The Niskanen Center has joined Engine, R Street Institute, Coalition Against Patent Abuse, and other public and private interest groups by signing a letter sent to the House and Senate Judiciary Committees related to recent decisions by the Patent Trial and Appeal Board (PTAB).
The PTAB, created in 2012 as part of the America Invents Act (AIA), was designed to provide a low-cost alternative to traditional patent litigation. PTAB makes it possible to challenge the validity of patents through the inter partes review (IPR) process, which examines a patent’s novelty or obviousness to determine validity.
Patent litigation is never cheap, but the PTAB has produced massive savings relative to the alternative of traditional litigation. The median cost of an IPR was around $250,000 in 2017, while the costs of traditional patent litigation can easily reach into the millions of dollars. This alternative has created billions in savings from cutting the deadweight loss associated with litigation.
Unfortunately, recent procedural decisions by the PTAB threaten to weaken the IPR process:
[A] series of recent institution decisions is starting to choke-off access to IPR, as the PTAB is increasingly denying meritorious petitions, placing a thumb on the scales in favor of denial and leaving suspect patent claims in force. Those institution decisions are the gateway to IPR, and should be based on the considerations specifically defined by Congress in the AIA. But instead the PTAB is increasingly defaulting to purely procedural grounds for denial without regard to the merits. Specifically, the now-precedential NHK Spring Co. v. Intri-Plex Techs., Inc. decision led to a flood of patent owners trying to avoid IPR by pointing to the proposed schedule in a parallel district court case. This means that questionable patents are going un-reviewed because, for example, a district court has not yet stayed a case pending IPR (which they generally do after institution) or may go to trial sometime in the next 12 months, contradicting the statute’s one-year time bar for filing petitions.
Not only is there nothing in the AIA to indicate that an IPR shouldn’t be instituted because of pending litigation, IPR is the efficient alternative to answering questions of validity that are far more expensive to answer during infringement litigation. In 2017, around 85 percent of IPRs had a co-pending district court case. Not only do these denials contradict the purpose of the IPR process, but if universally applied, they would needlessly reduce the ability of the PTAB to do the job it was tasked with by the AIA.
This policy would also allow patent assertion entities (PAEs) to assert patents of questionable value to grind the IPR process to a halt by filing an infringement claim in district court. This would compound the advantage such actors have in litigation. In 2016, the Federal Trade Commission found that PAEs have a significant advantage in litigation due to “discovery burden[s] and cost asymmetries.” Forum shopping by patent holders encourages litigation in districts with expedited litigation timelines, like the Western and Eastern Districts of Texas (the former having seen a 300 percent increase in patent filings over the past year). Litigation in a district court with a “rocket docket” combined with a denial of IPR pending litigation would leave many potentially invalid patents unchallenged.
The harms from patent litigation are not hypothetical. Infringement claims made by NPEs are on the rise, up 20 percent in the first four months of 2020 compared to the same period last year. These claims are often made against smaller companies, including those in telemedicine, employee communication, and distance learning. The existence and assertion of bad patents are detrimental to smaller businesses in general and will slow economic recovery.
The protection of exclusive rights for patents is a major component of U.S. innovation policy, and the assertion of claims to valid patents is the cornerstone of that component. But policies that prevent the efficient review of dubious patent claims make litigation needlessly inefficient and expensive, while creating incentives for anti competitive rent-seeking behavior. The inter partes review process is a check against such behavior, and we encourage a thorough review of actions taken to weaken its role in the U.S. Patent System.