Source: https://www.ipwatchdog.com/2017/10/24/iprs-unduly-harm-patent-holders-benefit-big-tech-infringers/id=89568/
Timestamp: 2019-04-22 23:57:55+00:00

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EDITORIAL NOTE: This article is the seventh installment of an 8-part series exploring the constitutionality of the PTAB under the public rights doctrine. To begin reading from the beginning please see: Patent Review in an Article I Tribunal is Unconstitutional.
The due process elements maintained in federal district courts include (a) a presumption of validity, (b) a clear and convincing evidentiary standard of review, (c) a Phillips standard of claim interpretation, (d) an impartial jury review of the facts, (e) an impartial judge reviewing the facts and the law and (f) consolidation of patent validity, infringement and damages issues in a single enforcement action. These features are crucial in distinguishing patent validity review in an Article III forum from executive tribunals.
In order for an administrative tribunal to maintain legitimacy – and constitutionality – under the public rights doctrine, it must enable consent of the parties, include due process and allow Article III federal district court review of agency fact finding. The PTAB complies with none of these critical features of the public rights doctrine. Therefore, PTAB rulings in IPRs are unconstitutional.
The PTO systematically administers a collection of procedures in IPRs to unduly harm patent holders and benefit big tech company infringers. The data show that the plain result of PTAB procedures appears to benefit infringers with a clear bias against patent holders. PTAB cancels challenged claims in 76% of instituted patent reviews, a rate that is 2 ½ times greater than in the federal district courts. The reason is that PTAB employs a set of procedures that stacks the deck against patent holders. There is clear bias at every step of the process of reviewing patent validity. However, there are several components of PTAB procedures that are particularly onerous and problematic and that go to the heart of the due process issues that infect IPRs.
First, the evidence shows that there is a tendency towards bias among PTAB administrative law judges (ALJs). Many of these judges are drawn from defense law firms that represent infringers, suggesting clear ideological bias. In fact, many of the ALJs have represented the large tech company infringers that institute the IPRs, showing a revolving door with blatant conflicts of interest. These conflicts are further complicated when the panel that decides to institute an IPR then goes on to provide a final decision on the matter. This is “anchoring” bias.
Second, the bias of ALJs is further complicated by the bias of the PTO director. In oral arguments, recent CAFC cases (Yissum Research Development Co. v. Sony Corp. (Fed. Cir. 2015) and Nidec Motor Corp. v. Zhongshan Broad Ocean Motor Co. (Fed. Cir. 2017)) revealed the disclosure by PTO attorneys that the PTO director stacks panels to adhere to anti-patent holder policy positions in order to obtain a result in line with PTO ideological patent policy objectives. Not only are the PTAB panels not impartial, but the PTO policies from the director to the PTAB staff are ideologically driven by commercial interests that seek to protect their monopoly profits.
Third, the overly expansive application of obviousness standards tends to prejudice outcomes against patent holders. PTAB applies standards that are overly expansive by including prior art that an ordinary expert in a field would never include. Particularly when combined with the broadest reasonable interpretation of claims, the broadest possible obviousness standard tends to prejudice patent holders. This excessively broad application of obviousness standards is an arbitrary application of power that deprives patent holders of due process. Interestingly, because this broad standard of obviousness is a legal rule, IPRs may be appealed even when fact finding may not be appealable.
Fourth, PTAB procedures require qualified counsel. This is very expensive. If a patent holder must spend the equivalent of three average American houses ($188,000 x 3) on counsel to defend a patent in an IPR, poorer patent holders, which may include virtually all independent inventors and angel funded small entities, are excluded from the process. These extremely high costs alone are responsible for the conversion of the U.S. patent system from a democratic model accessible to all to an Aristocratic model available only to a few. These onerous costs impose a high burden on patent holders and deprive due process through high economic demands. It should be no surprise that poorer patent holders tend to lose a vast majority of IPRs, thereby abandoning the system for the majority of inventors. Moreover, since there is no consent required to initiate an IPR, the inventor has no choice in the matter and is compelled to invest large sums defending the patent.
Fifth, though the AIA instituted estoppel provisions for IPRs, the reality is that these are not effective against relentless attacks by groups of large companies. For example, a group of companies may seek scores of institution requests with various combinations of prior art. Loose PTAB standards allow systematic harassment of patent holders by groups of cooperating infringers. There is clearly a cumulative abuse from lack of proper estoppel. This group behavior forces adverse outcomes for patent holders.
