Thirty-Five Years of the U.S. IP System, Part II—AIA Through Today

In Part I of this article, I recalled the early years of the U.S. Court of Appeals for the Federal Circuit, when the court was working well, and how it all went wrong. In this second half, I recount how the America Invents Act (AIA) has fundamentally shifted the power in patent enforcement and policy. I close on a positive note, detailing the current legislative efforts that, if enacted, will restore balance in the U.S. patent system, which is necessary for continued innovation leadership, economic success, and national security.

One of the most damaging developments has been, by far, the evolution of the Patent Trial and Appeal Board (PTAB). The PTAB has upended the system of enforcing patents and protecting inventors’ rights. Most AIA proceedings at the PTAB run in parallel with district court suits, adding expense, distraction, and delay for patent owners. Invalidation rates at the PTAB were significantly higher than in the courts. How much to blame inadequate examinations versus courts being too lax versus the PTAB being too aggressive is unclear. Likely, I suppose, some of each. But their relative contributions cannot definitively be measured due to lack of reliable metrics.

Dovetailing with the string of court decisions, the AIA provisions created patent-skeptical PTAB reviews, weakened the presumption of validity, lowered the challenger’s burden of proving patent invalidity, and erased the standing requirement. One-way estoppel provisions let court judgments be erased by later PTAB decisions.

PTAB reviews have other defects, too. For example, the PTAB fails to fully assess objective indicia of non-obviousness because it too frequently declines discovery into the relevant documents of patent challengers (who are frequently accused infringers) and too often downplays the import of the objective-indicia evidence despite the commands of Graham v. John Deere. The PTAB decisions also ignore the mandate from the Federal Circuit that this factor, which can often be the most important, must always be analyzed. Reliance on hindsight by expert witnesses is another PTAB failing, in my view.

It’s also important to understand how radically different the PTAB process is from other administrative reviews of intellectual property. The closest is the Trademark Trial and Appeal Board (TTAB), where private parties can seek to oppose or cancel a trademark registration. But even at the TTAB, those proceedings have a standing requirement. There is no viable reason why, at a minimum, AIA proceedings before the PTAB should not also have a standing requirement.

And compare the PTAB to the new Copyright Claims Board (CCB). In December 2020, Congress passed the Copyright Alternative in Small-Claims Enforcement Act of 2020 (CASE Act), which directed the Copyright Office to establish the CCB. The CCB is a three-member tribunal within the Copyright Office that provides an efficient option for copyright owners to resolve certain small claims, up to $30,000. Thus, in contrast to the PTAB, Congress created an innovator-friendly option to assist authors and creators with an ability to enforce their intellectual property rights.

The Diminished Role of the Federal Circuit

In contrast to its early decades, the Federal Circuit has unfortunately assumed a diminished role that has led to a continued weakening of patent rights.

From 2011 to the present, the court extended Supreme Court holdings, even dicta, for 101 and other sections. Almost never did it go en banc in basic patent issues, ignoring conflicts in holdings. Inconsistent panel holdings were simply allowed to stand. Eligibility law became unduly vague, subjective, and inconsistently applied. Outcomes became highly unpredictable. Science and industry are suffering, and venture capital now drifts increasingly away from real technology towards less risky investments, like hospitality, social media and entertainment.

Much of the cause of the Federal Circuit’s diminished role is due to the AIA proceedings and how they are reviewed. The large majority of AIA cases consist of obviousness decisions. That combined with a substantial-evidence standard of review and the lower preponderance of evidence needed to cancel issued patent claims make it far more likely that the agency decisions will be affirmed—even if one would get a different outcome in district court or the Federal Circuit disagrees with the fact finding. According to USPTO statistics, about 75% of all AIA appeals are affirmed, and the number may well be higher if focused only on the obviousness cases.

At the Federal Circuit and the Supreme Court, substantive patent law became highly malleable—as if it were common law rather than statutory law. Unbounded evolution is typical of common law doctrines, but not so of statutory law. With Congress inert since the 2011 AIA, however, no corrections were made. Proposals to reform eligibility law stalled between 2019 and today.

As a result, patent law has become not only unpredictable in any given case, but unstable, as doctrines like written description and enablement kept evolving to undermine patent validity, joining eligibility, PTAB defects, and the lack of meaningful injunctions as the most major faults in today’s patent system.

The Continued Troll Narrative

The “patent troll narrative” remains ubiquitous, decades later, being seen everywhere in public advertisements– even on buses and in airports. Being simple, catchy, and dramatic, it still has excessive, if lesser, influence.

Anti-patent companies in certain industries, particularly big tech firms, each spending many millions per year on heavy lobbying and massive PR by dozens of lobby, law and PR firms, dominated the national and Capitol Hill policy “debate,” if one can even call it a “debate.”

Massive campaign contributions helped their well organized, relentless, well-funded, and ultimately successful campaign to weaken patents and infringement remedies.

This campaign ran since at least 2004 and continues today. Recently, big tech mega-giants, sometimes known in the media as the FAANGs (for Meta, formerly known as Facebook; Amazon; Apple; Netflix; and Alphabet, formerly known as Google), picked up support from some big banking firms and many big retail and big auto companies. Ideological organizations such as the American Civil Liberties Union (ACLU) and various patient groups also joined the cause.

The 1952 Act was produced by a handful of experts led by the late Giles Rich. It was passed by Congress quickly and without significant change. In recent decades, however, Congress has been besieged by competing narratives and heavy lobbying, supported by PR spin and ever-larger campaign contributions. The views of disinterested experts are largely drowned out this noise, polemics, and special pleading based on a company’s business model. What patent critics seek to protect are not so much innovation incentives and property rights, but their present corporate profits and market dominance. The result is a stalemate: Congressional paralysis.

The accusation of patent “hold-up” has now joined the pervasive “troll narrative,” particularly in the context of standard essential patents (SEPs). That this academic theory was refuted by actual experience made little difference. Detailed academic studies empirically disproving the theory were simply ignored in policy debates and court opinions. In fact, “hold out” by infringers, not “hold up” by owners is the primary problem today, in the opinion of many experts.

Policy debates in Congress were influenced by false, distorted, or exaggerated claims captured in slogans about “abusive lawsuits,” “patent trolls,” “bad patents,” “patent hold up,” “patent thickets,” “litigation explosion,” and “baseless lawsuits.” The results were the “overcorrections” of the AIA.

One ideological special-interest group, The Initiative for Medicines, Access & Knowledge (I-MAK), asserted, without documentation, that drug makers regularly obtained dozens of term-extending patents on the basic drug. Although these claims were debunked by empirical studies, they continue to be made by I-MAK and are still quoted by senators.

Congressional staff—busy with the press of legislative business—too often lack the time to become fully informed about patent law, and it therefore is too easy for certain interest groups to pass off false, distorted, or exaggerated claims on staffers who are not equipped to detect the reliable from the unreliable.

Recent Supreme Court Decisions

Recent Supreme Court IP decisions generally demonstrate the same patent-skeptical or patent-hostile pattern. The most notable this past term was Amgen v. Sanofi. It was an opinion written with some typical rhetorical flair from Justice Gorsuch, but it completely overlooks the innovation-inducing role of broad disclosures in patents.

And again, we see a similar trend where the Supreme Court seems more willing to respect trademark and copyrights. Jack Daniel’s Properties v. VIP Products is seen as a major victory for businesses with brands and trademarks. On the copyright side, while the Google v. Oracle decision is an abomination, the Court redeemed itself in the Warhol v. Goldsmith case, which rejected some of the expansive fair-use arguments that have been pushed in recent years by Big Tech and academics (who are sometimes funded by Big Tech).

LKQ Corp v. GM Global Technology Operations, LLC

Design patents are another important element of intellectual property. They of course capture a different element of creative innovation, but innovative designs can be just as important as utilitarian features to a product’s ultimate commercial success.

The value of designs was front and center in the Samsung v. Apple case, which concerned the design of smart phones, including Apple’s iPhone. Again, however, we see another instance in which the Supreme Court issued a patent ruling at the end of 2016 that devalued patented innovation. There, the Court limited the scope of recoverable damages under 35 U.S.C. § 289 for design patent infringement.

Currently pending before the Federal Circuit is the en banc case LKQ Corp v. GM Global Technology Operations, LLC. The full appeals court has presented several questions it is considering, including whether KSR should be applied to design patents, thereby overruling a significant body of precedent. It is difficult to predict where the appeals court will land on this case, though I am currently hard-pressed to envision a positive outcome for design innovation if KSR is extended to the design-patent realm. We will learn more on February 5, 2024, during the en banc oral argument. And regardless of the Federal Circuit’s ultimate decision, this case seems bound for the Supreme Court, particularly given that the Court’s leading case on substantive design patent law, Gorham Co. v. White, dates from just over 150 years ago. (This is not to say that Gorham is correctly or incorrectly decided—only that the Supreme Court may be induced to weigh in after such a long time.)

