When the system is working as it should, the U.S. Patent and Trademark Office (USPTO) rewards innovation by only granting patents for inventions that are novel, nonobvious, and useful—the patent eligibility standards described in the Patent Act. But whether it is due to occasional human error, time constraints, or limited agency resources, examiners at the USPTO sometimes grant patents for “inventions” that do not meet these baseline requirements.
Patent Reform
Estimates on the exact number of bad patents in circulation vary. During debate on the bipartisan America Invents Act (AIA), legislation Congress passed in 2011 to rein in bad patents and modernize our IP system, Representative Zoe Lofgren (D-CA) cited USPTO figures that, over the preceding 12 years, nine out of 10 reexaminations at the agency “resulted in invalidation of at least one claim of the patent that was being challenged.” A 2019 study, released eight years after the AIA became law, still found that “asserted patents are at least partially invalidated about 40 percent of the time when validity is litigated.”
Last year, a report on patent quality in the U.S.—one that was funded by an organization that is seeking to undermine reforms Congress made when it passed the bipartisan AIA—even noted that between 2017 and 2023, “7–8% of patent applications that have been granted a patent contain at least one claim that should have been rejected.” Perhaps because of its funders, that report does not advocate for more robust patent quality checks after patents are issued. If one considers, however, that the USPTO grants more than 350,000 patents each year, this means that—at a minimum—there are as many as 200,000 invalid patents still in force that were granted between 2017 and 2023 alone (not to mention the many invalid patents in force that were granted before 2017).
There is a strong public interest in having erroneously granted patents adjudicated and invalidated. When an unjust monopoly is granted in the form of an invalid patent, this does not “promote the progress of science and useful arts.” In fact, it does the opposite. These monopolies improperly block competition and innovation, while creating greater opportunity for waste and abuse.
As all who have worked in government know, there are times when things fall out of alignment. It’s then that Congress has a responsibility to step in, make reforms, and ensure our country’s IP system rewards innovators and cracks down on bad actors.
That’s why, in 2011, I worked with colleagues on both sides of the aisle to craft the AIA, which made the largest reforms to our patent system in a half century. The AIA modernized the U.S. patent system by moving from a first-to-invent to a first-inventor-to-file application and grant process, and the law took clear steps to alleviate the issues caused by improperly granted patents.
In particular, in passing the AIA, Congress recognized the need to address the increasingly common phenomenon of nonpracticing entities (NPEs) leveraging improperly granted patents in lawsuits. Sometimes referred to as patent trolls, NPEs’ business model centers around litigation. NPEs frequently amass large patent portfolios but do not use those patents to develop and sell products or make new technological breakthroughs. Instead, they exclusively use their patents to litigate and extract payments from legitimate businesses. Patents of questionable validity, which are not being actively commercialized, are favorites of NPEs. They are easier and cheaper to acquire, and the broader and more nonspecific a patent is, the more products an NPE can claim that it applies to. When Congress passed the AIA, NPEs were responsible for more than 60% of all patent lawsuits in the U.S., costing legitimate businesses a staggering $29 billion annually, not including indirect costs like lost shareholder value.
Among the AIA’s core tenets was providing relief for entrepreneurs and businesses of all sizes that found themselves on the receiving end of an abusive patent infringement claim filed by an NPE. For many small and midsized companies, the costs of defending themselves through litigation were out of reach, forcing them to settle lawsuits brought by NPEs, even when they had not infringed because the NPE’s underlying patent was invalid. For well-resourced businesses, defending against NPEs still presents a massive financial burden with no productive outcome, and it can delay new products coming to market.
NPEs were driving costs for productive businesses and consumers, while also stunting innovation in communities large and small all across America. So the AIA established a new process at the USPTO—inter partes review (IPR)—where any member of the public could petition expert judges serving on the Patent Trial and Appeal Board (PTAB) to review, and invalidate if appropriate, patents that the petitioner could show have a “reasonable likelihood” of being invalid. This new system:
- streamlined the process for invalidating a bad patent;
- served as a less costly alternative to litigation; and
- brought much-needed stability and consistency to patent disputes, with expert judges making determinations in extremely complex matters, as opposed to lay juries trying to sort through the intricacies of patent law.
With the PTAB, targets of NPE lawsuits—in addition to the many other participants in the economy who have an interest in ensuring consistent patent quality standards—were given an alternative to the litigate-or-settle bind that gave NPEs leverage to extract payments.
Overwhelming bipartisan majorities in both chambers of Congress voted to pass the AIA (304–117 in the House, 89–9 in the Senate), and President Obama swiftly signed it into law. The new law represented how our government should work for the people it serves—with lawmakers from both parties coming together to find common ground and address a serious challenge that impacted all of us.
