Patricia A Martone, Law Office of Patricia A Martone PC
Much has been written about the America Invents Act (AIA) enacted in 2011. This article focuses on the Inter Partes Review (IPR) procedures of the AIA. These procedures, which take place in the United States Patent and Trademark Office (USPTO), are designed to provide a speedy substitute for district court determinations of prior art validity challenges.
The purpose of this article is to demonstrate that the stated rationales for enactment of the AIA, and in particular the IPR procedures, are in conflict with the United States patent law and meet the needs of only one subset of American industry interested in patents. IPR proceedings have had a lethal impact on issued patents, to the detriment of large segments of American industry. Change is needed to preserve the viability of the United States patent system for all patent holders.
It is important to understand the dynamic that resulted in the AIA. Two important forces converged to produce this legislation. The first was the pressures on Congress to do something about the weak economy and high unemployment and to end the partisan gridlock affecting all legislation. The second was the efforts of companies like those in the Coalition for Patent Fairness who used their significant lobbying resources to demand that Congress enact legislation seeking relief from suits brought by patent trolls. Their anti-troll rhetoric evolved into a simple and powerful message: “bad” patents and patent litigation asserting “bad” patents against innovating companies are bad for the economy, and conversely, getting rid of “bad” patents is good for the economy. Their message that patent reform was pro-innovation and pro-job creation was well received by both Republicans and Democrats in Congress as well as by the White House. Suddenly, patent legislation, which typically is not high on the list of Congressional priorities, became a hot topic in Congress.
Why were innovative companies like Google, Dell and Hewlett Packard willing to encourage legislation which could impact their ability to enforce their own patents? The only plausible reason is that while these companies have plenty of their own patents, being able to enforce their own patents is not as important to their business model as reducing their exposure and defence costs in troll suits.
This is understandable, given their businesses. Google and Hewlett Packard were founded in garages. Dell was founded in a college dormitory room. The capital of these companies is “knowledge capital”, not complex machinery and bricks and mortar. To the extent that these companies innovate in software, the ability of patents to protect software has had a problematic history in the United States. And there have always been strong voices in the software community opposed to intellectual property protection for software.
The White House and Congress adopted the rhetoric of these corporations in praising the economic benefits of patent reform. These statements focused on two aspects of the AIA: providing for a speedier patent issuance process in the USPTO, and a speedy USPTO process for invalidating “bad” patents. The White House, in announcing the signing of the AIA by President Obama, stated: “The legislation signed by President Obama today will help companies and inventors avoid costly delays and unnecessary litigation, and let them focus instead on innovation and job creation.” The White House, referring to a part of the AIA providing resources for faster patent prosecution, stated that “reducing the backlog [of patent applications] will help get more ideas turned into companies and jobs”.
While this all sounds good, the rationale underlying this legislation is at odds with the patent law. The purpose of the patent system as set forth in the United States Constitution is to promote the “Progress of Science and useful Arts”, not to create jobs. Innovation results in job loss as well as job gain. An example is automated checkout machines for use in grocery stores. The company making the machines may create jobs for more skilled workers. But the machines replace less skilled workers in the supermarket. Those workers will not have the requisite job skills to work in the factory making the machines and may live in a different part of the country.
Another major premise of the AIA is that all patent trolls assert “bad” patents. The unstated related premise is that the patents of operating companies are all “good” patents. But this cannot be the case. Patents vary in quality, and their validity is determined by factors that do not include the identity of their owners. The fatal flaw in the position that all patents asserted by trolls are “bad” is illustrated by the fact that many of the so-called trolls have become sophisticated investors in patents, which they frequently buy from operating companies. Obviously, the sale of a patent does not change its quality.
A related flawed premise is that there is something wrong with buying patents and then suing on them. But buying and selling patents is perfectly legal and many operating companies buy and sell. Google, for example, has purchased many patents. If there is a problem with the business model of some patent owners, that can be corrected by targeting legislation at the business model and not the patent system or patent litigation.
Finally, technology companies regularly sued by trolls argue that a patent owner who does not make products should not be able to sue companies that do make products. But the patent statute provides that patents confer the right to exclude others from using the patented invention. In eBay v MercExchange (2006) the Supreme Court held that while the right to exclude did not dictate an automatic right to the remedy of an injunction, companies who chose to license instead of using their patents could obtain injunctions.
