Uncertainty caused by PTAB results in a worse innovation economy

Petitioners in district courts are barred by a set of criteria that needs to be satisfied in order for the claim to be considered

Current propositions to improve PTAB are insufficient in solving a litany of issues with the system

What is the reason for the much higher invalidation rate for IPRs? Is it because the Administrative Law Judges (ALJs) that make up the Patent Trial and Appeal Board (PTAB) are just way better at ferreting out bad patents than the Article III district court judges who have been dealing with issues of invalidity for decades prior to creation of the PTAB and the IPR process? Of course not: The reason for the higher invalidation rate is that the rules governing IPRs are stacked against the patent owner. In a district court proceeding, a patent is presumed valid, but – and yes, this is hard to believe — the patent office does not have to presume that the patent it validly granted, is in fact valid. This presumption or lack thereof results in several differences that make it much easier to invalidate a patent in an IPR as compared to a district court proceeding:

Burden of Proof – Because a patent is presumed valid in a district court proceeding, the defendant challenging the validity of the patent must prove by clear and convincing evidence that the patent is invalid. This is a relatively high burden and means that if there is any real doubt in the mind of the judge and/or jury deciding the issue, then they must side with the patent owner. Conversely, in an IPR the challenger need only show by a preponderance of evidence, i.e., slightly more likely than not that the claims are invalid. This obviously makes it easier to invalidate a patent in an IPR.

Claim Construction – Often in a patent case certain terms in the claims being asserted must be construed by the court or the PTAB depending on the forum. In a district court case, claim construction is controlled by principles developed through prior cases and is often referred to as a Phillips-based construction after one of the more prominent of these cases. Importantly, and as a result of the presumption of validity, district court judges are supposed to decide questions of construction in favor of maintaining the validity of the patent. In other words, if there are two reasonably possible constructions and adopting one of them would render the claim invalid, then as a general rule the judge is supposed to choose the other, validity preserving construction. But the PTAB applies the “broadest reasonable construction in light of the patent in which it appears.” See 37 C.F.R. § 42.100(b). This is often referred to as the Broadest Reasonable Interpretation (BRI). In general, a BRI construction will be broader and therefore sweep in more prior art, making it easier to invalidate a patent.

Inability to Amend Claims – The BRI construction used by the PTAB is the same as that used during prosecution before the USPTO, as well as during ex-parte reexamination and inter partes reexamination, which was a precursor to the IPR proceedings. There also is no presumption of validity in these other proceedings before the patent office. But the difference is that in these other proceedings the patent owner can freely amend his claims to overcome the prior art. Thus, if an examiner during prosecution or in a reexamination proceeding applies a broad claim construction and then determines that the claims would be invalid over certain prior art as a result of that broad claim construction, the patent owner or applicant can amend the claims in order to narrow the scope and make clear that the claims are valid over the prior art. In an IPR proceeding, by contrast, the patent owner is effectively barred from amending the claims.* Obviously, the inability to amend the claims to address any validity concerns raised after the patent issues makes it easier to invalidate a patent.

Unequal Application of Estoppel – If the PTAB issues a final written decision in an IPR, the challenger is precluded from further challenging the validity of the patent(s) at issue in front the USPTO, in a district court, or before the ITC, regarding any ground that the challenger “raised or reasonably could have raised” in the IPR. See 35 U.S.C. § 315(e). But, while this is a good thing for a patent owner, if the PTAB decides not to institute the IPR, then such preclusion does not apply. In other words, if having looked at all the issues raised by the petitioner, the PTAB decides that the petitioner failed to actually show that the claims are likely invalid – even given the lower standard of proof and the broader claim construction – and therefore does not institute an IPR, the challenger is not estopped from raising those exact same issues in another IPR or in a district court or ITC proceeding. As a result, having failed in front of the PTAB, the petitioner can simply refine their arguments, maybe add a prior art reference or two and come right back at the patent owner. Even worse, the PTAB and district courts are not bound by each other’s determinations of validity in large part as a result of the differing standards of proof and claim construction guidelines being applied in the different forums. As a result, as of January of this year, there were 58 patents that had been challenged in a district court and found valid, but that the PTAB subsequently found invalid based on the same grounds.

As noted above, there have been several recent events that provide hope to patent owners. First, at the direction of the new Director of the USPTO, Andrei Iancu, the USPTO proposed ending the use of the BRI standard for construing patent claims in PTAB proceedings and instead would use the Phillips claim construction standard. The USPTO is also proposing to amend the rules for PTAB trials to add that the USPTO will consider any prior claim construction determination concerning a term of the claim in a civil action, or an ITC proceeding, that is timely made of record in an IPR. This should help, although not guarantee, consistency in claim construction between the PTAB and proceedings in district courts.

Second, late last year, the U.S. Court of Appeals for the Federal Circuit issued an en banc decision in Aqua Products Inc. v. Matal, 872 F.3d 1290 (Fed. Cir. 2017), reversing the practice of requiring patent owners to prove that proposed amended, or substitute, claims are patentable. Instead, the court found that the petitioners carry the burden of persuasion to establish that amended claims are unpatentable. In theory, this would make it easier for patent owners to amend their claims and avoid an invalidity determination. But the actual impact is questionable, and current statistics do not indicate any appreciable impact on the grant rate of motions to amend, which remain low.

Third, in an even more recent case, this year in SAS Institute, Inc. v. Iancu, the Supreme Court determined that when the PTAB institutes an IPR, it must decide the patentability of all of the claims the petitioner has challenged. There has been a lot of theorizing as to how the SAS decision will affect the balance between petitioners and patent owners in front of the PTAB. But patent owners should be able to take some positives away regardless. Previously, the PTAB would at times determine to institute review of some claims but not others. But the lack of institution means that there would be no final written decision for these claims on which the patent owner had ostensibly “won.” Accordingly, nothing prevented the challenger from mounting another challenge to those claims on which the patent owner had “won.” Now, as a result of Aqua Products, the PTAB has to institute on all claims, which means in such situations the patent owner should get a final written decision from the PTAB in their favor. In other words, there should be more final decisions upholding at least some claims, which would then cause the estoppel provisions to apply to those claims.

But significant problems remain that result in too much uncertainty and as a result negatively impact our innovation economy. The current IPR process would be improved greatly if the default approach was to find a patent valid as opposed to invalid, i.e., there should be a presumption of validity at the PTAB as there is in district court proceedings. This would require the PTAB to require that a challenger prove by clear and convincing evidence that the challenged claims are invalid. Moreover, if the PTAB used the same standard as district courts, then it would be reasonable to require that each adhere to the other’s findings and we would no longer have the situation where 58 patents can be found valid in one forum, but not in the other. This change at the PTAB, and the likely shift in outcomes, as well as the consistency between forums would restore confidence in the process that would help our innovation economy.