The important questions being raised in the Courts about the application of Eleventh Amendment immunity, as well as the application of Tribal Sovereign Immunity, go well beyond the specific legal questions presented – and well beyond whether patents owned by States and Indian Tribes should be exempt from the jurisdiction of Patent Trial and Appeal Board. These actions by patent owners should be of great concern to Congress, the Courts, the United States Patent and Trademark Office (USPTO) and everyone concerned about a functioning patent system in America. Not because of the constitution and comity issues that specifically arise in the context of sovereign immunity, but rather because these extraordinary measures taken by patent owners are a sign – a canary in a coal mine.
The Courts unfortunately seem content to allow the PTAB to continue unabated, observing egregious conduct like stacking panels to achieve a desired outcome and expressing skepticism that such actions are legal, but then doing nothing to stop the PTAB’s effort to pick winners and losers. This means it will be left to Congress, and perhaps new USPTO Director Andrei Iancu, to implement legislative and regulatory changes to protect innovators from the arbitrary, capricious and sometimes intentional actions of the PTAB.
Director Iancu and Members of Congress should be asking why some patent owners now feel it is necessary to assign their patents to sovereign entities to aid in the enforcement of their patents?
If this question is asked it will become clear that some patent owners – perhaps even many patent owners – now see engaging in these extraordinary measures as both reasonable and necessary. By assigning their patents to sovereigns these patent owners attempt to “avoid the unfairness of, and the many abuses that surround, inter partes reviews (IPRs) as they currently exist,” explained Phil Johnson, former Senior VP of Intellectual Property Policy and Strategy for Johnson & Johnson, when he testified before the House Subcommittee on Courts, the Internet, and Intellectual Property on November 7, 2017.
Beyond asking why patent owners are resorting to the extraordinary measure of assigning patents to sovereigns, Congress should also be asking why it is not enough to have any validity issues decided in the federal district courts, particularly with patents owned by sovereigns? When sovereign patent owners enforce their patents, it should be enough to have their issues decided only in the federal district courts.
The entire philosophy underlying sovereign immunity is to ensure full, fair and unbiased adjudication when a sovereign is involved. And lets be perfectly clear — we are not only talking about situations when sovereigns are assigned patents in an attempt to intentionally divest the PTAB of jurisdiction. State universities, for example, collectively own many tens of thousands, if not hundreds of thousands of U.S. patents. Those State universities follow federal laws that authorize them to protect and own the rights to the innovations they make. There is no legitimate rationale for abrogating sovereign immunity and subjecting State sovereigns to the whims and fancy of a truly arbitrary and capricious PTAB.
“IPRs are unnecessary because only the federal courts can resolve all the issues between the parties when a sovereign is involved,” Johnson explained in his testimony. “And to the extent additional input from the United States Patent & Trademark Office (“USPTO”) might be helpful, ex partereexaminations, which have not been held to be precluded by sovereign immunity, will still allow the USPTO to consider all of the issues that could have been raised in an IPR. While to some this may not seem ideal, it is a framework that respects the dignity to which sovereigns are entitled while still ensuring that all relevant issues pertaining to their patents will be heard and decided.”
But all of this begs the most essential question: What reforms are needed to level the playing field so no meaningful advantage can be gained by assignments to sovereigns?
Congress must remove any meaningful advantage from sovereign ownership of patents by revising USPTO post-grant procedures so outcomes are more aligned with adjudication in the federal courts. Such patent reform would not only address the constitutional crisis presented by sovereign immunity being denied in actions adjudicated by the PTAB, but it would also trickle through and inure to the benefit of all patent owners, thereby increasing certainty and predictability within the system, eliminate gaming, and streamline adjudication by coordinating rules and laws so there is no substantive or procedural advantage to either challengers or patent owners in one forum over the other.
If adjudication procedures and outcomes were reformed to be similarly fair at both the PTAB and in the federal courts there would be no incentive to arbitrage the differences between the PTAB and district courts. Thus, there would be no reason to seek extraordinary solutions because the forum in which the dispute was to be litigated would not matter. Sadly, today the forum matters greatly for patent owners. So much so that patent owners in some cases are giving up on America and focusing on China and Europe, and in other cases they are resorting to assigning patents to sovereigns, which is obviously a desperate attempt — a Hail Mary — to avoid the PTAB. These actions should be viewed as a cry for help, not a sign that the system is working.
At present, even fully and fairly litigated district court judgments are not being respected as final resolutions. An alleged final judgment in a district court proceeding does not provide quiet title to patents because they may be challenged over and over again by the same or different persons in IPRs, thereby thwarting our Constitution’s promise that the inventors’ patent rights will be secured. Indeed, because of the nature of PTAB processes, the reality that patents can and are serially challenged by multiple parties (and sometimes the same party), the agency has become the final arbiter and district court – even Federal Circuit – decisions are little more than advisory opinions. The ultimate authority rests with the PTAB, not Constitutional Officers. This creates an absurd result, encouraging gaming of the system, and subjects patent owners to abusive challenges without any real protection from an independent Judiciary.
The problems with IPRs are now widely recognized within the patent owning community, but still the PTAB has defenders that claim it processes are fair and open. Whatever one’s opinion of the PTAB might be, everyone should be able to agree that the PTAB processes are not open and transparent. The PTAB is cloaked with secrecy of a kind seldom seen in any tribunal in the western world. Administrative Patent Judges are removed at whim without explanation, including after having dissented in favor of the patent owner. Entire panels are removed and replaced, sometimes repeatedly, again without explanation (see here and here). APJs have been known to have decided cases dealing with former litigation clients (see here and here), which is a serious breach of ethics, but the PTAB still to this day does not have a Code of Conduct or any ethical rules that specifically apply to Judges.
It seems with each passing month there are fresh new stories about serious problems with the PTAB. The aforementioned wholesale panel changes occurred without explanation as late as August 2018. Given the PTAB’s inability to correct itself, time is of the essence because confidence in the U.S. patent system is rapidly eroding. Since the implementation of IPRs just six years ago, the U.S. patent system has dropped in the U.S. Chamber of Commerce’s ranking from 1st to 12th place, due largely to the impact IPRs are having on patent reliability.
To obtain the benefits of a strong patent system “we must not only provide fair and consistent fora for determining validity and infringement, but also ensure that patent owners may enjoy quiet title to their patent properties without fear from unfair IPR proceedings,” Johnson told the House Subcommittee. He is precisely right. At some point title to a patent must quiet if we want investors to provide the many tens of millions of dollars of funding necessary to achieve truly paradigm shifting innovation that we always hear our leaders tell us they, and we, want.
Image Source: Deposit Photos.