EDITORIAL NOTE: This article is the seventh installment of an 8-part series exploring the constitutionality of the PTAB under the public rights doctrine. To begin reading from the beginning please see: Patent Review in an Article I Tribunal is Unconstitutional.
The due process elements maintained in federal district courts include (a) a presumption of validity, (b) a clear and convincing evidentiary standard of review, (c) a Phillips standard of claim interpretation, (d) an impartial jury review of the facts, (e) an impartial judge reviewing the facts and the law and (f) consolidation of patent validity, infringement and damages issues in a single enforcement action. These features are crucial in distinguishing patent validity review in an Article III forum from executive tribunals.
In order for an administrative tribunal to maintain legitimacy – and constitutionality – under the public rights doctrine, it must enable consent of the parties, include due process and allow Article III federal district court review of agency fact finding. The PTAB complies with none of these critical features of the public rights doctrine. Therefore, PTAB rulings in IPRs are unconstitutional.
The PTO systematically administers a collection of procedures in IPRs to unduly harm patent holders and benefit big tech company infringers. The data show that the plain result of PTAB procedures appears to benefit infringers with a clear bias against patent holders. PTAB cancels challenged claims in 76% of instituted patent reviews, a rate that is 2 ½ times greater than in the federal district courts. The reason is that PTAB employs a set of procedures that stacks the deck against patent holders. There is clear bias at every step of the process of reviewing patent validity. However, there are several components of PTAB procedures that are particularly onerous and problematic and that go to the heart of the due process issues that infect IPRs.
First, the evidence shows that there is a tendency towards bias among PTAB administrative law judges (ALJs). Many of these judges are drawn from defense law firms that represent infringers, suggesting clear ideological bias. In fact, many of the ALJs have represented the large tech company infringers that institute the IPRs, showing a revolving door with blatant conflicts of interest. These conflicts are further complicated when the panel that decides to institute an IPR then goes on to provide a final decision on the matter. This is “anchoring” bias.
Second, the bias of ALJs is further complicated by the bias of the PTO director. In oral arguments, recent CAFC cases (Yissum Research Development Co. v. Sony Corp. (Fed. Cir. 2015) and Nidec Motor Corp. v. Zhongshan Broad Ocean Motor Co. (Fed. Cir. 2017)) revealed the disclosure by PTO attorneys that the PTO director stacks panels to adhere to anti-patent holder policy positions in order to obtain a result in line with PTO ideological patent policy objectives. Not only are the PTAB panels not impartial, but the PTO policies from the director to the PTAB staff are ideologically driven by commercial interests that seek to protect their monopoly profits.
Third, the overly expansive application of obviousness standards tends to prejudice outcomes against patent holders. PTAB applies standards that are overly expansive by including prior art that an ordinary expert in a field would never include. Particularly when combined with the broadest reasonable interpretation of claims, the broadest possible obviousness standard tends to prejudice patent holders. This excessively broad application of obviousness standards is an arbitrary application of power that deprives patent holders of due process. Interestingly, because this broad standard of obviousness is a legal rule, IPRs may be appealed even when fact finding may not be appealable.
Fourth, PTAB procedures require qualified counsel. This is very expensive. If a patent holder must spend the equivalent of three average American houses ($188,000 x 3) on counsel to defend a patent in an IPR, poorer patent holders, which may include virtually all independent inventors and angel funded small entities, are excluded from the process. These extremely high costs alone are responsible for the conversion of the U.S. patent system from a democratic model accessible to all to an Aristocratic model available only to a few. These onerous costs impose a high burden on patent holders and deprive due process through high economic demands. It should be no surprise that poorer patent holders tend to lose a vast majority of IPRs, thereby abandoning the system for the majority of inventors. Moreover, since there is no consent required to initiate an IPR, the inventor has no choice in the matter and is compelled to invest large sums defending the patent.
Fifth, though the AIA instituted estoppel provisions for IPRs, the reality is that these are not effective against relentless attacks by groups of large companies. For example, a group of companies may seek scores of institution requests with various combinations of prior art. Loose PTAB standards allow systematic harassment of patent holders by groups of cooperating infringers. There is clearly a cumulative abuse from lack of proper estoppel. This group behavior forces adverse outcomes for patent holders.
In one example, PTAB may ignore prior application of prior art by PTO examiners by performing a de novo review and applying the same prior art even when this earlier prior art should be estopped. In effect, PTAB ignores the original exam and instigates an illegitimate review that applies all possible prior art to prejudice an obviousness review. Applying this overly broad obviousness standard drives specific outcomes adverse to the patent holder.
In another example, the estoppel problem is not solved by providing final decisions on challenged and instituted claims because other claims can be challenged later. SAS Institute v. Matal, pending in the Supreme Court, raises only a minor procedural problem created by the AIA, but does not solve the problem of harassment by petitioners.
Sixth, PTAB is notorious for not including sufficient reasons for invalidity decisions. The decision of a panel must state clearly the reasons for a finding as well as the evidence relied upon for the finding. In many cases, this crucial reasoning is omitted in a final decision resulting in cancellation of claims.
Recall that due process standards require a fair hearing that includes clarity of decision making for otherwise the process is subject to arbitrary encroachment by the government. The CFAC commonly criticizes PTAB for not supplying explanations or justifications for cancelling claims in IPRs. The PTAB panels need to clearly demonstrate how to combine relevant prior art, much like a patent examiner is required to state reasons for patentability.
Seventh, the standards for standing in an IPR are improper. Any third party may file an IPR even if they have no relation to the matter. There are examples of companies or groups funded by big tech companies attacking patents in IPRs. In some cases, these third parties improperly profit from IPRs by undermining a company’s technologies, for example, and shorting a target company’s stock.
Finally, the multiple improper procedures are combined to drive a particular adverse IPR outcome. For instance, broad claim interpretation is combined with broad obviousness standards by numerous infringers and poor estoppel provisions to reveal overly inclusive, and repeated, prior art attacks on a patent. The combination of the PTAB procedures conspires to bias IPRs against the patent holders, a fact which is clear in the abnormally high claim cancellation rates.
These PTAB procedures do not comport to any minimum interpretation of due process. IPR procedures are clearly stacked against the patent holder.
(IV)Whereas due process requires a fair hearing and application of neutral procedures for assessment, there is no such fairness or neutrality in PTAB proceedings. The tribunals are biased, the costs of counsel are prohibitively high, the standards of review are extremely low, the low bar for application of estoppel is nearly non-existent resulting in relentless harassment, the decisions of the panels are incomplete or vague and the outcomes preordained in many cases. PTAB’s application of IPRs does not supply the minimum standards of due process. With neither consent nor due process, the PTAB proceedings are unconstitutional according to any interpretation of public rights jurisprudence.
CLICK to CONTINUE READING… Up next is the conclusion of this 8-part series.
Other series articles:
- Patent Review in an Article I Tribunal Under the Public Rights Doctrine (Tues. 10/3)
- The Classical Public Rights Doctrine: Growth of the Administrative State (Thurs. 10/5)
- The Modern Public Rights Doctrine (Tues. 10/10)
- Private Rights and the Sanctity of an Independent Judiciary (Thurs. 10/12)
- Separation of Powers Constrains of Patent Invalidation (Tues. 10/17)
- PTAB Procedures for IPR Fail to Satisfy the Tests for Due Process (Thurs. 10/19)
- AIA and PTAB Unconstitutional Under the Public Rights Doctrine (Thurs. 10/26)