Tag: PTAB

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Patent Law Patent Theory

New Paper Explores Possibility of Gold-Plated Patents Beyond the PTAB’s Reach

files labeled as "patents"What if there is a way for a patent applicant to obtain a “gold-plated patent” that is immune to administrative cancellation before the Patent Trial and Appeal Board (PTAB) at the U.S. Patent and Trademark Office (PTO)? This intriguing notion is the subject of a recent paper by Professor Michael S. Greve of Scalia Law, titled Exceptional, After All and After Oil States: Judicial Review and the Patent System and published in the Winter 2020 edition of the Boston University Journal of Science and Technology Law. Prof. Greve presented an early draft of this paper at the “Perspectives on the PTAB: The New Role of the Administrative State in the Innovation Economy” conference that was co-hosted by CPIP and the Gray Center at Scalia Law.

Examining the PTAB through his administrative law lens, Prof. Greve spots what he calls a “Sandy,” that is, a hypothetical, newly discovered relative of an ancient animal species that was thought to have gone extinct. This clever conceit with “Sandy,” which runs through the paper, refers to a Section 145 action to obtain a patent in the Eastern District of Virginia. This particular “Sandy,” Prof. Greve explains, “is unknown to, and greatly at variance with, contemporary administrative law, which operates on the principles of agency adjudication and deferential, on-the-record appellate review.” He argues that Article III prevents a patent obtained through a Section 145 action from subsequently being cancelled at the PTAB—in other words, “Sandy” gives a successful plaintiff a “gold-plated patent.”

To set the stage, Prof. Greve runs through the history of Section 145, placing it within the Patent Act’s current statutory scheme for reviewing validity determinations and the administrative state more broadly. A vestige of the Patent Act of 1836, Section 145 provides that an “applicant dissatisfied” with an appeal to the PTAB following an examiner’s rejection “may . . . have remedy by civil action” against the Director of the PTO. If the court adjudges “that such applicant is entitled to receive a patent for his inventions,” the “adjudication shall authorize the Director to issue” the patent. The alternative pathway for a “dissatisfied” applicant is an appeal directly to the Federal Circuit under Section 141.

The two provisions are markedly different. An applicant that chooses a Section 141 appeal to the Federal Circuit waives the right to proceed under Section 145 before the district court. Like agency adjudication generally, a Section 141 appeal is on the record—no new evidence may be introduced—and deference is given to the PTAB. The decision is then remanded to the PTO for further proceedings. Section 145 actions, by contrast, allow the introduction of new evidence, and the district court can adjudicate validity de novo—without deference to the PTAB. If the plaintiff is successful, the district court directs the PTO to issue the patent. According to Prof. Greve, the lack of deference to the PTO and the ability to introduce new evidence seems foreign—a mythical creature in the modern administrative state.

Turning to the case law, Prof. Greve looks at Dickinson v. Zurko, where the Supreme Court in 1999 held that the Federal Circuit must follow the Administrative Procedure Act (APA) framework when reviewing the PTO’s findings of fact in a Section 141 appeal. The Federal Circuit had applied the Federal Rules of Civil Procedure, which state that a reviewing court must not set aside a district court’s factual findings unless they are clearly erroneous. The Court held that the more deferential review standard of the APA should instead be applied to the PTO. As Prof. Greve explains, the Federal Circuit later extended the Court’s holding, thus directing district courts to apply a deferential standard of review to the PTO’s factual findings in a Section 145 action.

This push to impose the APA standard of review onto Section 145 was short lived. In 2012, the Supreme Court in Kappos v. Hyatt rejected the notion that background principles of administrative law dictate that Section 145 requires a district court to review the PTO’s factual findings deferentially. The Court also rejected the argument that plaintiffs in Section 145 actions should be permitted to introduce new evidence only if they did not have the opportunity to present it to the PTO. Thus, Section 145 plaintiffs may introduce new evidence subject only the ordinary rules of evidence and procedure, and the district court may review these new facts de novo. In other words, appeals under Section 141 are very different than direct actions under Section 145. As Prof. Greve remarks of Hyatt, “Welcome back, Sandy.”

In Oil States v. Greene’s Energy, the Supreme Court in 2018 laid to rest the argument that an inter partes review (IPR) before the PTAB violates Article III. Invoking the public rights doctrine, the Court characterized an IPR as the PTAB’s decision to reconsider the PTO’s earlier grant of a patent—not as a decision to annul a property interest that has already vested. This same sort of reasoning, Prof. Greve points out, has led to decisions that allow the PTAB to cancel patents that have been upheld in infringement actions before the federal courts. He argues that those decisions are inapplicable when it comes to a “gold-plated patent” under Section 145—an issue that surprisingly has not yet been litigated. Such patents, Prof. Greve asserts, cannot be revoked by the PTAB under Article III.

Prof. Greve explains that the validity of a patent cannot conclusively be established in an infringement action in the federal courts. Indeed, this explains why subsequent PTAB cancellations are constitutional. However, the same is not true for patents secured in a Section 145 action. Under Hyatt, Prof. Greve contends, a successful plaintiff is entitled to the patent “as a matter of right,” and the unsuccessful Director of the PTO, by contrast, is “duty-bound” to issue the patent. Unlike with infringement actions, the very point of a Section 145 action is to conclusively establish the patentability of the claims at issue. And this difference, Prof. Greve avers, is critical. Section 145 patents are issued “as the consequence of a conclusive, binding judgment of an Article III court,” and Supreme Court case law prevents final judgments of Article III courts from being “subject to executive revision.”