In one example, PTAB may ignore prior application of prior art by PTO examiners by performing a de novo review and applying the same prior art even when this earlier prior art should be estopped. In effect, PTAB ignores the original exam and instigates an illegitimate review that applies all possible prior art to prejudice an obviousness review. Applying this overly broad obviousness standard drives specific outcomes adverse to the patent holder.
In another example, the estoppel problem is not solved by providing final decisions on challenged and instituted claims because other claims can be challenged later. SAS Institute v. Matal, pending in the Supreme Court, raises only a minor procedural problem created by the AIA, but does not solve the problem of harassment by petitioners.
Sixth, PTAB is notorious for not including sufficient reasons for invalidity decisions. The decision of a panel must state clearly the reasons for a finding as well as the evidence relied upon for the finding. In many cases, this crucial reasoning is omitted in a final decision resulting in cancellation of claims.
Recall that due process standards require a fair hearing that includes clarity of decision making for otherwise the process is subject to arbitrary encroachment by the government. The CFAC commonly criticizes PTAB for not supplying explanations or justifications for cancelling claims in IPRs. The PTAB panels need to clearly demonstrate how to combine relevant prior art, much like a patent examiner is required to state reasons for patentability.
Seventh, the standards for standing in an IPR are improper. Any third party may file an IPR even if they have no relation to the matter. There are examples of companies or groups funded by big tech companies attacking patents in IPRs. In some cases, these third parties improperly profit from IPRs by undermining a company’s technologies, for example, and shorting a target company’s stock.
Finally, the multiple improper procedures are combined to drive a particular adverse IPR outcome. For instance, broad claim interpretation is combined with broad obviousness standards by numerous infringers and poor estoppel provisions to reveal overly inclusive, and repeated, prior art attacks on a patent. The combination of the PTAB procedures conspires to bias IPRs against the patent holders, a fact which is clear in the abnormally high claim cancellation rates.
These PTAB procedures do not comport to any minimum interpretation of due process. IPR procedures are clearly stacked against the patent holder.
(IV)Whereas due process requires a fair hearing and application of neutral procedures for assessment, there is no such fairness or neutrality in PTAB proceedings. The tribunals are biased, the costs of counsel are prohibitively high, the standards of review are extremely low, the low bar for application of estoppel is nearly non-existent resulting in relentless harassment, the decisions of the panels are incomplete or vague and the outcomes preordained in many cases. PTAB’s application of IPRs does not supply the minimum standards of due process. With neither consent nor due process, the PTAB proceedings are unconstitutional according to any interpretation of public rights jurisprudence.
CLICK to CONTINUE READING… Up next is the conclusion of this 8-part series.
justified (by Congress) on the basis that some existing legal remedy is inadequate.
Sorry, but this is NOT a feature of public rights as being able to be administered by administrative agencies.
That is not to say that the “right to challenge” present in the AIA’s IPR regime does not have a difficulty here, but that difficulty comes from a different perspective: the perspective that Congress may not gin up (manufacture) the aspect of standing that remains a necessity for appearing in an Article III forum.
This of course becomes an issue precisely because that is exactly what Congress attempted to do with its new “right to challenge.” By creating a combination forum for the span of the IPR regime, we have a public right item starting out in one forum for which standing is not required (in and of itself, permissible), BUT the span of the IPR regime also includes a forum in which standing IS required.
So while standing is an issue, consent is not.
Up next: allow Article III federal district court review of agency fact finding.
In a sense, this is already present, albeit under the standard that a judicial review of factual matters is highly deferential to the body below – as is the case pretty much anywhere where fact finding is reviewed upon appeal. Perhaps the author wants more than the typical, but this is not clear.
But in a different sense, this too is where the Congress manner of creating this new public right justified on its basis of existing remedies at law being inadequate runs into a series problem: the same problem of standing.
Congress simply cannot “manufacture standing,” and yet, under a proper view of standing (that is, to have standing in an Article III forum, BOTH parties must enjoy standing), what we have – for the potential of reviewing fact-finding of an administrative body is very much the potential that BOTH parties may not be able to be properly present before the Article III court so that the court can perform that fact-finding review.
The “nit” of course is that standing simply is NOT required for adjudication of public rights in an Article I standing.
The statement supplied here comes across TOO strong and thus would seem to indicate that Congress MUST invoke a standing requirement in a forum that does not require one. Rather than view the situation properly (a mixed forum and thus one where the second half of the mix has an issue) the TOO STRONG view here may (improperly) shift the argument to a place where that argument will NOT prevail. To attempt to force the Article I forum TO HAVE a standing requirement is simply the wrong path to take.
