Witnesses Tell House IP Subcommittee, “It’s Up to You” to Fix Arthrex

“Something odd is happening at the PTO; every business day, 1,000 patents issue, but when the PTO reevaluates some of those patents…it invalidates some claims 80% of the time…. The only institution in the United States that does not give the PTO credit for its work, is the PTO.” – John Whealan

Arthrex hearing

Rep. Hank Johnson (D-GA)

“It’s up to you to do the right thing and fix this,” said Professor Arti Rai of The Center for Innovation Policy at Duke University School of Law near the end of a hearing on what Congress should do in the wake of the Arthrex decision yesterday. Rai was one of four IP scholars who testified during the hearing of the House Judiciary Committee’s Subcommittee on Courts, Intellectual Property and the Internet; all witnesses seemed to agree that the courts will not fix the problem soon enough to ensure the requisite certainty for U.S. patent owners and businesses, so Congress must act.

In Arthrex, the Federal Circuit found that the Patent Trial and Appeal Board’s (PTAB’s) Administrative Patent Judges (APJs) were unconstitutionally appointed and removed the civil service protections they previously were deemed to enjoy—although, as Professor John Duffy of the University of Virginia School of Law pointed out, if the Federal Circuit ruled that the APJs can’t have tenure, that arguably means they never did. “If you go back to Marbury v. Madison, courts don’t actually strike down statutes; they simply say what the law is,” Duffy said.

We Can’t Trust the Courts

In his opening statement, Subcommittee Chair Hank Johnson (D-GA) said that, despite the Federal Circuit’s contention in Arthrex that Congress would have preferred the approach the Court took, “speaking for myself, I find it inconsistent with the idea of creating an adjudicatory body to have judges who have no job security. It goes against the idea of providing independent impartial justice if a judge is thinking about his or her livelihood while also weighing the facts of a case.”

Although Johnson said he understood that the Court was in a difficult position, with limited options, he convened the hearing to consider whether Congress should get involved. He added:

Frankly, I worry that we cannot trust the courts to fix this. We are living through an era where the Supreme Court is taking increasingly extreme positions about the constitutionality of the administrative structures that have existed since the New Deal. These decisions second guess the legislative process and solutions Congress has worked hard to pass in order to handle the realities and complexities of a modern society.

Subcommittee Ranking Member Martha Roby (R-AL) suggested that the broad independent authority PTAB judges have had since the passage of the America Invents Act (AIA) raises important questions. “Because these decisions sometimes mean tens or hundreds of millions of dollars, or the viability of a small business, it raises doubts that agency officials who are not Senate confirmed should have so much independent authority,” Roby said.

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The Options

Three possible solutions were presented—and generally agreed upon—by the witnesses, who, in addition to Duffy and Rai included John Whealan of George Washington University Law School and Robert Armitage, IP Strategy and Policy Consultant. They include:

  • Provide a clear path of review to the USPTO Director;
  • Establish a small number of additional officers who are confirmed by the Senate and have them review PTAB cases;
  • Make PTAB decisions be reviewable by PTAB chief judge, which would be made into a Senate confirmed position.

All witnesses agreed that enacting a unilateral right of review for the Director would be the fastest and least administratively burdensome solution. A fourth, less viable option, is to make all 200-plus APJs subject to Senate confirmation and appointment by the U.S. President.

Time for Systemic Review

John Whealan

While it is solving the Arthrex problem, Whealan, who once served as Solicitor to the USPTO, suggested that Congress might want to take this opportunity to review how the inter partes review (IPR) process and the PTAB overall are working eight years on and 10,000 IPRs on from the AIA. Whealan’s remarks are worth reproducing at length:

IPRs have had a profound effect on the patent system; however they received little debate during the AIA as compared to the highly controversial post grant review “second window” that ultimately had to be stripped from the bill in order to obtain passage; yet IPRs share many of the attributes as were feared of PGR second window, including inability of quiet title and multiple and serial petitions. IPRs have devalued every single U.S. patent. Patents are supposed to be presumed valid; they are not before the PTAB. Invalidity must be proven by clear and convincing evidence; not at the PTAB. The numbers confirm this. There are over 1,400 IPRs filed each year. That’s 3.5 times as many as the USPTO estimated to Congress [at the time of the AIA]. IPR petitioners fare much better than patentees, given IPRs are instituted over 60% of the time and in final decisions some claims are invalidated 80% of the time. To my knowledge, almost no one thought there would be 1,400 IPRs per year, 260 APJs, so many claims would be invalidated, and that the estoppel provision would be so weak. And no one thought that APJs were unconstitutional. But laws can have unexpected and unintended consequences…. For the last eight years many interested parties have said the system is working just fine. It wasn’t, and it still is not. A critical voice seems to have been missing from the discussion—that of the patent owner. Patentees must pay thousands of dollars and wait years to get a patent and then sometimes have to pay hundreds of thousands and wait years to see if it’s valid. I know of no other federal agency where one party has to pay thousands of dollars to get a grant and then another party pays the institution to invalidate that grant. That is what is happening today. Something odd is happening at the PTO; every business day, 1,000 patents issue, but when the PTO reevaluates some of those patents…it invalidates some claims 80% of the time. It is also amazing to me that the only institution in the United States that does not give the PTO credit for its work, is the PTO—it can’t. Patents are not presumed valid at the PTAB. So, as Congress thinks about this, some issues it may wish to consider are presumption of validity, standing, estoppel, and to realize that IPRs are often not a substitute for, but are in addition to, litigation. And most of all, consider IPRs from the perspective of the patentee; after all, without them we wouldn’t be here.

No Surprise: Different Standards, Different Outcomes

Whealan’s point about the differing validity standards at the PTAB versus federal courts also piqued the Subcommittee’s interest and three of the four panelists agreed that the standards should be the same in order to mitigate the problem of patents being upheld by courts and then invalidated by the PTAB. Rai, however, urged caution:

I agree as a policy matter that claim construction should be the same between courts and the PTAB, but as an administrative law professor I don’t have a huge love of Congress coming in and micro-managing administrative adjudication. That’s appropriately delegated to the agency, and it can adapt its adjudicatory practices, within the limits of the Constitution, to the needs before it. Having Congress put that into statute would unduly box in the agency.

Rai also said that she thinks the PTAB is largely working. “I do believe the PTAB is largely functioning as Congress envisioned in the AIA,” Rai said.  “It’s an expert, fair and efficient alternative to expensive Article III litigation of the validity of issued patents.”

Arthrex hearing

Arti Rai

She added that recent initiatives taken by Director Andrei Iancu on issues like claim construction standards, serial petitioning, and the creation of the Precedential Opinion Panel have further strengthened the effectiveness of the PTAB. That said, since the current Supreme Court may well agree with the Federal Circuit that the PTAB APJs were not properly appointed, Congress should consider a “surgical alteration” to ensure sound administrative procedure, Rai said. She later noted that any such solution should also apply retroactively.

In response to Rai’s comments on solutions for streamlining the standards, Whealan said that leaving it up to the USPTO would not work. “Congress put [the] preponderance [of the evidence standard] in the statute; Congress has to take it out if they want to change it.”

The panelists pointed out that a judicial solution to the matter will not come until 2021 at best, and even then, it may not solve the problem. Even Constitutional lawyers seem uncertain about the potential outcomes, said Whealan, and in the end, the Supreme Court may find that the Federal Circuit solution was not sufficient—thus, Congress must take on the important task of creating certainty.

The Unthinkable Things

Arthrex hearing

Bob Armitage

For his part, Armitage said that one of the last things he does before going to bed each night is to hope that Judge Dyk’s decision in Bedgear, LLC v. Fredman Bros. Furniture Company, Inc., No. 18-2082 (Fed. Cir. 2019) was correct. In that decision, issued soon after Arthrex, Judge Dyk said that “the remedy aspect of Arthrex (requiring a new hearing before a new panel) is not required” as it  “imposes large and unnecessary burdens on the system of inter partes review, requiring potentially hundreds of new proceedings, and involves unconstitutional prospective decision-making.”

“[Judge Dyk] would do retroactively something that, during an interim period of time, would cause no harm and give Congress time to act retroactively to do some good,” like to moot the issue, Armitage said.  In this way, nothing too bad would happen before Congress acts, such as all PTAB decisions being deemed questionable from a Constitutional standpoint. Armitage added:

“The unthinkable things need to be solved before they become thoughts we all have to live with.”

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Join the Discussion

19 comments so far.

  • [Avatar for Disenfranchised Patent Owner]
    Disenfranchised Patent Owner
    November 24, 2019 08:42 am

    “The unthinkable things need to be solved before they become thoughts we all have to live with.”
    Translation: Sweep this under the rug before someone wins a Supreme Court case finding that the AIA itself is an unconstitutional takings under Article V.

