Constitutional and Economic Policy Problems Raised by Inter Partes Review (IPR) Suggest Congress Should Consider Acting

Constitution with American flag.One of the key innovations of the 2011 Leahy-Smith America Invents Act (AIA), 35 U. S. C. §100 et seq., was the creation of a novel type of “inter partes review” process (IPR), run by the newly-created Patent Trial and Appeal Board (PTAB). Under IPR, a third party may request the U. S. Patent and Trademark Office (PTO) to have administrative judges (PTO employees) reexamine the claims in an already-issued patent and to cancel any claims that they find to be unpatentable in light of prior art.

IPR has been controversial from the start, the subject of complaints that it is “rigged” to disfavor patent rights. As one noted commentator put it:

While it is a laudable goal to make it easier to challenge obviously absurd patent claims, the way that post grant procedures were created does little other than ensure that any patent owner with a commercially valuable patent will face endless challenges. The patent system is supposed to encourage commercially relevant innovations, not to turn patents covering ubiquitous innovations into another more than an illusory promise. After all, ubiquitous innovations become ubiquitous because they are so valuable.

More colorfully, Randall Rader, former Chief Judge of the U.S. Court of Appeals for the Federal Circuit, compared the PTAB to a “death squad[], kind of killing property rights.”

Unfortunately, hopes by some IPR critics that the judiciary would narrow the scope of the PTAB’s authority were sadly dashed by the U.S. Supreme Court’s June 2016 opinion in Cuozzo Speed Technologies v. Lee. Specifically, the Court upheld the AIA provision which provides that the PTO’s decision “whether to institute an inter partes review . . . shall be final and non-appealable,” 35 U. S. C. §314(d), refusing to limit that statutory language to interlocutory appeals and noting the “congressional objective” to give the PTO “significant power to revisit and revise earlier patent grants.” The Court also upheld the PTO regulation mandating PTAB application of the broadest reasonable interpretation claims construction standard as a “reasonable exercise” of the rulemaking authority granted to the PTO by statute. In so holding, the Court brushed aside concerns that this standard – and the application of a “preponderance of the evidence” standard as opposed to a federal court’s “clear and convincing” evidence standard – accorded less deference to patent rights than would be shown in federal district court.

In light of Cuozzo, one should not expect a grant of the petition for certiorari in MCM Portfolio v. Hewlett-Packard. The central claim of that petition is that by permitting administrative judges to extinguish vested patent rights, IPR violates the Seventh Amendment right to a jury trial and Article III’s separation of powers. There is no hint in the Court’s opinion in Cuozzo that the Court is willing to entertain constitutional challenges to the IPR system established pursuant to the AIA.

Accordingly, if the PTAB and its IPR process are to be curbed, Congress must act. That the Supreme Court may choose not to strike down the IPR system should not be read to mean that Congress may assume the system poses no constitutional problems. As one of the three co-equal branches of the federal government, Congress has an independent duty to assess the constitutional merits of legislation. As explained by a prominent constitutional scholar:

[Under] the doctrine of “coordinate construction” . . . Congress, by the very nature of our political system, shares with the executive and the judiciary the duty of constitutional interpretation. . . . The historical record . . . demonstrates that Congress deliberated for years on such constitutional issues as judicial review, the Bank of the United States, congressional investigative power, slavery, internal improvements, federalism, the war-making power, treaties and foreign relations, interstate commerce, the removal power, and the legislative veto long before those issues entered the courts.

