Inc. v. CQG, Inc., 2015 U.S. Dist. LEXIS 5938 (N.D. Ill. Feb. 24, 2015). To institute review under such circumstances encourages anti-patentee harassment and flouting of the finality of federal court decisions.

3. Follow statutory requirements for separation of Director and administrative patent judge roles so that the Director’s staff decides institution, and APJ’s decide trial

The Federal Circuit let stand the PTAB’s current policy of letting the same panel of APJ’s decide both institution and the merits decision in a PTAB trial. That decision – Ethicon Endo-Surgery, Inc. v. Covidien LP – included a dissent by Judge Newman questioning how this can be right when the statutory authorizing language for the PTAB says otherwise. The appellant filed a cert petition, now pending. Whether or not cert is granted, the next Director has the authority to reverse the policy, and follow the statute.

4. Establish rules to permit fair discovery to patentees seeking to answer validity challenges

Current PTAB rules and practices eliminate the possibility of reasonable party or third party discovery on patent validity – particularly objective indicia of nonobviousness. These policies require a showing of what the aspirational discovery contains, and argument for its relevancy. But this makes for impossible procedural quandaries, since the patentee must know what the discovery will contain even before obtaining it. Meanwhile, courts have long recognized that sometimes the best indicators that a patent is nonobvious are the objective indicia. Real world factors (rather than litigation inspired hindsight attacks) are often more probative of what persons of skill in the art actually thought or believed possible. The next Director should liberalize patentee discovery to eliminate this unfairness.

5. Establish rules to shorten reply briefing and give patentees the last word at the oral hearing

The PTAB initially imposed reasonable page limits to reply briefing (15 pages), but then expanded that with a word limit that results in replies that can exceed 25 pages. By contrast with the court system, many Article III judges only permit replies at all under special circumstances. The PTAB way results in a system where (1) petitioners freely submit new evidence or new arguments in reply, under a procedural regime that makes it nearly impossible for patentees to convince the PTAB of their impropriety; and (2) large chunks of the patentee’s oral hearing rebuttal time must address distortions of the patentee’s position within those lengthy and misleading replies.

On this point, oral hearings might seem on the surface to be procedurally neutral affairs. After all, the petitioner and patentee each have the same quantity of time, and the petitioner only receives the privileges of going first and last (in rebuttal) because of historical practice in the courts to give these privileges to the party with the burden of proof. But in reality, this gives petitioners three of the last four words – a reply brief, an opening argument, and a rebuttal argument. The petitioner also gets these advantages under a regime where the burden of proof is nothing more than a fig leaf. Patentees are discovering at the PTAB that, time and again, it is the patentee who must shoulder with the burden of proving validity (PTAB statements to the contrary notwithstanding).

Shortening replies would start to restore some semblance of procedural balance. So would letting the patentee have the last word. The next Director should implement these changes.

6. Direct refund payments for non-instituted proceedings to winning patentees

The standard for initiation of an IPR is “reasonable likelihood of success.” Therefore, if an IPR is not instituted that means that there is a determination by the PTAB that there is NO reasonable likelihood of success with respect to any of the challenged claims. Said another way, the IPR was baseless. Of course, the patent owner incurred costs associated with defending against this baseless challenge, and because there is no estoppel if there is a denial to institute may well face other institution requests that are nearly identical, which has actually happened as previously discussed. Refunding payments to the party who filed a baseless challenge is a slap in the face of all patent owners and does nothing more than encourage frivolous and harassing challenges that patent owners must defend. To stop this practice of serial baseless challenges the refunded fees should be awarded to the patent owner.

7. Establish rules to convert PTAB trials into . . . trials.

Until now, the United States legal system relied on fact finders (whether judge or jury) who made decisions on contested evidence based on credibility. And those credibility decisions hinged on the fact finder’s ability to perceive the witness while under direct or cross-examination. Did the witness squirm? Hesitate? Show too much eye contact? Too little? Answer too quickly? Pause too long? Show any other indications of dissembling or insincerity?

The PTAB uses a paper record almost without exception. This approach repudiates our more-than-five hundred-year tradition of how judges of the facts find the truth. Credibility decisions now reduce to which side has the most funds to pay for lengthier expert declarations, or which lawyers have the most skill at asking misleading questions at deposition to get sound bites onto a paper record.

The PTAB use of a paper record rather than jury trials also raise an important constitutional question. The Seventh Amendment guarantees the right to a jury trial when more than $20 is at stake. While that sum is hopelessly outdated in 2017, it is pure folly to believe or suggest that stripping a patent from a patent owner places less than $20 at stake. The fees alone to get a patent easily go into the many thousands of dollars, and these patents are among the most commercially viable, which means the cost of acquisition through the many years of prosecution at the patent office will easily run into the many tens of thousands of dollars. These patents at risk of being taken away are vested property rights worth far more than $20 and stripping them in an administrative proceeding without is antithetical to the spirit, if not the very purpose of the Seventh Amendment.

