In the United States, it is the role of the executive branch to faithfully execute the laws passed by Congress. It is the prerogative of the executive branch to set priorities for enforcement and exercise the discretion granted to it by statute. When such discretion is allowed for, policy decisions should be made as transparently as possible. Decisions that either contradict the laws passed by Congress or are made without the possibility of any formal or informal feedback from the public enable graft, rent-seeking, and general chicanery.
Consider an extreme hypothetical that is nonetheless illustrative: The only real check on the president’s pardon power is political. If a president wants to get someone off the hook for a crime in a manner that’s transparent, they may suffer the public’s wrath in response. But if the president were to lean on the Department of Justice to take a dive on a case or seek a sentence well below the sentencing guidelines, this would function as a backdoor pardon: It would let the president achieve the outcome they want and deflect responsibility from the White House to the DoJ.
That is a hyperbolic example. A far more subdued — though still troubling — example of this dynamic appears to have existed at the Patent Office’s Patent Trial and Appeal Board (PTAB). Last month, the House Judiciary intellectual property subcommittee held a hearing to discuss a rather alarming report put out by the Government Accountability Office (GAO) on the conduct of the PTAB and U.S. Patent and Trademark Office (USPTO) management in their oversight and influence of administrative patent judges. It is only a preliminary report, but it strongly implies that independent subject-matter experts were improperly influenced by political superiors:
GAO’s preliminary work has identified concerns among the Patent Trial and Appeal Board (PTAB) judges on the clarity and implementation of oversight practices and policies. Specifically, the majority of judges (75 percent) surveyed by GAO responded that the oversight practiced by U.S. Patent and Trademark Office (USPTO) directors and PTAB management has affected their independence, with nearly a quarter citing a large effect on independence. For example, the majority of judges GAO surveyed reported they experienced pressure to adhere to management comments and to change or modify an aspect of their decision for an America Invents Act (AIA) trial on challenges to the validity of issued patents. However, some judges told GAO that while management oversight has rarely influenced the merits of the case (i.e., issues of patentability), it can influence judges’ decisions on whether to institute a trial based on discretionary factors.
[O]ther stakeholders were generally unaware of the methods PTAB management uses to oversee judges’ decisions. Some former judges who currently represent parties before the PTAB suggested that outside stakeholders — including parties to the cases — are not likely to know the extent to which directors or PTAB management has influenced or changed an AIA trial, particularly through Management Review. Some judges we surveyed stated that on at least one occasion within their own cases, a director or PTAB management had, without notice to the parties, directly influenced the outcome of a particular AIA proceeding. [Emphases added].
It is unclear what the final report will say, but the information presented thus far does not inspire confidence in the behind-the-scenes operation of the USPTO. Unless the final GAO report is dramatically different from what is out today, it seems as though the investigation will show that USPTO leadership exercised its discretion over independent subject-matter experts in a way that undermined the operation of the PTAB, to the detriment of practitioners and the public at large. It is wrong to implement policies that are bad on the merits. It’s worse to implement such policies in a manner that is legally suspect but ultimately transparent. But far worse still is to implement policies that are bad on the merits through legally suspect means and in a manner that denies the public and relevant stakeholders the opportunity to understand the lay of the land — let alone provide substantive feedback. Yet this last approach appears to have been the path chosen by the USPTO, and everyone should be concerned.
The PTAB: a primer
A brief explanation about the PTAB is necessary for the uninitiated. First created by the 2011 America Invents Act, the Patent Trial and Appeal Board is a body made up of over 200 administrative procedure judges (APJs) that handles (among other things) inter partes reviews (IPRs). An IPR is an administrative proceeding to challenge the grant of a patent. This is an alternative to litigating in a federal district court to have the patent invalidated. The options and evidence available are more limited than in district court, but the process is far cheaper. IPRs cost in the hundreds of thousands of dollars (compared to the millions for district court litigation) and the total savings from 2012 to 2017 were about $2 billion. And despite the streamlined nature of the proceedings, IPRs had a higher affirmance rate at the U.S. Court of Appeals for the Federal Circuit than district court rulings. In short, the PTAB and IPR are good things — unless the goal is to make it harder to invalidate patents.
Under the America Invents Act, the USPTO Director has significant discretion over whether or not to institute an IPR and over the general functioning of the PTAB. As the Federal Circuit noted, “the PTO is permitted, but never compelled, to institute an IPR proceeding.” In exercising this discretion, the Director is responsible for prescribing regulations that outline standards for granting an IPR and take into account broad effects on the economy and patent system.
