A review of amicus briefs filed with the U.S. Supreme Court in advance of oral arguments in Oil States Energy Services, LLC v. Greene’s Energy Group, LLC revealed that, by and large, the American tech ruling class wishes to see SCOTUS leave the Patent Trial and Appeal Board (PTAB) intact in the face of the constitutional challenges facing the PTAB in the case. Today, we’ll review a series of briefs filed by amici representing many of the smaller players in the U.S. patent system who have by and large been railroaded at the PTAB, an agency which invalidates patents at an incredibly high rate, fails to follow Congressional statutes regulating its own activities and stacks administrative patent judge (APJ) panels to achieve policy objectives desired by the Director of the U.S. Patent and Trademark Office.
Gary Lauder, Paul Morinville et. al. Brief in Favor of Petitioner Oil States
On August 31st, a group of inventors, venture capitalists, angel investors, small business owners and advocacy organizations having first-hand experience with the U.S. patent system filed an amicus brief in Oil States. Early on, the amici in this brief argue against the idea raised by supporters of respondent Greene’s Energy Group that patents are “public rights.” “This meager conception of patent rights contravenes centuries of English jurisprudential tradition, which guards patents as one of the most fundamentally important forms of private property,” amici argue.
Patent revocation was understand as a matter to be decided in courts at law as early as 1602, specifically citing to the English court’s decision that year in Darcy v. Allein. 1624’s Statute of Monopolies further made the revocation of patent rights a court matter despite the Crown’s Privy Council’s assertion that such power laid with the King. Although Chancery courts couldn’t empanel juries, patent cases appealed to the King’s Bench could request the right to a jury trial for invalidity findings. “Thus, in England… the patent could not actually be revoked without providing the patentholder with the core protection of a common law court: the right to a jury,” amici argue. American case law, including SCOTUS’ 1898 decision in McCormick Harvesting Machine Co. v. Aultman, further supports the argument that a patent, once issued, “has become the property of the patentee, and as such is entitled to the same legal protection as other property.” Thus, Congressional enactment of the PTAB, which has deprived patent owners of a right to a jury for determining invalidity, “runs directly counter to more than two-and-a-half centuries of Anglo-American legal tradition and an unbroken line of this Court’s precedents… stretching nearly as long.”
In the face of supporters of inter partes review (IPR) proceedings at the PTAB, who argue that patent rights exist only by virtue of federal statute, amici here note that inventors “enjoy legal rights in an invention long before acquiring a patent to protect it.” This includes trade secrets or other confidential material which are recognized as protectable under contract and property law despite the intangible nature of those assets. This right to intellectual property protection is augmented by patent law which provides a more powerful right to exclude others from practicing the technology. Because many IP rights exist before a patent issues, patents cannot be considered public rights because the rights themselves are not derived from a federal regulatory scheme. As the USPTO does not have statutory authority regarding trade secrets or similar property rights, amici argue that “it was particularly inappropriate for Congress to resposit the adjudication of these issues with the PTO.”
Finally, amici in this brief argue that IPR proceedings devalue patent rights in ways that harm both inventors and the entire innovation economy. IPR proceedings are heavily slanted against the patent owner and while their effects are binding on the patent owner, petitioners only have limited estoppel effect preventing them from collaborating with other firms to invalidate patents. IPRs impose heavy administrative burdens on patent owners, adding an average of three years to cases and costing about $500,000 on average to defend against. Amici note that 65 percent of IPRs reaching final written decisions invalidate all challenged claims, many of which have survived validity review at the district court level. In the two years after the institution of IPR proceedings at the PTAB, the gross value of patent sales was down 83 percent, a total loss of $1 trillion to the U.S. economy. As a patent is held up during IPR proceedings, investment in the patent owner’s business disappears and can be diverted elsewhere over invalidation concerns. The difficulties posed by IPR proceedings and their effects on the small business and start-up environment has resulted in fewer of such entities existing; the number of tech-related start-ups has declined 40 percent from numbers seen during the mid-1990s.
