Uncertainty generated by Inter-Partes review is crushing innovation in the status quo.

The PTAB will have this devastating impact for three reasons. First, rather than solving problems within the existing agency, the creation of the PTAB inserted an additional and inefficient layer of bureaucracy into the USPTO. Second, the post-issuance review proceedings provide multiple ways for competitors and others to harass patent owners. Third, the PTAB creates extensive uncertainty surrounding patent rights.

A.  A New, Inefficient Bureaucracy Overreacts to Existing Problems

Congress passed the AIA to address the fact that the patent office sometimes issues “bad” patents. Rather than attempting to address the underlying problem — for example, by providing better training to patent examiners, by providing more tools to allow for more rigorous screening of patent applications, or by ensuring that the USPTO has sufficient funding — Congress created a new bureaucracy (the PTAB) to undo the work of a bureaucracy deemed problematic (the patent examiners). This is an example of waste and inefficiency in government. The government’s solution simply placed additional burdens on inventors and patent owners without reducing the number of low-quality patents issued by the USPTO in the first instance.

The USPTO is one of the oldest federal bureaucracies. The authority to grant patents is one of the basic governmental functions enumerated in the Constitution.44 The USPTO as it exists today was created by the 1836 Patent Act, but traces its lineage to the 1790 Patent Act, which “created an administrative Patent Board consisting of the Secretary of State, the Attorney General, and the Secretary of War, any two of whom were given discretion to issue a patent ‘if they shall deem the invention or discovery sufficiently useful and important.’”45

Today the USPTO is a massive agency. It employs nearly 12,000 employees, including 10,000 patent examiners. Patent examiners have backgrounds in science and engineering and are well compensated.46 They undergo extensive training, including nearly six months of instruction and several years of close supervision by more senior patent examiners.47

With this training and experience, patent examiners review patent applications to ensure that the applications comply with the patent laws and USPTO regulations before any patent issues for the invention. The examiner first reads the patent application to ensure that it discloses the actual invention claimed by the inventor and teaches someone with relevant skills how to make and use the invention. The patent examiner next compares the claimed invention to prior art — like earlier patents or magazine and journal articles — to determine whether the invention is new and more than simply an obvious improvement over what had already been done. The USPTO imposes many other technical requirements on patent applications, which are set forth in the Manual of Patent Examining Procedure, a massive publication containing over 29 sections, each with hundreds of subsections, spanning thousands of pages. The patent examiner must complete a search to locate all of the relevant art and determine the application’s compliance with these additional requirements — all within a limited number of hours.

After reviewing the patent application, the patent examiner may grant the patent or, as is most often the case, require more information from the inventor. The examiner issues a communication called an “office action,” which asks the inventor to explain why the invention is new and non-obvious and otherwise meets the various requirements. The inventor responds to the office action. There may be several rounds back and forth between the inventor and the patent examiner over several years. In the end, the process of obtaining a patent is expensive and time-consuming. Inventors commonly spend $30,000 to $60,000 in filing costs and attorney’s fees, and the process from application to issuance can take years.

Over the years, there have been many criticisms of the USPTO. Some have pointed out the massive backlog of patent applications waiting for examination, which can mean that an inventor hears nothing for as many as 18 months after filing its application.48 There have been concerns about patent examiners abusing generous telework policies.49 And the concern about issuance of “bad” patents is longstanding. Indeed, as Professor Duffy notes, early patent office critics included President Thomas Jefferson, as well as leading scientists of the early nineteenth century: “[a]s early as 1812, John Redman Coxe, a patent holder and a professor of chemistry at the University of Pennsylvania, argued that many of the ‘great number of patents annually granted by the United States . . . would not be capable of sustaining a just claim for the exclusive privileges acquired; and that the public is really injured under such circumstances.’”50

Any organization the size of the USPTO by necessity will have its inherent set of problems and inefficiencies. No institution, public or private, is devoid of any mistakes, flaws, or inefficiencies. Some co-authors of this paper believe that many criticisms of the USPTO are meritorious and that the USPTO could undertake simple internal reforms to operate more efficiently. We all agree, however, that creating a second bureaucracy to undo the allegedly flawed work of the first bureaucracy is fraught with the same risks of waste and inefficiency — because it does little to fix the underlying root cause of the problem and because it may create its own set of problems.51

This new bureaucracy, the PTAB, employs another 300 people in addition to the existing USPTO staff. These administrative patent judges typically receive annual salaries of at least $135,000, and they are tasked with undoing the work of patent examiners. Rather than fixing problems with the patent examining corps, Congress created a second group of people within the same agency to undo their work. Now there is a large patent examination staff to issue patents and a separate PTAB staff to destroy those patents. What an odd, and inefficient, system.

