Giving the Federal Circuit a run for its money: challenging patents in the PTAB.

• Author: Dreyfuss, Rochelle Cooper
• Position: Patent Trial and Appeal Board - I. The New Procedures through III. Interaction between the PTAB and the Federal Circuit A. Potential Benefits, p. 235-271

Passage of the America Invents Act of 2011 (AIA) (1) inaugurated three new procedures for challenging patents in the U.S. Patent and Trademark Office (PTO). Inter partes review (IPR) supplements the ex parte reexamination system and replaces its variant, inter partes reexamination; (2) the transitional program for covered business methods (CBM) institutionalizes what had been a more informal mechanism for reviewing such claims, (3) and post-grant review (PGR) initiates a way to challenge patent claims immediately upon issuance. (4) The increased importance of knowledge production throughout the global economy, coupled with the popularity of the Patent Cooperation Treaty, which eases the burden of filing in multiple countries, (5) had expanded the number of patent applications and swamped the PTO's examination resources. (6) The resulting thickets of patents--and especially the increase in patent assertions by nonpracticing entities (NPEs)--were thought to be imposing a high tax on innovation. At the urging of the National Academies of Science and with substantial support from the American Intellectual Property Law Association (AIPLA) ,7 Congress adopted these procedures to improve the likelihood that invalid patents would be quickly weeded out of the system.

To be sure, there are other ways to tackle the problem of low-quality patents. Increasing PTO resources would give examiners more time to search the literature and ensure that all the requirements for patentability are satisfied before patent rights are granted. Indeed, the AIA did some of this as well: it gave the PTO the power to set fees and retain them. (8) But there are limits to that approach. As Mark Lemley has convincingly argued, many patents have little commercial significance; examining them more thoroughly wastes social resources. (9) Furthermore, there are inevitable distortions in the process. Although examination is intended to protect the integrity of the public domain and the interest of the public in full disclosure of protected inventions, examiners deal only with those aspiring to acquire protection. While the PTO no longer follows an avowed "customer service paradigm" aimed at satisfying applicants, (10) systematic contact with only one constituency can lead to unconscious bias. Furthermore, as Melissa Wasserman, Michael Frakes, and Rob Merges have demonstrated, factors such as the pressure to earn maintenance fees, time constraints, informational asymme tries, metrics for rating examiners' performance, and high examiner turnover can create other pathologies that lead to over-granting. (11)

Better, to economists like Adam Jaffe and Josh Lerner, is to devote additional resources only to those patents that matter. (12) Of course, litigation does exactly that: patents that are asserted or challenged in a declaratory judgment action are, by definition, significant to someone. But litigation has its own problems. The process is extremely expensive. (13) While these heavy costs are borne only by the challenger, the industry as a whole enjoys the benefits of invalidation. (14) Thus, there is a collective action problem: every would-be challenger has an incentive to sit back and wait for a competitor to do the heavy lifting. (15) A patent can thus have an impact on an industry even when the industry questions its validity. In addition, not everyone who is affected by the exclusivity of a patent has standing to challenge it in court. (16) To be sure, the patentee's competitors will often have direct enough interests, but as members of the same industry, they are unlikely to make arguments that could imperil their own patent holdings. Accordingly, there may be patents that impair the public interest that no one has both an incentive and the capacity to challenge. For example, it took decades for patents on isolated genes to be questioned. (17) The parties who finally did so (the ACLU and various doctors and patients) barely managed to convince a court that one of them was affected in a manner that met the standing requirements of federal law. (18)

Even after a challenge is brought, there are obstacles to successfully attacking invalid claims. Deference to administrative procedures, along with a provision of patent law providing that " [a] patent shall be presumed valid," has led courts to assign to the challenger the burden of establishing invalidity by clear and convincing evidence. (19) While this burden seemingly makes little sense in situations where the PTO did not find--and thus never reviewed--all the evidence relevant to validity, the Supreme Court has insisted on fidelity to that longstanding practice. (20)

