A Broken PTAB Poses a Barrier to U.S. Innovation
Guest contribution by ACT | The App Association
America’s 34.6 million small businesses are the backbone of American ingenuity and job creation, yet they are the most vulnerable to abuses in today’s evolving patent landscape. Designed to encourage invention, patents can be abused when erroneously granted or improperly asserted, oftentimes at the expense of small innovators. In crafting the landmark America Invents Act, Congress created the Patent Trial and Appeal Board (PTAB) as a safeguard against questionable patents, and to protect against the improper issue and misuse of patents. Now, more than a decade later, a handful of companies are working to weaken the PTAB, threatening to make it unusable. This shift puts small businesses at a greater risk, slowing their ability to innovate and resulting in negative impacts on both consumer welfare and the broader U.S. economy.
The Small Business Problem
An individual or small business rarely, if ever, has enough resources to fight a claim of infringement in federal court (which runs about $2.8 million per case), making them the perfect target for abuse. Entities that have stopped practicing issued patents, or that have made a business of acquiring patents to enforce them, often called patent trolls or “NPEs” (non-practicing entities), approach small businesses knowing that they cannot sustain extended litigation in court. Patents that have never been or are no longer practiced are often weak or invalid and no longer serve the purpose of advancing societal solutions. These are the barriers that impede small and medium-sized businesses (SMB) from bringing new and critical products to market. And now, the explosion of third-party litigation funding has added rocket fuel to an already abused system.
Background on AIA and PTAB
The U.S. patent system remains one of the strongest in the world due to the checks and balances put in place by the America Invents Act (AIA) in 2011. This monumental piece of legislation recognized that even the best efforts to provide strong examinations during the patenting process will allow some overly broad, or otherwise invalid, patents to slip through the cracks. Congress also recognized that weak patents thrive off national systems that invite strong enforcement at the expense of competition and consumer welfare. Building on these foundations, in the AIA Congress established the PTAB within the United States Patent and Trademark Office (USPTO) to improve patent quality by providing a means of challenging granted patents’ validity.
It is important to U.S. innovation that American businesses can access proceedings at the PTAB particularly when they are facing threats of a lawsuit in an federal district court. The PTAB was established to provide a more affordable and efficient recourse for businesses of all sizes to exercise their rights under the auspices of learned experts within the USPTO. When utilizing the PTAB, three post-grant proceedings are available: inter partes review (IPR); post-grant review (PGR); and ex parte reexamination. Inter partes review (IPR) proceedings were specifically enacted to protect the interests of small businesses.
While other post-grant proceedings under the PTAB provide entities with the ability to challenge invalid patents, IPR is typically the most viable option for a small innovator. PGR proceedings, for example, require institution within nine months of a patent grant when small innovators are very often not made aware of patent claims of infringement until they are asserted well after the nine-month window. IPR proceedings, on the other hand, allow entities that have not been sued yet but have been served a threatening demand letter to have standing to challenge a patent’s validity. It further helps that PTAB judges apply specific subject matter expertise and USPTO resources to assess the strength and validity of issued patents that are challenged in the IPR process.
An Unworkable IPR System Harms Small Business
IPR proceedings are particularly under threat of being obsolete and must be supported to protect small business inventors. Under the last Administration, Director Kathi Vidal recognized meritorious IPR petitions were being denied under two precedential opinions that expanded the ability of PTAB judges to deny meritorious IPR petitions based on procedural factors. The first decision, NHK Spring Co., Ltd. v. Intri-Plex Techs, Inc. (NHK), determined that PTAB judges could deny institution of IPR based on how close a parallel district court proceeding was to completion. The second decision, Apple Inc. v. Fintiv, Inc. (Fintiv) took a leap further by providing a non-exclusive list of factors for the PTAB to consider when determining whether to deny institution of IPR proceedings in light of parallel district court litigation. Together, the damaging precedent (NHK-Fintiv) set by the previous USPTO director placed individual inventors and SMBs in an inequitable position. NHK-Fintiv even enabled some federal judges to intentionally early-schedule district court cases in patent disputes (only to push trial dates back) to initiate a discretionary denial of the PTAB challenge to the validity of the same patents at issue. As a result, parties looking to avoid a PTAB examination of the validity of their patent(s) were incented to use those courts.
To curb this precedent, Director Vidal enacted interim procedures to expressly define three scenarios in which the PTAB would no longer exercise discretionary denial under NHK-Fintiv factors in light of parallel district court litigation: 1) When a petition presents compelling evidence of unpatentability; 2) When a request for denial under NHK-Fintiv is based on a parallel ITC proceeding: and 3) Where a petitioner stipulates not to pursue the same grounds raised or that could have reasonably been raised at the PTAB in a parallel district court proceeding.
The USPTO further took steps to clarify the “General Plastic factors” for denying institution of follow-on petitions for IPR proceedings. Such steps were put in place to eliminate disparities and inequities amongst stakeholders. For example, a patent system that fails to purge poorly defined patents or encourages patent abuse raises costs on entrepreneurs. This is an unacceptable outcome for those who already experience higher costs and barriers to entry given their ethnic backgrounds.
The current Administration has taken its first step in removing the important safeguards that Director Vidal put in place to support a functioning PTAB as Congress intended by rescinding the previous Administration’s memorandum that supports the institution of meritorious petitions. This policy change signals a concerning direction of policy for the Trump Administration at a critical time for the nation’s economy. Already, impacted communities (including the App Association) are challenging these policy changes in court.
Conclusion
Several concerning patent reform bills are currently before Congress, including the Promoting and Respecting Economically Vital American Innovation Leadership (PREVAIL) Act, which threatens the usability of the PTAB, and would do a significant disservice to small businesses and the economy writ large. American small businesses are the backbone of U.S. leadership in technological innovation, driving progress across consumer and enterprise markets. These businesses depend on a strong and consistent patent system that offers even the most resource-constrained innovators a clear and attainable path to protect themselves against patent system gamesmanship. The PTAB plays a crucial role in upholding congressional intent.
The Administration and Congress now stand at a critical crossroads, with the responsibility to safeguard the integrity of the U.S. patent system and defend it against efforts by foreign entities seeking to undermine the public good and the nation’s innovation leadership. It is critical that Congress refuse to advance legislation that serves only patent trolls and the lawyers they hire. It is equally vital that they recognize and uphold Congress’ intent in setting USPTO policy and in supporting the PTAB.
Disclaimer: This post provides general information related to the law. It does not, and is not intended to, provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.
Engine is a non-profit technology policy, research, and advocacy organization that bridges the gap between policymakers and startups. Engine works with government and a community of thousands of high-technology, growth-oriented startups across the nation to support the development of technology entrepreneurship through economic research, policy analysis, and advocacy on local and national issues.