Prof. Greve explains:

If that reading of Hyatt is right, a patent issued pursuant to a § 145 proceeding cannot be subject to the AIA’s review and reexamination procedures. If § 145 patents issue as of right and neither require nor, in the ordinary course, permit further administrative proceedings, it follows a fortiori that the Director cannot then entertain or initiate an administrative review or reexamination proceeding that would divest the patentee of the benefits of a conclusive Article III judgment. . . . Once the initial patent grant pursuant to § 145 has become final, it has res judicata and estoppel effect in any court; and that preclusive effect cannot be circumvented by means of an administrative reversal and subsequent (deferential) appellate review. The short of it is that “§ 145 patents” are immune from administrative review and reexamination except under the most unusual circumstances.

 

If the issue of subsequent administrative cancellation of a Section 145 patent were to reach the Supreme Court, Prof. Greve believes that the Court will reaffirm the “gold-plated” nature of such a patent in light of Hyatt. He further suggests that if this is true, it seems likely that more applicants will choose the Section 145 route. As things are now, very few people choose this option. Indeed, presumably to discourage the filing of such actions, the PTO recently took the position that Section 145 plaintiffs must pay the pro-rated salaries of the government’s lawyers—a notion the Supreme Court rejected last year in Peter v. Nantkwest. Regardless, a Section 145 action before the district court and the inevitable appeal to the Federal Circuit are risky, expensive, and time-consuming. However, if this route really does produce a “gold-plated patent” that the PTAB cannot strike down, Prof. Greve predicts that “Sandy may yet shine a light into our stoned faces.”

Categories
Patents

New CPIP Policy Brief: Barnett on the End of Patent Groupthink

a hand reaching for a shining key hanging among dull keysIn a new CPIP policy brief entitled The End of Patent Groupthink, CPIP Senior Fellow for Innovation Policy Jonathan Barnett highlights some cracks that have emerged in the recent policy consensus that the U.S. patent system is “broken” and it is necessary to “fix” it. Policymakers have long operated on the basis of mostly unquestioned assumptions about the supposed explosion of low quality patents and the concomitant patent litigation that purportedly threaten the foundation of the innovation ecosystem. These assumptions have led to real-world policy actions that have weakened patent rights. But as Prof. Barnett discusses in the policy brief, that “groupthink” is now eroding as empirical evidence shows that the rhetoric doesn’t quite match up to the reality. This has translated into incremental but significant movements away from the patent-skeptical trajectory that has prevailed at the Supreme Court, the USPTO, and the federal antitrust agencies.

Prof. Barnett first looks at how, for the past decade or so, the groupthink about “royalty stacking” and “patent holdup” has led to efforts by the FTC and DOJ Antitrust to limit the enforceability and licensing of standard-essential patents (SEPs) that underlie the global smartphone market. However, this past December, the DOJ and USPTO changed course, saying now that SEP owners should be treated just like any other patent owner and instead expressing concerns about the possibility of “patent holdout” by well-resourced infringers. As Prof. Barnett explains, the theories and stylized models that influenced these federal agencies are now being displaced by empirical data and real-world models that better reflect how the smartphone market actually operates.

Turning to the Supreme Court, Prof. Barnett discusses the overlooked dissent in Oil States by Justice Gorsuch, which was joined by Chief Justice Roberts, in 2018. On the one hand, the Oil States majority continued the Court’s recent spate of cases reflecting the groupthink skepticism towards patents. Justice Gorsuch’s dissent, on the other hand, perhaps reflects a nascent movement among some members of the Court to revisit this conventional wisdom. Prof. Barnett points out other underdiscussed examples of this growing phenomenon within the Court, from cabining the powers of the PTAB in SAS Institute, to questioning the PTAB’s immunization from judicial review in Cuozzo, to finding that federal agencies lack standing to invoke AIA challenges in Return Mail.

Finally, Prof. Barnett addresses the current move away from the old groupthink at the USPTO, where the current leadership has expressed its support of robust patent protection. For starters, empirical evidence has discredited the widely-repeated view that the USPTO is a “rubber stamp” that approves almost all patent applications. As to inter partes reviews (IPRs), Prof. Barnett notes that, early on, institutions and invalidations were the common outcome. While this could support the conclusion that “bad” patents were being struck down, the data is also consistent with the conclusion that the process is sometimes being used opportunistically to invalidate “good” patents. Responding to this concern, recent changes in the examination process, such as the narrower claim construction standard and broader claim amendment opportunities, may enable patentees to survive unjustified validity challenges at the PTAB.

Moving forward, Prof. Barnett suggests that the tide may be turning in the patent policy world as widely shared assumptions behind patent-skeptical groupthink are subjected to rigorous empirical scrutiny. The inescapable truth is that the U.S. innovation economy has flourished while commentators have suggested it should have languished under the supposed burdens of strong patent protection. Prof. Barnett points out that skeptics may have failed to appreciate how robust patents support private incentives to bear the high costs and risks of innovation and commercialization. Current signs of a “redirect” from the old groupthink are a welcome change for preserving the intricate infrastructure that supports a vigorous innovation ecosystem.

To read the policy brief, please click here.

Categories
Innovation

U.S. Rise in International IP Index Signals Progress in Ongoing Effort to Restore Faith in the Patent System

dictionary entry for the word "innovate"Last week, the U.S. Chamber of Commerce, Global Innovation Policy Center (GIPC) released the seventh edition of the International IP Index for 2019, Inspiring Tomorrow. The report provides some long sought good news for the innovation community, as the U.S. rose from 12th to 2nd in the patent system rankings. But while the move signals an IP and economic transformation stemming from inspired IP leadership and a sensible approach to domestic and international IP policy, more work must be done to fully restore the global leadership position of the United States.

GIPC notes:

With this 7th edition, the U.S. Chamber International IP Index: Inspiring Tomorrow shows how intellectual property (IP) systems have been a driving force behind this transformation. Effective IP protections create a climate that drives the world’s innovators and creators to pursue a better tomorrow. Indeed, IP-driven innovation and creativity have ensured that our standards continue to rise.

