A Bipartisan Attempt to Undo Some of the More Pernicious Unintended Consequences of the AIA

On July 10, 2019, Senator Coons (D-Del.), on behalf of himself, Senators Cotton (R-Ark.), Durbin (D-Ill.), Kennedy (R-La.), Hirono (D-Hawaii), and Cramer (R-N.D.), along with 14 cosponsors from the House of Representatives reintroduced the STRONGER Patent Act of 2019 (“Support Technology and Research for Our Nation’s Growth and Economic Resilience Patents Act of 2019).

This bi-partisan bill starts by recognizing some of the unintended consequences of the AIA “including the strategic filing of post-grant review proceedings to depress stock prices and extort settlements, the filing of repetitive petitions for inter partes and post-grant reviews that have the effect of harassing patent owners, and the unnecessary duplication of work by the district courts of the United States and the Patent Trial and Appeal Board.” In seeking to address some of these unintended consequences, and in recognition of changes to the 2015 changes to the Federal Rules of Civil Procedure and rulings by the United States Supreme Court in Octane Fitness, LLC v. Icon Health & Fitness, Inc. and Highmark Inc. v. Allcare Health Mgmt. Sys., Inc. (which made it easier for alleged infringers to recover attorneys’ fees from the patent owner in exceptional cases), the STRONGER Patent Act proposes a number of changes, which if implemented would significantly change post-grant challenges.

A.           Ordinary and Customary Meaning

If it becomes law as currently written, the STRONGER Patent Act of 2019, will amend 35 U.S.C. § 316(a) to require the PTAB to apply the same claim construction standard as used by district courts. In particular, the Act would add a new subsection 316(a)(14) that would read in relevant part: “each challenged claim of a patent, or claim proposed in a motion to amend, shall be construed as the claim would be construed under section 282(b) in an action to invalidate a patent.” As an initial matter, the PTAB be required to construe claims “in accordance with … the ordinary and customary meaning of the claim as understood by a person having ordinary skill in the art … and [according to] the prosecution history pertaining to the patent.” More importantly, however, “if a court has previously construed a challenged claim of a patent or a challenged claim term in a civil action to which the patent owner was a party,” the PTAB “shall consider that claim construction.”

The first portion of this proposed change is consistent with the PTO’s changes to its procedures under which claims are construed according to the Markman standard, instead of the broadest reasonable interpretation standard used during prosecution. The second portion of proposed 316(a)(14), although intended to create more harmonization between the PTAB’s and district courts’ rulings, is likely to create more unintended consequences of its own. For example, without further guidance on what if means for the PTAB “to consider” a claim construction entered by a district court it is difficult to know whether or how this will affect post-grant challenges. It is also unclear as to what would happen if a district court issued a claim construction between the time the PTAB grants a petition for review and the final written decision. Would the PTAB be required to “consider” this construction and find itself in the unenviable position of issuing the final written decision under a different construction than the one it relied on in granting the petition? Although well-meaning, this clause seems to be one that likely needs to be tweaked to avoid creating more conflicts between the PTAB’s claim construction and those by district courts.

B.           Clear and Convincing Evidence

The Act, as proposed, would also change to burden of proof on a petitioner to “proving a proposition of unpatentability of a previously issued claim by clear and convincing evidence.” Additionally, the presumption of validity encoded at 35 U.S.C. § 282(a) will apply to previously-issued claims during inter partes reviews.

Adopting the clear and convincing burden of proof for previously-issued claims is part of the Act’s attempt to harmonize PTAB and district court rulings on patent validity. It goes without saying that this change is likely to affect how accused infringers approach post-grant challenges, especially given that the estoppel effects of post-grant challenges are not modified by the STRONGER Patent Act of 2019.

C.           Standing

In the most dramatic change from the AIA, under the Act as proposed, only persons who have been sued for patent infringement or charged with patent infringement (and such persons’ privies) will have standing to bring inter partes challenges. The Act defines “charged with infringement” to mean the existence of a controversy sufficient to support a declaratory judgment action in Federal court.