The next Director should convert agency patent validity trials into . . . agency patent validity trials that actually comply with the Seventh Amendment.

Conclusion

Until the Supreme Court steps in to repair the rip in the fabric of our entire legal system embodied in Congress’s creation of PTAB trials, the next Director can certainly make things better. Whether through discretionary policy actions or formal regulations, the next Director should fix the patent system. The ability of the patent system to encourage innovation and benefit the economy hangs in the balance.

 

UPDATED January 5, 2017 at 4:10pm ET to more explicitly explain the history of Personal Audio. 

The Author

Robert P. Greenspoon

Robert P. Greenspoon is a founding member of Flachsbart & Greenspoon, LLC. He is a registered patent attorney who concentrates his practice in the trial and appeal of patent cases involving computer and electronic technologies. He is also a former federal district court law clerk. The opinions presented above are his own, and not necessarily those of his firm or his firm’s clients.

Mr. Greenspoon represents both NPEs and operating companies, and both rights holders and accused infringers. He holds a winning appellate record, having argued numerous cases before the Court of Appeals for the Federal Circuit, as well as cases before the Fourth and Eighth Circuits.

CLICK HERE to visit Mr. Greenspoon's firm page.

Robert P. Greenspoon

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 10 Comments comments.

  1. EG January 4, 2017 8:05 am

    Hey Robert and Gene,

    These 7 would be helpful interim measures. But whether Our Judicial Mount Olympus likes it or not, IPRs/PGRs/CBMs/ will remain an unconstitutional “taking” of “property” without “due process” until at least two things happen: (1) there is a right for at least the patent owner to appeal/take any adverse ruling in an IPR/PGR/CBM to federal district court for de novo review; and (2) harmonize the standards applied by PTAB in IPRs/PGRs/CBMs with those applied in federal district court, including, at minimum, claim construction compliant with Phillips litigation standard, as well as the burden of proof always being on the petitioner to prove invalidity by “clear and convincing evidence.” Anything less is simply allowing an unconstitutional “taking” of patent rights (“personal property” under 35 USC 261 and over 200 years of case law, including that of SCOTUS) that in no way is satisfactory in view of our 5th Amendment. Both SCOTUS, and if necessary, Congress need to understand this point loud and clear.

  2. Moocow January 4, 2017 5:03 pm

    This is one of the best posts ever to appear on this blog! Other policy changes could be added to the list, such as a meaningful opportunity to amend claims, meaningful enforcement of the 1-year time bar, and more protections from proxy dealings where petitions are brought for the benefit of third parties (who may be barred or fear IPR estoppel). All of these could be implemented by the next PTO Director without additional statutory authority. Your proposals are excellent, reasonable, and feasible. They deserve thorough consideration.

  3. Ken January 4, 2017 6:20 pm

    “The Director holds plenary discretion to deny any petition, for any reason.”

    So then, the PTO could essentially add a *standing* requirement (i.e. deny any petition by someone who does not at least reasonably expect to be sued for infringement)?

  4. David January 5, 2017 12:54 pm

    “But whether Our Judicial Mount Olympus likes it or not, IPRs/PGRs/CBMs/ will remain an unconstitutional . . . until . . . there is a right for at least the patent owner to appeal/take any adverse [ADVISORY] ruling in an IPR/PGR/CBM to federal district court for de novo review.”

    This minor correction makes the statement 100% correct.

  5. Gene Dolgoff January 5, 2017 9:07 pm

    Very smart suggestions presented at the right time, when new officials that might come into power can possibly have a hand in their implementation. Thanks for taking a stand.

    From Gene Dolgoff, successful inventor and modern patent system victim

  6. Eric Berend January 6, 2017 9:28 am

    Now that anti-patent practitioners have been schooled in, and become accustomed to, the institutions of IPR, PGR, CBM and the whole cant of the PTAB regime, how can anyone seriously contemplate trying to make these organs work in an even somewhat neutral manner?

    Furthermore, this destruction of invention protections is now a great prize for the ‘Big Infringer’ cabal, which likely will stop at nothing to enforce their recently installed hegemony.

    I don’t see how picking at trying to work within a system that was deliberately designed to deceive legislators while being as anti-inventor as possible, amounts to much more than ‘rearranging deck chairs on the Titanic’.