To the extent that the quoted paragraph goes down that path, the quoted paragraph is not only incorrect, it is providing a cloud of confusion for a court to hide within.
Let’s dispel that cloud and NOT let the courts hide there.
Thank you for your excellent article, succinctly explaining how the cumulative effects of the abusive IPR gauntlet deprives patent-holders of due process of law and fundamental fairness, trampling on our Constitutional values. Hope all of this is covered in briefing materials in Oil States.
The author’s premise that this case is to be analyzed “under the public rights doctrine” misses a major point: adjudicated rights in IPRs are private rights – not public rights. Under the Tull-Curtis test for precisely determining whether public or private rights are involved, there could be distinct answers depending on what precisely is adjudicated and which remedies are sought. I show in the IEEE-USA Amicus Brief (at http://bit.ly/Oil-States-Amicus , Section I.B) that patent validity challenges can adjudicate private rights (in the case of IPRs), or public rights (in the case of ITC proceedings). Thus, statements like “patents are private rights” or “patents are public rights” are meaningless.
Specifically, the remedy sought in IPR is to cancel patent claims, thereby extinguishing the patent owner’s private right to exclude others and conferring onto the IPR petitioner a private right to freely exploit the invention for its own private benefit. The public is not involved in the IPR (which the parties may settle w/o PTAB decision on validity) and any benefits to the public are ancillary. “[E]ven with respect to matters that arguably fall within the scope of the ‘public rights’ doctrine, the presumption is in favor of Art. III courts.” Stern, 564 U.S. at 499. “Congress may not bypass Article III simply because a proceeding may have some bearing on a [different related proceeding].” Id.
The focus therefore should not be on the (valid) arguments of the article in the context of public rights doctrine, but rather on the fact that IPRs adjudicate private rights, which are not subject to the “public rights” exception.
Unconstitutional as a violation of what provision?
Ron, but what about Crowell v. Benson (involving Worker’s Compensation) where the strict liability liability of the employer for the injuries of his employee could be decided by a Commissioner? The Supreme Court called the liability a form of private right. Nevertheless, the Supreme Court held that it was constitutional provided that a reviewing court might review de novo so-called constitutional jurisdictional facts, such as whether the alleged employee was an employee at all. The District Court in Crowell had reversed the finding of the commissioner on this point.
So simply determining that a private right is involved does not seem to be sufficient. What has to be involved, I believe, is a legal right involving the right to sue for damages in a court of law. Here, there has been a corresponding right to have the validity of that legal right determined in a court of law – Parsons v. Bedford.
It is all about the exception. The IPR statute is already written – it does not provide for a de novo judicial review of PTAB decisions. So Crowell appears irrelevant here. The default, as you and I have argued based on historical facts, is that invalidity must be tried in Article III courts. The exception must be analyzed with the actual IPR statute in mind – not some hypothetical revised IPR statute – and here, the fact that adjudicated rights in IPRs are private rights is disposative.
And another point to add to my previous discussion @ 3: the author’s arguments on due-process constitutional infirmity of IPRs are generally valid, but are just arguments without supporting justification. The fact that Article III courts employ safeguards to protect those due-process rights is important but not dispositive. For example, why would the application of the preponderance of evidence standard of proof in IPR rather than the clear and convincing evidence standard be a violation of due-process? A specific explanation tied to the AIA statute – not the PTO rules – should demonstrate that the clear and convincing standard must apply independent of it being applied in Article III courts; thus the IPR statute in 35 U.S.C. § 316(e) violates the due process clause.
Again, this I demonstrate with specific explanation in Section III of our Amicus Brief (at http://bit.ly/Oil-States-Amicus). “In any given proceeding, the minimum standard of proof tolerated by the due process requirement reflects … how the risk of error should be distributed between the litigants. … Retrospective case-by-case review cannot preserve fundamental fairness when a class of proceedings is governed by a constitutionally defective evidentiary standard.” Santosky, 455 U.S. at 745–46 (emphasis added). In our brief, I explain how the fundamental asymmetry in the countervailing risk of error to the litigants yields an asymmetric burden of proof – the clear and convincing evidence standard requirement to prove invalidity. It should be noted, however, that the constitutional Question Presented to SCOTUS in Oil States was not on Fifth Amendment grounds but on Article III and the Seventh Amendment.
Good points Ron – even as they do not hearken to the developed conversation that Ned and I hashed out.
See also: http://www.ipwatchdog.com/2017/10/10/the-modern-public-rights-doctrine/ for the view that what is at stake in the IPR regime is NOT the patent right as has been the focus on most all commentators, but is (perhaps) instead some other new right (a right of challenge).