In independently assessing whether the IPR process passes constitutional muster, Congress may wish to consider an amicus curiae brief by thirteen law professors urging the Supreme Court to grant certiorari in MCM Portfolio. The brief discusses enduring nineteenth-century case law demonstrating that patents are private property rights that are secured under the Constitution, and highlights the fact that as recently as 2015, in Horne v. Department of Agriculture, the Supreme Court stated that “[a patent] confers upon the patentee an exclusive property in the patented invention which cannot be appropriated or used by the government itself, without just compensation ….” In a similar vein, the petition for certiorari in MCM Portfolio explains that patents quintessentially involve private property rights that are subject to common law causes of action, and, thus, are covered by the Seventh Amendment’s guarantee of a civil trial by jury in federal court. Thus, the invalidation of a vested patent right through the PTAB process, rather than by a federal district court, offends the Seventh Amendment. By the same reasoning, allowing vested patent rights to be adjudicated and extinguished by PTAB administrative judges (who are employees of an Article II agency, the PTO) prevents federal courts from exercising one of their exclusive constitutional prerogatives and therefore offends Article III of the Constitution, in violation of the separation of powers.

5th-anniversary-200If Congress, nevertheless, is unmoved by the constitutional arguments for reforming the IPR process, it should weigh the strong economic policy arguments supporting IPR reform, which are outlined in various amicus curiae briefs supporting certiorari. As pointed out in a brief filed on behalf of the Houston Inventors Association, the IPR system “has a great attraction to ‘patent pirates’, companies who [sic] infringe patents and then deny liability, because the IPR has a high rate of success for ‘patent pirates’ to invalidate patents.” In other words, the IPR system facilitates infringers who want to free ride on the fruits of patentees’ labors, thereby ineluctably diminishing marginal incentives for investment in patentable innovations. As a brief filed on behalf of the University of New Mexico explains, the threat of IPR (in particular its anti-patent “death star” reputation), and inconsistencies between PTAB and federal district court patent validity standards, devalue and harm university patents. The most fulsome exposition of economic problems raised by IPR is in an amicus brief filed on behalf of a coalition of inventors, investors, and small business owners. That brief discusses at some length how the creation of IPR undermines patent rights by making patents more risky and expensive, by introducing new uncertainty into otherwise settled patent rights, and by contributing to an environment of hostility toward patent ownership. More generally, the brief assesses how the risk and expense associated with IPR impedes inventors, startups, and small businesses. In particular, “the threat of IPR, and the attendant instability it introduces into otherwise settled patent property rights, will make it harder for startups to attract investors, employees, and many other critical resources.” The brief also explains how “IPR’s destabilizing effects on patent rights and the development of small and start-up businesses threaten the economy as a whole, because growth in the American economy depends on advances from small startups supported by strong patent rights.” Finally, pointing to the experience of other countries that have procedures similar to IPR, the brief concludes that “over the long run, the harms to innovation introduced by IPR review, and their effects on the economy, are likely to greatly increase.”

If, as seems likely, that certiorari is not granted in MCM Portfolio, Congress should seriously weigh these concerns and consider enacting legislation to eliminate, or at the very least significantly reform, the IPR process. Full-scale elimination of the IPR is by far the best option, as a matter of constitutional principle and economic policy. “Second best” reforms short of repeal might involve, for example, mandating that IPR be constituted as an independent “second look” proceeding to consider an application that an examiner tentatively plans to approve where the patent has not yet formally been granted. This would avoid the constitutional problems associated with extinguishing vested patent rights, but could create confusion and additional regulatory delays in the examination process. (Perhaps a public notice of “intent to grant” a patent could be employed to notify third parties and thereby trigger their applications for such a proceeding.) An alternative approach might be to allow IPR to continue, subject to application of the same standards of validity and evidence (“clear and convincing”) as those employed by a federal district court in patent litigation. Although this alternative presumably would reduce the current high incidence of PTAB patent claim cancellations (see here), it would not eliminate Seventh Amendment and Article III separation of powers concerns. Overall, “second best” alternatives, which would generate a host of new uncertainties, appear at best to be of minimal value, little better than applying a topical “anti-itch” cream to treat a skin cancer.

In short, the legislative creation of the PTAB and the IPR process was the wrong response to the understandable desire to “do something” to improve patent quality. Although there is no “magic bullet,” a host of different patent quality initiatives merit being pursued, including administrative improvements at the PTO (some of which have already been instituted), additional fee funding for examinations, and perhaps substantive patent law amendments to reduce inherent legal uncertainties (perhaps repeal of section 101 of the Patent Act?). Congress would be best advised to focus on the merits of such alternatives, and to scrap IPR and PTAB, consigning them to the graveyard of ill-advised legislative initiatives.


