“The doctrine of obviousness is supposed to ultimately be a question of law, and not deferentially reviewed on appeal, but reviewed de novo. As far as I can discern, the Federal Circuit has basically jettisoned the final part of the assessment, and if they conclude that substantial evidence supports the underlying fact findings of the Board, the case is over, they affirm and the affirmance rate is something north of 90%.” – Judge Paul Michel
The final day of IPWatchdog’s PTAB Masters™ 2021 program kicked off with more than 1,070 registrants and a discussion featuring retired U.S. Court of Appeals for the Federal Circuit Chief Judge Paul Michel, Meredith Addy of AddyHart, and IPWatchdog Founder and CEO Gene Quinn about the many obstacles facing patentees today in light of the Patent Trial and Appeal Board (PTAB) and an overburdened Federal Circuit. Michel said that, a decade after the America Invents Act (AIA) was passed, with the real-world knowledge we now have of the PTAB, “conclusions and practices should change in light of experience. When facts change, views should change.”
Michel explained that it has become clear that many of the assumptions made by Congress about how the AIA proceedings would work have been proven unreliable, so it’s time to go back and “make adjustments in design defects in the original legislation.” And adjustments need to made by the U.S. Patent and Trademark Office (USPTO) as well. “Both bodies should make these changes, because proceedings have turned out to be tilted in favor of petitioners,” said Michel. “The framework should be substantially amended to correct imbalances and to make the PTAB more consistent with what’s done in Article III courts.”
As a litigation expert, Addy said she tells her clients up front that defending their patent is going to be “really hard.” Largely because of the PTAB, it will be several years before a patentee can even begin asserting their patent, no one is going to take a license, and in the meantime, “you have to win every single battle; you lose once and it’s over,” Addy said.
Quinn commented that, although the AIA was meant to streamline patent enforcement, it’s still a “multi-headed monster.” Addy agreed and said that patentees have to realize that, in the current environment, their patent doesn’t mean much until it’s been tested via one or more wins at the PTAB and in the courts.
“We can send letters if you want, but they’re going to get ignore and you’re not going to get anyone to take a license and pay you money on your patent until they’re backed up against a wall and they have to,” Addy said. This is in contrast to a time in the 1990s when IBM, for instance, licensed tens of thousands of patents, netting billions of dollars, and they never had to file a single lawsuit, Michel said. “We had the honor system. What flipped the dynamic is the passage of the AIA. The world was turned upside down by the IPRs, as implemented at the PTO, and the Federal Circuit nearly always affirms whatever is done by the PTAB, so it’s become the most important tribunal on the planet.”
This is problematic because the PTAB virtually never hears live testimony, so the administrative patent judges (APJs) are making a credibility judgment based on “dueling” experts, who are never questioned by the judges or cross-examined by opposing counsel. “You have what has become in practice a declaratory judgment of invalidity trial in the PTAB, with none of the protections or process used in district court,” Michel said.
Even worse, the CAFC seems to give extreme deference to the PTAB based on the “substantial evidence” standard and has given short shrift to their obligation to review legal conclusions without deference. “The doctrine of obviousness is supposed to ultimately be a question of law, and not deferentially reviewed on appeal, but reviewed de novo,” Michel said. “As far as I can discern, the Federal Circuit has basically jettisoned the final part of the assessment, and if they conclude that substantial evidence supports the underlying fact findings of the Board, the case is over, they affirm and the affirmance rate is something north of 90%.”
In addition to a massive increase in Rule 36 decisions, Addy said that, according to one estimate she has heard, sua sponte waiver of oral argument by the CAFC has become common in about 50% of the cases coming up from the PTAB—a figure Quinn called “astonishing.” And even when there are opinions on PTAB cases, they often are 5-7 pages with only 1-2 pages of analysis “parroting the PTAB precisely,” she added. Many times, the evidence cited also does not go to the letter of the “substantial evidence” standard either, because it doesn’t correlate to the issues asserted.
Quinn argued that one quick fix for the system would be to impose a much more discerning filter with respect to institution in order to vastly limit the number of inter partes reviews (IPRs) judges are handling. When the PTAB was created, there was a prediction that there would be about 500 IPRs per year, but it has been 3.5 to 4 times that number since almost the beginning. “Congress turned out to be wrong,” Michel said. “They thought IPRs would be rather rare, they turned out to be ubiquitous.” It’s now almost “malpractice” not to file an IPR, he added.
Addy explained just how high the burden is on patent owners who become the subject of a PTAB petition. While the petitioner has been plotting this for 6-9 months and has had the time for teams of lawyers to assemble the best document possible—a project that usually costs more than $1 million—the patentee only has 90 days to file an initial response “to hopefully short circuit what they spent a year on.”
She said that the CAFC could do a lot to fix the problems. “Not everything is substantial evidence. A few decisions from the CAFC could help. I’d like to see them take a couple of choice cases and help the PTAB’s direction. But I don’t see that happening either. I think it’s going to stay about the same in the next four years.”
While Michel argued Congress really needs to fix the mess, he agreed it would likely be “years and years” before that happens. “Ideally, at every step of the process, more time and intense analysis should be applied,” he said. “First by the examiner, then by the PTAB panel members, and ultimately by the CAFC, because superficial review favors the challenger.”
Congress should also inject money into the USPTO to help examiners to do a better job, Michel said. While China has vastly increased its examining corps and funneled significant amounts of money into its patent office’s IT systems, the USPTO remains user-funded, its tech systems are outdated by comparison, and examiner turnover is high. “The question in my mind is whether we’ll fix our patent system soon enough to avoid getting irretrievably behind other rivals, particularly China,” Michel said.
Quinn, Addy and Michel all agreed that a lot will depend on who the next USPTO Director is and whether that person continues the work done by former Director, Andrei Iancu. “It’s a tough road and I hope the new director will have as much courage as Iancu had,” Michel said. “It will be a very fateful decision.”
You can view the full keynote discussion and other content from the PTAB Masters™ program on our Virtual Programs page.