This different line of thought is quite apart from your (well-written) brief and takes the issue from a completely different angle.
Ron, OK. I would hope that the Supremes do not suggest that the way to fix IPRs is to provide de novo review.
It does not matter what the SCOTUS “suggests” as a “fix” – it does not write the law. What matters is that it finds the current IPR statute unconstitutional. The whole AIA will be out the window and Congress will have many sobering years trying to rewrite it, if it ever succeeds.
Thanks! The AIA should be more accurately have been called the Anti-Inventors Act for the reasons you mention above.
The AIA is not unlike all landmark litigation that advances humanity, i.e. it will always be opposed, vehemently, by those entrenched in the power structure who stand the most to benefit from the system already in place. Kudos to Congress and former President Obama for trying to rid the patent system of those that would game it in order to make a quick buck.
IPRs are a necessary instrument as long as ridiculous patents get granted in the first place, and thrown at practicing companies in bulk.
The USPTO has granted a lot of patents in the past 20 years that are not really novel or have been obvious at the time of filing. The real abuse of patent law set in when patent trolls emerged, throwing a lot of different patents at tech firms, banks and others, often using patents that do not have any real relation to the technology used. Just creating too much effort and cost to deal with just to milk the cow. This behavior is harming all American people by delaying tech development or causing higher prices. Consequently, the AIA corrected some of this misuse of the patent system. Now the pendulum has swung in the different direction. There are too much patents granted for too little steps, a system that was once intended to protect the real inventor, who put a lot of effort into the matter to create a real benefit, has now degraded to a system where tiny little steps play together with thousands of other tiny little steps to create something bigger. The whole patent system was created, when one big idea created one big product. These times are long gone. In a sophisticated product today are hundreds of different patents and every one of these could be used to bring the whole product down. That is no longer a sensible system. We need much higher levels for a patent to get issued, and we need to strengthen the direct post grant review, perhaps then IPRs will become much less important.
Confused Pharmacist@12: Based on that comment you need to change your handle to Clueless Pharmacist.
Your comment of “The whole AIA will be out the window” catches my eye, as I was once possessed of the same view. I had based my view on the understanding that an amendment for being able to separate deficient portions of the AIA was considered and rejected. But I have not taken the time to locate that particular piece of history. Is your view based similarly? If so, can you point to that piece of history?
For those of us that understand this field of law, the AIA is widely recognized as an atrociously constructed piece of legislation that has served to denigrate what was once the gold standard of the world for patent law.
Your quips on “gaming” and “making a quick buck” indicate that you have drunk more anti-patent koolaid than you have engaged in meaningful critical thinking in this area of law.
Everyone has a right to their feelings, but your feelings do not accord with reality.
Message received! Inventors need not apply!
Inventions do not need inventors; they ‘NEED’ industrialists, hedge fund/LBO boys, trope exploiters, ‘social justice warriors’, lobbyists, professors, politicians, and technology adopters and users – and ESPECIALLY, moral superiority complexes like yours – but obviously, INVENTORS NEED NOT APPLY!!
Frank, your post @13 seems to suggest or imply that a patentee with a so-called ridiculous patent can enforce the patent or at least get to a jury. I think that if a patent is actually ridiculous, or if infringement theories are ridiculous, the case will be tossed early in any litigation and the patentee will be sanctioned. What was needed was to free the courts from the handcuffs that the Federal Circuit had imposed upon them for sanctioning bad faith patent litigation. That relief came in the form of the Supreme Court decisions in Octane Fitness and Halo Electronics. Enforcement of ridiculous patents is no longer possible. Thus the need for alternative relief has dissipated if not entirely vanished.
The primary villain in this piece is the Federal Circuit. A secondary villain in this piece is the Federal Circuit in allowing patents the issue that included all but incomprehensible claims under its theory of indefiniteness. That has changed with Nautilus.
The third villain this piece is leadership of the PTO that was committed only to maximizing the issuance of patents at the expense of all other considerations. While Congress is got the message about the issuance of bad patents, it has done nothing whatsoever about the PTO and its malpractice. There is no study commissioned by Congress for example to determine why the PTO issues patents that read on the prior art, have vague claims, and that claim so broadly that there is no possibility of enablement. That would be an interesting commission, would it not?