US Inventor et. al. Brief in Support of Petitioner Oil States
On August 25th, inventor organization US Inventor and a collection of 31 other grassroots inventor organizations representing more than 20,000 inventors, start-up owners and executives filed a brief supporting petitioner Oil States. Amici in this brief argue that the PTAB “has suddenly and drastically increased the probability that a contested patent will be held invalid,” reducing incentives to invent and patent. Amici cite research which shows that while only 28.76 percent of patents which have been challenged in district court are found invalid, 76.61 percent of PTAB adjudications result in invalid patents. “This is near-total annihilation of property rights,” amici argue.
The Supreme Court “has already observed how society is harmed when title to property granted by the Government might be revoked by decisions of Executive Branch employees,” citing to case law coming from SCOTUS’ 1877 decision in Moore v. Robbins, which observed the issue in a land patent context. Executive Branch revocation proceedings turn patents into entitlements and not property, the brief argues, and entitlements cannot attract the capital and start-up financing which is often required to commercialize the technology. Various aspects of PTAB trials only serve to demoralize patent owners, such as the facts that patent owners can only lose during such trials and that the PTAB is tilted in favor of patent cancellation, due in no small part to the perception by PTAB judges perceive that their jobs are dependent upon the popularity of PTAB trials, factors that do not apply to Article III federal courts.
Because the PTAB engages in “near-total patent annihilation,” supporters of the PTAB cannot dismiss the differing statistics on patent invalidation in district courts and at the PTAB as the result of a process that only primarily invalidates “bad” patents. The “patent troll” narrative which had been used as a justification for enacting the PTAB has been “well documented” and, citing to a 2007 article published by Review of Intellectual Property Law, amici note that the term had been developed first in the 1990s by Intel Corporation “to deflect attention from its own litigation misconduct in a pending case.” Although the “troll” narrative continued to permeate the high tech industry, even the Federal Trade Commission (FTC) “recently issued a report noting that use of ‘troll’ terminology in policy debates is unhelpful, and should be avoided,” amici noted. The “patent troll” narrative is one that has been perpetuated by academic sources and, as a July 2017 article published by The Wall Street Journal reports, patent law is only one regulatory sector which Google has attempted to influence by funding academic research papers supporting the position of the tech giant.
Finally, amici argue that the PTAB breaks the bargain between society and inventors which is put in place by the U.S. Patent Act. Under the Patent Act, patents reflect “a bargain of disclosure in exchange for rights for a limited term.” An inventor files a patent application and, once a patent issues, the idea becomes public, at which time the inventor is supposed to enjoy exclusive rights in the invention. “But a legal regime that guarantees invalidity over three quarters of the time breaks this bargain,” amici argue. Further, the PTAB breaks the Constitutional bargain which existed between the Founders of the U.S., who required Congress to pass laws which secure limited term civil rights to inventions, and inventors who bring “forth the fruits of intellectual labor for the good of all.” “In short, patent holders have a common law property right in a trade secret that they willingly give up in exchange for a patent,” amici argue, citing to the Supreme Court’s 1984 decision in Ruckelshaus v. Monsanto Co., which held that trade secrets are property rights.
“People who surrender property when they file a patent application are not just filling out a form. They are actually letting the government disclose something that might have been protected at law in a different way… But with the PTAB, the bargain breaks. This is untenable for the economic health of our country.”
Thirty-Nine Affected Patent Owners Brief in Support of Petitioner Oil States
On August 30th, an amicus brief was filed on behalf of 39 affected patent owners (APOs) who hold patents that are currently subject to validity challenges at the PTAB, making these amici “particularly well-suited to bring to this Court a perspective” on the questions presented by Oil States. The APOs argue that their experiences in taking risks to develop inventions and bring them to market is “the opposite” of the experience which has traditionally been offered by the U.S. patent system.
The APO amici here argue that PTAB invalidity trials only occur because Congress overstepped its authority in enacting the America Invents Act (AIA) of 2011. Citing to the Supreme Court’s 1986 decision in Commodity Futures Trading Commission v. Schor, amici argue that SCOTUS has recognized the importance of Article III courts to protect the rights of litigants so that they have claims decided by judges who are free from “domination” by other branches of government. Amici also cite to SCOTUS’ 2011 decision in Stern v. Marshall, which warned about the effects of “[s]light encroachments” between different branches of government. “If this Court were concerned in Stern about ‘slight encroachments’ between the branches of government, the encroachment here is absolute,” amici argue.