The PTAB creates another layer of inefficiency. Although Congress envisioned the PTAB as an alternative to litigation for elimination of “bad” patents, in fact when a patent is valuable enough to enforce in court the patent owner will often face a validity challenge before the PTAB as well.52 This is because a patent may be challenged in both places. Moreover, nothing prevents someone — or multiple parties many acting in a coordinated attack — from subjecting a patent owner to the time, expense, and cost of multiple, serial petitions and proceedings at the PTAB.53

Patents that are economically valuable and will be enforced must go through multiple redundant layers of review. As Professor Greg Dolin explains, “[t]he perverse result is that the ‘best’ rather than the ‘worst’ patents . . . are subject to post-issuance review.” This is not surprising, he explains, because “it makes little sense for anyone to expend any time, money, and effort to invalidate [an economically invaluable patent] either through administrative or judicial proceedings.”54 In short, rather than providing a place where bad patents can be quickly eliminated, the PTAB has become an additional hurdle that inventors must clear before being able to stop another party from unlawfully using their inventions.55

Finally, there are reasons to be concerned that bias has been built into the decision whether to institute review. The PTAB exists to review reviewing previously granted patents, and the positions and salaries of the administrative patent judges are justified only to the extent they grant petitions for these reviews. A predisposition to grant petitions creates the impression the legislation was warranted, and consistently denying the petitions would surely result in calls for abolishment of the Board. It is hard to avoid the conclusion that all other things equal a panel of judges would incline to grant review, and the high grant rate of petitions — the PTAB grants 2.5 petitions for IPR review for each one that it denies56 — suggests this is a concern.

Moreover, the fee structure has the potential to distort decisions because the amount paid to the USPTO depends on the outcome of the decision. A petitioner for inter partes review (IPR) pays $9,000 up front — but an additional $14,000 if the PTAB institutes review.57 We have no reason to think this has affected any particular individual administrative patent judge’s decision whether to institute a proceeding, and of course institution of the proceeding significantly increases the agency’s costs. Nevertheless, in almost any other area of the law, an indirect financial interest in the outcome of a decision of this sort would be viewed as a conflict of interest. It should come as no surprise then that nearly 80% of reviewed petitions are granted.58

B.  Harassment of Patent Owners in the PTAB

The PTAB review system provides third parties with several ways to harass patent owners, creating a hostile environment for innovation. These mechanisms, as described below, are made possible in part by the fact that any individual or company can ask the PTAB to invalidate a patent at any time and for any reason, even if that party has no actual interest in the patent or the underlying invention. Some research shows that nearly a third of IPR petitions challenging a patent as invalid come from parties who have not been sued for infringing it.59 Some petitioners are not even competitors of the patent owner. We will describe three types of harassment, but these are not the only means of doing so.

1.  Multiple, Serial Challenges Against the Same Patent

The PTAB system allows for repetitive challenges of the same patent — whether within the PTAB or in combination with lawsuits in the court system. These duplicative challenges are prevalent and include either multiple parties attacking the same patent or multiple challenges brought by the same party. These duplicative challenges impose immense burdens on patent owners and on the PTAB itself.

Recent research reveals both types of duplicative challenges within the PTAB: (1) multiple parties attacking the same patent and (2) multiple challenges brought by the same party. For inventions in the chemical, electrical, and computers and communication fields, for instance, most of the patents subject to petitions for review at the PTAB are in fact challenged multiple times again and again in filing after filing.60 In extreme cases, some patents are subjected to dozens of PTAB attacks in these serial petitions. One recent study illustrated this by comparing the share of petitioners who were previously sued (for patent infringement) with the share of petitions with at least one petitioner who had been sued on the patent. For patents related to drugs and medical technology, for instance, 48.5% of the petitioners had been previously sued on the patents they challenged, but 70.8% of the petitions had at least one already-sued petitioner.61 As a practical matter, this means petitioners who are not defendants (in court) are joining petitions that have been filed by prior defendants.62 At the very least, there are multiple petitioners challenging the same patent, and many were serial filings of petitions. Multiple challenges have real costs. When a company must spend financial resources to repeatedly defend the same patent again and again, it cannot invest those resources in additional innovation, recruitment of talent, or operational expansion, among other things.

