On the afternoon of Tuesday, March 20th, the House Judiciary Committee’s Subcommittee on Courts, Intellectual Property and the Internet held a hearing titled Assessing the Effectiveness of the Transitional Program for Covered Business Method Patents. The subcommittee hearing followed one week after the U.S. Government Accountability Office issued an assessment of the covered business method (CBM) review program currently in place at the Patent Trial and Appeal Board (PTAB).
Informed observers of the patent system who watched the hearing would recognize that there was absolutely no attention paid by the House Judiciary leadership of the actual harms brought to bear by the PTAB on the U.S. patent system. The obvious anti-patent views of witnesses testifying before Congress was just further proof that panel stacking is not just an issue at the PTAB.
“Low quality patents are bad for the economy and the covered business methods patent, or CBMs, are in fact the result directly of the transition from a series of patents that got out that the court today clearly has said that the PTO should not grant,” said efficient infringer ally and patent troll Rep. Darrell Issa (R-CA), the chair of the House IP Subcommittee who will mercifully be leaving that post after the next election cycle. Issa noted that the subcommittee was considering legislation to extend or revise the CBM program following the GAO’s report, which recommended that the U.S. Patent and Trademark Office develop guidance for reviewing trial decisions for consistency without making any recommendation to extend the CBM program beyond its current 2020 sunset date. “I believe all of our witnesses would agree, and if we had Apple here, one of the major opposers of it originally, they would agree, has done a lot of good to get rid of bad patents,” Issa said.
Issa is no doubt correct with respect to Apple. It is certainly safe to say that Apple would view the CBM program favorably given it has allowed them to evade an infringement damages award of $533 million with the help of a former Apple defense lawyer sitting as an administrative patent judge (APJ) on validity trials petitioned by Apple.
Highlights from the GAO’s report on the CBM program show that entities facing patent infringement suits in U.S. district court filed a total of 524 CBM petitions to challenge the validity of claims of 359 patents. About one-third of the patents challenged through CBM proceedings were invalidated at the PTAB, according to the GAO. The agency also found that the rate of CBM filings had declined generally since 2015 and that no CBM petitions were filed in either September or August of last year.
Why it is necessary to extend and/or expand a program that no one is using any longer remains a mystery. Of course, the entire point in making CBM sunset after an eight year term was because it was known that eventually it would have served its purpose. CBM is merely a hybrid of post grant review (PGR). Post grant review, however, only applies to patents that were examined pursuant to first to file rules. With every passing week fewer and fewer patents issue that don’t qualify for PGR review, which is why CBM was to sunset. Furthermore, since the Supreme Court decided Alice, obtaining protection for software has become far more arduous. CBM was intended to clean up any low-hanging fruit, or in other words legacy patents that had issued years earlier under different laws and there were examined with a less discerning eye. Those days are long gone at the USPTO, which is no doubt why CBM is increasingly seldom used.
So why are we discussing extending a seldom used procedural relic? How is this anything other than a complete waste of Congressional time and resources?
In any event, Rep. Bob Goodlatte (R-VA), chair of the full House Judiciary Committee, attended this hearing in order to tout his legacy achievement, which some may call the wrecking of the patent system, but which he would call the passing of the America Invents Act (AIA).
“A strong and healthy patent system is important to the economy and to American technological leadership,” Goodlatte said. “Congress passed the America Invents Act in 2011 because the health of our patent system was in jeopardy.”
To suggest that the AIA and the PTAB have been any sort of panacea to the U.S. patent system is complete rubbish given the nation’s quickly declining international rankings for both the strength of patent rights and the strength of its innovation economy. Indeed, over the past two years the United States Chamber of Commerce has cited patent opposition proceedings at the PTAB as a driving force for the U.S. falling out of the top 10 patent jurisdictions in the world.
If anything, the AIA took what had been the world’s gold standard patent system and drove it to a place where it does little more to incentivize innovation than former Soviet-bloc countries like Hungary, which tied with the U.S. in terms of patent system strength in 2017.
Goodlatte would go on to decry vague and overly broad patents issued by the USPTO which “block off broad areas of endeavor.” Of course, if a glut of patents was any real-world issue, then why did the smartphone market blossom throughout the late 2000s even as patent totals in that space soared? Indeed, the claim that patents are somehow blocking innovation or market access has been a government narrative used in the past to benefit political interests, much as it continues to be today.
The witness panel for the day’s hearing on the CBM program was vaguely reminiscent of other House IP Subcommittee hearings where the subcommittee has clearly endeavored to keep the discussion one-sided. Rep. Issa tried to sell the day’s panel as properly mixed including one supporter of the CBM program, one dissenter and one neutral voice. John Neumann, Director of Natural Resources and Environment for the GAO, presented the GAO’s findings and answered questions without recommending that CBM be either extended or ended. David Hale, Chief Privacy Officer and Deputy General Counsel for TD Ameritrade, took up the financial industry’s position that the CBM program must be extended, arguing that patent owners holding weak business method patents may simply be waiting for the program to end before asserting them.
Ostensibly arguing in favor of sunsetting the CBM program was Aaron Cooper, Vice President of Global Policy for BSA, The Software Alliance. However, Cooper’s main issue with CBM proceedings was that they specifically targeted patents in the software industry. In questioning from Rep. Issa, Cooper indicated that the preference would be to remove the limitation of only challenging financial services patents. Generally, Cooper felt that the patent validity trials at the PTAB must remain in order to deal with that mystical being known as the “patent troll,” a pejorative which has been applied by the House IP Subcommittee chair to refer to anyone bringing a patent infringement complaint to court. In his testimony, Cooper notes that BSA has filed an amicus brief with the U.S. Supreme Court in Oil States v. Greene’s Energy Group to support inter partes review (IPR) proceedings at the PTAB.
So while Cooper might technically support ending the CBM program, but his support for opening up the proceeding to all patents means he supports a dramatic expansion of the IPR process. In CBM petitioners can challenge patents based on patent ineligibility grounds. In IPR, which is available currently for all patents, patent ineligibility cannot be raised. So expanding CBM to make it technically neutral would almost certainly take the form of a dramatically expanded IPR process, where a PTAB already hostile to patent owners can use Alice and 101 to kill even more patent claims. Such a radically expanded challenge system is not particularly surprising given Cooper’s employer, and even less surprising knowing that he was Chief IP Counsel for the Senate Judiciary Committee at the time the America Invents Act (AIA) passed. It was the AIA that created the PTAB, CBM and IPR proceedings.
Rep. Hank Johnson (D-GA) asked Neumann if the number of patents invalidated through CBM included settlements. Neumann responded by saying he was unsure as to whether the GAO tracked those numbers. Thanks to Lex Machina, we can report those numbers ourselves. In 539 CBMs petitioned at PTAB, 66 were settled pre-institution and 60 were settled post-institution, so settlements accounted for nearly one-quarter of CBM petition results. Add in the few cases where patent owners disclaim and 25 percent of all CBMs resulted in the patent owner settling infringement claims without taking into account the 29 percent of CBM petitions which result in findings of all claims unpatentable. Interestingly, in the history of the entire CBM program, only three petitions have ended with final written decisions upholding all claims as valid. That’s 1 percent of all CBM petitions ultimately resulting in a final decision in favor of the patent owner.
Rep. Johnson also questioned Hale on TD Ameritrade’s own activities regarding CBM filings. Hale said that TD Ameritrade used the program exactly as intended. Lex Machina statistics show that TD Ameritrade has filed eight petitions for CBM proceedings. Five of those were instituted leading to four settlements and one patent owner disclaimer. In Hale’s testimony, he notes a series of CBM program aspects which better prevent abuse than IPR or post-grant review (PGR) proceedings, namely heightened standing for filing a CBM petition and narrower subject matter that can be challenged. Of course, if Congress enacts legislation to mix the CBM program with IPRs and PGRs, which Rep. Issa seemed to contemplate during the hearing, then you just get the worst of both worlds: an environment in which any person could challenge any patent on the widest number of statutory grounds, and it all happens outside of the federal judiciary without a jury trial.
“Some of the stakeholders also noted that the expertise of the patent judges there versus going through the courts where the judges and juries don’t have the expertise, that was another benefit of having a procedure that can be used as an alternative to the courts,” Neumann said during questioning. The idea that PTAB judges are more experienced in legal matters than judges in the federal judiciary or somehow have more expertise about the law is just another delusional fantasy. Indeed, PTAB judges are horribly inexperienced to handle matters of property right adjudication compared to their counterparts in the federal judiciary. For example, 46.55% of PTAB judges were appointed with 10 years or less experience, with 12.65% of PTAB judges appointed with 5 or fewer years of experience. Indeed, there is a 20-year gap in average legal experience between PTAB judges and federal district court judges, and yet somehow an argument that PTAB judges are better suited to handle these legal matters is believed rather than being discredited. The U.S. government would do well to take empirical data into account instead of parroting word-of-mouth hearsay.
There will be a shift at the entire House Judiciary Committee in the coming months with Reps. Issa and Goodlatte deciding not to run for re-election. Whether it’s a shift that results in the recognition of the deleterious actions of Congress on the U.S. patent system in recent years remains to be seen. But as this latest hearing lays bare, almost any change in the Congressional IP leadership would be a good one. Right now it’s just a bunch of fiddling Neros watching the whole system burn.