A Kinder, Gentler ‘Death Squad’: Ten Years in, Despite Some Reforms, the USPTO is Still Killing U.S. Patents

Now that the 10th anniversary of the America Invents Act (AIA) has passed, we can look back not only at the past decade, but also the reactions of various interested parties and how they responded to that anniversary.

There were two revolutionary amendments to U.S. patent laws enacted on September 16, 2011; one relating to the U.S. changing from first-to-invent to first-to-file, the other relating to the creation of the Patent Trial and Appeal Board (PTAB) and three new procedural mechanisms to invalidate issued patents.

While from a philosophical and practical point of view, the change from first-to-invent to first-to-file had the largest impact on patent practice, it has essentially become a footnote in patent history. Yes, the United States had a bizarre system that allowed the second filer in some instances (i.e., the first to invent) to obtain a patent over the first-to-file, but that almost never happened. And now, the United States has a strange, hybrid first-to-file system that still theoretically allows the first-to-invent to prevail in even rarer circumstances, but that change became easily baked into the system, because overwhelmingly, the first-to-invent did file first. The real story of the change to first-to-file is that much more is now prior art, including foreign filed applications as of their foreign filing date, typically, which continues the theme of the last 15+ years of making it harder to obtain and keep patent rights in the United States.

The PTAB Wars are Far from Over

Without a doubt, when thinking about and discussing the AIA, the changes that capture the attention, imagination and often the ire of many within the patent community relate to the PTAB. And while supporters of the PTAB will tell you that now that the Supreme Court has ruled the PTAB to be constitutional in Oil States and salvaged the appointment of PTAB judges in Arthrex, that the PTAB is on solid footing and no further issues or challenges relating to the PTAB are likely to arise. That, however, is an extraordinarily naïve view. Whether future challenges, or attempts to divest the PTAB from jurisdiction, will be meritorious remains to be seen, but anyone who thinks litigation surrounding the very existence and jurisdiction of the PTAB is over is wrong. I’ve never been more confident of a prediction.

In recent weeks, we have seen the United States Court of Appeals for the Ninth Circuit rule that a forum selection clause that identified a specific district court to handle all disputes, and did not mention the PTAB, worked to divest the PTAB from jurisdiction. See Nomadix, Inc. v. Guest-Tek Interactive Entertainment Ltd. Meanwhile, addressing essentially the same jurisdictional issue, but relating to an arbitration clause, the United States Court of Appeals for the Federal Circuit ruled the exact opposite, finding that despite the parties agreeing to arbitrate all disputes, the PTAB could continue to address validity. See In re: Maxpower Semiconductor Inc. The Federal Circuit is obviously wrong, which is why Judge O’Malley rightly wrote a scathing dissent. For better or worse, the AIA allows any disputed issue to be the subject of arbitration. Therefore, the arbitration clause absolutely should have divested the PTAB of jurisdiction.

Clearly, patent owners and their counsel are now scouring licensing agreements in search of forum selection and arbitration agreements to tee up these arguments. And if I were representing anyone facing an inter partes review (IPR) filed by Unified Patents I would be looking for those forum selection and arbitration agreements in any licenses entered into by any of Unified Patents’ member companies, and requesting a full accounting of their member companies to know whether one of the beneficiaries of the Unified Patents filing is required to have such a dispute settled in a particular forum, or by arbitration.

Regardless of whether you agree or disagree with the Ninth Circuit, or the Federal Circuit for that matter, the issue is one that has all the characteristics of the type of  matter the Supreme Court loves to address. A patent case that deals with contract law and the hated PTAB. It is easy to predict that these cases, or perhaps others in the pipeline raising similar issues, will be destined for consideration by the Supreme Court. In the meantime, attempts to neuter the PTAB through canned contract clauses that never envisioned and do not mention the PTAB will continue.

Both Sides Get the Blame

Meanwhile, on the 10^th Anniversary of the AIA, we saw unrealistic portrayals of the PTAB from both sides. US inventor, for example, has long argued that the only acceptable solution is to abolish the PTAB, which simply will not happen and has caused those inside the beltway to view US Inventor, and those affiliated with them, with increasing skepticism. Indeed, this politically infeasible and impossible demand at the expense of other available solutions to improve the PTAB has caused US Inventor to come to be distrusted, which has immeasurably hurt their cause.

On the other hand, defenders of the AIA continue to paint a rosy picture; almost a pollyannaish view of the world. They continue to tout just how wonderful the AIA has been and what a godsend the PTAB has been to the entire industry. These defenders of the PTAB ignore the undeniable reality that, for much of the past decade, the PTAB has been slanted severely against patent owners in what can only be honestly characterized as an afront to the principle of due process, if not actual due process violations. At all times, the rush to finish within a year cut against the patent owner. Initially, the patent owner wasn’t even allowed to put evidence forth to try to defeat the petition. And the first Chief Judge of the PTAB accepted the characterization of the PTAB as a “death squad” as a badge of honor, saying that if they were not a death squad, they wouldn’t be doing their jobs. So, for much of the first decade of the PTAB, the deck was stacked against patent owners and the statistics overwhelmingly led the death of entire patents—some that were challenged repeatedly until they finally succumbed.