The U.S. is ranked number one with the highest overall economy score; it is also ranked number one with respect to copyrights. As noted above, the U.S. moved to 2nd place in the annual patent rankings, up from 12th place last year (it is tied for the second place ranking with a number of E.U. nations and Japan). Yet, this is mixed news overall, and more work remains. The trend over the past several years has been downward for the U.S. patent system. The U.S. fell from first place in patents three years ago and was at 10th place in 2017.

The move upward is a result of ongoing efforts by top U.S. IP officials to improve domestic policies and international trade. The GIPC report explains the U.S.’s strong overall rating is based on its framework for legal protections for copyrights, patents, trade secrets, and its recent IP trade policies. The United States-Mexico-Canada Agreement (USMCA) is praised as raising the bar to set the new global standard for international IP protection.

Further, the report commends the USPTO leadership for addressing uncertainty around patent rights by recent reforms of its opposition system (e.g., through the Patent Trial and Appeal Board (PTAB) and inter partes review (IPR)). In his first year, USPTO Director Andrei Iancu launched several initiatives to address long-standing issues hampering U.S. innovation, including issuing new patent eligibility review guidelines for patent examiners and overhauling the PTAB review invalidation proceedings that can create uncertainty for parties. The report explains that these reforms will “creat[e] greater certainty around the inter partes review (IPR) process [and] reduce unpredictability in the patent opposition system.”

Historically, the U.S. has been a front-runner in worldwide innovation; just last year, the USPTO unveiled its 10 millionth U.S. patent. But misguided policies from courts and Congress have resulted in uncertainty for patent owners over the past 15 years (e.g., the systemically ill-advised PTAB opinions spurring our #FixPTAB posts). The GIPC report is a welcome reminder that sensible leadership and even modest reforms can return us to our historic front-runner position in innovation.

Despite more clarity and the recent USPTO reforms, patent owners require additional certainty and reform to ensure ongoing inventive activity, such as building new venture start-ups. CPIP and its network of scholars will continue to study how the new patent guidance and judicial jurisprudence can restore America’s global innovation leadership for the future. Hopefully, the U.S. can soon once again claim the unqualified number one spot.

To see the 2019 rankings, please click here.

To read GIPC’s 2019 Report, please click here.

Categories
Patent Law

CPIP Scholars Join Amicus Brief Arguing that the Government Cannot Petition for CBM Review

U.S. Supreme Court buildingOn December 17, 2018, CPIP Senior Scholars Adam Mossoff and Kristen Osenga joined an amicus brief written on behalf of seven law professors by Professor Adam MacLeod, a CPIP Thomas Edison Innovation Fellow for 2017 and 2018 and a member of CPIP’s growing community of scholars. The brief, which was filed in Return Mail Inc. v. United States Postal Service, asks the Supreme Court to reverse the Federal Circuit’s determination that the federal government has standing to challenge the validity of an issued patent in a covered business method (CBM) review before the Patent Trial and Appeal Board (PTAB).

The petitioner, Return Mail, owns a patent for a method of processing mail that is returned as undeliverable. After the Postal Service refused to take a license, Return Mail sued it for “reasonable and entire compensation” in the Court of Federal Claims under Section 1498(a). Thereafter, the Postal Service filed a petition at the PTAB seeking CBM review, arguing that several claims were unpatentable. Return Mail contested the ability of the Postal Service to petition for CBM review, arguing that it is not a “person” who has been “sued for infringement” within the meaning of Section 18(a)(1)(B) of the Leahy-Smith America Invents Act of 2011 (AIA). Over a forceful dissent by Judge Newman, the Federal Circuit upheld the PTAB’s determination that the Postal Service has standing to challenge Return Mail’s patent before the PTAB.

The amicus brief written by Prof. MacLeod argues that the Federal Circuit was wrong to hold that the federal government could be treated as a “person” who has been charged with infringement. The brief points out that the federal government cannot be liable for patent infringement since it has sovereign immunity. Instead, the government has the authority to take a license whenever it pleases under its eminent domain power—so long as it pays just compensation to the patentee. The Federal Circuit classified the Postal Service’s appropriation as infringement, thus bringing it within Section 18(a)(1)(B) of the AIA. But, as the amicus brief notes, an infringement is an unlawful exercise of the exclusive rights granted to a patentee. The government may have exercised Return Mail’s patent rights, but it did not do so unlawfully, and as such it is not in the same position as a private party who has been charged with infringement.

The Summary of Argument is copied below, and the amicus brief is available here.

SUMMARY OF ARGUMENT

The United States Postal Service (“Postal Service”) wants to be a sovereign power. It also wants not to be a sovereign power. It exercises the right of sovereignty to take patent rights by the power of eminent domain. But it wants to stray beyond the inherent limitations on sovereign power so it can contest the validity of patent rights in multiple venues and avoid the duty to pay just compensation for a license it appropriates.

At the same time, the Postal Service asserts the private rights of an accused infringer to initiate a covered business method review (“CBM”) proceeding though it is immune from the duties and liabilities of an infringer. In other words, the Postal Service is trying to have it both ways, twice. It wants the powers of sovereignty without its disadvantages, and the rights of a private party without exposure to liability.

The United States Court of Appeals for the Federal Circuit erroneously ruled that the Postal Service can exercise both the sovereign power to initiate an administrative patent review, which is entrusted to the Patent Office, and the sovereign power to appropriate patent rights by eminent domain, which is delegated to federal agencies that may exercise patent rights. Congress separated those powers and delegated them to different agencies for important constitutional and jurisprudential reasons. Furthermore, the Federal Circuit ruled that the Postal Service can be both immune from liability for infringement and vested with the powers of an accused infringer. It did this by misstating what a “person” is within the meaning of United States law and by reading unlawfulness out the definition of “infringement,” as the Petitioner explained in its Petition.

