The current implementation of PTO post issuance proceedings is undermining confidence in our patent system, chilling innovation at its roots, and, in eyes of some, giving the AIA a bad name.”
failure-success-roadTomorrow, September 16, 2016, is the fifth anniversary of the America Invents Act (“AIA”). Passed with overwhelming bipartisan support, President Obama explained at its signing that the AIA would reform the outdated patent process through “a bill that cuts away the red tape that slows down our inventors and entrepreneurs” by “put[ting] a dent in the huge stack of patent applications waiting for review” to “help startups and small business owners turn their ideas into products three times faster than they can today.” The President further stressed that the AIA would ”improve patent quality and help give entrepreneurs the protection and the confidence they need to attract investment, to grow their businesses, and to hire more workers.”
President Obama was certainly right about the first point, so much so that many have forgotten how significantly backlogs have decreased since the America Invents Act became law. In September of 2011, the United States Patent and Trademark Office (“PTO”) had a growing backlog of 700,000 patent applications awaiting examination. As the President observed at the AIA signing ceremony:
These are jobs and businesses of the future just waiting to be created. The CEOs who are represented here today, all of them are running companies that were based on creativity and invention and the ability to commercialize good ideas. And somewhere in that stack of applications could be the next technological breakthrough, the next miracle drug, the next idea that will launch the next Fortune 500 company. And somewhere in this country — maybe in this room — is the next Thomas Edison or Steve Jobs, just waiting for a chance to turn their idea into a new, thriving business.
By eliminating fee diversion and providing the PTO fee setting authority, the AIA gave the PTO the resources and tools it needed to reduce the patent application backlog to about 550,000 by mid-2016, while reducing pendency to first action from 28 months to 16.1 months and the total overall pendency by more than 7 months to 25.7 months. See PPAC Operations Update, August 18, 2016.
It is still too early to assess whether another major objective of the AIA — to improve patent quality by transitioning from a first-to-invent (“FTI”) to a first-inventor-to-file (“FITF”) system — will achieve its promise. By restricting the prior art available against FITF applications to prior filed patents and prior publically accessible information, while retaining the benefit of a one year grace period as to inventors’ own public disclosures and others derived from the inventor, the goal was to enable patent examiners to identify and consider all of the relevant prior art. Under this new system, secret prior art, including the actual (but usually unknown) dates of secret prior uses and prior inventions, would no longer lurk as threats to the validity of issued patents. At the same time, prior user rights were expanded to protect against infringement liability based on later filed FITF patents. It remains to be seen if FITF patents prove to be more reliable than their FTI counterparts, but there is good reason to think that will be the case.
It is also too soon to determine whether the AIA’s substantial step towards harmonization with other countries’ first-to-file systems will yield fruit in the form of prompting our major trading partners to adopt effective grace periods to protect all inventors against the effects of their own pre-filing public disclosures. Although procedural harmonization seems to be making good progress within the IP5, and our IP5 representatives, including PTO Director Lee, continue to constructively encourage others to reach a meaningful compromise, significant hurdles remain to substantive harmonization.
Another aim of the AIA was to bring the public into the original examination process, which it in part accomplished by authorizing members of the public to make pre-issuance submissions of prior art in applications under examination, along with concise explanations of that art’s relevance. Although not yet common, this process has proven to be a fairly effective way of ensuring that patent examiners become aware of, consider and, as appropriate, apply prior art during the original examination process.
The supplemental examination provision of the AIA — which was intended to encourage patent owners to rectify potential issues of inequitable conduct — is one that has not fulfilled its promise. Crafted to address situations where a patent owner later recognizes that incomplete or incorrect information was earlier provided to the PTO, supplemental examination was intended to provide a mechanism for the PTO to determine whether such errors or omissions were material to the issued claims. If so, the patent would be sent to reexamination. By insulating any claims later emerging from such a reexamination from later allegations of inequitable conduct based on that submitted information, innovators would then be encouraged to invest in the development and commercialization of inventions that might otherwise lie dormant due to unpurged blemishes in their prosecution histories. But supplemental examination has not found favor with patent owners. Reasons for this include the difficulty in meeting the PTO’s highly detailed requirements for making such a submission, issues relating to the potential secondary effects of implicating prior actors in wrongdoing (including possible referrals to the Attorney General for prosecution), and rulings from the Federal Circuit substantially tightening the requirements for proving inequitable conduct.
