PTAB Procedural Reforms are Necessary to Restore Balance and Due Process

The PTAB institutes 69% of petitions and cancels claims in 82.5% of final decisions^[1]. Given many patents experience multiple petitions, the net result is two thirds^[2] of patents are invalidated by the PTAB. While close to a third of patent holders subjected to PTAB settle, these settlements are made under the PTAB storm clouds of extremely high invalidation rates and are settled under terms unfavorable to the patent holder.

Post Grant Review (“PGR”) trends are indistinguishable. Since the only patents eligible for PGR were examined completely under enhanced examination created in the America Invents Act, that means patents examined under First-to-File, Enhanced Patent Quality Initiative, and current case law still do not pass PTAB muster. The problem is not examination; it is PTAB procedures^[3].

U.S. Patent grants fell significantly from 2014 to 2015^[4] while China’s filings skyrocketed. “China’s patent office received by far the most filings, clocking nearly one million of them outstripping the combined total of patents filed in runner-up countries the United States and Japan …”^[5] U.S. share of global venture capital has fallen dramatically.^[6] China increased its venture capital investment by 223%.^[7] This dramatic swing in venture capital, patent filings, and startups from the U.S. to China maps its time line directly to the creation of the PTAB, which also coincides with China’s efforts to establish an innovator friendly patent system. China has seen the opportunity of America’s patent system becoming a hostile for inventors, startups and venture capital, and is seizing the moment.

The PTAB is truly a crisis that is driving venture capital, startups and job creation to China.^[8]  If the PTAB is allowed to remain the death squad that it currently is, we will be buying our next generation of high tech software and hardware critical to our infrastructure and military from China. We teetering on the doorstep of a national security disaster.

We recommend two stages to the reform.

Stage 1 – Damage Control

1. Suspend all PTAB proceedings immediately. This can be accomplished by the USPTO invoking §316(a)(11) and §326(a)(11) to extend all pending proceedings by 6 months, which will allow time necessary for the government to implement procedural reforms to stabilize the system.
2. As long as the USPTO provides refunds to unsuccessful petitioners and also allows unsuccessful petitioners to continue to file as many subsequent petitions as they like, there will be no harm created by the Office denying institution of all petitions for which an institution decision is due in the next 6 months.

Under the current PTAB system, irreparable harm is occurring to patent holders. Conversely, virtually no harm will be done to petitioners by putting on the brakes. Charging ahead in light of the conflict between examination and post grant review will only continue to damage patent holders. The probability of substantial error is extremely high under the circumstances. Improperly cancelled claims will be very difficult to correct, but delaying adjudication by a few months carries no risk.

Stage 2 – Restore Balance and Due Process

PTAB institution decisions are biased in favor of institution regardless of the merits.

1. The decision to institute a PTAB proceeding must be performed by an objective panel, which includes members unassociated with the PTAB. The decision to institute PTAB review cannot be made by the same PTAB judges who conduct the trial. The current system encourages institution because PTAB judges must review a sufficient number of patents to remain employed (i.e., satisfy their production quota). This also biases the decision to invalidate the patent because it is not likely for a person to institute a PTAB review by declaring the patent is more likely than not to be invalid, to then find the patent valid. This is a well-known psychological bias called “anchoring.”
2. Petition fees must not be refunded to the petitioner if the petition is denied. Refunding petition fees biases the decision to institute a PTAB review because it is well known that the PTAB is financially insolvent. This point is well illustrated by the USPTO’s current attempt to raise fees due to PTAB consuming resources from examination and maintenance. If PTAB judges want to keep their job, they must institute as many PTAB reviews as possible so that fees already paid do not get returned to petitioners.
3. Establish a code of conduct for PTAB judges similar to Article III courts. PTAB judges apparently have no code of conduct^[9] barring PTAB judges who have previously represented a party to decide institution and decide issues of validity. At least two PTAB judges have done just that.^[10] A code of conduct similar to that of Article III judges must be put in place.