In the Leahy-Smith America Invents Act of 2011 (“AIA”), Pub. L. No. 112-29, 125 Stat. 284, Congress created alternatives to Article III litigation concerning patent validity—inter partes review (“IPR”), post-grant review (“PGR”), and covered business method proceedings (“CBM”). IPR, PGR, and CBM proceedings are intended as alternatives to inter alia infringement actions in which an accused infringer might challenge patent validity. This suggests that the Government, which is immune from liability for infringement, is not a “person” with power to initiate an IPR, PGR, or CBM proceeding.

In jurisprudential terms, the Postal Service claims the powers and immunities of the legislative sovereign, who possesses the inherent power of eminent domain and is immune from liability for infringement. At the same time, the Postal Service tries to claim the powers of an accused infringer and so disavow the legal disadvantages of the sovereign. It cannot have both.

In fact, the Postal Service cannot infringe and cannot be charged with infringement. The sovereign who exercises the power of eminent domain and pays just compensation has acted lawfully, not unlawfully, and therefore has not trespassed against the patent. And the Postal Service must pay compensation when it appropriates a license to practice a patented invention. Vested patents are property for Fifth Amendment purposes, and the Government must pay for licenses taken from them, just as it pays for real and personal property that it appropriates.

To read the amicus brief, please click here.

Categories
Innovation Inventors Patents

New “Invalidated” Documentary Highlights the Problems With the PTAB: Free Screening on October 26

a lit lightbulb hanging next to unlit bulbsBy Devlin Hartline and Aditi Kulkarni*

The “Invalidated” documentary will be screened this Friday, October 26, at 5:30 PM in Washington, D.C. To register for this free event, which features a presentation by Bunch O Balloons inventor Josh Malone among others, please click here.

Imagine that you’re a father of eight children who puts everything on the line to bring your invention to the marketplace. After a successful Kickstarter campaign that brings in close to $1 million, you protect your invention by securing several patents on the innovative technology. Your invention is a huge market success, and sales exceed your wildest dreams. When the copycats come along, you think your patent rights will protect you. After all, that’s what the patent system is for. But you quickly realize that the system is stacked against you, the lone inventor, and it instead favors the large companies that willingly violate your rights for profit.

While this horror story may sound farfetched, it’s exactly what happened to Josh Malone, the inventor of Bunch O Balloons. And the unfortunate reality is that Malone is not the only inventor to be let down by the patent system that is meant to protect inventors from unscrupulous infringers. Thankfully, Malone is not taking things lying down. Not only is he fighting for his rights in the courts and at the U.S. Patent & Trademark Office—the very Office that granted him the rights in the first place—but he also has become a vocal activist fighting to reform the patent system. In fact, Malone is now telling his story in a new documentary entitled “Invalidated.” The full video, which prominently features CPIP Founder Adam Mossoff and runs about 50 minutes long, is available at both iTunes and Amazon.

You can watch the trailer here:

Inspired by childhood memories, Josh Malone invented Bunch O Balloons to solve a real-world problem. His invention allows anyone to fill and tie around 100 water balloons in just one minute. As a child, he spent days filling up hundreds of water balloons to play with his friends. Though he eventually stopped playing with balloons, the idea of finding a better way to play never left him. His idea finally materialized through a method to save his children’s time by filling several balloons at once. Malone burned the midnight oil perfecting his invention, and his family also invested their time and efforts backing his venture. After failing through several experiments and exhausting their savings, Malone finally succeeded with Bunch O Balloons.

Patent figure for Bunch O Balloons: fluid source leading to balloons

Ready with the product’s final prototype embodying his invention, Malone shot a video for a Kickstarter campaign to advertise his product and to raise some much-needed funds. The campaign was a hit, bringing in close to $1 million. Malone was even interviewed on the Today Show, where he got into an impromptu water balloon fight with Carson Daly. The purchase orders then started pouring in from toy manufacturers and big retailers like Walmart. They were all interested in profiting from the competitive advantage they would get from Malone’s novel—and fun—invention.

On realizing his invention’s strength and wanting to protect it from potential infringers, Malone filed several patent applications with the U.S. Patent & Trademark Office (USPTO). While the patent applications were pending, Malone came to know that a product nearly identical to his own was being advertised and sold in the marketplace under the name, “Balloon Bonanza.” Investigating further, Malone realized that Telebrands, the marketing company that originated the “As Seen On TV” advertisements, had stolen his idea and begun selling knock-off versions of his invention.

Image comparison of Bunch O Balloons versus Balloon Bonanza

Malone sued Telebrands in the Eastern District of Texas, seeking a preliminary injunction to prevent the marketer from further infringing his rights. The district court granted the injunction, agreeing with Malone that his patent was likely valid and infringed. Telebrands fought back, appealing the injunction to the Federal Circuit and again challenging the validity of Malone’s patent on indefiniteness and obviousness grounds. The Federal Circuit sided with Malone, holding that it was not clear error for the district court to conclude that he was likely to succeed on the merits. The Court of Appeals rejected Telebrands’ arguments as failing to raise a substantial question concerning the validity of Malone’s patent.

Telebrands also challenged the validity of Malone’s patent before the Patent Trial & Appeal Board (PTAB) in a post-grant review (PGR) proceeding. During the pendency of Telebrands’ appeal to the Federal Circuit on the preliminary injunction, the PTAB rendered its final written decision: Telebrands had shown by a preponderance of the evidence that Malone’s patent was invalid as indefinite. Of course, had the issue been decided in the district court, the mere preponderance standard would have been insufficient to overturn the presumably valid patent. But in the PTAB, the rules are different, and they favor challengers such as Telebrands that use the additional venue to game the system.