Even more disappointing to patent owners have been the AIA’s newly-created post issuance proceedings. Although the AIA intended to preclude these proceedings from being used to harass patent owners — by providing for high institution thresholds (§§ 314(a) and 324(a)), by having the Director “take into account whether, and reject the petition or request because, the same or substantially the same prior art or arguments previously were presented to the Office” (§ 325(d)), and by ensuring that patent owners would be protected from any “improper use of the proceeding” (§§ 316(a)(6) and 326(a)(6)) — this combination of provisions has not proven effective. Moreover, notwithstanding the AIA’s explicit authorization allowing patent owners the right to propose “a reasonable number of substitute claims” (§§ 316(a)(9) and 326(a)(9)), Patent Trial and Appeal Board (“PTAB”) rules and practice effectively make such amendments impossible. Nor have inter partes review (“IPR”) proceedings been limited to grounds based only on the texts of “prior art consisting of prior patents and publications,” as the AIA intends (§ 311(b)) (italics added). Rather, both at the institution and final hearing stage, petitioners present wide ranging expert declarations that are typically accepted (without testing by live cross examination before the panel) that fill in otherwise missing motivations to combine, while patent owners’ evidence of objective indicia of non-obviousness is routinely rejected as insufficiently proven or as lacking a nexus to the claimed invention.
It is no wonder then that would-be patent challengers see post issuance proceedings, particularly IPR proceedings, as so attractive that three times the projected numbers of petitions have been filed – 60-70 percent of which have led to institutions. And once instituted, the prospects for patent owner success are dismal. Final decisions uphold some or all of the challenged claims less than a quarter of the time. Although it was bad enough that a former chief judge of the Federal Circuit called these proceedings a “death squad for killing property rights” (See IP Watchdog March 24, 2014), worse still was the confirmation from then chief judge of the PTAB who said, “If we weren’t, in part, doing some ‘death squadding,’ we would not be doing what the statute calls on us to do.” August 14, 2014 Patent Public Advisory Committee, as reported in Law 360 IP by Ryan Davis. See also “Misleading PTO Statistics Hide a Hopelessly Broken PTAB,” IP Watchdog, Sept. 6, 2016.
Compounding the problem are the abusive practices that have grown up to exploit the perceived anti-patent bias in these proceedings. IPR filings by hedge funds trading in the stock of patent-dependent business have been widely publicized, as have incidents of “reverse trolling,” where persons attempt to extort payments or licenses from patent owners to forego or settle IPR proceedings.
So unfortunately, Mr. President, after five years I cannot report back that the AIA has yet ”improve[d] patent quality and help[ed] give entrepreneurs the protection and the confidence they need to attract investment, to grow their businesses, and to hire more workers.” The current implementation of PTO post issuance proceedings is undermining confidence in our patent system, chilling innovation at its roots, and, in eyes of some, giving the AIA a bad name.
But all hope is not lost. Although the courts gave the PTO a wide berth in early challenges to the PTO’s interpretations and implementation of the AIA, several recent cases suggest that a more critical eye may now be used when reviewing PTO practices. Moreover, change may be afoot within the PTO itself, as a new chief judge of the PTAB with deep practical patent experience has now assumed his position, and the PTAB judges themselves are gaining more experience. Finally, post grant reform provisions approved this year by the Judiciary Committees of both houses, and further improvements still under consideration, strongly suggest that Congress is prepared to step in if the PTO is unwilling or unable to level the PTO post-issuance playing field.
I am still an optimist when it comes to the AIA. I am also a believer in the dedicated personnel at the PTO who understand that reliable, high quality patents are necessary to provide the dependable incentives our country needs to advance science and the useful arts. Our government’s system of checks and balances will take time to exert themselves. But when all is said and done, we will still have the best patent system in the world, and we will continue to work together to make it even better. We owe this to the innovation that otherwise may never occur, and to all those who will need it in the future.