Inter Parties Review Aff

Introduction

The patent system in the United States has long been viewed as a cornerstone of innovation and economic growth. By granting inventors exclusive rights to their creations for a limited time, patents incentivize research and development while also promoting the disclosure of new technologies.

However, maintaining a well-functioning patent system requires striking a delicate balance between protecting legitimate inventions and preventing overly broad or invalid patents from stifling competition and progress.

In 2011, Congress passed the America Invents Act (AIA) to modernize the U.S. patent system and address concerns about patent quality and litigation abuse. One of the most significant changes introduced by the AIA was the creation of inter partes review (IPR), a new administrative procedure for challenging the validity of issued patents. IPR was intended to provide a faster, less expensive alternative to federal court litigation for resolving patent disputes.

However, in the years since its implementation, IPR has become increasingly controversial, with critics arguing that it has undermined patent rights and discouraged innovation.

This essay will examine the history and current state of inter partes review, analyze its impacts on the patent system and innovation landscape, and evaluate a proposed reform that would fundamentally alter the IPR process.

Specifically, we will explore a plan to make PTAB decisions in IPR proceedings advisory rather than final, requiring federal court approval before patents can be invalidated.

The Pre-AIA Patent Challenge Landscape

Prior to the America Invents Act, there were limited options for challenging the validity of an issued patent outside of federal court litigation. The primary administrative mechanism was ex parte reexamination, introduced in 1980, which allowed third parties to request that the USPTO reexamine a patent based on prior art. However, the requester’s involvement ended after the initial filing, leaving the process between the patent owner and the USPTO.

In 1999, Congress created inter partes reexamination as a more robust administrative challenge procedure. This allowed the third-party requester to participate throughout the process by filing responses to patent owner statements. However, inter partes reexamination was still conducted primarily through written submissions, lacked many of the procedural tools of litigation, and often took years to reach a final decision.

Meanwhile, patent litigation in federal courts was becoming increasingly expensive and time-consuming. The average patent infringement case cost millions of dollars to litigate through trial. District courts also varied widely in their handling of patent cases, leading to forum shopping and unpredictable outcomes. Additionally, the high costs of litigation enabled so-called “patent trolls” to extract settlements from companies using the threat of lengthy court battles, even with questionable patent claims.

Creation of IPR Under the America Invents Act

Against this backdrop, Congress sought to create a more efficient administrative alternative for challenging patents as part of the America Invents Act. Inter partes review was designed to be an adversarial proceeding conducted before the newly created Patent Trial and Appeal Board (PTAB). Some key features of IPR include:

Allowing any third party to challenge a patent on grounds of novelty or obviousness based on prior art patents or printed publications.
A lower burden of proof for invalidity (preponderance of evidence) compared to the clear and convincing evidence standard in federal courts.
Limited discovery and a streamlined timeline, with final decisions required within 12-18 months.
Technical judges with patent expertise presiding over cases instead of generalist district court judges.
The ability to settle cases and terminate proceedings.

Proponents argued that IPR would improve patent quality by providing an efficient mechanism to weed out weak patents. They also believed it would reduce abusive patent litigation by giving defendants an alternative venue to challenge validity. The tech industry was particularly supportive, viewing IPR as a tool to combat patent assertion entities.

Implementation and Early Years of IPR

Initially, IPR appeared to be fulfilling its intended purpose of providing a faster, less expensive option for challenging patents. The PTAB was able to adhere to the statutory timelines, typically issuing final decisions within 18 months of filing. And the costs, while still substantial, were significantly lower than federal court litigation.

However, it soon became clear that IPR was highly favorable to petitioners challenging patents. In the first few years, the PTAB instituted trials on 60-80% of petitions, and when it reached a final decision, it invalidated some or all challenged claims in about 80% of cases. This high “kill rate” alarmed patent owners and attorneys, who began to refer to the PTAB as a “death squad” for patents.

The pharmaceutical industry, initially supportive of IPR, became increasingly concerned as generic drug makers and hedge funds began using the procedure to challenge lucrative drug patents. This led to debates about whether IPR was appropriately balanced and whether certain industries should be exempt.

Current State of Inter Partes Review

In the decade since its inception, inter partes review has become firmly established as a major component of the patent litigation landscape. As of 2022, over 12,000 IPR petitions have been filed, with electrical/computer technologies accounting for about 60% of filings, followed by mechanical/business methods (25%) and bio/pharma (15%).

While filing rates have stabilized in recent years to around 1,300-1,500 petitions annually, IPR remains a significant threat to patent owners. Current institution rates hover around 60%, with about 80% of instituted cases reaching a final written decision. Of those final decisions, about 62% result in all instituted claims being found unpatentable, 18% in some claims being found unpatentable, and 20% in all claims being upheld.

These statistics demonstrate that IPR continues to be an effective tool for challenging patents, with a majority of instituted cases resulting in at least partial invalidation. However, the rates have moderated somewhat from the early years, likely due to a combination of procedural reforms, shifting PTAB policies, and adaptation by patent owners.

These changes have generally aimed to address criticisms and refine IPR practice, but debates continue about whether the process strikes the right balance between petitioners and patent owners.

Overall, IPR has added a new dynamic to patent disputes, generally favoring defendants/accused infringers by providing them an additional avenue to challenge patents. This has altered the risk calculus for patent assertions and licensing negotiations.