“A patent shall be presumed valid.”^[11] PTAB must draw all inferences in favor of preserving the patent.

1. For institution, PTAB must require identification of a substantial new question of patentability. If the prior art of the petition is cumulative to or the same as the art considered in examination then the petition must demonstrate a clear error in the examination. Absent a clear error, challenges must give deference to the original determination of patentability by the examiner and deny the petition.
2. Apply the Phillips standard of claim construction as used in Article III courts. Applying BRI (“broadest reasonable interpretation”), as is now the case, to an issued patent is incorrect and harmful because that is same standard used during examination. Inspection prior to issuance necessarily must be stricter than inspection after issuance. This is a basic premise of quality control (6 sigma, TQM, lean, etc.). If the original examination is not done to a tighter standard than what is desired for the final product, then the final product is doomed to a high failure rate.
3. Apply the insolubly ambiguous/not amenable to construction standard for indefiniteness. Language is inherently subjective and ambiguous.^{[12] [13]} If the claims pass muster with the examiner, and the examiner did not make a clear error, the claims must be allowed to stand. If the claims are amenable to construction, the claims are good enough.
4. Limit petitioners to a single petition per patent. Filing multiple petitions is a way of circumventing word limits imposed on petitioners when filing against the same patent. This practice significantly increases the cost of defending against a PTAB review and pushes that increased cost on the party least able to afford it. Petitioners must narrow their arguments to their best grounds in a single petition.
5. Deny seemingly organized petitions by multiple parties, whether filed simultaneously in concert or filed serially. The patent owner must be protected from multiple petitions which drive up the cost and difficulty of mounting a successful defense. The board must facilitate consolidating all interests in challenging the validity of a single patent into a single petition.
6. Allow live testimony and broad discovery similar to Federal Rules of Civil Procedure to aid in identification of the real parties of interest; and to allow patent owners to put on comprehensive evidence of objective indicia of non-obviousness, which assists the Board in correcting for hindsight bias.
7. Claims not invalidated must be validated. PTAB reviews only invalidate claims selected, instituted for review and then actually reviewed. The PTAB makes no comment on the remaining claims. This means that the remaining claims are neither valid nor invalid leaving the patent open to further PTAB reviews.   A patent must become PTAB proof after a PTAB review or it will be serially attacked by multiple parties and will always be presumed invalid.
8. Implement industry standard quality systems. The USPTO is now a closed loop system in which on one side of the USPTO creates a product and the other side destroys the product. With this incredible power, providing a publicly accepted standardized process control system is paramount to establishing credibility for the USPTO. Many industry standard organizations provide standardized quality programs for the type of processes and interactions present within the USPTO. (6 sigma, TQM, lean, ISO, etc.) The USPTO must identify and implement an industry standard quality control system and report publicly on its results.

PTAB reporting must be based on metrics accepted by industry as meaningful and accurate.

1. Report on patents, not claims. Claims subjected to a PTAB review are selected by the petitioner, who is most often a defendant in a patent infringement case in Federal Court, or an agent of the defendant in order to mask the true identity of the real petitioner. This means that the claims selected for review are the most critical to the case of infringement. Invalidating just one of these claims often renders the patent unenforceable against the petitioner and therefore destroys the patent.  Seldom are all of a patent’s claims challenged and as such, seldom are all the claims invalidated. For example, a patent may have 20 claims, but only 10 claims are challenged to a PTAB review and the PTAB may only invalidate a subset of those 10 claims. Reporting by claim gives the appearance that the PTAB does not invalidate too many claims, however for all practical purposes the patent may be unenforceable and thus effectively invalidated. Therefore reporting based on claims invalidated gives the appearance of minimal damage, when the damage is actually severe.
2. Institution and invalidation rates must be calculated per patent when the patent is subjected to multiple PTAB reviews. For example, multiple petitions are often made against the same patent and only one is instituted. In those cases, the reviews that are not instituted are rolled up in reporting as not instituted and only the instituted review is rolled up as instituted. So, following the example, if five reviews are petitioned, four are denied and one is instituted, the PTO reports a 20% institution rate. However, the patent actually has a 100% institution rate. So, again, institution rates as currently reported by the PTO minimize damage, when in fact damage is quite severe.
3. Disputes settled during the pendency of a PTAB review must be considered a favorable outcome for the petitioner. Any settlement during the pendency of a PTAB review is made under terms favorable to the petitioner and not favorable to the patent holder. For the patent holder, settlements avoid the incredibly high risk that at least one claim will be invalidated thus fatally damaging the patent. A settlement is not a success for the patent holder and it is not neutral. It is a win for the petitioner.