The Federal Circuit was well aware of the PTAB’s decision to the contrary when it upheld the district court’s determination that Malone was likely to succeed on merits in assessing the propriety of the preliminary injunction. In fact, it mentioned the PTAB proceedings in a footnote, noting that its decision was not binding and that it was nevertheless unpersuasive. When Malone subsequently appealed the PTAB loss, the Federal Circuit finally got its chance to directly address the PTAB’s decision on the merits. The Court of Appeals held that, even applying the PTAB’s more relaxed standard, Malone’s claims were not unpatentable for indefiniteness. The Federal Circuit thus made good on the earlier indications from both itself and the district court that Malone’s patent was indeed valid.

While Malone ultimately has been victorious so far, he’s been forced to spend millions of dollars protecting his rights. He reported in July of 2017 that he’d already spent $17 million, and that it might grow to as much as $50 million before it’s all through. That’s an insane amount of money for most lone inventors, and Malone is fortunate enough to have made enough revenue in sales to be able to afford it. Most people aren’t so lucky. And the battle for inventors is certainly far from over, especially when infringers with deep pockets can repeatedly play the game and wear down their victims in multiple forums. As Malone laments, “the PTAB simply encourages infringers like Telebrands to double down on the expense of litigation, rather than acquiescing to the adjudication by the District Court.”

It’s no wonder that, in his dismay, Malone joined other frustrated inventors to symbolically burn their patents outside of the USPTO in the summer of 2017. Malone’s story is a stereotype example of how the big infringers attempt to overwhelm the little guy by simply outspending them should they dare to challenge the wrong. Such gamesmanship at the expense of inventors is not the purpose of the PTAB. As Professor Mossoff notes in the documentary: “The original argument for why we needed the PTAB is that, every once in a while, there will be a mistakenly issued patent they shouldn’t have issued, and that these patents can clog the gears of the innovation economy. Unfortunately, what Congress created was a completely unrestrained, unrestricted agency whose job is to cancel patents.”

America’s Founders recognized that a stable and effective patent system is vitally important for the innovation ecosystem to thrive. American inventors like Josh Malone have made a significant difference in people’s lives, and the patent system exists to reward them for their efforts. Inventors should be able to trust that the patent system will be there to protect them when others trample on their rights. They need those rights to be meaningful in order to recoup their investments and to realize their just rewards. The Founders understood that benefiting inventors through such private gains would redound to the public benefit. But as Malone’s story demonstrates, we will need to make some changes to the patent system before the Founders’ vision can be fully realized.

*Aditi Kulkarni is working towards an LLM Degree in Intellectual Property at Antonin Scalia Law School, and she works as a Research Assistant at CPIP.

Categories
Legislation Patent Law Uncategorized

Rep. Massie Introduces New Legislation to Restore America’s Patent System

dictionary entry for the word "legislation"Yesterday, Representative Thomas Massie introduced the Restoring America’s Leadership in Innovation Act of 2018 (H.R. 6264). This legislation would reverse many of the harms that have been caused by recent changes to the patent laws from all three branches of government. Patents are an important part of our innovation economy, providing an incentive for inventors to invent and protecting those creations for commercialization and investment.

Unfortunately, the past decade has witnessed the gradual weakening of our patent system. The America Invents Act (AIA) created new post-issuance methods for reviewing patent validity on top of the review that already occurred in federal courts. The Supreme Court has handed down case after case weakening patents and excluding broad swaths of innovation from the patent system entirely. The USPTO, through the Patent Trial and Appeal Board (PTAB), has been systematically invalidating worthwhile patents based on flawed procedures that are easily abused. Together, these changes have done substantial damage to our innovation economy.,

This new bill will reverse many of these recent changes. Although some of the proposals are new, most are merely the codification of what had long been the law for the patent system. The following provides a breakdown of the most important sections of this legislation:

    • Section 3 (the first substantive section), returns the United States to a first to invent patent system. As noted by CPIP Founder Adam Mossoff, giving patents to the first inventor rewards the intellectual labor that results in the invention. This conception of patents as private property rights protecting the innovator’s creation is arguably required by the Patent Clause of the Constitution, and thus, this Act will bring patent laws back within constitutional limits. Conversely, a first to file system merely rewards those who can win a race to the Patent Office.
    • Section 4 abolishes Inter Partes Review (IPR) and Post-Grant Review (PGR). In addition to covered business method review, which was created with a sunset provision, these procedures allow the Patent Office to cancel at patent it has previously issued. Numerous scholars have identified the substantial harms caused by the PTAB. The problems have been so extensive that other legislation focused on trying to fix these procedures has been introduced. This bill goes the necessary next step. Because these procedures fundamentally undermine the status of patents as private property, the bill eliminates IPR and PGR entirely.
    • Section 5 abolishes the PTAB. The PTAB is a terrible example of regulatory overreach. In light of the elimination of IPR and PGR and the return to a first to file system, the creation of the PTAB by the AIA to administer these systems serves no purpose. The legislation instead recreates the Board of Patent Appeals and Interferences, which existed prior to the AIA and handled the administrative appeals and trials that occurred under the prior system. This change also overrules the holding of Oil States v. Greene’s Energy and accomplishes legislatively the outcome of a CPIP led amicus brief in that case.
    • Section 6 eliminates fee diversion and provides for full funding of the USPTO. Innovators and the public alike count on the USPTO to perform timely, quality examinations of patent applications in the first instance. Ensuring that adequate resources are available for this purpose is essential, particularly given that applicants pay fees to the USPTO for precisely this purpose.
    • Section 8 is mainly technical to assure that the restored § 102 retains the one-year grace period and that certain disclosures by the inventor do not become prior art.
    • Section 9 reestablishes the previously long-held status of patents as a property right. The Constitution secures a patent as a property right and many scholars have noted the important implications of treating patents as property. This section not only states that a patent is a property right, but confirms that a patent may only be revoked in a judicial proceeding, which has substantial benefits, unless the patent owner consents to another procedure. This reverses the broad reasoning in Oil States. The parts of this section returning to patent owners the right to control their property also largely overturn Impression Products v. Lexmark International, now allowing patent owners to exclude unlicensed users from their supply chains.
    • Section 10 ends the automatic publication of patent applications. This change will allow applicants to keep their inventions secret until they have the security that comes with an issued patent.
    • Section 11 codifies the details of the presumption of validity and available defenses to patent infringement. For the first time, this will enshrine in statute that the “clear and convincing standard” must be used to invalidate a patent. Additionally, this section provides for tolling of the patent term during litigation challenging the patent’s validity.
    • Section 12 confirms that injunctions are available to protect the patent property. Although not explicit, the new statutory presumption that infringement of patent causes irreparable harm largely abrogates the Supreme Court’s decision in eBay, which dramatically limited the availability of injunctions. Furthermore, having this rule placed into the statute will limit the inter-court variability that has led to inconsistent outcomes.
    • Section 13 restores the possibility of invalidating a patent for failure to comply with the best mode requirement.
Categories
Legislation Patent Law