The PTAB has been challenged several times before the Supreme Court, and while it hasn’t come away totally unscathed it has survived generally intact. The only major change the Court has required, in Arthrex v. Smith & Nephew, is that APJ decisions must be reviewable by the Director. This is not by itself an issue; the America Invents Act requires rules about the functioning of the PTAB not specified in statute to be laid out via regulation. So this review is, in theory, relegated to the specific outcomes of cases. Regulations, by contrast, are not merely the dictates of the Director and have to go through a formal process. But starting under the Directorship of Andrei Iancu (2018-2021) some curious changes were made outside the normal channels.
Under new management
Starting in 2019, the USPTO used two decisions on inter partes review to broadly limit the granting of petitions for IPR. The first of these was NHK Spring, where the PTAB denied an IPR review while the same issue was being litigated in district court, arguing it “would be an inefficient use of Board resources.” The second was Fintiv, a decision that built on NHK Spring but added six factors for APJs to consider when deciding whether or not to deny a petition for IPR. Both decisions were reached in specific disputes, but USPTO designated them as precedents that should control APJ decision-making in future cases.
These precedents are problematic. They create the opportunity for the owners of patents to prevent the initiation of a faster process (IPR) by engaging in district court litigation. The stated goal of the NHK-Fintiv framework is to prevent duplicative proceedings. But district court trial dates are often pushed back for one reason for another, making the assumption that impending district court litigation will make IPR duplicative incorrect. And certain judges have proved reluctant to give the IPR process a chance, allowing infringement lawsuits to proceed even if a PTAB review was likely to show the original patent was invalid. This creates a Catch-22 where in order to conserve resources, PTAB denies a petition for IPR because a district court judge doesn’t want to use the more efficient venue. In simpler terms, in a world where an efficient proceeding with a specified time frame is forgone in favor of a less-efficient one with an unspecified time frame, any justification based on avoiding the inefficient use of judicial resources doesn’t make sense.
The bigger problem is that this should have gone through a more formal notice-and-comment process, or something else that allowed stakeholders to give substantive feedback. The agency’s authority to designate a case as precedential is supposed to ensure consistency in decision-making among APJs. Here, this power effectively operated as a backdoor addendum to the regulations that are supposed to guide APJs in deciding whether to grant an IPR. And if these are effectively regulations, they have no clear basis in the America Invents Act that governs the whole system. These precedential designations may well count as rules, and this comes with all the attendant legal implications of making a regulation without going through the normal rulemaking process. But in either case, they definitely should have gone through a comment process.
As chip-maker Intel wrote in a petition for certiorari before the Supreme Court challenging Intel v. VLSI Technology:
None of the six Fintiv factors appears in the [America Invents Act]. As in NHK, the Board purported to derive authority for them from §314(a) [the provision that prohibits authorization for a petition without a reasonable likelihood to succeed on the merits]. The Board also cited §316(b) which provides that “[i]n prescribing regulations under [§316], the Director shall consider the effect of any such regulation on the economy, the integrity of the patent system, the efficient administration of the Office, and the ability of the Office to timely complete proceedings instituted under this chapter[.]”
The Director…has asserted the authority to designate Board decisions as “precedential,” which makes them “binding” on the Board “in subsequent matters involving similar facts or issues.” [This was done w]ithout providing public notice or opportunity for comment, and without providing any explanation for his action[.]
[Internal citations omitted.]
The Niskanen Center raised similar issues in a letter to the House and Senate Judiciary Committees joined by 14 other organizations concerned with these developments at the USPTO:
Nothing in the statute suggests that an IPR should not be instituted based on the status of co-pending infringement litigation, and there is no affirmative grant of discretion to deny institution based on the possibility of duplicative proceedings. Indeed, a significant majority of IPRs arise out of litigation, and Congress intended IPR to be a complement to the patent litigation system — a place for parties to take their validity disputes for a quick and low-cost adjudication by a panel of experts. The PTAB’s policy of favoring IPR only when there is no co-pending litigation, or the patents are being litigated in slow courts, is badly misguided and substantially undermines the intent of IPR.
Despite the potential legal and definite policy deficiencies associated with these decisions, at the very least they were made public. While PTAB or USPTO’s goings-on will rarely be front-page news, all interested parties could see what the policies were, make their objections known, and be forearmed thanks to being forewarned. So what exactly is the cause for alarm? What does this have to do with the GAO report?
If the USPTO under Andrei Iancu were simply pushing the envelope of what is allowed under the America Invents Act and in the process implementing bad policy, this wouldn’t be particularly interesting for the GAO. It could be a matter of interest to the Supreme Court, but the justices unfortunately declined to grant certiorari in the Intel case cited above. The GAO’s interest in the matter begins with decisions made at the USPTO out of public view.
