PTAB Reform Bill: a ‘reasonable fine-tuning’
On June 16, three US senators introduced a bill which proposes a handful of reforms to the Patent Trial and Appeal Board (PTAB).
Announcing the proposed reforms, Senators Patrick Leahy, John Cornyn and Thom Tillis said that the PTAB Reform Act 2022 will “protect all parties against gamesmanship and will improve transparency at the PTAB”.
Describing the bill as an enhancement to the America Invents Act (AIA); indeed, Senator Leahy tweeted: “The #PTABReformAct restores and improves central pillars of the AIA, which I authored to establish an efficient, low-cost venue for ordinary Americans to challenge patents. In doing so, it further improves the functioning and fairness of the patent system.”
Core reforms
The reforms propose four main goals (which are explained more fully in a summary of the bill):
- to prevent abusive serial petitions from harassing patent owners;
- prohibit the USPTO from considering inaccurate district court litigation timelines;
- revise the PTAB structure to conform with the appointments clause while preserving the board’s autonomy; and
- address PTAB certainty and fairness in other areas.
The bill has had a mixed response from industry and patent lawyers. The US Manufacturers Association for Development and Enterprise (US*Made) welcomed the bill, which it says will address the “unlawful denial” of patent validity challenges at the USPTO.
“The AIA put important patent system reforms in place that enable small and large manufacturers alike to defend themselves against bad patents being weaponised against them, including inter partes review, a crucial process for reviewing claims of patentability,” said Beau Phillips, US*Made’s executive director.
“Unfortunately, inter partes review denials rose drastically under the previous USPTO director,” he added. “Access to this legal tool must be strengthened to protect US manufacturers from extortion by patent trolls and unnecessary patent lawsuits over vague, low-quality patents.”
Imperfect and not final
In a hearing on Wednesday June 22, the Senate Committee on the Judiciary’s Subcommittee on Intellectual Property heard four industry witnesses’ differing appraisals of the bill, with a broadly positive response.
Chairing the hearing, Senator Tillis said that the PTAB, when run properly, can play a vital role in the US economy and should act as a “mechanism to weed out low-quality patents”. But despite attempts to improve the front-end examination process, he said that low-quality patents are often issued—especially in the fields of business and software.
He added that “for far too long, the PTAB hasn’t been a fair and impartial forum that served its critical purpose”.
“Instead, in years past, it’s been a literal death squad for patent rights and has been weaponised by various companies to potentially bankrupt future competitors.”
The bill is being framed as a compromise, to improve fairness to both parties in patent disputes. Senator Tillis added that “this bill isn’t perfect, and it isn’t final, and I’m pretty sure that when it’s final it won’t be perfect”.
The witnesses were heads of IP from GlobalFoundries, SAS Institute and Qualcomm, and a professor at Washington College of Law, who had only a few suggestions for improvement to the legislative detail.
For example, Robert Giles, senior vice president and chief intellectual property counsel at Qualcomm, on behalf of the Innovation Alliance, said that the while PTAB Reform Act “is a step in the right direction, overall we look to the STRONGER Patents Act as a little bit more fair and balanced”.
But Conservatives for Property Rights—a coalition of conservative and libertarian organisations that “emphasises the central importance of private property in all its forms”—came out strongly against the bill.
In a statement, it said: “Beleaguered inventors face tremendous threats, due to PTAB and its most frequent users. These inventors and entrepreneurs face David versus Goliath scenarios, but in PTAB proceedings, these Davids usually lose and patent challenger Goliaths usually win.
“Thus, Congress should reconsider PTAB and either reform it so it affords patent owners sufficient due process and fairness akin to patent litigation in federal court and the US International Trade Commission, or eliminate PTAB.”
Fine-tuning
But attorneys working on PTAB trials have recognised that the bill presents welcome improvements to PTAB proceedings.
Kerry Taylor, partner at Knobbe Martens’ San Diego office, began PTAB work just after the board was formed in 2012, and it remains his primary practice.
He believes the majority of provisions set out in the bill would “fine-tune” PTAB proceedings and would continue the process of refinement that has taken place over the past ten years.
In particular, Taylor says that the provision to curb serial filings is key.
“If there is a petitioner who files time-spaced-apart petitions—not two at the same time, but files one petition and then one day to six months later files another petition—then that petition will not be granted institution,” he explains.