One case in point is Zond, a small company that had 125 inter partes reviews (IPRs) filed against their patent portfolio during the seven months from February 2014 to September 2014. And this is just one example of the type of gang tackling that occurred as a result of concerted efforts, coordination and serial petitions that innovators faced over the last decade. So, defenders of the PTAB can tout how wonderful the PTAB has been, but for patent owners, the experience has been very different.

And the statistics provided by the United States Patent and Trademark Office (USPTO) relating to PTAB endeavors are misleading, to be kind. For example, according to the PTAB statistics, the institution rate for the Zond patents was 88.6%. (1,377 claims challenged with 1,220 instituted.) An 88.6% institution rate is obviously a high number, but as of 2014 that was very close to the PTAB’s overall institution rate. Notwithstanding, if you look at the same data from Zond’s perspective, before the AIA, the company owned 371 patent claims. By the end of the 125 IPRs filed against them, they owned 0 patent claims. But how is that possible with only an 88.6% institution rate?

Because those 371 patent claims owned by Zond were challenged multiple times by different petitioners. While only 88.6% of the “challenged claims” were instituted, 100% of the owned claims were instituted and ultimately lost. The problem was with USPTO math. The number of instituted claims was more than three times the number of unique claims owned by Zond. In other words, the institution rate should not have been 88.6%, it should have been closer to 329%! An institution rate of 88.6% is meaningless (and entirely misleading) when it can result in 100% of owned claims invalidated.

Et Tu, CRU?

It is true, however, that over the last several years. the PTAB has become a different tribunal than it was at the outset. Fewer cases are being instituted, the serial petitions that plagued patent owners are a thing of the past and patent owners are faring better overall than they once did. Reforms to the PTAB initiated by Director Andrei Iancu have undoubtedly made the PTAB a fairer tribunal. Unfortunately, when those regulatory reforms could have been become legislative changes, the pro-patent forces could not agree, which killed any attempt to permanently capture the positive Iancu reforms. Now, because the pro-patent forces bickered and wouldn’t accept legislation that would make the Iancu reforms legislatively permanent, the next Director of the USPTO could, and likely will, revert back to a more patent owner hostile PTAB.

And while the PTAB has become a much fairer forum that does not resemble its former self, this is not to say that the USPTO is operating properly. Quite to the contrary, the one of the most egregious abuses of power imaginable has been occurring repeatedly in the wake of an increase in discretionary denials of IPR petitions.

It is almost unfathomable, but when a patent owner prevails at the PTAB and convinces the PTAB that it is not appropriate for an IPR to be instituted, the petitioner simply takes the same exact prior art and files a request for reexamination, which the Central Reexamination Unit (CRU) grants. Under what possible rationale does it make sense for the PTAB to refuse to accept an IPR and to exercise discretion to deny institution, only to have another office within the USPTO pick it up regardless?

It is no wonder that many within the innovator community believe the USPTO wants to kill challenged patents at all costs.

First, during the early years of the PTAB, patent owners were forced to fight with one arm tied behind their back in terms of when they could even submit evidence and page limitations, not to mention the rush to judgment to get the case done within the fictitious 12-month deadline (i.e., the statute allows for an additional six months that the Office never used and publicly never admitted even existed).

Second, as the PTAB has become a fairer tribunal with more due process for patent owners and the envisioned exercise of discretion to deny when appropriate, the CRU becomes the new villain in this Shakespearean tragedy with a plot that will ultimately culminate in the harassment of patent owners, bleeding them dry and eventually killing as many patent claims as possible.

Better, But Still Abusive

The playing field started to level as much as it politically could under Director Iancu. Had the pro-patent community been willing to accept a victory of any kind, the playing field would have leveled even more, but that was not to happen and the time is now passed, with the Biden Administration almost certainly likely to pick up with patent policy where the second Obama Administration left off.

Applying for and receiving a patent costs money—a lot of money for an applicant. But that is only half the story. Like an arms dealer, the USPTO does not only sell to one side of the patent battlefield. The USPTO sells to both sides, offering those threatened by a patent the ability to invalidate claims to patents in a variety of different procedural offerings, including even when judicial discretion requires a refusal to institute an IPR.

Not only does the USPTO handsomely charge for the acquisition and maintenance of a patent, they also handsomely charge for the right to challenge those patents after issue. And if the PTAB is not willing to accept an IPR, the CRU will handle the job, based on the same prior art the PTAB refused to consider. What a disgusting, reviling, revolting abuse of power by an agency that is charging innovators to obtain the right, while at the same time selling the disablement of those rights to challengers.

On the 10^th anniversary of the AIA, the story should be that today, thanks to the reforms of Director Iancu, the PTAB is not as bad as its critics say, nor as good as its defenders claim. Legislation should, but won’t, make the IPR process consistent with invalidity proceedings in federal district court. There will be much more litigation over this controversial tribunal in the years to come. And the commercially valuable patents issued by the USPTO provide no more than an illusory right that will be challenged until lost, whether at the PTAB, the CRU or at the Federal Circuit—which itself is an entirely different story for another day.

Image Source: Deposit Photos
Author: Sandralise
Image ID: 4039403