One example of these duplicative PTAB filings on a single patent occurred when Microsoft filed three separate IPR petitions against U.S. Patent No. 8,144,182 (the ’182 Patent), which is owned by Biscotti, a small business in Texas.63 As early as 2010, Microsoft had been in commercial and legal discussions with Biscotti regarding use of its products and patented technology. Microsoft and Biscotti were in negotiations from 2011 through 2013. When Microsoft chose not take a license to use Biscotti’s patented technology, the small start-up company had no other choice but to sue Microsoft in federal court in November 2013.64 In addition to its vigorous defense of itself in court, Microsoft filed three petitions at the PTAB in April 2014 to invalidate Biscotti’s patent. Despite these efforts, Microsoft lost all three IPR challenges in March 2016.65 Although Microsoft is now precluded from making the same invalidity arguments in court, defending the PTAB actions imposed a significant financial and time burden on Biscotti and delayed the patent infringement trial for almost two years.66 The Microsoft story is just one example of many that illustrates how patent owners are subjected to serial filings at the PTAB (three at the same time in the Microsoft case).

The Microsoft story also illustrates how PTAB filings can duplicate ongoing federal court litigation as well. Accused infringers who are already sued for patent infringement in federal court can escape into PTAB review, with its more lenient standards (as detailed in the prior section), In so doing, they delay these court proceedings and impose additional legal and commercial costs on the patent owners, including ongoing costs from infringement. These PTAB petitions are generally filed quite late in the judicial process, after significant investment of judicial resources. Although Congress attempted to discourage this behavior by imposing time limits for filing and forbidding relitigation of issues already decided by the courts, the PTAB has interpreted these legal constraints quite loosely, making these legal rules a very weak protection against harassment.

The dispute between Wi-Fi One and Broadcom illustrates this problem of weakened legal protections against strategic abuse of the PTAB by defendants sued for patent infringement. This case has a long and complicated history, but it has its roots in ongoing litigation between Ericsson and several computer device manufacturers, such as Dell, Toshiba, Intel, and D-Link Systems, among others.67 In September 2010, Ericsson sued these companies for patent infringement. While this litigation was proceeding in the courts, Broadcom — which was not a defendant in Ericsson’s lawsuit — filed several petitions for PTAB review of the same patents Ericsson asserted in its lawsuit against Dell and the other computer device manufacturers.68 In 2014, Wi-Fi One acquired the patents from Ericsson and was responsible for the litigation going forward. Wi-Fi One also took over for Ericsson in the PTAB proceedings.

After Wi-Fi One took over the patents, it argued to the PTAB that Broadcom was time-barred because of Broadcom’s commercial or legal relationships with some of the original defendants in the district court litigation. The basis for this claim was that Congress imposed in the AIA a “time bar” on IPR petitions: if a petitioner (or its “real party in interest”) was sued in federal court for patent infringement, it has one year to ask for PTAB review. After that, the petition is time barred.69 In this case, Wi-Fi One argued that Broadcom failed to disclose all of the real “parties in interest” with respect to its petition. Wi-Fi One wanted to be able to conduct discovery of Broadcom to determine its relationship with the litigation defendants.

The PTAB rejected Wi-Fi One’s argument that Broadcom should be barred under the AIA from filing an IPR petition, or that it should be permitted at least to engage in discovery to determine if Broadcom counted as a “party in interest.” Wi-Fi One appealed to the Court of Appeals for the Federal Circuit, but it lost, but not on the merits. Rather, it lost solely on the basis of a procedural technicality: a prior ruling by the Federal Circuit concluded that a court will not review questions about whether the PTAB properly instituted an inter partes review.70 In other words, the Federal Circuit said it did not have the judicial authority to review the PTAB’s decision, regardless of its potentially harassing effect on Wi-Fi One. In January 2017, the Court of Appeals for the Federal Circuit granted en banc review of the PTAB post-issuance proceeding decisions in the case,71 which reveals that some judges recognize the unintended harmful effects of this type of automatic judicial deference to administrative tribunals like the PTAB that are capable of being abused for the purpose of harassing patent owners.

