“Something odd is happening at the PTO; every business day, 1,000 patents issue, but when the PTO reevaluates some of those patents…it invalidates some claims 80% of the time…. The only institution in the United States that does not give the PTO credit for its work, is the PTO.” – John Whealan

“It’s up to you to do the right thing and fix this,” said Professor Arti Rai of The Center for Innovation Policy at Duke University School of Law near the end of a hearing on what Congress should do in the wake of the Arthrex decision yesterday. Rai was one of four IP scholars who testified during the hearing of the House Judiciary Committee’s Subcommittee on Courts, Intellectual Property and the Internet; all witnesses seemed to agree that the courts will not fix the problem soon enough to ensure the requisite certainty for U.S. patent owners and businesses, so Congress must act.

In Arthrex, the Federal Circuit found that the Patent Trial and Appeal Board’s (PTAB’s) Administrative Patent Judges (APJs) were unconstitutionally appointed and removed the civil service protections they previously were deemed to enjoy—although, as Professor John Duffy of the University of Virginia School of Law pointed out, if the Federal Circuit ruled that the APJs can’t have tenure, that arguably means they never did. “If you go back to Marbury v. Madison, courts don’t actually strike down statutes; they simply say what the law is,” Duffy said.

We Can’t Trust the Courts

In his opening statement, Subcommittee Chair Hank Johnson (D-GA) said that, despite the Federal Circuit’s contention in Arthrex that Congress would have preferred the approach the Court took, “speaking for myself, I find it inconsistent with the idea of creating an adjudicatory body to have judges who have no job security. It goes against the idea of providing independent impartial justice if a judge is thinking about his or her livelihood while also weighing the facts of a case.”

Although Johnson said he understood that the Court was in a difficult position, with limited options, he convened the hearing to consider whether Congress should get involved. He added:

Frankly, I worry that we cannot trust the courts to fix this. We are living through an era where the Supreme Court is taking increasingly extreme positions about the constitutionality of the administrative structures that have existed since the New Deal. These decisions second guess the legislative process and solutions Congress has worked hard to pass in order to handle the realities and complexities of a modern society.

Subcommittee Ranking Member Martha Roby (R-AL) suggested that the broad independent authority PTAB judges have had since the passage of the America Invents Act (AIA) raises important questions. “Because these decisions sometimes mean tens or hundreds of millions of dollars, or the viability of a small business, it raises doubts that agency officials who are not Senate confirmed should have so much independent authority,” Roby said.

The Options

Three possible solutions were presented—and generally agreed upon—by the witnesses, who, in addition to Duffy and Rai included John Whealan of George Washington University Law School and Robert Armitage, IP Strategy and Policy Consultant. They include:

Provide a clear path of review to the USPTO Director;

Establish a small number of additional officers who are confirmed by the Senate and have them review PTAB cases;

Make PTAB decisions be reviewable by PTAB chief judge, which would be made into a Senate confirmed position.

All witnesses agreed that enacting a unilateral right of review for the Director would be the fastest and least administratively burdensome solution. A fourth, less viable option, is to make all 200-plus APJs subject to Senate confirmation and appointment by the U.S. President.

Time for Systemic Review

While it is solving the Arthrex problem, Whealan, who once served as Solicitor to the USPTO, suggested that Congress might want to take this opportunity to review how the inter partes review (IPR) process and the PTAB overall are working eight years on and 10,000 IPRs on from the AIA. Whealan’s remarks are worth reproducing at length:

IPRs have had a profound effect on the patent system; however they received little debate during the AIA as compared to the highly controversial post grant review “second window” that ultimately had to be stripped from the bill in order to obtain passage; yet IPRs share many of the attributes as were feared of PGR second window, including inability of quiet title and multiple and serial petitions. IPRs have devalued every single U.S. patent. Patents are supposed to be presumed valid; they are not before the PTAB. Invalidity must be proven by clear and convincing evidence; not at the PTAB. The numbers confirm this. There are over 1,400 IPRs filed each year. That’s 3.5 times as many as the USPTO estimated to Congress [at the time of the AIA]. IPR petitioners fare much better than patentees, given IPRs are instituted over 60% of the time and in final decisions some claims are invalidated 80% of the time. To my knowledge, almost no one thought there would be 1,400 IPRs per year, 260 APJs, so many claims would be invalidated, and that the estoppel provision would be so weak. And no one thought that APJs were unconstitutional. But laws can have unexpected and unintended consequences…. For the last eight years many interested parties have said the system is working just fine. It wasn’t, and it still is not. A critical voice seems to have been missing from the discussion—that of the patent owner. Patentees must pay thousands of dollars and wait years to get a patent and then sometimes have to pay hundreds of thousands and wait years to see if it’s valid. I know of no other federal agency where one party has to pay thousands of dollars to get a grant and then another party pays the institution to invalidate that grant. That is what is happening today. Something odd is happening at the PTO; every business day, 1,000 patents issue, but when the PTO reevaluates some of those patents…it invalidates some claims 80% of the time. It is also amazing to me that the only institution in the United States that does not give the PTO credit for its work, is the PTO—it can’t. Patents are not presumed valid at the PTAB. So, as Congress thinks about this, some issues it may wish to consider are presumption of validity, standing, estoppel, and to realize that IPRs are often not a substitute for, but are in addition to, litigation. And most of all, consider IPRs from the perspective of the patentee; after all, without them we wouldn’t be here.

No Surprise: Different Standards, Different Outcomes

Whealan’s point about the differing validity standards at the PTAB versus federal courts also piqued the Subcommittee’s interest and three of the four panelists agreed that the standards should be the same in order to mitigate the problem of patents being upheld by courts and then invalidated by the PTAB. Rai, however, urged caution:

I agree as a policy matter that claim construction should be the same between courts and the PTAB, but as an administrative law professor I don’t have a huge love of Congress coming in and micro-managing administrative adjudication. That’s appropriately delegated to the agency, and it can adapt its adjudicatory practices, within the limits of the Constitution, to the needs before it. Having Congress put that into statute would unduly box in the agency.

Rai also said that she thinks the PTAB is largely working. “I do believe the PTAB is largely functioning as Congress envisioned in the AIA,” Rai said. “It’s an expert, fair and efficient alternative to expensive Article III litigation of the validity of issued patents.”

She added that recent initiatives taken by Director Andrei Iancu on issues like claim construction standards, serial petitioning, and the creation of the Precedential Opinion Panel have further strengthened the effectiveness of the PTAB. That said, since the current Supreme Court may well agree with the Federal Circuit that the PTAB APJs were not properly appointed, Congress should consider a “surgical alteration” to ensure sound administrative procedure, Rai said. She later noted that any such solution should also apply retroactively.

In response to Rai’s comments on solutions for streamlining the standards, Whealan said that leaving it up to the USPTO would not work. “Congress put [the] preponderance [of the evidence standard] in the statute; Congress has to take it out if they want to change it.”

The panelists pointed out that a judicial solution to the matter will not come until 2021 at best, and even then, it may not solve the problem. Even Constitutional lawyers seem uncertain about the potential outcomes, said Whealan, and in the end, the Supreme Court may find that the Federal Circuit solution was not sufficient—thus, Congress must take on the important task of creating certainty.

The Unthinkable Things

For his part, Armitage said that one of the last things he does before going to bed each night is to hope that Judge Dyk’s decision in Bedgear, LLC v. Fredman Bros. Furniture Company, Inc., No. 18-2082 (Fed. Cir. 2019) was correct. In that decision, issued soon after Arthrex, Judge Dyk said that “the remedy aspect of Arthrex (requiring a new hearing before a new panel) is not required” as it “imposes large and unnecessary burdens on the system of inter partes review, requiring potentially hundreds of new proceedings, and involves unconstitutional prospective decision-making.”

“[Judge Dyk] would do retroactively something that, during an interim period of time, would cause no harm and give Congress time to act retroactively to do some good,” like to moot the issue, Armitage said. In this way, nothing too bad would happen before Congress acts, such as all PTAB decisions being deemed questionable from a Constitutional standpoint. Armitage added:

“The unthinkable things need to be solved before they become thoughts we all have to live with.”