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Join the Discussion

10 comments so far.

  • [Avatar for Night Writer]
    Night Writer
    September 15, 2016 10:59 am

    @8 David “Scholarship from pro-IPR academics (i.e., Lemley) confirms the same.”

    Scholarship with Lemley is an oxymoron. Law journals are vanity press. Lemley works for Stanford which protects him. Lemley’s cites in his ‘papers” are inaccurate and evince a clear pattern of unethical behavior. Moreover, he thinks nothing of misrepresenting facts in his papers.

    It is a national disgrace that the SCOTUS has quoted this man.

  • [Avatar for Edward Heller]
    Edward Heller
    September 13, 2016 01:05 pm

    David, just to clarify, if the Supreme Court takes MCM, Roberts will likely fix the potential conflict of interest issue and participate.

    The Seventh Amendment only applies to claims that were resolved in courts of law.

    To be clear, the Seventh Amendment applies to issues that were given to the jury. Issues of fact involving validity were given to the jury prior to 1792 in England. Under the Seventh Amendment, this should be enough to provide a constitutional right to a jury trial for issues of fact involving validity. In point of fact, the Federal Circuit is already ruled that the be the case.

    Now the Supreme Court has already addressed the issue of whether one can strip one of one’s constitutional rights by taking an issue for which one has a right to a jury trial and assigning the trial of that issue either to a court of equity or to an administrative agency. I wonder, if you could tell me, what you think the Supreme Court views on that issue were?

  • [Avatar for David]
    September 13, 2016 12:17 pm


    The Cooper petition will be reviewed by all 8 Justices, including, perhaps most importantly, C.J. Roberts. Given what is at stake, his participation is highly significant, and elevates the Cooper petition light years beyond your own.

    I recall you repeatedly claiming on another blog that Roberts would “un-recuse” himself for MCM. You were wrong.

    Additionally, the Seventh Amendment question is not the Article III question. The Seventh Amendment only applies to claims that were resolved in courts of law. The public rights exception protects the core of judicial power, including claims traditionally resolved at law, equity, or admiralty. Thus, the Seventh Amendment determination only addresses one of the three prongs required for Article III protection. Nonetheless, the Seventh Amendment judicial “discussion” is important, as the CAFC’s case law demonstrates that patent validity challenges were resolved at law or equity. Scholarship from pro-IPR academics (i.e., Lemley) confirms the same. Thus, it isn’t the Seventh Amendment result that matters, but instead the debate itself (i.e., at law or equity? The courts, academics, etc. have never doubted that it belonged to one or the other)

    If at equity, this addresses the Seventh Amendment issue, but creates a very serious Article III problem. Cooper has strategized this perfectly.

  • [Avatar for Edward Heller]
    Edward Heller
    September 13, 2016 09:02 am

    Well said, Mr. Abbott.

    Regarding the Supreme Court, the major problem MCM faces in having certiorari granted is Roberts recusal. MCM still needs 4 votes with only 7 judges voting.

    Regarding Cooper, Cooper never raised a 7th amendment challenge. Only MCM raised that challenge.

    One can research this issue, but I believe that the Supreme Court has consistently taken certiorari where significant Seventh Amendment issues are presented to them. For example, the Supreme Court took certiorari in In re Lockwood, the case where the Federal Circuit held there to be a Seventh Amendment right to a trial by jury for invalidity.

    The Seventh Amendment does not involve issues of congressional policy except to the extent that congressional policy cannot override the Constitution. In particular, Congress has not established that there are no effective means of reducing litigation costs involving patent validity than simply abrogating the patent owner’s right to a trial by jury. One can think of numbers of ways to litigate patent validity in a court without great expense – especially if validity has to be tried before infringement. As well, Congress could provide that the PTAB patent lawyers be reassigned as patent expertise magistrates to support validity challenges in court. These are just thoughts, and should not be considered specific recommendations.