  7. David January 6, 2017 12:02 pm

    The problem with the PTAB / USPTO / Congress should-fix-it theories is that they overlook the fundamental principle that has proven itself to be true time and time again – where given the opportunity to do so, agencies and/or Congress has always – and will always – increase their own power. It is highly unlikely that the executive and legislative branches will curtail the PTAB’s power merely because its the “right thing to do.”

    Hence the system of checks and balances.

    The Framers empowered the judiciary to set constitutional boundaries of this variety. The SCOTUS thus far has shown only tepid interest (2x relists) in this issue. If additional Article III challenges are denied after the 9th Justice takes the bench, then the PTAB will undoubtedly become a permanent (and like predominant) fixture in US patent litigation.

  8. Anon January 8, 2017 10:18 am

    David,

    While a bit tangent to the point that you are making, I want to stress that the systems of checks and balances applies fully to the judicial branch as well as to the legislative and executive branches.

    One simply cannot ignore power grabbing (or Constitutional missteps) by any one of the three branches of the government. That’s merely inviting disaster.

  9. Dan The Man January 17, 2017 10:17 am

    I believe this article it is a good lesson on how to provide conclusive arguments by leaving out the inconvenient truth, e.g.:

    Suggestion #1 disregards the fact that AIA petitions for inter partes review challenge patent claims and not patents. Additionally, the suggestion creates a loophole which would allow to “protect” patents by deliberately filing weak petitions.

    Suggestion #2 ignores the fact that courts and PTAB use different standards of proof and also different standards for claim construction.

    Suggestion #3 overlooks the fact that the USPTO proposed a pilot program where institution would be decided by a single judge but the USPTO decided not to implement the program due to receiving mostly negative comments from the public. Additionally, this suggestion gives no reason why adjudicating institution and final decision by a single panel might be problematic.

    Suggestion #5 misrepresents the fact that in 2015 reply brief page limit had been increased to 25 pages to allow petitioner to better reply to a 60 page patent owner response. The new word limit will rather result in replies shorter than 25 (relevant) pages.

    Regarding suggestion #6, I agree and I’d like to extend this proposal to infringement lawsuits, i.e., 35 USC 285 should always award attorney fees to the prevailing party.

    Regarding suggestion #7, I think that the AIA post grant reviews are the best thing that happened to the US patent system for a long time as qualified experts decide the merits and not laymen.

    Overall, the article is based on the axiom that the current patent system is “lobsided” and “unfair”. I agree that the patent system might be broken – but for other reasons as insinuated by the Author. I believe that the patent system needs to be improved on the prosecution side and not on the side where overly broad and obvious patents get reviewed and possibly invalidated for good reasons. To provide quality patents patent offices, for example, could adapt the threshold of obviousness depending on the type of subject matter claimed (e.g., claims relating to smart phone user interface controls need a very low threshold to avoid trivial software patents).

    Thanks for this fine post-factual read.

  10. Gene Quinn January 17, 2017 1:11 pm

    Dan the Man-

    Your comments read like one who is completely uninformed. Nevertheless, I will respond.

    You say that suggestion #1 disregards the fact that IPRs challenge claims not patents. You are, of course, wrong. Noticing that some patent owners are harassed with serial attacks on their patents does nothing other than recognize the truth about what is happening. Apparently you would prefer to ignore that reality.

    With respect to #2, the suggestion is that decisions be consistent. How or why anyone could have a problem with consistency is really a mystery. Yet, you seem to somehow think inconsistency is laudable, or at least understandable. The problem with what you write, however, is it is wrong. The standards are all the same for every IPR challenge. Pretending there are different standards or burdens in one IPR as compared to another IPR is just a lie.

    Your comment about suggestion #3 misses the point entirely. Having the same panel decide institution and merits creates an incentive to institute where there are multiple harassing petitions filed. That is why the PTAB is so much more likely to institute when multiple harassing petitions are filed. It is easier for them to achieve their work production quota. Whether that is allowed by the rules or not it is wrong.

    Your comment about #5 is comical. The petitioner should put the best information in the petition. If you have more pages for a reply brief then you need to continue to allow the patent owner to file endless paper. You can’t give the petitioner all the right to file and then all the right to respond with massive filings. As for giving the patent owner the last word at oral hearing, the truth is these proceedings are stacked against the patent owner and the same panel has already determined that the claims are likely unpatentable. So the patent owner should have the last word given that everything else is against them throughout the entirety of the proceeding.

    You saying that post grant proceedings are the best thing to happen to the patent system shows just how uninformed you really are. If by best you mean a completely unfair proceeding that at every opportunity refuses the patent owner due process then you’d be correct. But fair the PTAB is not, and anyone with half a brain knows that.

    It is interesting that you call this article “post-factual.” Your comment contains no facts that are correct. Perhaps you need to look in the mirror.

    -Gene