Landslide Digital Feature

Two Views of PTAB: A Runaway Tribunal That Undermines the Law of Validity

Paul R. Michel

©2017. Published in Landslide, Vol. 9, No. 3, January/February 2017, by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association or the copyright holder.

The America Invents Act’s (AIA’s) three review procedures were poorly designed by Congress and unfairly implemented for its own administrative convenience by the United States Patent and Trademark Office (USPTO). None of this is the fault of the Patent Trial and Appeal Board (PTAB) itself. All of it could be corrected by the director’s exercise of her broad discretion to improve the regulations, as issued. In fact, two rounds of amendments have already been promulgated. Unfortunately, the most important adjustments have not yet even been proposed. They include:

  • claim construction, as in court, to replace broadest reasonable interpretation (BRI);
  • live expert testimony at the “trial” whenever there is a genuine dispute of fact, as in court;
  • discovery as of right, at least as to objective indicia of nonobviousness, as in court; and
  • one claim substitution opportunity as of right, not by leave per motion.

No criticism of Congress or former directors, acting directors, and deputy directors, however, survives scrutiny because the framers were all forced to guess how it would all work out in practice. But, now we have ample experience with the results in practice, so it is time to make further appropriate adjustments.

Two of them can only be made by Congress: first, change the challenger’s burden of proof from a mere preponderance to clear and convincing, as in court; and second, require the petitioner to have standing, as in court. The rest could be published tomorrow as proposed amendments to the regulations.

I want to be clear how blameless I hold the PTAB and its 260+ administrative patent judges (APJs). I readily stipulate they were all well selected, possess ample expertise in both patent law and technology, work diligently, are well supervised, write fine opinions, faithfully implement the regulations and the AIA, harbor no bias, exhibit commendable judicial temperament, and serve as faithful stewards of the patent granting and review systems.

I want as well to be clear to exonerate all former chief, deputy chief, vice chief, and acting chief judges. As mentioned, all had to improvise and estimate the best they could, and they did. Their burden was heavy because the director completely delegated to the PTAB all authority to “institute” as well as to “decide” the reviews created by the AIA, even though the statute itself explicitly provides that the director (or appropriate delegees subordinate to the director) “shall” institute a review and empowers the PTAB only to “decide” such trials.1 And, the PTAB must do so within the statutory deadlines of about six months for institution and 12 months for final written decision. If the regulations reflected fear of missing those deadlines and thereby risking the ire of Congress and possible budget retribution, one can sympathize, especially since Congress had previously diverted, sequestered, and impounded the agency’s collected fees and regularly hauls the director in for testimony on the delays in the USPTO concluding its cases. If I were an APJ or chief judge, I would want the agency director never called on the carpet for missed deadlines.

The only concern is whether those fears tilted the procedure so in favor of speed and ease as to compromise accuracy and fairness to patent owners. In my opinion, that is what seems to have occurred. Although the challengers were the beneficiaries, that was not the goal, just an incidental side effect.

To me, that explains why efficiency still seems to trump all other priorities and countervailing considerations. So, no live testimony? That saves time. No discovery (or very little)? That saves time. No amendment as of right? That saves time. BRI instead of Phillips claim construction? That is faster, easier, and lowers the risk of reversal on appeal to the Federal Circuit.

Given the decision of the Supreme Court in Cuozzo,2 we know that the lawfulness of the regulations was saved by Chevron deference. Yet, the opinion takes pains not to comment on the wisdom or fairness of the regulations as a matter of policy. In fact, the Court all but suggests the director could freely alter the regulations for that very purpose.

We also know that under the Administrative Procedure Act, high deference under the substantial evidence standard is due to all PTAB fact findings. In fact, we have known that ever since Dickinson v. Zurko.3 What Cuozzo added, in my view, is that the USPTO has very broad regulatory discretion on all issues involved in AIA reviews, substantive as well as procedural.

The combined effect of these rulings is that PTAB decisions are effectively immune from meaningful review at the Federal Circuit. It comes as no surprise, then, that the affirmance rate on appeal is about 95 percent. It seems likely that many future affirmances will be quick and routine, most by Rule 36 and others by short nonprecedential opinions. Why does it matter? Because that means the PTAB can do almost anything it cares to, without concern of the risk of reversal or criticism from its “reviewing” court. More fundamentally, it matters because validity is ultimately a legal issue. Normally, legal issues get close review on appeal to a circuit court, but not here. It therefore becomes likely we will see many cases in which validity is upheld in court but nullified in the USPTO. What an odd and illogical disparity!

What this reality incentivizes is more filings of AIA reviews at the PTAB. You get sued for alleged patent infringement? File an inter partes review (IPR) within the time limit and likely get a stay. Win in the USPTO? Case closed! Or, lose in court? File a post-trial covered business method (CBM) review and try to get both appeals to co-pend and then likely be consolidated. Result: your court loss is undone with a victory at the PTAB, affirmed on appeal, with the adverse judgment in district court dismissed as moot.

Conceptually, all grounds of invalidity are ultimately legal issues, but underlying factual issues abound. So, if the fact findings can almost never be overturned, then in most cases, neither can the invalidation. In addition to the incongruity of disparate results on validity in court vs. in the PTAB, there is a real risk that the PTAB, being largely irreversible, becomes a law unto itself. A separate law of patent validity is created that evades meaningful appellate review.

None of this would matter much if the results at the PTAB were always correct, reflected only the true merits, and not at all the procedural disadvantages imposed on the patent owner. Now, I do not claim to know, and certainly cannot prove, that these disadvantages caused some of the outcomes. But, they well might have.

