“USIJ members, as with nearly every user of our country’s patent system, have no interest in seeing abuse of the U.S. patent system through efforts to extort settlements based on patents that clearly are invalid… but we are equally concerned that access to the patent system itself has become overly hazardous and prohibitively expensive.”
In celebration of last month’s World IP Day, Senate Judiciary Committee Intellectual Property Subcommittee Chairman Patrick Leahy expressed his support for a determined effort to encourage more individuals and small companies across this country to invent new technologies and products. He also noted the need for the U.S. patent system to incentivize this effort. The Alliance of U.S. Startups and Inventors for Jobs (USIJ) strongly supports Chairman Leahy’s important objective of empowering startups and inventors, and we frankly think it has been underappreciated for many years.
From the very inception of our country, an important feature differentiating the patent system created by the U.S. Constitution from the those of England and other European countries was precisely the objective Chairman Leahy raised – to make it possible for ordinary citizens to invent things and to protect their inventions with patents obtainable without large outlays of cash for fees and lawyer’s charges, or large manufacturing plants, that only the wealthy in Europe could afford. Those patents, in turn, allowed U.S. inventors to develop new ideas that could be turned into products by raising capital or by licensing their inventions to larger companies that had greater resources for manufacturing and distribution. This ability to disclose and license new inventions to larger companies without fear of misappropriation is a critically important incentive for small companies, entrepreneurs, inventors and their investors, and has served us well for 230 years. Some of the most iconic names in U.S. history include individual inventors who made breakthrough discoveries and turned them into products that have enriched the lives of Americans for nearly two centuries. We applaud Senator Leahy’s attention to this group and would like very much to work with him and his Subcommittee to promote governmental actions that will implement and enhance the foregoing objective.
Choosing the Next USPTO Director
Senator Leahy also expressed the importance, in connection with the Administration’s upcoming selection of a new Director for the U.S. Patent and Trademark Office (USPTO), of the need to “choose a nominee that shares a commitment to increasing access,” noting further that “It is not just the huge companies that need it; it is the small inventors.” USIJ applauds that recognition as well. The USPTO Director wears many hats, all of which are important, and it is an extremely complex and important role. USIJ recently sent a letter to President Biden and Vice President Harris outlining what we regard as essential qualifications for any nominee for that position. We believe the Director must have a genuine commitment to: (i) the core principle that IP is the essential driving force for the U.S. economy, (ii) delivering high quality patents and supporting their predictable enforcement, (iii) encouraging and promoting the success of startups and smaller companies, and (iv) building a more diverse invention community. It should go without saying that the Director also should be an exceptional, experienced and respected intellectual property attorney who can serve as the voice of IP protection as it is needed throughout the U.S. government. The Director must also be fully conversant with the interplay between the U.S. judicial system and the litigation related activities of the USPTO. Finally, the Director should be someone who will command respect in international discussions on complex matters that often involve aggressive competitors. The USIJ letter is available here.
Andrei Iancu’s Example Should be Followed
However, we are concerned with one point raised by Senator Leahy without providing much detail – that the prior Administration took “steps to undermine the Leahy-Smith Act.” It is our view, and one shared by scores of startups, entrepreneurs and venture investors, as well as many large companies working in complex, R&D-intensive technologies, that over the past three years the USPTO has done a great deal to rebalance policies that had previously been heavily skewed to favor large incumbent technology companies that want the freedom to attack new market entrants by advocating for much weaker enforcement of American IP. The steps taken by former Director Andrei Iancu to address this imbalance, in our opinion, have brought the policies and procedures of the USPTO more closely in line with the language and intent of the Leahy-Smith America Invents Act. His actions have begun to address some notable abuses that have allowed large companies to harass inventors and small companies by attacking not just “bad patents” but the very best and strongest patents as well.
Exemplary of this type of abuse of the inter partes review (IPR) process was the practice employed by several very large infringers to bring multiple challenges against the same patent, a practice clearly not contemplated by Congress or permitted by the AIA. A 2018 study by USIJ titled, “How ‘One Bite at the Apple’ Became Serial Attacks Against High Quality Patents at the PTAB,” shows that large electronics companies – e.g., Apple, Samsung, Google, Microsoft, LG Electronics and a number of others – were among the worst offenders, with Apple filing multiple petitions against the same claim more that 50% of the time and the others also filing sometimes as many as 5 or 6 petitions against the same patent. Such practices were never sanctioned by the AIA. The House Report in the Congressional record makes this intent clear:
The Committee recognizes the importance of quiet title to patent owners to ensure continued investment resources. … [T]he changes made by [the AIA] are not to be used as tools for harassment or a means to prevent market entry through repeated litigation and administrative attacks on the validity of a patent. Doing so would frustrate the purpose of the section as providing quick and cost effective alternatives to litigation. H.R. Rep. No. 112-98, at 48 (2011).