Prior to 1982, there was also a problem of persistent inconsistencies among the appellate courts hearing patent appeals, which led to forum shopping, uncertainty, and (arguably) a flight from patents to trade secrecy. The Federal Circuit was established in 1982 to remedy that concern; it hears virtually all patent appeals arising from the district courts, the PTO, and the International Trade Commission (ITC). (21) But as I documented in a series of articles, (22) channeling cases to a single appellate court introduced new complications. The court apparendy saw in its creation an expression of congressional desire to strengthen protection. Thus, it reduced the standards of patentability; for example, it made it easier to find an invention non-obvious and extended the scope of patentable subject matter (to include, for instance, business methods). (23) This deepened the patent thicket, which led the Supreme Court to grant certiorari in increasing numbers of cases and to reverse or modify the Federal Circuit's resolution in most of them. (24)

Not only has the Federal Circuit had difficulty persuading others that it has taken normatively appropriate positions, (25) it has also had problems implementing the Supreme Court's views and guiding district court practice. (26) Some scholars and judges have suggested revising the jurisdictional rules to give other courts some authority over adjudicating patent disputes. (27) This would increase percolation and bring other points of view, including an antitrust perspective, to bear on questions of patentability, infringement, defenses, and remedies. But because practitioners prefer certainty and predictability, Congress is unlikely to make that change. (28)

The new procedures instituted by the AIA could remedy many of these problems. Because these challenges are adjudicated within the PTO, the Patent Trial and Appeal Board (PTAB or Board), which hears these cases, applies the same preponderance of the evidence standard used to determine whether to grant a patent in the first place. (29) Since the cost of engaging in these administrative adjudications is lower than litigation, those who believe the patent invalid may be less likely to wait for someone else to come forward. Furthermore, the availability of a less expensive procedure to challenge patents could make the NPE business model less viable. Both IPRs and PGRs can be brought by any interested party. Accordingly, the public can use the procedures to vindicate interests that are not shared by the patent holder's rivals. And because a request for a PGR must be made within nine months of the issuance of the patent and all three procedures are subject to strict time limits, invalid patents can be cleared quickly and more timely feedback provided to the examining corps. (30)

As important, these procedures have the potential to change the institutional culture of both the PTO and the federal courts. They require the PTO to focus on the concerns of nonpatentees (that is, to consider challengers to be among its "customers") and to evaluate patents later in their life, after more art pertinent to the question of validity has emerged. Furthermore, the PTAB is likely to be among the first to implement new Supreme Court pronouncements; it will probably also be the first to consider questions raised by the substantive changes made in the ALA. (31) Unlike the district courts, which must also grapple with these issues, the PTAB has expertise to cope with the technical aspects of its cases: it is composed entirely of patent and technology experts and there is an effort to staff each three-member panel with at least one judge who has specific familiarity with the field of the patented invention. (32) With these improvements over its predecessor, the Board of Patent Appeals and Interferences (BPAI), the PTAB could provide the Federal Circuit with a partner in the enterprise of interpreting patent law and implementing Supreme Court decisions. While it is true that the Federal Circuit, as the reviewing court, has the final say, (33) the PTAB breaks its isolation. At the same time, the thorough analysis furnished by the PTAB could give district courts better guidance on how to apply the law to emerging technologies.

The question is whether these salutary effects will, in fact, come to pass. At this point, there have been several statistical studies of the new procedures, including some by the PTO. This Article is intended to look beyond the numbers. To that end, I read all the final written decisions in CBM reviews handed down by the end of November 2014 as well as a set of final written decision in IPRs, starting with the first case filed, more than fifty cases in total. In addition, I read a selection of decisions to institute review, decisions on various motions, all the opinions issued by the Federal Circuit reviewing the PTAB, as well as the considerable outpouring (mostly in the form of blogs) published by those practicing before the PTAB. This is very early in the life of these procedures; CBMs and IPRs began on September 16, 2012, and the PGR procedure can only be used to challenge patents issued on applications filed after the AIA went into full effect on March 16, 2013. Only a few PGR petitions have been publicly filed so far; the PTAB...