An Opportunity to Restore the Balance

As is clear, the current narrative surrounding intellectual property is vastly different than when the Federal Circuit started some 40 years ago. It focuses on the patent-troll myth, but that needs to change, now more than ever.

Since the 1952 update, the Patent Act has remained unchanged on fundamental doctrines such as eligibility, obviousness, enablement and written description, and injunctions after trial. Meanwhile, technologies have changed dramatically. Many new technologies have been developed—CRISPR, ChatGPT, autonomous vehicles, personalized medical treatments and diagnostics—too many to mention in detail here.  And old technologies have evolved in fundamental ways. Finally, the courts, by default, have been setting patent policy in America. Many experts believe they have not done it well. Nor is it tolerable in a democracy for unelected, unaccountable judges to set broad innovation policy. Setting innovation policy is the job of the elected and accountable Congress.

On top of that, innovation continues to be the lifeblood of strong nations, and strong intellectual property systems contribute to a vibrant, healthy innovation ecosystem. We need a national innovation policy that not only provides the incentives for inventors but also encourages the investors to support and commercialize the innovation, turning R&D into products and services that benefit consumers.  And these concerns go beyond just financial interests.  Maintaining the country’s innovation leadership is a matter of national security, as many have detailed elsewhere, including Professor Graham Allison at Belfer Center for Science and International Affairs (Harvard Kennedy School) in his major study titled “The Great Rivalry: China vs. the U.S. in the 21st Century.”

In the last few years, several senators have mastered the arcana of patent law and policy. They are now providing sound and balanced leadership, particularly Senators Chris Coons (D-DE) and Thom Tillis (R-NC). They are increasingly being joined by others, such as Senators Dick Durbin (D-IL), Mazie Hirono (D-HI) and John Cornyn (R-TX). Counterparts in the House, like Congressmen Darrell Issa (R-CA), Thomas Massie (R-KY), and Hank Johnson (D-GA), are also beginning to meet the challenge of sorting fact from narrative.

Recently, the U.S. Chamber of Commerce and the new Council for Innovation Promotion (C4IP) (for which I am a board member) have entered the Hill debates on the side of readjusting policy in favor of reliable and valuable patents. So have other organizations, including several law schools, the Association of University Technology Managers (AUTM), the Association of American Universities (AAU), the Licensing Executives Society (LES), the Heritage Foundation, and the Hudson Institute. They augment the ongoing work of the Innovation Alliance (IA), the Coalition for 21^st Century Patent Reform (21C), Patent Advocates, the National Security Commission on AI, and most recently the Center for Strategic and International Studies (CSIS). There are many other smaller groups, too.

Notably, earlier this fall, on September 13, the U.S. Chamber of Commerce’s Global Innovation Policy Center (GIPC) and a group of diverse stakeholders in the IP community signed and released a statement setting forth their new framework aimed at improving the national conversation around IP and our role in maintaining America’s global leadership, competitive edge, and innovation.

After the Supreme Court denied review in almost 60 eligibility cases over the last decade, Senators Coons and Tillis recently introduced the Patent Eligibility Restoration Act (PERA), which would solve many problems that I and others have written about before. Senators Coons and Tillis also introduced a bill to rebalance the PTAB invalidity proceedings, called the Promoting and Respecting Economically Vital American Innovation Leadership (PREVAIL) Act. The PREVAIL Act corrects the design defects in the AIA’s post-grant provisions.

It seems a new day is finally dawning for patent policy on Capitol Hill. And while the Congress always has a lot on its plate, improving the Nation’s innovation ecosystem is of the utmost importance.

In the long run, a piecemeal approach will not suffice. American innovation needs a comprehensive, holistic modernization of its Patent Act. The “1952 moment” has returned 71 years later!

It is time to modernize the Patent Act—to catch up with developments in technology, to modify judge-made doctrines that are inconsistent with the intent of Congress, to implement sound patent policy for our national economy and global leadership in technology, and to enhance our national security.

Hopefully, the Senate champions will be broadly supported by most of the IP community on PERA and PREVAIL. But, a wholesale revision of the Patent Act is needed, too. The patent community should demand no less, for the future of the country needs it.

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