The PTAB has several ways to exercise oversight of judicial decisions, including management review, changing panel membership, or the above-discussed designation of certain decisions as “precedential” (or the less binding “informative”).
There’s a world of difference, however, between oversight and influence, and, as the GAO report states, 75 percent of APJs said that leadership practices had influenced their independence, with a full quarter calling the effect large.
In particular, these subject-matter experts felt pressure on questions of whether or not to institute an IPR for reasons unrelated to public-facing statements put out by the USPTO, such as precedential decisions. As the report notes:
[S]ome judges we interviewed told us that comments received during Management Review, influenced or dictated which factors should be given more weight thus driving the judges’ decision on instituting an inter partes review…
[S]ome judges we interviewed noted lasting effects on the culture of PTAB from former directors or PTAB management who have at times interceded or applied pressure to judges. Some judges we interviewed noted that while they personally have not been on a case in which management or a director directly interfered, they have heard about certain cases that were alleged to have negative consequences for judges who pushed back on management’s revisions. They stated that they have, therefore, then felt pressure as to how they render their own decisions, irrespective of management’s involvement.
Evidence of a combination of direct feedback based on policies not publicly available and a general chilling effect not directly attributable to any one figure can be found elsewhere in the GAO’s report:
While many judges we interviewed attributed their sense of obligation to a need to follow directives from their superiors, some reported through interviews that management had occasionally contacted the panel members directly to mandate a change, and indicated, at times, that the panel could be changed to replace the judge that did not make the desired changes…
One judge stated that, “during the Management Review process, several members of the Management Review ‘team’ extensively revised my dissenting opinion, which resulted in a dramatic rewriting, including a wholesale deletion of about the half [sic] of the decision. The revisions and/or rewritings were all substantive in nature. Due to the lack of transparency of the process, I never knew who was responsible for the revisions and/or rewritings.” [Emphasis added]
The obvious response to such concerns is that post-Arthrex, senior management at the PTAB or USPTO should have the ability to decide on the PTAB’s work products. Perhaps, but there are still problems with making employees who disagree on technical matters feel professional pressure to not exercise their best judgment. Even leaving this point aside, this argument only holds if the oversight is exercised in such a way that all relevant stakeholders know what the policy is. When more informal measures are used, it insulates the decision makers from accountability and leaves parties that should know in the dark.
During his testimony before the House IP subcommittee, former Chief Administrative Patent Judge James Smith gave this example of a question the USPTO would ask when interviewing a candidate for the role of an APJ:
It is early evening one day in the work week, and the Under Secretary or one of his representatives has slipped into your office to discuss an opinion you are drafting for a case which was heard – is being heard – by the three-judge panel on which you are serving, and which panel was selected to adjudicate this particular case. This person says to you that, because of political considerations, or the Director’s own prior and personal acquaintance with the parties, or because of some facts in the case known only to the Director, or because of some impact the decision might have on the marketplace, the Director wishes you to decide the case in a particular way. And that way of deciding the case is contrary to what you and your panel members are set to decide. What are you going to do?…
We never forwarded to the Under Secretary any nomination for a candidate who said: “I am a lawyer who can argue any side of a case; and as an APJ I merely am a scribe. If the Director wants it written up and decided another way, that is what I am here to do. All organizations are hierarchical, and I groove to the commands of my bosses. No problem. Just tell me what the Director wants me to say, whether he has participated in hearing the case or not.”
The example Smith provided is highly stylized. But as subject-matter experts responsible for independently exercising their best judgment in accordance with the law as they and the courts — not necessarily management — interpret it, management should generally take a light-touch approach to its supervisory authority. And such authority should only be exercised in the light of day.
Substantive policy decisions made by the patent office shouldn’t just be made clear out of abstract (perhaps quaint) concerns about transparency and good government. The GAO report explicitly mentions the concerns of attorneys, patent owners, and intellectual property experts, noting that some “had heard about PTAB oversight practices anecdotally (but) others were generally unaware of them, particularly the Management Review and ARC processes for which policies had not previously been made publicly available prior to May 2022,” and all were generally concerned by this lack of transparency. Yet some judges noted that influence to change their decisions was exercised without notice to the parties involved. Such actions not involving relevant parties are unfair and undermine the legitimacy of the PTAB.
No names are mentioned in the GAO report, but reading between the lines, it’s not difficult to narrow down the list of suspects. First, the report notes that the oversight at issue “has generally increased over time.”