    Regarding Congress in the run-up to the AIA, they were assured by a Stanford professor that the IPR was constitutional, citing the two Federal Circuit decisions upholding the constitutionality of re-examinations. What the professor failed to include in his summary of the constitutionality issue was any mention of In re Lockwood, a case that came down years after the two Federal Circuit decisions regarding reexaminations. In that case, the Federal Circuit held, as mentioned above, that there was a Seventh Amendment right to a trial by jury for patent validity; and in the same case, three judges dissented from taking the case en banc because in their view the majority decision necessarily overruled Patlex, the case that had first held that reexaminations were constitutional. Thus the Federal Circuit itself had recognized that Patlex was suspect. Congress was never informed of this. They need to be informed that they were not told the whole story by the backers of the AIA.

  • [Avatar for David]
    September 12, 2016 06:06 pm

    @Night, @Paul — I suppose we will find out on Oct. 3.

  • [Avatar for Prizzi's Glory]
    Prizzi’s Glory
    September 12, 2016 03:54 pm

    My email is [email protected] .

  • [Avatar for Prizzi's Glory]
    Prizzi’s Glory
    September 12, 2016 03:52 pm

    I have pointed out in a comment on a previous blog post that the problems of the US patent system are far deeper that USPTO misbehavior and the AIA.

    One can wish for a magical Supreme Court fix, but really we need access to confidential USPTO records that date back to the switchover from pre-GATT to GATT patent law and that normally are not made available as Official or Administrative Record in 35 USC § 141 or 35 USC § 145 proceedings.

    If any of the attorneys in this forum wish to help fix the deep problems of the US patent system, have I got a case for you.

    It includes:

    1) major criminal violations by PTAB Administrative Patent Judges at the behest of senior USPTO officials in the Director’s Office,

    2) ignoring rules and regulations with respect to the FOIA Reading Room,

    3) gutting of major precedents with respect to issue preclusion, and

    4) complete trampling of Erie Doctrine (including equality of litigants).

    If PTAB APJs are falsifying documents and engaging in criminal conspiracy, how can the IPR process be treated as legitimate? Congress and SCOTUS would have to take note especially if the case results in the arrest of senior patent officials.

    If you are interested in saving the US patent system and putting the criminals in jail even if they have high posts in the executive branch, send me an email (address in the following comment). I can put you in touch with the patent application owner and with the attorneys.

    Disclaimer: I have no personal interest in the patent application, but I have helped pay some legal fees because I consider this case possibly the most important one that has ever been brought in the US legal system.

  • [Avatar for Paul Morinville]
    Paul Morinville
    September 12, 2016 03:40 pm

    David, “@1 David: 2. The author’s argument is essentially yes IPR violates the separation of powers but the Court won’t care, which is cynical and odd” in light of Night Writer @2…

    The Supreme Court also decided eBay and interpreted “exclusive Right” to mean public right. I agree with Night Writer… “There is nothing cynical and odd about that. It is called facing reality. “

  • [Avatar for Night Writer]
    Night Writer
    September 12, 2016 10:24 am

    @1 David: 2. The author’s argument is essentially yes IPR violates the separation of powers but the Court won’t care, which is cynical and odd

    There is nothing cynical and odd about that. It is called facing reality. Do you think David that Alice is Constitutional? Alice is absurd. It holds that all claims that fit the test in Alice do not promote, and therefore it was unconstitutional to grant them. That includes a finding of fact by the SCOTUS.

  • [Avatar for David]
    September 12, 2016 10:01 am

    Two points:

    1. The author either forgot or declined to mention Cooper v Lee. Cooper, like MCM, will also be addressed during the Sept 26 conference:

    2. The author’s argument is essentially yes IPR violates the separation of powers but the Court won’t care, which is cynical and odd – and does not appear to accurately reflect the Roberts Court. Additionally, Cuozzo was purely a statutory decision – the opinion repeatedly explains as much – and expressly left the door open to the resolution of constitutional questions.