Most 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.
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.