This notion – that “Congress got the message” and that the USPTO engages in “malpractice” by issuing “bad” patents is the outrageous and baseless source of all pernicious assaults on the patent system in the last decade. It is this notion that led to Congress’ unconstitutional IPR assault on patents; to the “reject, reject, reject” policy of the USPTO; and to its arbitrary rejection of meritorious claims, inflicting huge harms on startup inventors. While I find myself in substantial agreement with you Ned on your other comments, I am utterly surprised at this one.
Who gets to decide what a “bad” patent is, once it issued? You (correctly) insist that only an Article III court should make that determination – not the USPTO, not the press, or commentators on the blogs. Yet, this statement indicates a total disconnect from the realities of patent application examination. With finite resources per application at the USPTO (no more than 25 hours per application disposal on average), a decision as to whether or not claims are patentable cannot be made error-free. Examiners make two types of errors: erroneous allowance of unpatentable claims, and erroneous rejection of meritorious patentable claims. The USPTO can drive allowance errors to zero by issuing no patents. Or, it can drive rejection errors to zero by allowing every application. As I have shown elsewhere, given fixed examination resources, the USPTO cannot drive both error types to zero – it can only tradeoff the error rates among the two types. Each error type has its attended social costs and the optimal tradeoff is that which minimizes the total social cost of both errors. See Appendix A of my public comments at http://bit.ly/Examination-Time. So any talk about USPTO “malpractice” and “bad patents” (error of the first type) without any mention of the harmful rejection errors (errors of the second type), is simply nonsensical and cannot be taken seriously.
Of course, both error types can be simultaneously lowered by allotting more examination resources per application (by raising USPTO user fees) (see Slide 12 in Appendix A). However, Congress – not the USPTO – set the acceptable examination error rate by having the public’s representatives set affordable user fees. The USPTO can only improve the efficient utilization of the fees in better allocating resources among incoming applications but it has no authority to spend more resources per application.
Are there alternatives? Of course there are, but I would not recommend them. We know, for example, that the cost per claim through the life of an EPO patent is about 5X that of a USPTO patent. EPO examiners spend more than 2X in hours per application compared to USPTO examiners. See Figure 3 in Appendix B of my public comments. Examination error rates at the EPO may understandably be lower than those at the USPTO. This benefit, however, comes at a tremendous cost to those who wish to participate in the patent system, and therefore detracts from innovation in Europe. Based on data from 2005, which I cited elsewhere, the share of patents issued to individual inventors at the EPO was only 0.6%, about 15X smaller than the respective share at the USPTO. At that time, it was startups and individual inventors who created most of the disruptive inventions, whereas established larger incumbent companies patented mostly incremental improvements.
The mantra of “bad patents” has been abused and is overdone. The term “Patent Quality” is similarly abused, as it is biased towards allowance errors (there is no patent if there is no allowance). These term should be eradicated from cogent discourse. The problem is not patents – it is examination.
All that I can say, Ron is wow – superbly done.
Assume for the moment that the PTO was in fact issuing large numbers of invalid patents that could not easily be invalidated on summary judgment. There would be a good argument, would there not, for doing away with the presumption of validity until the patent was “re-examined” once more. But there also be a good argument for an independent congressional commission to review why the PTO not doing his job properly or whether there would have to be some changes in the law in addition to changes in the PTO.
What seems to have happen is that Congress has assumed that the PTO is doing the best job it can and will inevitably issue large numbers of bad patents regardless. There was no actual investigation of whether the assertion that Congress is issuing large numbers of that patents is in fact true, or whether, if it is true, that nothing can be done. Rather Congress went straight to the remedy of reexamination as a “necessity” without ever having actually determined whether the underlying factual situation exists.
Now the Constitution “requires” that any patent system that Congress creates guarantees inventors exclusive rights for limited times. The amount of limited time is a policy consideration completely within the control of Congress. But there has to be some limited time where the patent owner is has exclusive rights which are his property. You and I both agree, Ron, that when a patent is subject to reexamination against the will of the patent owner, that the patent owner is not then enjoying exclusive rights. Revocable privileges are not property. It is only when the period of time that examination and reexamination are over can the period for exclusive rights begins. We also agree that after the period of exclusive rights has begun, that the jurisdiction of the patent office ends and that only a court of law can enter final judgment that a patent is invalid. That is the system we inherited from England and is guaranteed by the Constitution under Article III and the Seventh Amendment.
What the above means is that Congress should have investigated whether the PTO is in fact issuing large numbers of bad patents as alleged and whether there is any solution to the problem (if true) by fixing the PTO, fixing the law to the extent the law is causing a problem, or by funding the PTO property so that it can do its job properly. Postgrant reexamination is plainly unconstitutional.

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