By creating PTAB adjudication of issued patents within the Executive Branch, amici argue that Congress “tossed aside numerous protections for the patent owner” which can only be protected by Article III courts. Patent trials at the PTAB and in Article III courts differ in many significant ways; by contrast, the PTAB offers no juries, no live testimony, a more liberal interpretation of patent claims and a non-neutral adjudicator. “With Inter Partes Review, the PTO asserts the power over both vesting the property rights in the inventor, and in tearing them away,” amici argue. “The effect of the patent grant is nullified, and our promised exclusive right is never actually secured.”
“There can be no ‘secure’ right while the PTO controls both the grant and revocation,” amici argue. “The PTAB experiment has proven to be the opposite of secure.” APO amici have been impacted by PTAB in several significant ways, such as the gang-tackling of Zond patents which cancelled all 371 claims over the course of 125 IPR petitions. Claims at the PTAB are interpreted under the broadest reasonable interpretation (BRI) of those claims, but patent owners are not allowed to use BRI when defining the scope of claims in district court infringement proceedings. The result of BRI at the PTAB has been a much higher rate of invalidation than is seen in district court, amici argue.
“Prior to the AIA, conflict between the branches on decisions of patent validity was rare. Since the AIA, it has become commonplace for the PTAB to hold a patent to be invalid simultaneous with or subsequent to an Article III holding the same patent to be not invalid.”
Citing to the Court of Appeals for the Federal Circuit’s 2012 in In re: Baxter International, the APOs note that the Federal Circuit has found that the USPTO “ideally should not arrive at a different conclusion” than Article III courts when adjudicating a patent’s validity. Although Congress attempted to enact the PTAB as an alternative venue without taking authority away from Article III courts, APOs have seen their district court proceedings yield in large part to the PTAB. Where conflicting outcomes have occurred, APOs have seen the Federal Circuit allow Executive Branch outcomes to supersede Judicial Branch outcomes.
Security People, Inc. Brief in Support of Petitioner Oil States
Security People is a California-based entity holding more than 30 patents which cover products that the firm actively manufactures and sells. Security People has had its Article III infringement trial held up for more than two years because of the defendant’s petitions at the PTAB.
“SPI is a classic small business success story, which has invested in patent development in good faith reliance that its property interest in its issued patents would be protected by the United States Judicial System. In sum and substance, SPI has been deprived of its rights to hearings, trial, and the standards of proof applicable in Article III courts.”
Long-established law has given patent owners “every right to expect that those patents will be protected in Article III courts.” This is a standard which was established in one of the most foundational court cases in American history, 1803’s Marbury v. Madison, which found that the revocation of property rights was the exclusive province of the courts. “Given that a patent is property, the only authority competent to set a patent aside, or to annul it, is vested in the courts of the United States, and not in the department which issued the patent,” Security People argue, citing to two 19th century cases, Moore v. Robbins (1877) and Michigan Land & Lumber Co. v. Rust (1897). Any sense that a patent is a public right only exists regarding the granting of the patent and not any post-issuance proceedings, citing to Justice Clarence Thomas’ dissenting opinion in Teva Pharmaceuticals USA v. Sandoz, Inc.
Security People argues that, because IPR proceedings at the PTAB adjudicated factual issues which would otherwise be tried by a jury in district court, those proceedings violate both Article III and the “inextricably intertwined” Seventh Amendment’s right to a jury trial. Although the Federal Circuit has upheld the use of ex parte reexaminations as part of a public’s right to ensure that a patent is properly granted, IPRs lack the quality of restarting an examination which allowed ex parte review to “pass muster.” Whereas ex parte reexamination takes place between the government and a patent owner, IPRs are adversarial proceedings and “the epitome of a private dispute.”
Finally, amicus Security People argue that multiple aspects of IPRs, which have been established “in the name of efficiency” contradict “the Constitutional mandate to promote inventions.” “[IPR] has created a new form of forum shopping, whereby an infringer can opt out of Article III courts and seek protection in the Executive Branch,” amicus argues. Even if IPRs are more efficient through different burdens of proof, presumptions and standards than are applied by district court, amicus cites to Stern v. Marshall to argue that a law which is convenient and efficient won’t be saved if it is contrary to the Constitution.