A coalition of public interest groups and tech heavyweights went on high alert after the US Patent and Trademark Office floated a set of proposals to tighten up who can administratively challenge the validity of previously issued patents.
If finalized, one proposal would specifically hamstring a prolific third-party challenger, Unified Patents LLC, according to several patent lawyers.
It’s one of many potential reform measures in an advance notice of proposed rulemaking signed by Director Kathi Vidal, who defended the action before a congressional subcommittee last week.
Unified, a membership group representing companies across several industries, has a mission of invalidating so-called “bad patents” through petitions challenging their validity at the PTO’s Patent Trial and Appeal Board.
It lists almost four dozen members including
Under the 2011 American Invents Act, entities can challenge and potentially invalidate a previously granted patent at the PTAB, even if they haven’t been sued for infringement in a federal court. Unified has been the most prolific third-party patent challenger since the AIA was implemented, with more than 200 petitions to its name.
In a recent challenge, Unified canceled a patent that non-practicing entity mCom IP LLC asserted against 39 finance companies in suits across the country alleging infringement of an e-banking patent.
The agency’s April 21 advance notice describes potential new tests through which administrative patent judges could deny review of a patent challenge brought by a petitioner that is “substantially related” to a prior one. One proposal would consider members of an organization active in administratively challenging patents at the PTAB as having a “substantial relationship” with that group, the document says.
“The only way to read that is they’re targeting us, and it’s coming directly from lobbyists who have put in comments,” said Jonathan Stroud, Unified’s general counsel.
Joe Matal, a former acting director at the PTO and a partner at Haynes & Boone, said the test would make it risky for companies to join a group like Unified.
“If a business gave money to an organization that challenges a patent, that business would be barred from later seeking PTAB review if it were sued for infringement of the patent,” Matal said. “In practical effect, these rules would shut down the operations of organizations such as the Electronic Frontier Foundation and Unified Patents, which challenge patents in the public interest but do not bear any infringement risk.”
Critics of Unified
The agency’s early proposal includes suggested changes offered by Unified critics in a previous round of comments solicited by the patent office.
Personalized Media Communications, a non-practicing entity and owner of two patents targeted by Unified, suggested in December 2020 a rule along the lines of the suggestions in the advance notice.
In an unsigned comment, PMC said Unified and other similar membership groups “serve simply as cut-outs for accused infringers attempting to skirt disclosure and estoppel provisions in the AIA. The PTO should take an unblinkered look at Unified Patents and companies which exploit business models like this.”
A month earlier, Robert Stoll, a partner at Faegre Drinker Biddle & Reath LLP and former PTO commissioner of patents, submitted comments to the agency that described Unified and similar groups as “‘reverse patent trolls’ or ‘PTAB trolls.’” He offered a series of proposals to limit their ability to file petitions and require additional disclosure requirements.
He said Unified’s challenges are costly for “patent owners, including small businesses and independent inventors, who could face multiple challenges to the validity of their patent coming essentially from the same, yet unidentified, funding source.”
Group’s Response
Unified, however, says it plays an important corrective role in a patent system that has witnessed a surge in companies that don’t sell goods or products.
Instead, those entities apply for—or acquire—broadly worded patents and use those to sue small- and mid-sized companies en masse, extracting settlement payments just below the cost of defending a lawsuit in federal court.
“Entities like IP Edge, who sued 600 people a year and that were sanctioned in [federal court in] Delaware—we’re the only ones challenging those patents,” said Unified’s Stroud.
More than 1.1 million patents were granted in the three-year period ending in 2020, according to agency statistics. Both large tech companies that are frequent patent-suit targets and nonprofits like the Public Interest Patent Law Institute have characterized that as a glut and say opportunistic companies have been able to monetize erroneously granted patents to the detriment of the tech industry and consumers.
Industry and nonprofit coalitions have already circulated strenuous complaints to lawmakers, saying the contemplated proposals would exacerbate what they see as the problem in the current system.
Alex Moss, executive director of PIPLI, said Congress specifically gave any entity or person a right to challenge a patent at the PTAB, but it’s practically difficult for nonprofits to regularly litigate there because each case costs at least $200,000. And so, she said, Unified fills a gap.
Lawmakers wanted “groups or people to challenge bad patents; Unified does that successfully,” she said. “That’s something Congress sought to encourage and that the PTO shouldn’t be going out of its way to discourage.”
“They go after the bottom feeders of the patent world—the pure nuisance-suit/settlement types,” Matal said of Unified.
Question Marks
It’s unclear whether the agency actually intends to carry the “membership group” proposal forward or is more concerned with rooting out other variants of third-party petitioners who’ve raised eyebrows over the years.
OpenSky Industries LLC was sanctioned by Vidal in February for filing a petition challenging a patent that was part of a $2.1 billion jury verdict against Intel Corp.
Intel had previously sought PTAB review of the patent in that case. However, its petition was denied on procedural grounds, in part because a Texas judge had scheduled the case for trial before the board would finish up if it instituted a review.
Post-verdict, however, little-known and newly formed OpenSky filed a copycat petition. Vidal would go on to say that it had “abused the inter partes review process in an attempt to extract payment” from both the patent owner, VLSI Technology LLC, and Intel, which later joined the proceeding.
Years earlier, in 2015, hedge fund manager Kyle Bass began a quixotic crusade of challenging pharma patents at the PTAB and simultaneously making big bets that related stocks would fall.
To Eliot Williams, co-chair of Baker Botts LLP’s PTAB group, “what was happening is the PTO wanted to exclude the pure private-equity play where some private equity funds file petitions against certain companies’ patents and at the same time shorting their stock.”
But Williams said the “substantial relationship” test, would rely on language that’s not in the statute and “it’s going to be controversial. I don’t know if it’ll survive scrutiny because someone will for sure challenge the rules, whatever happens.”
‘Low Tolerance for Abuse’
Colleen Chien, a professor at Santa Clara Law School, said “Vidal’s tenure has been marked by a high regard for ethics and a low tolerance for abuse of the patent system and Patent Office procedures.”
She said in an email that beefed-up disclosure requirements described in a separate change within the advanced notice reflect an appetite at the agency to enhance transparency at the PTAB.
“The proposed regulations, if enacted, will help ensure that it’s clear who’s behind a patent challenge—a particularly important question in light of the rise in 3rd party litigation finance, especially that funded by foreign agents,” she wrote.
Proposals floated in the document would tighten up disclosure requirements for petitioners and patent owners of ownership interests and also require the naming of related parties with a stake in a particular petition.
Heightened disclosure for petitioners like Unified has also been called for by the group’s critics who say it’s not always clear which members of the organization stand to benefit from any given Unified challenge.
In an April 27 congressional hearing, Vidal characterized the advance notice as a mix of PTO and stakeholder proposals, leaving it unclear which ones have the agency’s backing. She promised more clarity in the eventual proposed rulemaking set to issue later this year.
Matal was critical of that approach.
“This isn’t the model UN,” he said, “and the agency shouldn’t be putting proposals out there unless its a good idea and they’re willing to put their name behind it.”
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