Patent Owner Concerns

Many patent owners and pro-patent advocates have strongly criticized the IPR system, arguing that it unfairly undermines patent rights:

High invalidation rates: The frequency with which the PTAB cancels patent claims is seen as destabilizing the patent system and devaluing patent rights.
Multiple petitions: Some patents face repeated IPR challenges, forcing owners to defend the same patent multiple times.
Lack of presumption of validity: Unlike in district courts, patents do not enjoy a presumption of validity in IPR proceedings.
Limited amendments: While recent changes have improved amendment practices, patent owners argue it remains difficult to amend claims to preserve validity.
Inconsistency with court rulings: Patents upheld by federal courts have sometimes been invalidated in subsequent IPR proceedings, creating uncertainty.
Harassment tool: There are concerns that IPR is used to harass patent owners or extort settlements, rather than to weed out truly invalid patents.

These critiques have led some to argue that IPR has overcorrected for the perceived problems of “bad patents” and excessive litigation, swinging the pendulum too far against patent owners.

Due Process and Separation of Powers Issues

The structure and procedures of inter partes review have raised constitutional concerns:

Article III courts: Critics argue that IPR usurps the role of Article III courts by allowing an administrative agency to invalidate patent rights.
Seventh Amendment: There are questions about whether IPR violates the right to a jury trial on patent validity issues.
Takings Clause: Some contend that IPR effects an unconstitutional taking of property without just compensation.
Due process: The limited discovery and compressed timelines of IPR have been criticized as providing insufficient due process protections.
Political influence: Concerns exist about potential political or policy-driven influence on PTAB decision-making, given its position within the executive branch.

While the Supreme Court upheld the constitutionality of IPR in Oil States, many legal scholars and practitioners continue to debate these issues.

Impact on Innovation and Investment

A major point of contention is whether IPR helps or hinders innovation:

Proponents argue that by weeding out weak patents, IPR promotes genuine innovation and prevents specious IP rights from blocking progress.
Critics contend that IPR creates uncertainty around patent rights, discouraging investment in R&D and commercialization of new technologies.

There are particular concerns about IPR’s impact on:

Small inventors and startups: Smaller entities may lack the resources to defend their patents against IPR challenges from larger competitors.
Pharmaceutical innovation: The ability to challenge drug patents through IPR may reduce incentives for costly pharmaceutical R&D.
Licensing markets: Increased uncertainty about patent validity could chill technology transfer and licensing activity.
U.S. competitiveness: Some argue that weakening patent protection through IPR disadvantages U.S. companies compared to international rivals, particularly China.

Overview of the Proposal

To address concerns about IPR, some stakeholders have proposed fundamentally altering the nature of PTAB decisions in these proceedings. The core of this reform would be:

PTAB decisions in IPR would become advisory rather than final and binding.
A federal district court would need to review and approve the PTAB’s findings before a patent could be invalidated.
The district court would apply a deferential standard of review to the PTAB’s technical findings but would have de novo review over legal conclusions.
Parties could present additional evidence and arguments to the district court not considered by the PTAB.
The district court’s decision would be appealable to the Federal Circuit, as with other patent rulings.

This change would effectively make IPR more like a specialized fact-finding and recommendation process, with Article III courts retaining final authority over patent validity.

Potential Advantages

Proponents argue this reform could offer several benefits:

1. Reducing Patent Invalidation Rates

By requiring an additional level of review before patents are cancelled, this change would likely result in fewer patents being invalidated through the IPR process. Potential impacts include:

Increased certainty for patent owners: The higher bar for invalidation could restore confidence in the reliability of granted patents.
Encouraging investment in innovation: More stable patent rights may incentivize companies to invest in developing and commercializing new technologies.
Supporting small inventors: Lesser risk of invalidation could particularly benefit smaller entities with limited resources to defend patents.
Balancing the system: This change might correct for a perceived overemphasis on eliminating “bad patents” at the expense of protecting legitimate innovations.

2. Restoring Judicial Authority

Making PTAB decisions advisory would address some of the constitutional and separation of powers concerns surrounding IPR:

Article III compliance: Returning final decision-making authority to federal courts would better align with the Constitution’s assignment of judicial power.
Seventh Amendment: By allowing for potential jury trials on validity issues, this could address right to jury concerns.
Consistent standards: Federal courts could ensure that the same standards for validity are applied in IPR and traditional litigation contexts.
Political insulation: Reducing the PTAB’s power might lessen concerns about political influence on patent decisions.

3. Leveraging PTAB Expertise

This hybrid approach could capture benefits of both administrative and judicial proceedings:

Technical analysis: The PTAB’s patent-specialized judges could still provide valuable technical analysis and initial determinations.
Efficiency: Many cases might be resolved based primarily on PTAB findings, streamlining the district court’s role.
Completeness: Courts could consider a fuller record, including the PTAB’s expert analysis and any additional evidence.

Potential Challenges and Criticisms

Critics of this proposal might raise several objections:

Increased costs and delays: Adding a layer of court review could make the process more expensive and time-consuming, potentially undermining IPR’s goals of efficiency.
Reduced accessibility: The need to litigate in federal court might make patent challenges less accessible to smaller entities.
Duplication of efforts: Having both the PTAB and courts analyze the same issues could be seen as wasteful.
Uncertainty: The transitional period of implementing this change could create confusion and unpredictability in patent disputes.
Technological expertise: Federal judges may not be as well-equipped as PTAB judges to handle complex technical patent issues.
Inconsistency: Different district courts might handle PTAB reviews differently, potentially leading to forum shopping.
Weakening administrative efficiency: This change could be seen as undermining Congress’s intent to create a more streamlined administrative process for patent challenges.