The STRONGER Patents Act: The House Receives Its Own Legislation to Protect Our Innovation Economy

U.S. Capitol buildingToday, Representatives Steve Stivers (R-OH) and Bill Foster (D-IL) introduced the Support Technology & Research for Our Nation’s Growth and Economic Resilience (STRONGER) Patents Act of 2018. This important piece of legislation will protect our innovation economy by restoring stable and effective property rights for inventors. This legislation mirrors a bill already introduced in the Senate, which I have previously discussed.

The STRONGER Patents Act accomplishes three key goals to protect innovators. First, the Act will make substantial improvements to post-issuance proceedings in the USPTO to protect patent owners from administrative proceedings run amok. Second, it will confirm the status of patents as property rights, including restoring the ability of patent owners to obtain injunctions as a matter of course. Third, it will eliminate fee diversion from the USPTO, assuring that innovators are obtaining the quality services they are paying for.

First and foremost, the STRONGER Patents Act aims to restore balance to post-issuance review of patents administered by the USPTO’s Patent Trial and Appeal Board (PTAB). The creation of the PTAB was a massive regulatory overreach to correct a perceived problem that could have been better addressed by providing more resources towards initial examination. While the USPTO has long been responsible for issuing patents after a detailed examination, it has recently taken on the role of killing patents the same USPTO previously issued. What the USPTO gives with the one hand, it takes with the other.

Data analyzing PTAB outcomes demonstrates just how dire the situation has become. Coordinated and repetitive challenges to patent validity have made it impossible for patent owners to ever feel confident in the value and enforceability of their property rights. In some cases, more than 20 petitions have been filed on a single patent. Although recent headway has been made to address this issue in the administrative context, it only listed factors to be used when evaluating serial petitions. A more complete statutory solution that prohibits serial petitions except in limited circumstances is necessary to fully protect innovators and provide certainty that these protections will continue.

The kill rate of patents by the PTAB is remarkable. In only 16% of final written decisions at the PTAB does the patent survive unscathed. The actual impact on patent owners is far worse. Disclaimer and settlement are alternate ways a patent owner can lose at the PTAB prior to a final written decision. Thus, the fact that only 4% of petitions result in a final written decision of patentability is more reflective of the burden patent owners faced when dragged into PTAB proceedings.

For these reasons, the PTAB has been known as a “death squad.” This sentiment has been expressed not only by those who are disturbed by the PTAB’s behavior, but also those—such as a former chief judge of the PTAB—who are perpetuating it. The list of specific patents that have been invalidated at the PTAB is mind-boggling, such as an advanced detector for detecting leaks in gas lines.

There are even examples where the PTAB has invalidated a patent that had previously been upheld by the Federal Circuit Court of Appeals. One recent examination further found that there have been at least 58 patents that were upheld in federal district courts that were invalidated in the PTAB on the same statutory grounds. The different results are not mere happenstance but are the result of strategic behavior by petitioners to strategically abuse the procedures of PTAB proceedings.

It has been well known that the procedures have been stacked against patent owners from day one. We and others have noted how broadly construing claims, multiple filings against the same patent by the same challengers, and the inability to amend claims, among other abuses, severely disadvantage patent owners in PTAB proceedings.

With the STRONGER Patents Act, these proceedings will move closer to a fair fight to truly examine patent validity. There are many aspects to this legislation that will improve the PTAB, such as:

  • Harmonizing the claim construction standard with litigation, focusing on the “ordinary and customary meaning” instead of the broadest interpretation a bureaucrat can conceive. This will promote consistent results when patents are challenged, regardless of the forum, by assuring that a patent does not mean different things to different people. Sections 102(a) and 103(a).
  • Confirming the presumption of validity of an issued patent will apply to the PTAB just as it does in litigation. This will allow patent owners to make investments with reasonable security in the validity of the patent. Sections 102(b) and 103(b).
  • Adding a standing requirement, by permitting only those who are “charged with infringement” of the patent to challenge that patent. This will prevent the abusive and extortionate practice of challenging a patent to extract a settlement or short a company’s stock. Sections 102(c) and 103(c).
  • Limiting abusive repetitive and serial challenges to a patent. This will prevent one of the most common abuses, by preventing multiple bites at the apple. Sections 102(d), (f) and 103(d), (f).
  • Authorizing interlocutory review of institution decisions when “mere institution presents a risk of immediate, irreparable injury” to the patent owner as well as in other important circumstances. This change will allow early correction of important mistakes as well as provide for appellate review of issues that currently may evade correction. Sections 102(e) and 103(e).
  • Prohibiting manipulation of the identification of the real-party-in-interest rules to evade estoppel or other procedural rules and providing for discovery to determine the real-party-in-interest. Because many procedural protections depend on identifying the real party-in-interest, this change will assure that determining who that real party is can occur in a fair manner. Sections 102(g) and 103(g).
  • Giving priority to federal court determinations on the validity of a patent. Although discrepancies will be minimized by other changes in this Act, this section assures that the federal court determination will prevail. Sections 102(h) and 103(h).
  • Improving the procedure for amending a challenged patent, including a new expedited examination pathway. This section goes further than Aqua Products, prescribing detailed procedures for adjudicating the patentability of proposed substitute claims and placing the burden of proof on the challenger. Sections 102(i) and 103(i).
  • Prohibiting the same administrative patent judges from both determining whether a challenge is likely to succeed and whether the patent is invalid. This section will confirm the original design of the PTAB by assuring that the decision to institute and final decision are separate. Section 104.
  • Aligning timing requirements for ex parte reexamination with inter partes review by prohibiting requests for reexamination more than one year after being sued for infringement. This section will prevent abuses from the multiple post-grant procedures available in the USPTO. Section 105.

Second, the STRONGER Patents Act will make other necessary corrections to allow patents to promote innovation. For example, as Section 101 of the Act confirms, patents are property rights and deserve the same remedies applicable to other kinds of property. In eBay v. MercExchange, the Supreme Court ignored this fundamental premise by holding that patent owners do not have the presumptive right to keep others from using their property. Section 106 of the STRONGER Patents Act will undo the disastrous eBay decision and confirm the importance of patents as property.

Third, the STRONGER Patents Act will once and for all eliminate USPTO fee diversion. Many people do not realize that the USPTO is funded entirely through user fees and that no taxpayer money goes to the office. Despite promises that the America Invents Act of 2011 would end fee diversion, the federal government continues to redirect USPTO funds to other government programs. This misguided tax on innovation is long overdue to be shut down.

Each of the steps in the STRONGER Patents Act will help bring balance back to our patent system. In addition to the major changes described above, there are also smaller changes that will be important to ensuring a vibrant and efficient patent system. CPIP co-founder Adam Mossoff testified to Congress about the harms being done to innovation through weakened patent protection. It is great news to now see Congress taking steps in the right direction.

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Administrative Agency Innovation Patent Law

The PTAB’s Regulatory Overreach and How it Cripples the Innovation Economy

files labeled as "patents"On August 14, 2017, the Regulatory Transparency Project of the Federalist Society published a new white paper, Crippling the Innovation Economy: Regulatory Overreach at the Patent Office. This white paper examines how an administrative tribunal created in 2011—the Patent Trial and Appeal Board (PTAB)—has become “a prime example regulatory overreach.” Several CPIP scholars are members of the Intellectual Property Working Group in the Regulatory Transparency Project that produced the white paper, including Professors Adam Mossoff, Kristen Osenga, Erika Lietzan, and Mark Schultz, and several are listed as co-authors.

Among the sweeping changes to the U.S. patent system included in the America Invents Act (AIA) was the creation of the PTAB, a new administrative body within the U.S. Patent and Trademark Office (USPTO). The PTAB hears petitions challenging already-issued patents as defective. Anyone can file a petition to have a patent declared invalid. The original idea was that this would help to weed out “bad patents,” i.e., patents that should not have been issued in the first place.

In the past five years, however, it has become clear that the PTAB has become an example of an administrative tribunal that has gone too far. Lacking the proper procedural and substantive restraints that constrain courts and even other agencies in respecting the rights of citizens brought before them, the PTAB is now “killing large numbers of patents and casting a pall of uncertainty for inventors and investors.”

In just a few years, the laudable goal of the PTAB in providing a cheaper, faster way to invalidate “bad patents” has led to a situation in which all patents now have a shroud of doubt around them, undermining the stable and effective property rights that serve as the engine of the innovation economy. The former chief judge of the court that hears all patent appeals recently said that the PTAB is a “patent death squad,” and confirming that this is not extreme rhetoric, the first chief judge of the PTAB responded to this criticism by embracing it: “If we weren’t, in part, doing some ‘death squadding,’ we would not be doing what the [AIA] statute calls on us to do.”

The white paper briefly discusses the history and purpose of the U.S. patent system and describes the PTAB and how it operates. The substance of the white paper details extensively the procedural and substantive problems in how the PTAB has failed to respect both the basic requirements of the rule of law and the rights of patent owners. The concern is that this undermines the stable and effective platform that patent rights provide as the engine of the innovation economy.

To read the white paper, please click here.

Categories
Administrative Agency Innovation Inventors Patent Law Patent Litigation Uncategorized

#AliceStorm: When It Rains, It Pours…

The following guest post from Robert R. Sachs, Partner at Fenwick & West LLP, first appeared on the Bilski Blog, and it is reposted here with permission.

By Robert R. Sachs

Last year I christened the post-Alice impact on patents #Alicestorm, riffing on the hashtag #hellastorm used to refer to the Pineapple Express storms the drenched the Bay Area in December 2014. This year we have El Niño bringing day after day of rain, and so too we have Alice decisions coming down in sheets. Here is a comparison of number of decisions per month since Alice.