Further, the GAO report mentions a “decision designated precedential in 2020, outlin[ing] several factors that a PTAB judge should consider when deciding whether to deny institution of an inter partes review petition if there is a potentially parallel district court proceeding.” Based on the context, it is clear the report is referencing the Fintiv decision. This description is immediately followed by reporting that “some judges we interviewed told us that comments received during Management Review, influenced or dictated which factors should be given more weight thus driving the judges’ decision on instituting an inter partes review.”
The upshot? Even though a decision creating new factors related to the grant of an IPR was designated as precedential, behind-the-scenes decision-making about the weight given to each of the factors was not made public. Between the timeline constructed and the context clues within the report, it seems difficult to escape the conclusion that the majority of the practices the report discusses were the fruits of Andrei Iancu’s directorship.
Discretion is the handmaiden of rent-seeking
Supporters of stronger patent rights have not been shy in their opposition to the PTAB. One prominent PTAB critic is Josh Malone, an inventor whose claim to fame is having had a patent on a nozzle to fill a bunch of water balloons invalidated. (The invalidation was later reversed by the Court of Appeals for the Federal Circuit). In an amicus brief for Arthrex, Malone breaks out the twine and cork board by alleging all sorts of nefarious connections between allegedly underqualified APJs and supposedly anti-patent forces like Google and Apple, each with over 30,000 US patents. No word yet on the Pentaverate’s influence on APJs. The PTAB has been described as a “death squad” and several bills have been introduced to either clip its wings or scrap it entirely.
This hue and cry isn’t going anywhere, and, because elections have consequences, it is the prerogative of the executive branch to lean into or away from the inter partes review process within the confines of the laws written by Congress. But in the past few years we’ve seen anti-PTAB policies that were implemented via legally questionable, shadow rulemaking. What this GAO report adds to our understanding of the past few years at the USPTO is the fact that such subterranean rulemaking was also done outside the view of the public entirely.
It should also be pointed out that this year Iancu received IP Watchdog’s “Paul Michel Award,” named after former Chief Judge of the Court of Appeals for the Federal Circuit Paul Michel. It is awarded, in the words of IP Watchdog’s announcement, “to someone within the IP community who has selflessly served the best interests of the industry and its members, as a respected leader, mentor, and advocate on behalf of fairness and for the best interests of the intellectual property system” (emphases added). This description of the award would be refreshing for its honesty if it weren’t alarming. The purpose of the intellectual property system is to “promote the Progress of Science and the useful Arts,” not necessarily industry and its members. And reading between the lines, it’s clear that the “industry and its members” in question are those with larger patent portfolios.
A well-designed government program aligns public and private incentives. Patents, a regulatory subsidy structured as temporary exclusivity with the characteristics of a property right, are part of this equation. But the patent system is a creature of statute and subset of industrial policy, and the “best interests industry and its members” are incidental to its primary purposes. This is true even if the correlation between what’s good for industry and the public is strong.
Aside from this general point about the role of the patent system, it should not be controversial to argue that decisions about the implementation and execution of patent law should be fully transparent. But even transparency may not be enough, as we see from NHK-Fintiv. The only way to do away with discretion that can be misused or abused is to take it away through statutory changes. Following the USPTO’s extratextual implementations of the Patent Act to the benefit of patent holders in spite of the established facts about the benefits of IPR, statutory changes are necessary. The PTAB Reform Act of 2022 would make some progress on that front, but what is truly necessary is statutory language that is explicit as to when an IPR shall be instituted.
To her credit, the new USPTO Director, Kathi Vidal, has made a commendable effort to limit and undo the ancien regime’s efforts to neuter inter partes review. Her approach is more measured, and based on her memorandum on discretionary denials and the testimony at her confirmation hearing, she seems to be a director who will faithfully execute the laws of the United States in her capacity as USPTO director. But Kathi Vidal won’t be Director Vidal forever, and more explicit statutory guardrails are necessary to ensure that the inter partes review process is implemented in the manner that Congress intended.
This could take the form of requiring precedential designations to go through a formal rulemaking process. It would also be worthwhile to mandate disclosure when a decision is changed based on feedback from superiors. This could take the form of either a “dissent” by inferior APJs appended to a decision, or a formal notification making clear that the original decision of the APJ was overruled or changed in some way by a supervisor. A law that significantly narrows the circumstances under which decisions can be denied for procedural reasons and that codifies a strong presumption in favor of inter partes review over district court litigation would be a big swing, but not out of the question.
Whatever the nature of such reforms may be, they must ensure that both the public and practitioners know how the Patent Trial and Appeal Board will make its judgments. This means taking away the power to make broad policy decisions behind closed doors or outside formal administrative processes from any future USPTO officials.