As stated above, this concern in no way reflects adversely on the APJs or the PTAB as a whole. I agree they are carrying out these litigations just as they should, given the statutes and the regulations. But that does not relieve the concern over possibly incorrect, but irreversible, results.

Now, let’s ask ourselves, do we need to take this risk of injustice? The answer is plain for all to see: No! It is a choice among trade-offs: ease, efficiency, administrative convenience, and guaranteed timeliness vs. fairness and correctness.

Why should we not prefer the latter? One can understand why the USPTO might be more concerned about the former, but, as an agency now administering justice (not to mention negating government grants of property rights) and managing a litigation system as potent as in district courts, is the better choice not to tilt back in favor of assured correctness and fairness?

In my view, the appearance of justice is almost as important as justice itself. Here, the perception of many is that the system is rigged against the patent owner. While no one advocates changes solely to placate complaints, neither should we be wholly deaf to such complaints, especially where, as here, they are so widespread.

For the sake of the credibility of the AIA system and the USPTO and its PTAB, the regulations governing these reviews should be as fair as possible and, equally important, look fair as well. I am not sure the regulations pass this test. As one who does not litigate before the PTAB, I must be cautious about any judgments. But, on their face, the regulations seem tilted to me. For example, it is not even clear that the petitioner bears any burden of proof, once a trial is instituted. Thus, the Federal Circuit had to declare that the burden never shifts.4 But with even-handed regulations, that intervention would not have been necessary.

Imagine, in any other American adjudicatory system, a “trial” in which no witnesses appear and testify! If all the reviews depended solely on documents such as the patent and the file history, such a process might be tolerable. But, most AIA reviews turn on assessing written testimony by dueling experts, none of whom is ever subjected to cross-examination before the judges. No district judge would ever permit such irregularity. In my new career as an arbitrator, I have seen impressive declarations and depositions by notable experts torn to shreds by live testimony, cross-examination by opponents, and questions by the adjudicators themselves.

This reality also highlights the crucial importance of adequate discovery, seldom seen in AIA reviews. It frequently happens that company documents belie expert opinions. I have seen this firsthand in arbitrations. In many cases, the pivot point in assessing the relative credibility of conflicting experts comes when the adjudicators question each expert about the other expert’s criticism of their assertions. But PTAB judges rarely get that opportunity. In their shoes, I would hate to have to guess which expert to trust more. Doing so based just on paper and attorney argument (which is not even evidence) seems unsound, both to the party that loses and to the judges themselves. But that is the very danger that the regulations invite.

Now, I recognize that in May the near ban on live testimony was eased somewhat. But, at the same time the USPTO said it did not expect to allow live testimony in every case of conflicting experts. Why not? If the conflict meets the summary judgment standard of a “genuine dispute” about a “material fact,” live testimony should be mandatory.

Such disputes arise in most patent cases precisely because they are so fact-intensive. In addition to the four Graham factors for determining obviousness,5 all of which are factual, underlying facts appear in many claim constructions, which under Teva v. Sandoz require deferential review on appeal.6

In CBM reviews, although not in IPRs, additional fact issues commonly appear. Claim definiteness often turns on expert testimony. Under Nautilus, claims must inform the ordinary artisan of claim scope “with reasonable certainty.”7 How can that be decided soundly and credibly without live expert testimony? Same with enablement.

Attorneys who appear before the PTAB represent petitioners one time and patent owners the next time. So they may be reluctant to complain about the tilt in the regulations, as sometimes they benefit. Nor should the USPTO hide behind the notice and comment process that produced the regulations, especially as some of the comments were dismissed without explanation.8

One way to assess the credibility of the director’s decisions on further amending the regulations, or not, is to ask whether the decision provides solace, ease, convenience, and the like to the USPTO. If so, the decision seems suspect, at least to me. In contrast, if the decision on a possible amendment goes against such self-interest, it is surely done for fairness and accuracy reasons.

Moreover, the director need not wait for complaints or external proposals. Under the AIA, both as expressly worded and as construed by the Supreme Court in Cuozzo, she has broad discretion to initiate changes on her own, especially when they represent better patent policy. In my view she should, to make the review process be fairer and look fairer. It would be an act of statesmanship that would redeem the AIA reviews and the USPTO’s reputation for fairness.

Endnotes

1. 35 U.S.C. §§ 314(b), 316(c).

2. Cuozzo Speed Techs., LLC v. Lee, 136 S. Ct. 2131 (2016).

3. 527 U.S. 150 (1999).

4. In re Magnum Oil Tools Int’l, Ltd., 829 F.3d 1364 (Fed. Cir. 2016).

5. Graham v. John Deere Co. of Kansas City, 383 U.S. 1 (1966).

6. Teva Pharm. USA, Inc. v. Sandoz, Inc., 135 S. Ct. 831, 842 (2015).

7. Nautilus, Inc. v. Biosig Instruments, Inc., 134 S. Ct. 2120 (2014).

8. See Home Box Office, Inc. v. FCC, 567 F.2d 9, 35–36 (D.C. Cir. 1977) (“[T]he opportunity to comment is meaningless unless the agency responds to significant points raised by the public.” (footnote omitted)).

Paul R. Michel

Judge Paul R. Michel served on the Court of Appeals for the Federal Circuit from 1988 to 2010, the last five years as chief judge. In retirement he consults on litigations as a mock judge, mediator, arbitrator, brief editor, case evaluator, and strategist. He is also active on patent policy and legislative proposals.