Giving the Federal Circuit a Run for Its Money: Challenging Patents in the PTAB

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. …