  • [Avatar for Randy Landreneau]
    Randy Landreneau
    November 22, 2019 05:57 pm

    Ms. Rai basically said that each entity accused of infringement should have the ability to force the inventor into the PTAB, and 2 of the other 3 witnesses would probably agree with her. Each PTAB attack costs the inventor hundreds of thousands to defend. If the first PTAB attack doesn’t destroy the patent or inventor, more will likely occur usually destroying the patent before there is ever a chance of getting to a real court. Unlike the pre-AIA days, attorneys can’t take these cases on contingency because the odds are so stacked against the inventor. So, unless the inventor is rich to begin with, he or she has no access to the courts, no justice, and no reason to ever get a patent.

    All the things being discussed to make the PTAB legal will not restore the rights of inventors that had enabled America to lead the world in innovation for two centuries. Inventors who have controlling interest in their own patents should be able to opt for an Article III Court when faced with an attempt to invalidate their patents. If the PTAB is ever made fair, cheap and fast, they will choose it.

  • [Avatar for angry dude]
    angry dude
    November 22, 2019 11:17 am

    Jacek the “troll”@14

    “Inventions and inventors still go to China and the EU.”

    No dude,

    American inventors just stop inventing and go fishing instead…

    At least that’s what I did

    Fishing is good for me – I can see the result of my efforts and eat it too..

    Inventing in US is not good for anyone with less than 10 million USD in cash reserves ready to be spent: it’s self-destructing activity, both financially and mentally

    P.S. What we see nowadays going on with used to be the best in the world more than 200-year old US Patent System is complete annihilation
    Those responsible for this must be tried for HIGH TREASON

  • [Avatar for Concerned II]
    Concerned II
    November 22, 2019 09:50 am

    Nobody seems willing to say it straight out loud, so I will.
    As democratic republic with a constitutionally-mandated system of “checks and balances” between three equal branches of government, we don’t need and should no longer tolerate the so-called “hybrid” tribunal known as the PTAB, at least in terms of its power to adjudicate these inter partes disputes over validity of issued patents. Handling USPTO patent appeals is one thing, but trying to do things that only an Article III US district court is constitutionally empowered to do is quite another.
    These IPRs will never work under our constitutional structure. The only way they have endured this long is because powerful shadow interests are driving the narrative, which continues to debate superficial issues about how the PTAB does this or that vis-a-vis IPRs, with a subtle but never debated assumption that the PTAB itself is okay in terms of its foundational underpinnings for adjudicating IPRs, which underpinnings are fatally flawed.
    We need to leave adjudication of patent validity, in the first instance, to US district courts. If we as a country don’t like the way these properly empowered courts adjudicate patent validity, them figure out how the district courts can do it better and implement appropriate improvements.
    Coming up with a rigged, “hybrid” kangaroo court to hijack patents from the probing eyes of district courts is not the answer to the problem, if there really ever was a problem (as opposed to a few decisions that went against powerful “stakeholders,” who then juiced up their media and legislative friends to make a way out, so they could copy with greater impunity).

  • [Avatar for Anon]
    Anon
    November 21, 2019 08:07 pm

    AAA JJ,

    Interestingly enough, the position of the court was the opposite. Since it is a tribunal, there could be NO guarantee that the director could obtain what he wanted. Stacking the deck at the onset was deemed not enough (given the protections that the APJs had against resprisal).

  • [Avatar for Jacek the "troll"]
    Jacek the “troll”
    November 21, 2019 05:09 pm

    Talk and talk. Nothing about the urgency of the issue. Maybe in the fashion of the current president, we simply are going to ban new technologies from reaching our shores. Like with Huawei. Let’s move back into the caves. After 8 years of AIA, we can expect another 8 years. Inventions and inventors still go to China and the EU.

  • [Avatar for AAA JJ]
    AAA JJ
    November 21, 2019 03:16 pm

    If the Director wants a particular result in a case (IPR, PGR, ex parte, etc.) then the Director will get the result the Director wants. Under the current scheme or any fix to the current scheme. Not sure any of this matters.

  • [Avatar for Anon]
    Anon
    November 21, 2019 11:39 am

    Paul M.,

    I am reminded of phrase: Power corrupts, and absolute power corrupts absolutely.

    ALL of the discussion of judicial power (appointment related and otherwise) really should be understood with the trepidation that our founding fathers had for such authority and WHY we have separation of powers (and checks and balances ACROSS ALL THREE branches, with NO single branch to be considered above the Constitution). Now would be a good time to read again some of the Federalist Papers.

    Placing judicial power (and unchecked judicial power — especially in the inevitable bleed over of judicial power writing patent law with the use of Common Law law writing techniques) into a politically controlled executive branch administrative agency should be sending out alarms to everyone involved (patent practitioners, pundits, academia, Congressmen, the Director of the USPTO, Secretary of Commerce, judges and Justices of the judicial branch). The Fourth Branch is powerful enough already.