Prior to former Director Iancu’s taking the reins, that congressional objective was ignored by the PTAB. In some cases, the PTAB had held patents to be invalid even after the very same claims of a patent had been upheld against nearly identical challenges by the same company in district court litigation, and in a few instances, even after the Federal Circuit had upheld similar rulings of a district judge. In some cases, challenging or the mere threat of challenging a small company’s patents, even ones that were not being asserted, allowed incumbents to obtain grossly unfair settlements through infringement. See, e.g. “Weaponizing IPRs,” by Steven C. Carlson of the Robin Kaplan firm. These were the types of abusive situations in which the USPTO now properly declines to institute an IPR proceeding, leaving the petitioner to its right to challenge the patent in court. It is difficult to see how a patent that has withstood one or more challenges by a petitioner or a defendant in district court can – with a straight face – still be referred to as a “bad patent.”
The ‘Poor Quality Patents’ Debate
Senator Leahy stated his view that “it is important to weed out poor quality patents.” But this is not a license for multiple, repeat attacks on the same patent. Indeed, if a district court rules on the validity of a patent before the PTAB does so, there is no reason for the PTAB to proceed. Specifically, if the court rules the patent to be invalid, then the patent is cancelled and there is nothing left for the PTAB to “weed out.” On the other hand, if the court rules the patent not shown to be invalid, then this cannot be a “poor quality patent.” Whatever the definition of “poor quality” may be, it cannot be a patent that an independent Article III court reviewed and deemed not to be poor.
Senator Leahy also stated that the prior administration “acted outside [the AIA’s] statutory bounds,” presumably in denying the institution of petitions that result in repeated attacks on the same patent. But the AIA expressly grants to the Director discretion on institution. The statute makes clear that institution is permissive, not mandatory. See, e.g., 35 U.S.C. 314(a) (“The Director may not authorize an inter partes review to be instituted unless . . .”) (emphasis added). This is not a mandate to institute an IPR, it is instead a prohibition against instituting unless the Director finds certain facts to exist. The Supreme Court has squarely ruled that “the agency’s decision to deny a petition is a matter committed to the Patent Office’s discretion,” and that there is “no mandate to institute review.” Cuozzo Speed Techs., LLC v. Lee, 136 S. Ct. 2131, 2140 (2016). And the Court of Appeals for the Federal Circuit recently stated in a precedential decision that “[t]he Director is permitted, but never compelled, to institute an IPR. And no petitioner has a right to such institution.” Mylan Labs, Ltd. v. Janssen Pharmaceutica, N.V., Docket No. 21-1071, Document #32, page 11, Order filed 3/12/2021. The Federal Circuit also noted recently that the petitioner “clearly has a readily available alternative legal channel [in district court] to raise its arguments concerning the validity of the asserted patents. While [the petitioner] prefers to raise those arguments before the [PTAB], it has no clear and indisputable right to do so.” Cisco Systems, Inc. v. Ramot at Tel Aviv University Ltd, Doc. No. 2020-148 (Fed. Cir. 2020).
All legislators that submitted formal comments to the USPTO on this issue likewise agree that the USPTO acts within statutory bounds when it denies institution of petitions in multiple attacks on a patent. Senators Hirono and Coons, on December 3, 2020, authored a letter to Director Iancu confirming that “[b]y limiting serial and parallel petitions on the same patent claims and by denying petitions likely to extend rather than streamline litigation, the USPTO has respected Congress’s intent to provide a fair and efficient alternative to expensive district court litigation.” And Senator Tillis stated in a letter to Director Iancu on November 19, 2020, that “I fully believe you are within your statutory authority under the Leahy-Smith America Invents Act to make these changes and improvements to the PTAB process ….”
Rebalancing to Reverse an Unfortunate Trend
USIJ members, as with nearly every user of our country’s patent system, have no interest in seeing abuse of the U.S. patent system through efforts to extort settlements based on patents that clearly are invalid – so called “poor quality patents” – but we are equally concerned that access to the patent system itself has become overly hazardous and prohibitively expensive, both at the application and prosecution stage, and equally important at the stage when enforcement may become necessary. AIA proceedings must be properly balanced. Multiple proceedings are simply not necessary to remove “poor quality patents,” and they in fact violate the balance intended by the AIA.
As things stand right now, a declining number of investors and entrepreneurs are willing to make significant investments of time and resources to explore many of the most important and challenging technologies based on the likelihood that patents on their inventions will not protect them against infringement. USIJ will be pleased to work with Senator Leahy and the subcommittee staff to try to achieve proper outcomes on these issues and reverse this unfortunate trend.
Image Source: Deposit Photos
Image ID: 159215852