PTAB Works
More than a decade later, we now have enough empirical evidence to show that—with few exceptions—the PTAB has worked as Congress intended. It creates greater economic opportunity, it is more efficient than litigation, and its determinations are accurate and reliable. Consequently, it is critical now that we take steps to protect PTAB access as new challenges emerge.
The PTAB has been especially beneficial for the manufacturers who make up the backbone of America’s economy and who are attractive targets for NPEs because their operations and products often depend on complex technology. One analysis found that, from 2014 until 2019, “cost savings associated with the AIA/PTAB led to an increase in US business activity of $2.95 billion in gross product, $1.41 billion in personal income, and nearly 13,500 job-years of employment (including multiplier effects).” The same study found that the PTAB benefits the manufacturing sector the most, creating $1.41 billion in gross product and just under 5,100 job-years in employment.
We also know that the PTAB is more efficient than litigation. Costs are lower, disputes take less time to resolve, and the determinations are accurate and reliable. The price tag for an IPR (from petition to written decision) comes in at about $324,000, compared to the $1–$2 million cost of fighting a patent infringement claim in the courts. Over a five-year period, in fact, other analysis found that the PTAB saved plaintiffs and defendants a combined $2.31 billion.
The PTAB’s efficiency is especially beneficial to small businesses, many of whom do not have the resources they need to defend themselves against abusive litigation. Rather than paying a troll a settlement to go away, mom-and-pop operations are able to petition the PTAB to invalidate the bad patents being asserted against them, which allows small companies to continue doing what they do best in strengthening our communities.
Furthermore, the PTAB is capable of moving much more quickly for all parties involved. The panel has six months to decide whether to institute a review after a petition is filed. It then has 12 additional months to issue a written decision, meaning the entire process takes 18 months at most. On the other hand, the top patent courts in the country—the Western and Eastern Districts of Texas and the District of Delaware—take on average anywhere from 28 months to 38 months to resolve a dispute. Posttrial activities mean that the issuance of a final ruling in court can take even longer than that.
What’s more, we find further evidence of the PTAB’s efficiency and effectiveness in the rate at which its rulings are upheld. As Joe Matal, former acting director of the USPTO, put it when testifying before the U.S. Senate’s IP Subcommittee in 2023: “Indeed, according to the data, district courts are almost two and a half times more likely to be reversed on appeal when deciding patent validity issues than is the PTAB.”
In May 2024, the Congressional Research Service—Congress’s official nonpartisan research institute—found that “the Federal Circuit reverses district courts on patent validity issues at a higher rate (12.1% reversal rate) than it does PTAB decisions (4.8% reversal rate).” A separate analysis found that last year alone, the Federal Circuit affirmed PTAB decisions more than 83% of the time.
A Step in the Wrong Direction
Even with these overarching successes, the AIA and the PTAB could have been even more effective over the past decade if not for changes made under prior USPTO leadership that restricted access to the agency’s review and enabled aggressive forum shopping practices.
The so-called “NHK-Fintiv rule” was made precedential by the USPTO in 2020. It outlined six factors, not included in the statute, for the PTAB to use in determining whether to discretionarily deny a petition for review. Most significantly, under Fintiv, meritorious petitions for review are denied if parallel proceedings are underway. In other words, if an NPE has already initiated a lawsuit, the defendant can no longer successfully request validity review by the PTAB. Fintiv, which was advanced in the name of greater efficiency, turns congressional intent on its head. District court litigation should be stayed pending the more efficient, reliable PTAB review, not the other way around. Due to Fintiv, many petitioners have been denied review in the instances where it was most urgently needed.
Partially as a result of Fintiv, some judicial districts—most notably, the Waco division of the Western District of Texas (WDTX)—soon emerged as hotbeds for patent lawsuit forum shopping. In single-judge divisions like Waco, NPE plaintiffs could know with certainty the judge they would be assigned. An imbalance emerged when plaintiffs also believed that a certain judge could give them an edge, and certain judges engaged in active recruiting of cases to their division. Waco became known for its rocket docket. Cases were scheduled on unrealistically fast timelines, and the existence of a parallel proceeding allowed plaintiffs to escape PTAB review of their patents under Fintiv. Delays inevitably ensued.
Beginning in 2020, the WDTX overtook the District of Delaware as the country’s most popular destination for filing patent cases, with one out of every four patent cases in the entire United States filed before a specific judge in Waco. NPEs were responsible for 85% of the increase in cases filed in the WDTX.
By the end of 2021, the problem became so bad that in his year-end report on the federal judiciary, Chief Justice Roberts asked the Judicial Conference to address patent litigation forum shopping. Some progress has been made on that front. In July 2022, the then-chief judge in the WDTX, Orlando Garcia, ordered that patent cases filed in Waco would be randomly assigned throughout the WDTX. Then, in March 2024, the conference issued measures to address so-called “judge shopping.”