The problem of harassment of patent owners in the PTAB by defendants sued for patent infringement is particularly hard-felt by individual inventors — the innovators working in their garages, like Steve Jobs and Steve Wozniak in the 1970s when they started Apple Computer. One example is father-of-eight Josh Malone and his “Bunch O Balloons” invention: a device that attaches to a water hose and can fill one-hundred, sealed and ready-to-use water balloons within 60 seconds. Josh applied for and received a patent in 2015. With his patent, he ran a successful crowd-funding campaign on Kickstarter to start his business. With his startup funding, he went national, and he ultimately licensed a manufacturing company, ZURU, to make and sell his invention. It has been a smash success, and his invention has been featured on the Today Show and Good Morning America. As with all success stories, copycats immediately began selling knock-off versions, such as the “Balloon Bonanza” made and sold by TeleBrands.72

Like all innovators, Malone did not take lightly the infringement of his property rights, and he sued TeleBrands in court. The judge issued a preliminary injunction against TeleBrands, prohibiting it from selling its knock-off product. TeleBrands responded in typical fashion by appealing the injunction to the Federal Circuit and it also reissued its infringing product with slight variations and under a different name, “Easy Einstein Balloons.” But TeleBrands also did something that companies sued in court for patent infringement could not do before 2011: it filed a PTAB petition challenging the validity of Malone’s patents.

While TeleBrands’s court appeal was still pending, the PTAB granted TeleBrands’s petition, held a hearing, and canceled one of Malone’s patents.73 Later, the Federal Circuit issued its own opinion and it upheld the district court’s injunction against TeleBrands, and it rejected the PTAB’s ruling as not binding on it.74 Unfortunately for Malone, this did not bring an end to the infringement or to the ongoing costs imposed on him in defending his patent. In response to the multiple challenges filed by TeleBrands, the PTAB has continued to review Malone’s other patents on his invention. TeleBrands also went back to the trial court and is now arguing that, since the PTAB is invalidating Malone’s patents, it should rescind its injunction.

In a recent article, Malone reported that he has been forced to spend $17 million just to defend his patent rights against infringers like TeleBrands.75 He writes that “the PTAB simply encourages infringers like TeleBrands to double down on the expense of litigation,” and that this kills individual inventors and small innovator companies who do not have the resources to fight for their patent rights. He asks rhetorically: “What can I tell someone who has an invention and is preparing to scrape together $5,000 to $10,000 to file a patent application? . . . . If a patent’s costs are in excess of $17 million, and it still is not secure, how can we innovate?”76

As a result of multiple PTAB filings challenging an individual inventor’s patents, a classic American success story has become a legal nightmare. Malone’s tale is all too typical, as accused infringers and commercial competitors now exploit the PTAB as a way to harass inventors, small businesses, and other innovators. Paul Michel, the former Chief Judge of the Federal Circuit, recently testified to Congress that changes to the patent laws like the PTAB have made patents the “sport of kings,” and that the “impacts on start-ups, research universities, university spin-offs, small and medium sized businesses and nearly all but giant multi-national corporations has been devastating.”77

2.  Settlement Extraction

Another tactic used by some companies in abusing the PTAB to harass patent owners is in filing of a PTAB petition by a defendant in a previously filed patent infringement lawsuit solely for the purpose to extract a quick settlement in the lawsuit, regardless of the merits of the actual PTAB challenge. This strategy works because there are no legal risks for a company filing a petition, but the risks for the patent owner are very high. The petitioner faces no legal consequences whatsoever — if it loses, it only loses the relatively low cost of filing the petition and (potentially) of the hearing before the tribunal itself. By way of contrast, the risk to the patent owner is enormous: its patents can be invalidated and thereby destroying the property rights it is using in licensing or manufacturing in the marketplace. Given the very high “kill rates” at the PTAB, this risk is very real. Thus, as recently confirmed by an empirical study, the PTAB has quickly become a tool used defendants in seeking leverage against patent owners who sue them for infringement.78 In these cases, defendants are essentially asking for a premium from patent owners in settling lawsuits in exchange for the defendants not to seek to invalidate the patents at the PTAB.