“The earliest one is untouched, but any later filed petitions, what some call a ‘General Plastics-type, will not be permitted under the new statute.”
This timeline is exactly what the bill intends to clarify, as well as aspects of the director review process under Arthrex.
Taylor says the statute should address the technicality invoked by Arthrex decisions—by having all of the PTAB's functions in these proceedings being performed by the director.
“So in that kind of dynamic, the PTAB can issue decisions because they're subject to review by the director,” he adds.
Kevin Rodkey, partner at Finnegan, points to the fact that the bill provides “additional clarity” surrounding certain procedures at the USPTO for inter partes review (IPR) and post grant review (PGR) proceedings”.
He adds that the proposed reforms include changes that “appear to try to balance benefits to patent owners and petitioners” and to address circumstances not accounted for in the original legislation.
Fintiv-type denials
The provision to limit discretionary denials (or the NHK-Fintiv rule) that allow the PTAB to deny review of a patent’s validity if there is pending parallel district court litigation, will have “arguably the largest impact” according to Axinn partner Aziz Burgy.
“The bill would prevent the PTAB from declining to review a patent based solely on whether there was a pending parallel litigation,” he says.
“In turn, however, the bill has provisions that prohibit filing multiple petitions by the same petitioner, real party in interest, or privy of the same petitioner. Disallowing multiple, serial petitions by the same entity seems to be the effective compromise to eliminating discretionary denials.”
However, Taylor is less certain of the need to limit Fintiv-type denials, who points out that there are fewer Fintiv denials these days.
“If you look at the institution statistics—late 2019, early 2020—there were a lot of discretionary denials, which caused a dip in the overall institution rate,” he explains.
“This proposed statute is saying that, for purposes of evaluating institution, the PTAB should not take into account a parallel district court or International Trade Commission proceeding. So they're taking the Fintive-NHK premise off the table for discretionary denial.”
Taylor argues that Fintiv no longer dominates institutions or plays a big role in suppressing institution rates, but is willing to concede the benefits of this provision of the bill.
“A valid criticism of my general position is that this alleviates the need for parties to take those extra steps to dodge the Fintiv or make the Fintiv factors in their favour. They don't have to worry about rushing to the PTAB. They don't have to worry about the Sotera stipulation.”
In fact, in a move that will further curb Fintiv-type denials, Kathi Vidal, director of the USPTO, issued long-anticipated non-binding guidance on discretionary denials on June 21. This reining in of the Fintiv rule would thus make Sotera declarations ( Sotera Wireless v Masimo, a precedential PTAB ruling as of December 2020, which applied Fintiv factors) less likely.
Since the bill will address general concerns about these types of discretionary denials, he’s happy. “As long as it does that, I don't really take too much of a strong policy-based position. Obviously, there are some people whose intent is to do away with all PTAB proceedings and others who would do away with all patents. But this does seem to be a reasonable fine tuning.”
Clamping down on gamesmanship
Burgy acknowledges that the legislation would clamp down on recent conduct by parties and counsel related to “collusive acts” which adversely affected the outcome of proceedings.
“In particular, the bill allows the director to sanction parties who act in bad faith by ‘deliberately delaying or losing, or offering to deliberately delay or lose, an instituted proceeding in exchange for consideration’,” he says.
“These provisions would allow sanctions against both petitioners and patent owners.”
Similarly, Taylor is happy that this version of the statute tackles gamesmanship with reasonable balance. He refers to draft legislation last autumn, which proposed to remove all discretionary denials.
Under that legislation, he says, “you would have done away with General Plastics-type and Fintiv-type” cases. “Between 2012 and 2014, we saw staggered petition filing—you'd see people getting a preview of patent owners' position and then changing the story and doing these sorts of things.”
He adds: “You have to evaluate what the potential is for someone to follow the statutory requirements and yet gain what could be viewed as an unfair advantage”
Managing the cost for SMEs
Another key aspect of the bill would allow the reimbursement of expert witness and attorney fees in PTAB proceedings, which Burgy believes would be a “huge benefit” to small companies facing challenges to their patents.
“The high cost of PTAB proceedings is sometimes a barrier for small and micro entities when defending their patents,” he adds.