  • [Avatar for Paul Morinville]
    Paul Morinville
    November 20, 2019 09:20 pm

    “speaking for myself, I find it inconsistent with the idea of creating an adjudicatory body to have judges who have no job security. It goes against the idea of providing independent impartial justice if a judge is thinking about his or her livelihood while also weighing the facts of a case.” Rep Johnson.

    I commend him. He must want the PTAB eliminated and the decisions to be made by Article III judges and juries.

    If he means that PTAB “judges” should be lifetime appointed who cannot be fired, I caution him to be very careful what he wishes for. There is a big difference between a lifetime appointed Article III judge and a government employee protected by a union. While both are perpetually employed regardless of productivity or fairness of results, only one is thoroughly vetted through an appointment process defined in the Constitution and only one is replaced by a jury as the fact finder.

    If Johnson wants government employees making validity decision on the most valuable assets on the planet to be lifetime employed, he will learn (as we already have) just how corruption is tilled and fertilized. God help those forced to reap the crop.

  • [Avatar for Night Writer]
    Night Writer
    November 20, 2019 04:16 pm

    @7 Eileen:
    I was fuming. I got it right the second time. I’ve read papers that Rai has written and I think they are horrendous. She seems to pattern herself after Lemley.

    @9 BP “Too bad the Truth in Testimony Disclosure Form does not include a box for disclosing non-governmental sources of funding.”

    Exactly!!! These people are not “professors”, but “large corporate advocates with appointments at universities.” My guess too based on some other things I know is that the universities are getting big money from SV and that is affecting who they hire and promote.

  • [Avatar for BP]
    BP
    November 20, 2019 03:15 pm

    Rai’s Truth in Testimony Disclosure Form states “none” under: If you are a non-governmental witness, please list any federal grants or contracts (including subgrants or subcontracts) related to the hearing’s subject matter that you or the organization(s) you represent at this hearing received in the current calendar year and previous two calendar years. Include the source and amount of each grant or contract.If necessary, attach additional sheet(s) to provide more information.

    Therefore, her funding is from private interests. Her research at Duke does not depend on any “federal grants or contracts” awarded to her or Duke.

    That’s a logical conclusion that means her funding is from SV/efficient infringers. Too bad the Truth in Testimony Disclosure Form does not include a box for disclosing non-governmental sources of funding.

  • [Avatar for Eileen McDermott]
    Eileen McDermott
    November 20, 2019 02:24 pm

    @ Night Writer: He is a she 🙂

  • [Avatar for angry dude]
    angry dude
    November 20, 2019 01:06 pm

    HIGH TREASON

  • [Avatar for The Time Is Now To Act]
    The Time Is Now To Act
    November 20, 2019 01:00 pm

    So, can’t get the badly needed 101 reform bill done but when the unconstitutional foundation of the PTAB and AIA is laid bare, paid talking heads and Congress rush to a hearing…

    And, the touching bedtime reprisal of Judge Dyk’s unfounded take on Arthrex by Arbitrage? Come on, man.

  • [Avatar for Night Writer]
    Night Writer
    November 20, 2019 11:30 am

    Rai said “blah blah blah.” In other words, Rai said what she is paid to say by SV.

    It is just ridiculous that people like Rai can go before Congress without full financial disclosures. So what if she has an appointment at Duke. Did SV pay for that? Probably they gave a lot of money to Duke.

    Rai should be classified as “large corporate counsel”.

  • [Avatar for Night Writer]
    Night Writer
    November 20, 2019 11:23 am

    Whealan is the only one that isn’t bought off out of the three. I am pretty sure that Duffy has worked for large corporations to weaken the patent system and Rai works with large corporations like Lemley does.

    Why are people like Rai and Duffy permitted to speak without full financial disclosures?

  • [Avatar for Night Writer]
    Night Writer
    November 20, 2019 10:56 am

    I’ve read some of Arti Rai’s articles. From what I’ve read, he is funded by large corporations and should have close to zero credibility.

    Financial disclosures please Mr. Rai. We know that Duke will never discipline you for unethical conduct.

  • [Avatar for Josh Malone]
    Josh Malone
    November 20, 2019 10:46 am

    What does any of this have to do with promoting progress in the useful arts?

    This is all about how how much power the Supreme Court will allow to be sold every 4 years to the highest bidder.

    It has zero to do with innovation and equipping inventors to catch us up to China.