Settlements at the PTAB and elsewhere are typically not public records, and so we must often infer the existence and terms of a settlement. Professor Dolin has detailed examples in which this has occurred for patent owners working throughout the innovation economy.79 In addition to Professor Dolin’s examples from the pharmaceutical sector, Professors Erik Hovenkamp and Jorge Lemus have also theorized that pharmaceutical companies are settling lawsuits to avoid the specter of being forced before the PTAB tribunal in review the validity of their patents.80 For example, they infer that this occurred in a patent dispute between Metrics Inc. and Senju Pharmaceutical Company.81 After Senju sued Metrics for patent infringement of Prolensa, a drug used to treat side effects from cataract surgery, Metrics filed a PTAB petition challenging the validity of Senju’s patent. After the PTAB granted the petition and instituted an official proceeding to review the patent’s validity, the parties settled the patent infringement lawsuit.82 Although the settlement order does not mention any payment from Senju to Metrics, its terms lead Hovenkamp and Lemus to conclude that a settlement payment was very likely.83 If so, any lawyer or economist can reasonably conclude that Metric’s successful filing of the PTAB petition against Senju’s patent played a role in this additional payment by Senju to Metric.

Another example in which the PTAB was used to try to extort a payment from a patent owner arose from VirnetX’s successful patent infringement lawsuit against Apple. This case is notable, if only because it involved an entirely separate company, New Bay Capital LLC.84 After VirnetX won a $368 million verdict against Apple for infringing four of its patents, New Bay Capital contacted VirnetX and demanded that it pay 10% of its verdict from the Apple lawsuit (approximately $37 million dollars) in exchange for New Bay Capital not filing a PTAB petition against VirnetX’s four patents.85 When VirnetX refused to pay, New Bay Capital followed through on its threat. It filed petitions at the PTAB challenging the four VirnetX patents.86 Ultimately, New Bay Capital withdrew its PTAB petitions after VirnetX filed a “deluge of subpoenas . . . aimed at determining [New Bay Capital’s] motives.”87 Although unsuccessful in extracting a pre-filing settlement payment, New Bay Capital’s strategy may have happened in other unreported cases or it may be further copied by other companies seeking to harass patent owners who successfully enforce their patents in court.

3.  PTAB Petitions Filed to Manipulate Stock Prices of Patent Owners

Finally, companies and organizations may use the PTAB in order to manipulate the market and reap huge financial rewards — imposing unjustified costs on patent owners, who are simply collateral damage in their profit schemes.

Using PTAB petitions to profit in the financial markets works because investors pay close attention to patent disputes. A court decision about patent validity or infringement can shift the stock price of a winning or losing firm even more than the initial grant of a patent can.88 Investors also know that the PTAB applies looser standards than the courts, which means that filing a petition at the PTAB creates a significant risk of patent invalidation. As a result, challenging a patent before the PTAB can cause significant harm to a patent-owning company’s stock price. To exploit this, a challenger can short-sell the patent owner’s stock just before filing its petition at the PTAB, knowing that the stock price will tumble and it will yield a profit on the short sale — even if the challenger knows its claims have no merit.

The most notorious example of a hedge funder manager exploiting the PTAB in this fashion is Kyle Bass, head of Hayman Capital Management LP.89 By December 31, 2016, Bass had filed over 30 petitions at the PTAB, seeking to invalidate patents held by many pharmaceutical companies. Bass teamed up with another controversial lawyer, Erich Spangenberg, and together they have filed their petitions under the name “Coalition for Affordable Drugs.” They claim that they seek to reduce pharmaceutical prices by invalidating patents and allowing generic competitors to enter the market.90 They are not, however, motivated by an altruistic desire to protect Americans from high drug prices. Bass, on behalf of his partners and investors, also often short sells the stocks of the company he is targeting at the PTAB.91 By short selling the stock, Bass makes money if the company’s stock price decreases. In several instances, the mere filing of a petition with the PTAB caused significant negative effects on a company’s share prices.92

For example, after Bass filed two PTAB petitions against Acorda Therapeutics and Shire, respectively, each of the companies’ share prices dropped.93 Acorda Therapeutics’s share price fell 9.7% and 4.8% after Bass filed two PTAB petitions in February 2015, and Shire’s share price fell 2.7% after Bass filed a petition in April 2015.94 For an institutional investor in charge of investing hundreds of millions of dollars, even small price fluctuations can produce millions, if not hundreds of millions, in profits.95 For the affected companies, however, it means significant losses: Acorda lost approximately $4 million and $2 million respectively, and Shire lost a stunning $14.9 million. These types of losses have real consequences for companies and ultimately for the public; in the pharmaceutical sector, it means lost jobs and reduced spending on the research and development necessary to create new drugs.

