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Patent Board Structure Goes Under Microscope at Federal Circuit

April 8, 2021, 2:43 PM

The Federal Circuit will consider at oral argument Friday whether the Patent Trial and Appeal Board is constitutionally flawed because its process for starting patent reviews is based on impermissible incentives.

That’s the argument of Nevada gaming company New Vision Gaming & Development Inc., which is using the PTAB’s decision to invalidate its card game patents as a springboard to attack the board’s structure.

The board is housed within the U.S. Patent and Trademark Office, which is entirely user-fee funded. The PTAB generates more revenue when it agrees to review patents under the process created a decade ago by the American Invents Act, New Vision argues in its opening brief. It also calls into question the salary and bonus structures for board administrative patent judges, which it says “incentivize higher ‘production,’ which means more institutions.”

The case is one of several constitutional attacks on the board to come before the U.S. Court of Appeals for the Federal Circuit since the PTAB was created in 2011. Only the argument over the way the judges are appointed has gained any traction with the court so far.

It could be quickly apparent at oral argument whether the Federal Circuit will bite at the due process argument, or will find the challenge isn’t properly before the court.

Argument Forfeited?

The PTO intervened in New Vision’s appeal to defend the board. It suggests the Federal Circuit can make quick work of the case by finding New Vision forfeited its constitutionality challenges because it didn’t assert them during the proceedings below.

But if the court does reach the structural due process challenge, New Vision’s argument that the judges have incentives to increase PTAB funding and pad their own paychecks is “wholly without merit,” the agency said in its intervenor brief.

“Congress—not APJs, or even the U.S. Patent and Trademark Office Director—controls the USPTO’s ability to spend collected fees through the legislative appropriations process,” the agency said. “And there is no connection between APJ compensation and fees collected or refunded by the USPTO.”

Because the PTO is a self-funded agency, Congress appropriates money every year for it based on fee estimates. The money is available to the director to run the agency, which pays it back with the fees it actually collects.

New Vision’s former licensing partner, SG Gaming Inc., which challenged its patents before the board, said New Vision isn’t even sure what it’s asking the Federal Circuit to do.” New Vision admits that the agency itself could have solved its alleged due-process problem,” SG Gaming said in its response brief.

“New Vision fails to explain how the APJ incentive system produces a bias one way or the other,” SG Gaming said. “Instead, it speculates only that APJ are motivated to grant petitions to create downstream work.”

$23 Million

The case arises from covered business method reviews of New Vision’s U.S. Patent Nos. 7,451,987 and 7,325,806 on a novel bonus feature for a card game. The PTAB invalidated the patents, finding they cover only an abstract idea.

New Vision highlights the fee structure of the PTAB, which is intended to be self-funded. Challengers are charged one fee for the board to decide whether to grant review. A second fee covers the cost of trial, should review be granted.

New Vision estimated $23 million, or 40% of the roughly $57 million the PTAB collects in AIA fees annually, rests solely on decisions to review a patent.

Without institutions, the PTAB’s budget would shrink, with potential employment consequences for its judges, New Vision argued. It also said the judges’ bonuses—which can be as high as $36,000—are based on their productivity.

New Vision received amicus support from US Inventor Inc., a nonprofit that promotes strong intellectual property rights.

“The PTAB is not neutral like it should be, the group’s amicus brief said. It pointed to what it calls the “October Effect” of PTAB judges instituting more “questionable” reviews in October—just before their performance review cycle begins—as a sign they want to “stuff the pipeline” with cases for the year.

“A reasonable person would question whether the PTAB invalidates patents so frequently because its constituent APJs try to please their budget-minded bosses through revenue-enhancing decision making,” US Inventor said.

New Vision’s reply brief insists it doesn’t matter if it identified any actual bias or wrongdoing at the agency. “What matters under the due process clause is the appearance of a structural pecuniary incentive for the PTAB and the APJs to institute,” it said.

Matthew Dowd of Dowd Scheffel PLLC in Washington will argue for New Vision. Nate Kelley of Perkins Coie LLP in Washington will argue for SG Gaming. Justice Department attorney Dana Kaersvang will argue for the patent office.

The case is New Vision Gaming & Dev., Inc. v. SG Gaming, Inc., Fed. Cir., No. 20-1399, argument 4/9/21.

To contact the reporter on this story: Perry Cooper in Washington at pcooper@bloomberglaw.com

To contact the editors responsible for this story: Melissa B. Robinson at mrobinson@bloomberglaw.com, Keith Perine at kperine@bloomberglaw.com

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