Table 1 Quarterly Numbers

On average, we’re seeing about eleven Section 101 decisions per month in the federal courts. The overall success rate has been holding in the low 70% range, currently 72.1% (down from 73% in October). Similarly, motions on the pleadings continue with an equally strong success rate of 71.7% (down from 71.9%):

Table 2 Summary

The number of patents invalidated has increased dramatically from 354 as of October 2015 to over 400, while the number of invalidated claims is now over 12,000. The courts routinely invalidate all of the claims of a patent based on a single “representative” claim, including all dependent claims regardless of their level of specificity. This seems entirely contrary to the notion that dependent claims necessarily narrow the broad and presumably abstract independent claims, and likely provide at least some features that are “significantly more” then than the abstract idea, as well as recitations that are non-generic technology that provides some “improvement” over the art. Is it really possible that so many thousands of dependent claims had no merit? If dependent claims are hedges against invalidity under Section 103, why do they have so little bearing under Section 101?

PTAB continues to be the points leader on the board, with the institution rate on Section 101 based Covered Business Method petitions climbing to 84.8% (up from 83.7%) and an unbroken string of 38 final decisions on Section 101 finding the challenged patent ineligible.

The motion analysis remains consistent with what we’ve seen before:

Motions

The most active courts and judges, by number of Section 101 decisions, are in Delaware with 35 decisions (Andrews, Robinson, Stark, Sleet, Burke) and Texas with 29 (Gilstrap, Payne, Mitchell, Schroeder).

Judges

The number of new patent cases filed climbed in 2015, including a large filing spike at the end of November, 2015 due to the elimination of Form 18, which required only the basic allegation that the plaintiff owned the patent and that the defendant infringed, without any substantive allegations. As a result, we expect to see the continued stream of Section 101 motions and ineligibility outcomes.

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Administrative Agency Innovation Inventors Patent Law Patent Litigation Uncategorized

#AliceStorm for Halloween: Was it a Trick or a Treat?

The following guest post from Robert R. Sachs, Partner at Fenwick & West LLP, first appeared on the Bilski Blog, and it is reposted here with permission.

By Robert R. Sachs

Alice has been busy the last two months, continuing to haunt the federal courts and the Knox and Randolph buildings at the USPTO. Here are the latest #AliceStorm numbers through the end of October 2015:

There have been 34 district court decisions in the past two months, but the percentage of invalidity decision is holding constant at 70.5%. The number of patent claims invalidated is now over 11,000, but also holding steady at around 71%.

There have been no new Federal Circuit Section 101 decisions, but we’re going to see a flurry of activity in the next couple of months, as the court has recently heard oral argument in a number of patent eligibility cases, and more are on calendar for November.

Motions on the pleadings have soared, with 23 in the past two months alone, and the success rate is up a tick from 70.1% to 71.4%.

PTAB is a bit mixed: the CBM institution rate is down from 86.2% 83.7%, but the final decision rate is still 100%, with 6 decisions in the past two months invalidating the patents in suit.

Turning to the motion analysis, the motions on the pleadings are the second scariest thing to a patent holder after the specter of attorney fees under Octane Fitness:

The Delaware district court continues as the graveyard of business methods and software patents, with 31 eligibility decisions, up from 19 just two months ago, and their invalidity rate is up from 86.4% to 90.3%.

Jumping into second place is the Eastern District of Texas, with 23 decisions total (up from 16). Contrary to the rest of the rest of the bench, their invalidity rate is 34.8%. The Northern District of California edged up from 75% to 78.9% invalidity, and C.D. Cal is up almost 2%.

And finally, here is the run down on the all district court judges with two or more Section 101 decisions.

With today’s blog, I’m introducing some entirely new types of data, looking at the characteristics of the patents that have been subject to Section 101 motions.

As expected, business method patents are the most heavily litigated and invalidated (click to see full size):

The distribution of patents in terms of earlier priority dates shows a very large fraction of the invalidated patents were first filed in 2000:

Now compare that to the distribution of patent classes with respect to priority year as well:

Here too we see a very large number of the business method patents filed in 2000. I’ve coded all of the software related technologies as blue to group them visually.

Why the cluster around 2000? State Street Bank, which held that there was no rule against business method patents, was decided in mid-1998. As those of us who were practicing them remember, it took about two years before the impact of the decision was widespread. This was also the time of the Dotcom bubble when it seemed that just about everyone was starting up a business on Internet. Those two factors resulted in a surge of patent filings.

Of all the patents that have been thus challenged under Alice, only two have post-Bilski priority dates:

  • 8447263, Emergency call analysis system, filed in 2011, and litigated in Boar’s Head Corp. v. DirectApps, Inc., 2015 U.S. Dist. LEXIS 98502 (E.D. Cal., 7/28/2015). The court granted DirectApps motion to dismiss, finding the patent invalid.
  • 8938510, On-demand mailbox synchronization and migration system, filed in 2010, and litigated in BitTitan, Inc. v. SkyKick, Inc., 2015 U.S. Dist. LEXIS 114082 (W.D. Wash, 8/27/2015). BitTran’s motion for preliminary injunction was denied in part because of SkyKick successfully argued that BitTrans was not likely to succeed on the merits due to Alice problems.
  • 8,604,943; 9,070,295; 9,082,097; 9,082,098 and 9,087,313, all of which claim priority to March, 2012, and were invalidated just last week in MacroPoint LLC v. FourKites Inc., Case. No. 1:15-cv-01002 (N.D. Ohio, Nov. 5, 2015). The court invalided all 94 claims in these patents, as being directed to the abstract idea of “tracking freight.” While the last four patents were issued in June and July, 2015, none of them overcome an Alice rejection, and the court noted that “Nothing in the Reasons for Allowance dictate a finding that these concepts are inventive on the issue of patent-eligible subject matter.”

Over time we’ll see more post-Bilski patents being litigated, and then eventually a true test: a business method patent granted after Alice that overcame an Alice rejection. By my count, there are about 80 such patents thus far, and about another 90 that have been allowed. It will not be too long then before one of these patents is challenged under Section 101.

In my next column, I’ll review some very disturbing decisions by coming out of the Delaware district courts.