If patents are not reliable, patents cannot secure investment and risk-taking necessary to startup up companies with technologies that can only be protected by patents. An unreliable patent system therefore cannot promote progress in the useful arts and science as required by the U.S. Constitution. It cannot create new jobs nor can it propel economic growth. Therefore an unreliable patent system is a failed patent system.

Current PTAB processes are laying waste to investment in patents and early-stage startups which is undermining confidence in the patent system overall. We must immediately improve the U.S. patent system by temporarily freezing PTAB operations until a review can be completed and recommendations put in place.

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^[1] https://www.uspto.gov/sites/default/files/documents/20170504_PPAC_PTAB_Update.pdf

[2] https://ipwatchdog.com/2017/05/10/patents-property-rights/id=83074/

^[3] “The results from the Patent Trial and Appeal Board reflect the procedures it applies, and in my judgment the procedures are wildly off base. If I had a magic wand I’d make the procedures comply with those from federal court…Unless you change the PTAB process hook, line and sinker this is what you are going to get… it isn’t that the PTAB is hostile to patents, it is that their processes can’t accomplish anything else.” Retired Chief Judge Paul Michel in remarks at the IIPCC Symposium May 8, 2017

[4] U.S. Patent and Trademark Office, “2015 Performance and Accountability Report,” November 13, 2015

[5] Agence France-Presse, “China Leads in Patent Application Growth,” December 14, 2015

[6] National Venture Capital Association, “The State of Venture Capital & The Entrepreneurial Ecosystem,” January 2016

[7] EY, “Global VC Investment Landscape,” January 2015

[8] http://watchdog.org/283886/venture-capital-chases-patents-friendlier-climes/

[9] https://ipwatchdog.com/2017/05/15/foia-request-uspto-rules-judicial-conduct-ptab-judges/id=83273/

[10] https://ipwatchdog.com/2017/05/07/more-conflicts-interest-surface-second-ptab-judge/id=83012/

[11] 35 U.S. Code § 282 – Presumption of validity; “A patent shall be presumed valid. Each claim of a patent (whether in independent, dependent, or multiple dependent form) shall be presumed valid independently of the validity of other claims; dependent or multiple dependent claims shall be presumed valid even though dependent upon an invalid claim. The burden of establishing invalidity of a patent or any claim thereof shall rest on the party asserting such invalidity.”

^[12] “a court need not attempt the impossible task of resolving all questions of meaning with absolute, univocal finality. Such an endeavor could proceed ad infinitum, as every word—whether a claim term itself, or the words a court uses to construe a claim term—is susceptible to further definition, elucidation, and explanation. We have therefore often observed that “a sound claim construction need not always purge every shred of ambiguity.” Acumed LLC v. Stryker Corp., 483 F.3d 800, 806 (Fed. Cir. 2007)

[13] “we protect the inventive contribution of patentees, even when the drafting of their patents has been less than ideal… As is often the case when problems in document drafting lead to litigation, the ideal of precision was not achieved here, and we are left to deal with an imperfect product. While we agree with the trial court that the product was less than perfect, we disagree that the flaws were fatal.” (Exxon Research & Eng’g, 265 F.3d)