The IPR procedures of 35 USC §§ 311–319 and subsequent patent office rulemaking have led the USPTO to routinely invalidate patents in IPR proceedings. The results show that the USPTO considers more than 80 per cent of the patent claims it issues to be “bad”. The Petition for a Writ of Certiorari of Cuozzo Speed Technologies LLC (6 October 2015) states: “Since the inception of IPR, patent challengers have filed over 3400 petitions, and nearly 85% of the IPR proceedings to date have resulted in the cancellation of some or all claims in the patent under review.”
While more recent statistics suggest this number may be in decline, the change appears to be merely incremental.
There are three key reasons for the lethal nature of IPRs.
First, a petitioner seeking institution of an IPR does not need to raise a new question of patentability or new prior art not previously considered by the USPTO in the original examination. Petitioners need only meet a preponderance of the evidence standard to prove their case. The ability to seek institution based solely on a “do-over” of the original prosecution on a preponderance of the evidence standard effectively eviscerates the statutory presumption of validity for issued patents found in 35 USC §282(a). In Microsoft v i4i Limited Partnership (2011), the Supreme Court, in upholding the clear and convincing burden of proof standard for proving patent invalidity, observed that Congress had often amended section 282, but “not once, so far as we (and Microsoft) are aware, has it even considered a proposal to lower the standard of proof.”
Second, Congress gave the USPTO broad rule-making authority. The USPTO has used that authority to set up procedures uniformly disadvantageous to patent owners. An IPR is essentially a hybrid procedure: part substitute for district court litigation and part prosecution because of the limited right to amend claims. The USPTO decided to apply the broadest reasonable interpretation (BRI) claim construction standard typically used by the USPTO in patent prosecution to all claims at issue. This means that unamended claims, which in the district court would be entitled to the Phillips type-construction, likely resulting in a narrower construction, are now more likely to be invalidated in the USPTO because of the broader claim construction. The problem is further exacerbated by the fact that motions to amend in IPRs are almost always denied. If they were allowed more frequently the result would be “good” patent claims as compared to no patent claim at all.
The third problem relates to the use of experts. A petitioner may submit an expert declaration with its petition for review. The patent owner can now file an expert declaration in its response, but at this stage there is no ability to examine experts and all issues of fact are resolved in favour of the petitioner. Petitioners customarily do submit expert declarations, and a patent owner’s responsive expert declaration will inevitably result in issues of fact, meaning that this declaration will be disregarded at this stage. Given the high correlation between the decision to grant a petition for review and the ultimate determination of invalidity, the administrative patent judges deciding these proceedings (the PTAB) effectively make up their mind based upon a one-sided presentation by petitioner.
Current IPR procedures harm many stakeholders in the patent system. Patent holders are harmed because the time and money they spent in the examination process and paying fees to the USPTO in reliance on the statutory presumption of validity has been wasted. The supposed benefits of the speedy prosecution of applications provided by the AIA means only that patents now hasten to their death.
Many operating companies are harmed. What is good for companies in the Coalition for Patent Fairness is bad for operating companies protecting their investment with their patents. That includes big-pharma, life sciences, medical products and almost all technology companies who sell products. Operating companies who use their patents to protect their investments and their products now need to give serious consideration to the likelihood that their key patents will be invalidated if they try to enforce them against competitors.
Start-up companies are harmed because investors base their investment decisions in part on the strength of their patent portfolios. The erosion of the presumption of validity adds additional risks which discourages investors.
Further, IPRs do not improve patent quality. Patent quality initiatives need to focus on the corps of patent examiners. The results of an IPR offer no guidance to the corps. The PTAB judges need not examine the file history of the original examination and give no explanation as to what went wrong at the examination stage. PTAB judges can give cursory reasons for their decisions, and the decisions of one PTAB panel are not typically binding on other PTAB panels.
Finally, the current IPR procedures engrafted onto to an underlying original examination is a model of government inefficiency. In Fiscal 2015, the USPTO had an annual budget of $3.46 billion based on fees payed by applicants who initially receive a patent which can then be expeditiously “revoked” in whole or in part. There were 235 administrative patent judges who were routinely deciding that the work of 9,161 patent examiners in the same agency routinely result in “bad” patents.
Although the claim construction problem is currently before the Supreme Court, the best solution to all of these problems is a legislative one. That solution will be hard to come by, given the gridlock already facing proposed legislation for amending IPR procedures. But in an ideal world, at least the following three amendments should be made. First, IPR reviews should only be granted where a new ground of unpatentability and/or new prior art is presented. Second, permit more claim amendments. And third, apply the BRI claim construction standard only to claims being amended.
Lessons learned from the enactment of IPR’s and their initial implementation are simple ones. They include the following: