Those with any knowledge of the U.S. patent system and changes to that system in recent years will understand that the U.S. Supreme Court’s decision to petition writ to answer the legal question posed by Oil States Energy Services, LLC v. Greene’s Energy Group, LLC could lead to major repercussions felt by all stakeholders in the system. SCOTUS will hear oral arguments in the case which will ask the highest court in the U.S. to decide if the Patent Trial and Appeal Board (PTAB) operates in violation of the U.S. Constitution by extinguishing property rights through a non-Article III forum without a jury. Although some industry insiders are skeptical as to whether the Supreme Court would contemplate a complete overturning of the PTAB, it does give the court an opportunity to reestablish the dominance of Article III federal courts over Article I agency tribunals.
Since mid-August, a few dozen amici briefs have been filed in the case, including one filed on August 30th by 39 patent owners affected by PTAB activities in support of the petitioner Oil States. These patent owners have either already or are currently faced PTAB validity trials challenging their patents through inter partes review (IPR) or other post grant review (PGR) proceedings. The amici argue that the affected patent owners are in a unique position to provide perspective to the Supreme Court on the question of extinguishing patent rights through a non-Article III forum.
The harrowing stories experienced by many of the signatories to this particular amici brief are well-known to readers of this blog. There’s Roman Chistyakov and Bassam Abraham, the co-founders of Zond, a firm which faced 125 petitions for IPR trials within seven months, eliminating all 371 patent claims held by that entity. Another name appearing among the brief’s signatories is Josh Malone, the inventor of Bunch O Balloons who has spent $17 million trying to defend his patents in front of the PTAB even as the USPTO has recently come out in support of the party infringing upon Malone’s patents. Then there’s Terry Fokas, president of Parallel Networks, a firm whose arbitration issues have been well documented on this site; Parallel Networks has also faced PTAB petitions on its patent holdings. Fans of the science fiction franchise Star Trek will also recognize the name Gene Dolgoff, the inventor of the Holodeck who has faced six PTAB petitions from five petitioners challenging a single patent.
“The experience of the undersigned APOs ever since post-issuance proceedings were instituted at the PTAB is the opposite of the experience promised under the American patent system,” the amici brief filed by the affected patent owners (APOs) reads. Despite the understanding that these patent owners had regarding the substantial protections afforded to inventors under the American patent system, the APOs argue that they were stripped of Constitutionally-backed judicial protections.
The first part of the argument made in the APOs’ brief is that the patent invalidity trials available through the PTAB only exist because Congress exceeded its Constitutional powers in passing the America Invents Act (AIA) of 2011. “In creating such Executive Branch adjudication, Congress tossed aside numerous protections for the patent owner that can only be provided in Article III courts with jury trials,” the brief reads. By contrast, Article I tribunals created under provisions of the AIA offer no jury, no live testimony, no presumption of patent validity and a broader interpretation of claims than patent owners are offered by Article III courts.
Congress first allowed the erosion of high standards for patent validity determinations set out by the Supreme Court’s 1898 decision in McCormick Harvesting Machine Co. v. Aultman nearly four decades ago when it passed provisions in 1981 regarding ex parte reexamination proceedings, a process which could result in patent invalidation. Until 1999, patent owners dissatisfied with the reexamination process could appeal to the U.S. District Court for the District of Columbia to receive de novo review of their patents. While ex parte reexamination was a “slight encroachment” on patent rights, the PTAB goes much farther by not permitting de novo review and tilting the playing field against patent owners to the point that at least 84 percent of patents challenged at the PTAB are determined to be invalid.
“APOs inventors were instructed in and believed in the “quid pro quo” of the American patent system. If we disclosed and shared our discovery, the government promised us 20 years of exclusive rights. That exclusivity is the incentive that motivates us to risk substantial time and money in innovative endeavors.”
Any exclusivity in that patent right, however, cannot be secure as long as the U.S. Patent and Trademark Office controls both the means of granting patents as well as revoking them through the PTAB. This is especially true given PTAB trial procedures adopted by the USPTO which seek to resolve trials in favor of the petitioner and shift the burden of proving patentability onto the patent owner. Further, the APOs argue that the PTAB’s annulment of patent rights granted by the USPTO creates an “indefinite loop” in which patent rights are granted and then revoked well before the patent’s term expired.
Many PTAB trials follow from patent infringement suits which have been filed in U.S. district court and supporters of the PTAB have argued that the tribunal serves as a cost-effective alternative to district court proceedings. However, the PTAB is an alternative venue which offers alternative standards, such as the broadest reasonable interpretation of claims which enables administrative patent judges (APJs) to consider a wider scope of prior art for invalidity challenges than in district court. The APOs argue that the different legal standards employed during PTAB trials have a measurable and real effect, resulting in substantially higher invalidation rates than in district courts.
Since the establishment of the PTAB, the APOs argue that conflicts over the validity of patents have increased between the branches of federal government, giving examples of patents which have been deemed valid and infringed in district court while being found invalid at the PTAB. This is a situation which hasn’t been solved by the Court of Appeals for the Federal Circuit, which has found in cases such as this April’s decision in Novartis AG v. Noven Pharmaceuticals Inc. that the statutes governing PTAB trials mean that “the PTAB properly may reach a different conclusion based on the same evidence.”
Plenty of recent Federal Circuit decisions which are not cited in the APOs brief in Oil States also suggest the idea that the court has consistently decided to subjugate the federal judiciary to the executive branch in terms of enabling property owners to assert their patent rights. Previous district court findings of validity and infringement are obviously unimportant to the Federal Circuit as evidenced by recent decisions affecting patent owners Prism Technologies and Personal Audio. An early August decision by the Federal Circuit invalidated a Whirlpool patent which had survived an IPR trial, suggesting that the number of patents ultimately invalidated after PTAB trials may be higher than the current numbers suggest. It’s not just IPRs; the Federal Circuit has applied a split standard on covered business method (CBM) review proceedings just in the past year, further proof that the activities of the PTAB have done little more than create an incredibly unstable standard of patent validity.
“The Federal Circuit’s decision rejecting an Article III challenge to PTAB trials under the America Invents Act rests on its statement, ‘patent rights are public rights’…The pronouncement that private property right is now a ‘public right’ threatens to destroy the integrity of the American patent system. This rationalization could implicate every other type of private property as well.”
The APOs conclude by noting that the situation would be bad enough if the Federal Circuit’s deprivation of property rights were specific to a single case, but the systemic issues surrounding patent validity which haven’t been addressed by the courts leaves trillions of dollars of investment and other economic value in the balance. At a time when the U.S. has an executive branch led by a President swept into power in part on a message of building a stronger national economy, it seems that a significant portion of that economy cannot move forward if the USPTO and the PTAB keep holding innovation back.