Patent Office’s Inter Partes Review Restrictions Violate the Law

NASA engineers coined the term “rapid unscheduled disassembly” as a euphemism for spacecraft suddenly exploding. In the past nine months, we have seen rapid unscheduled disassembly within our government as the Trump administration has gutted entire departments, laid off tens of thousands of workers (with plans to lay off hundreds of thousands), and demolished many of the norms and institutions we relied on.

Now rapid unscheduled disassembly has come for the US Patent and Trademark Office. The latest blows are its Oct. 16 proposal to sharply narrow when a patent’s validity can be challenged in administrative tribunal proceedings, followed by Director John Squires’ Oct. 17 announcement that he would take over the task of deciding whether to institute those challenges.

These moves fit a pattern of the new PTO administration’s actions in recent months that have violated the law, targeted their own employees, reduced morale, raised the cost of innovation, and made the director’s stated goal of issuing high-quality patents much harder.

The most dramatic changes have come from Squires’ (and his predecessor, interim Director Coke Morgan Stewart’s) efforts to eliminate the inter partes review process. IPRs came to prominence in the America Invents Act. They allow experts at the PTO to conduct a thorough review of patents that are being enforced in court. Unlike the process for obtaining a patent—which is done with the participation of just the applicant and the examiner and involves only a cursory review of the application—the IPR process is like a mini-trial before an expert panel.

IPRs have been a resounding success. More than 14,000 IPRs have been resolved in the 13 years since the process began. The outcomes are basically the same as for cases that go to a full trial in court, but the process is quicker and costs less than 20% what it would take to go to trial.

Unfortunately, the current PTO administration has chosen not to apply the IPR procedures Congress enacted, arbitrarily denying nearly 75% of the petitions filed in the last six months without considering the merits. And although most of those denials happened under Stewart, the new director has shown that he intends to make it essentially impossible to file an IPR challenging a patent.

The PTO has adopted a new, legally unsupported “settled expectations” rule that prevents filing a challenge at all against patents more than six years old, which includes two-thirds of issued patents and more than 80% of the patents that are actually being enforced by non-practicing entities.

It also has proposed a rule change that would refuse IPR petitions unless the challenger agreed to waive its validity challenges in litigation—even challenges it couldn’t bring in an IPR. That proposed rule is flatly inconsistent with the statute, which sets out a much narrower scope of impermissible overlap, and with the cases interpreting that statute.

Further, Squires has refused to institute a meritorious claim—one that the Patent Trial and Appeal Board judges and even his own deputy found worthy of review—because while some claims were likely invalid, other claims in the patent might not be. That too directly contradicts the statute, which provides for review if at least one of the claims of the patent is likely invalid. It also undermines the US Supreme Court’s reading of the statute, which “suggests a regime where a reasonable prospect of success on a single claim justifies review of them all.” And Squires and Stewart have done all this retroactively, applying their new rules to petitions filed before they even took office.

Most dramatically, the director announced that he was removing the PTAB from the process of deciding whether to institute IPRs at all. Instead, Squires would decide all the petitions himself, perhaps in consultation with hand-picked PTAB judges in certain complex cases. Even if the director has the power to do this (and he may not), it isn’t possible for him to make reasoned decisions in so many complex patent cases—unless the goal is to ignore the statute and get rid of IPRs altogether.

Eliminating IPRs is illegal. It’s also a terrible idea. It will get us worse (or at best similar) decisions, but they will take longer and cost much more. That doesn’t benefit anyone except the subset of patent owners who know they have weak patents and hope to use the cost and uncertainty of litigation to drive nuisance settlements. Everyone else should want more clarity at less cost.

Even patent owners who might rejoice at the elimination of IPRs still have plenty to worry about from the new PTO leadership. The PTO has aggressively targeted its own employees, laying people off even though the agency is fully funded, breaking the union that represents patent examiners on spurious national security grounds, and laying the groundwork for a “return” to office mandate for patent examiners—even though the vast majority have worked from home for years and no office exists for them to return to. Unsurprisingly, morale is collapsing.

Patent owners won’t end up happy with a system where they can’t get patents because the PTO can’t hire or keep examiners.

And if they do get those patents, the Trump administration is planning ways to make them pay. These include an unworkable proposal that inventors pay a fee based on the total amount they hope to make from their invention, a 100% tariff on patented pharmaceuticals, and a proposal to seize the patents of people the administration doesn’t like. Even if we need to raise taxes, singling out innovators to tax seems like a particularly bad idea.

A patent system that had settled into a good routine in the last several years has now been swept up in the same chaos that has enveloped so much of the rest of the government. That’s not good news for anyone.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Mark A. Lemley is the William H. Neukom Professor of Law at Stanford Law School and a partner at Lex Lumina.

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