Fintiv, which was implemented outside the normal agency rulemaking process, in combination with aggressive NPE forum shopping undermined the clear congressional intent in the AIA—namely, that IPR should serve as a more efficient alternative to litigation, not be cast aside in favor of more litigation.
More Danger on the Horizon
Although there has been some progress in turning back the harm Fintiv causes, it is alarming that a few lawmakers in Congress now want to further undermine the AIA and PTAB by making it less accessible for those in need of the relief it can provide, while also advancing separate proposals that would benefit NPEs.
The Promoting and Respecting Economically Vital American Innovation Leadership (PREVAIL) Act would impose new standing requirements for a petitioner to access the PTAB, dramatically reducing who is able to request review of patents. Many NPEs target entire industries—threatening dozens or hundreds of individual companies with litigation—based on commonly used technology such as Wi-Fi. In these cases, trade associations and other membership organizations can pool their resources to defend against these patents. Denying these groups standing before the PTAB would mark a major step backward.
The PREVAIL Act would also raise the standards for evidence from a “preponderance” to a “clear and convincing” standard, forcing the PTAB to let stand many bad patents that they are able to invalidate under current law. Lastly, the bill effectively codifies Fintiv, marking a major step in the wrong direction for all who see the PTAB as a better alternative to defending against meritless infringement cases in the courts. The evidence shows that when the PTAB is accessible, it works. The PREVAIL Act would be a costly “own goal” that reduces the efficacy of the PTAB.
There are also proposals pending in Congress right now that, while not directly related to the PTAB, would drag the U.S. patent system backward and embolden NPEs by increasing the availability of vague, abstract patents and putting NPEs in a stronger position as they advance meritless patent infringement accusations.
The Patent Eligibility Restoration Act (PERA), for example, would overturn U.S. Supreme Court case law and dramatically lower the standard for what ideas are allowed to be patented, meaning that even more abstract, low-quality patents will flood into the economy, giving NPEs even more ammunition for their abusive litigation campaigns. Patents are supposed to be limited to legitimate technological advances, but PERA would upend this system and eliminate the guardrails that are in place to protect what types of patents the USPTO can issue. One observer has noted that “PERA would take the radical step of authorizing patents on products of nature, natural laws, and abstract ideas for the first time in our country’s history.”
In essence, more patents that do not cover a legitimate invention would become available under PERA for bad actors to weaponize against innovators. These could include natural phenomena or even the simple idea of running a type of business. As a result, the challenges that companies face today fending off abusive patent litigation would multiply and costs for defending against lawsuits would grow, leaving fewer resources available for research and development, creating jobs, and expanding operations.
Eroding PTAB review while also advancing proposals that will embolden the worst actors in the patent system is sure to be a costly combination for the U.S. economy.
What the Federal Government Should Do Now
Instead of these ill-advised efforts, Congress and the USPTO should instead focus on ensuring that the PTAB works as intended, mainly by striking Fintiv completely. This is especially important given the rise of the third-party litigation financing (TPLF) industry that allows hedge funds, foreign sovereign wealth funds, and shell companies to invest in patent infringement lawsuits in the hopes of realizing a return on their investment.
We don’t yet have a full picture of the TPLF industry because there are no universal disclosure requirements in civil courts for outside investors. But what we do know should startle us all. TPLF is estimated to now bankroll one-fourth of all patent lawsuits, at minimum, with investment incentivized by the potential for massive damages awards and murky NPE arrangements that can shield investors from negative consequences.
The threat that undisclosed litigation funding presents is real. A Bloomberg Law report recently uncovered that Russian oligarchs are evading sanctions by investing in nonpatent lawsuits in American courts. In the District of Delaware, one of the few jurisdictions that does require disclosure, it was revealed that a Chinese entity was investing in patent lawsuits in U.S. courts against tech companies.
Delaware’s model, requiring disclosure for third-party investors in lawsuits, should be the standard for all our courts. But even in the absence of universal disclosure requirements, it reinforces the PTAB’s importance. Companies targeted by investor-backed NPEs on the basis of old, wrongfully granted patents should be able to go to the PTAB to quickly invalidate the patent and then get back to the important work of creating jobs, growing our economy, and generating new technological breakthroughs.
That’s why it’s so important that Fintiv be repealed in its entirety, and for proposals to weaken the PTAB to be set aside. It is critical that we get this right in order to ensure that the PTAB can do its job, as Congress intended, enhancing patent quality and serving as a check on bad actors attempting to manipulate our courts and patent system.
More than a dozen years since the PTAB was established, we can state with confidence that it is working. It has offered relief to companies targeted with litigation, lowered costs, and expanded economic benefits. We should continue to protect the AIA and the PTAB, crack down on threats to our innovation economy, and reject efforts by those who would reverse the progress we have made.