The PTAB has definitively ruled that petitions filed by Bass and others seeking to profit from this manipulation of a company’s stock price is legitimate. Celgene Corporation, one of the victims of Bass’s short-sale strategy at the PTAB, filed a motion with the PTAB requesting that it prohibit non-innovation-motivated petitions by Bass and others. In response, the PTAB ruled in favor of Bass, concluding that “an economic motive for challenging a patent claim does not itself raise abuse of process issues. We take no position on the merits of short-selling as an investment strategy other than it is legal, and regulated.”96

Although Bass may have since renounced his strategy,97 other companies have taken up his practice of profiting from filing PTAB petitions to manipulate a company’s stock price. For example, New Bay Capital, which tried and failed to extract a settlement from VirnetX (as described above), probably benefited from filing its petition at the PTAB. New Bay Capital is a hedge fund, not a company working in the innovation industry. After New Bay Capital filed its petition against VirnetX, its stock fell by 25%, and New Bay Capital is suspected of having shorted VirnetX’s stock.98 Moreover, New Bay Capital was not alone in filing potentially lucrative petitions against VirnetX. Another hedge fund, Mangrove Partners Master Fund Ltd., also filed PTAB petitions challenging VirnetX’s patents. The PTAB granted these petitions and instituted proceedings to review the patents despite pleas by VirnetX that Mangrove Partners Master Fund sought only to profit in the stock market from the impact of the petition.99 VirnetX claimed that “Mangrove held a short position of 270,000 shares of VirnetX stock. A month after the petitions were filed, when any movement in the stock price caused by the challenge would have subsided, Mangrove no longer held a short position. . . .”100

Unfortunately, this explicit harassment of companies working in the innovation industries — the manipulation of a company’s stock price — is tacitly endorsed by the PTAB, which maintains that motives of a petitioner are immaterial to its decisions. When patent owners send demand letters that misrepresent their motives in asserting that someone is infringing a patent, they have been rightly sanctioned by the Federal Trade Commission.101 In court cases, judges regularly sanction patent owners for improper motives and bad behavior in suing companies for patent infringement.102 Yet, the PTAB knowingly permits the abuse of its legal process by individuals or companies who merely seek to profit by depressing a patent owner’s stock prices, and the PTAB is not going to stop it.

C.  Extensive Uncertainty for Patent Rights with Harmful Implications

Even more detrimental than the specific harmful practices and decisions at the PTAB described above, the total effect of these problems is harming innovation by creating substantial uncertainty about patent rights. Oddly enough, this conflicts directly with the rationale for creating the PTAB in the first place. Congress intended to improve the patent system when it enacted the AIA. In theory, the creation of post-issuance review proceedings could have fostered a higher level of certainty and confidence in the patent system. This in turn could have had a net positive effect on innovation.103 The reality, however, has been the exact opposite. The uncertainty in patent rights generated by the PTAB diminishes incentives for the individuals and companies working in the innovation economy, as it creates an additional layer of bureaucracy to navigate when these patent owners seek to commercialize or protect their inventions.

Innovation is itself built on layers of technological and commercial uncertainty. The research and development process is typically a winding path, filled with many false starts, dead ends, and failures, before the inventor finally reaches a workable invention. This is why average pharmaceutical R&D expenditures underlying each drug approved by the Federal Drug Administration is $2.6 billion.104 Even if an inventor comes up with a workable invention, and continues to innovate through the development of a commercial product, there is still no guarantee that the market will embrace the product, as Microsoft discovered with its estimated $10 billion R&D in the Windows Visa operating system.105 Even if the inventor, venture capitalist, or company invests in this development work and the necessary market research, many other companies are vying for the public’s attention and dollars. And if the inventor manages to launch something desirable in the market, others immediately try to copy it and quickly; this is a time-honored practice, most recently and dramatically exemplified in the smartphone litigation between Apple and Samsung after Steve Jobs declared “I’m willing to go thermonuclear war on this.”106 Without a patent, anyone can freely copy a new invention, and yet obtaining a patent on a new invention is not guaranteed, and even after an inventor survives the patent application process, it is never a guarantee of market success.

The entire process, from invention to securing property rights in the invention with a patent to development and launch of a product, requires extensive resources — both human capital and money. It also can take a long time. For example, human resources must be spent during the initial conceptualization of the invention. Resources must be spent sorting through ideas and deciding which concepts warrant additional consideration. In research and development, an inventor may invest significant resources creating prototypes, designing market tests, and identifying viable go-to-market strategies. And yet, despite all of this investment, the result may still be — perhaps early on, perhaps much later in the process — that the invention is a flop. For every invention that is successful, there are hundreds, if not thousands, of ideas that will not be developed or that end in failure.

Layering extensive legal uncertainty about patents on top of the uncertainties inherent in invention, R&D, and commercialization creates a perfect storm in which the incentives that drive innovators and inventors to feed the U.S. innovation economy no longer function. Despite Congress’s intent in the AIA law that the PTAB would improve patent quality and enhance confidence in the patent system, the reality has been the opposite. Uncertainty has increased, for at least three reasons.

First, the basic approach of the PTAB adds uncertainty. Rather than fixing the problem of “bad” patents issued by the USPTO, such as ensuring full funding for the USPTO or establishing better training processes for patent examiners, Congress created an additional layer of bureaucracy within the same agency to do the same task a second time. Basically, Congress created a new administrative tribunal to review the errors committed by another administrative agency. Moreover, as explained earlier, the PTAB often invalidates the patent because its primary mission is to correct mistakes and to cancel bad patents. As a result, an examiner at the USPTO reviews an inventor’s application and reaches one conclusion, and then the PTAB reviews the same patent again after the patent is issued and is commercialized successfully or asserted against an alleged infringer, and the PTAB reaches the opposite conclusion. It is not surprising that a system designed in this matter would sow uncertainty with inventors and the innovation community.

Second, the fact that patents are subject to multiple challenges serially filed one after the other leads to even greater uncertainty. The PTAB has been touted for its low cost and ease of use compared to federal courts. This is a double-edged sword. On the one hand, it attracts petitioners and thus has made the PTAB very popular — it is now one of the busiest institutions at which to litigate over patent rights.107 Thousands of petitions have been filed.108 On the other hand, “[t]he easier it is to invoke … procedures, the higher the chance that they will be invoked abusively.”109 Today, someone who wishes to challenge an issued patent (or harass a patent owner) has many options — multiple review programs at the PTAB and one can always challenge a patent in federal court (at the same time). As described earlier, the statistics confirm that innovators are now subject to PTAB challenges from multiple parties at the same time or in rapid-fire sequence. Moreover, the more successful the patented innovation is in the marketplace, the more likely the patent will be the subject of PTAB challenges.

Third, the surprising results of the PTAB’s proceedings — the incredibly high kill rate for patents brought before this administrative tribunal — have created uncertainty. As of spring 2016, almost ten thousand patent claims had been invalidated,110 and the numbers have only increased since then. While Congress intended the PTAB to weed out bad patents, thereby raising confidence in the patents that remain, the invalidation of so many patents by the PTAB has had the opposite effect. It could almost lead one to believe that no issued patent is of high quality.

A closely related concern is the inconsistency in results when the same patent is reviewed for its validity by both the PTAB and the federal courts. The Federal Circuit recently upheld a PTAB decision to invalidate a patent, despite a federal court and the Federal Circuit itself both having had reviewed and upheld previously the validity of that same patent.111 Indeed, the Supreme Court has stated that “the possibility of inconsistent results is inherent” to the PTAB’s design.112 The high invalidation rate, and the fact that the PTAB reaches results that a federal court would not reach, affects not only patent owners — who lose some or all of their expensive, and hard-earned, patent rights — but also the consuming public, whose distrust of patents can only grow in light of these facts.

From all of this, it is easy to understand why patent owners working in the innovation economy, such as individual inventors, universities, startups, and others, report that they have little certainty in their property rights. Venture capitalists and other commercial entities also now widely report that patents no longer provide stable and effective property rights on which to base their investment decisions. A representative from the National Venture Capital Association made this point about the destructive nature of legal uncertainty in patents in testimony before Congress in 2015: “[M]aking it more costly to enforce patents . . . will have the unintended consequence of diminishing — if not extinguishing — the only true incentive that thousands of innovators presently have to invest the necessary time, money and other resources needed to create a new company from scratch. . . . [and] will have a chilling effect on investment in patent intensive companies, which in turn will have a depressing effect on innovation in general.”113

Extensive legal uncertainty is never a good thing. Adding extensive legal uncertainty to the patent system is disastrous, and the market has borne this out: The value of patents has plummeted since the enactment of the AIA. Some estimate the losses simply from the threat of invalidation — the price of uncertainty — as equaling or exceeding a trillion dollars.114