Not only does this proposed change complete eviscerate some of the most pernicious abuses of IPRs (e.g. bringing post-grant challenges to affect stock prices of companies), but in many ways it undercuts one of the basic principles underlying the AIA – the entities other than those who have been sued for patent infringement may be in the best position to challenge “bad” patents. This change will, of course, affect the business model of various companies that have arisen since passage of the AIA that focus solely on bringing post-grant challenges, but it will also affect how entities focused on patent monetization approach their licensing efforts. Additionally, it will be interesting to see if and how the PTAB address the satellite litigation around the issue of whether there is a sufficient controversy to support declaratory judgment jurisdiction in those cases in which the petitioner has not been sued for patent infringement. Although, most IPR petitions are filed by persons who have been sued, there are a sufficient number of challenges brought by people who have not been sued (and the threat of IPRs by those who have not been sued) that this amendment is likely to have the most far-reaching effect on IPRs.

D.           One Bite of the Apple

The Act would modify 35 U.S.C. § 314(a) by prohibiting the Director from authorizing “an inter partes review to be instituted on a claim challenged in a petition if the Director has previously instituted an inter partes review or post-grant review with respect to that claim.”

Considering the estoppel effect of post-grant challenges, this change to the AIA could have significant impact on how/when IPRs are filed. It is not hard to imagine a scenario in which joint defense groups—common in multi-defendant lawsuits—would be eviscerated in the mad rush for an entity to be the first to file the IPR. Additionally, a recent phenomenon, following in the heels of the Supreme Court’s decision in SAS Institute Inc. v. Iancu, _______ (2018), is for a single entity to file multiple IPRs on the same claim (to allow the entity to fully develop their arguments based on different prior art references). This amendment to the AIA would put an end to that practice and would require petitioners to be extremely judicious in deciding what art to assert against each claim as the petitioner is going to have a single bite at the apple.

This clause is likely to be heavily challenged as it appears to take the concept of estoppel to a whole level by applying estoppel against the world. Once a person has successfully petitioned for post-grant review, then all other persons are prohibited from bringing a post-grant challenge against that claim, even if the first petition was granted solely because the PTAB found that the petitioner was likely to prevail on some other challenged claim (a necessary aftermath of the SAS Institute decision).

E.           Real Party in Interest and Repetitive Proceedings

Not only cannot a person bring a post grant challenge against a claim if the PTO has previously granted an IPR as to that claim, a person petitioning for an inter partes review of a claim in a patent “may not petition for a subsequent inter partes review before the Office with respect to that patent on any ground that the petitioner raised or reasonably could have raised in the initial petition.” (Emphasis added). The one exception to this is that if the petitioner is charged with infringement of additional claims of the patent after having filed the patent.

As discussed above, one of the aftermaths of the Supreme Court’s decision in SAS Institute is that petitioners have taken to filing multiple petitions (often on the same day) against a patent. If this change to 35 U.S.C. § 315(e) is codified, then a petitioner will have a single shot at challenging all (relevant) claims of a patent in a single petition. Unless the PTAB changes its word/page limits on briefs, this is going to lead to some incredibly difficult choices for petitioners.

The Act also provides more guidance as to who is a real party in interest and provides from discovery related to the identity of a real party in interest.

F.           Priority of Federal Court Validity Determinations

Final judgments entered by Federal courts or the ITC shall be binding on the PTAB. In particular, “an inter partes review of a patent claim may not be instituted if … a court has entered a final judgment (A) that decides the validity of the patent claim with respect to section 102 and 103; and (B) from which an appeal … may be taken, or from which an appeal … was previously available but is no longer available.” Additionally, the PTAB will stay IPRs if a final judgment is entered by a court (or the ITC) “with respect to section 102 or 103 and from which an appeal … may be taken.” “If the validity of a patent claim … is finally upheld by a court [or the ITC] … the Patent Trial and Appeal Board shall terminate the inter partes review.”

Again, this creates the same “estoppel against the world” effect discussed with relation to multiple challenges. It is not hard to imagine a scenario in which the PTAB grants an IPR only to have a district court that is disinclined to stay cases even after grant of IPR issue a final judgment regarding patent validity. If that decision is appealed, the PTAB must stay the IPR. If that decision is not appealed, then the PTAB must terminate the IPR. Pursuant to amendment to Section 314(a) discussed above, that claim can no longer be challenged at the Patent Office. Any entity seeking to challenge that claim in the future can only do so in district court.

G.          Post Grant Review

The changes discussed above are with respect to inter partes review. The STRONGER Patent Act of 2019 includes similar changes to post-grant reviews (which can only be brought in the first nine months after a patent issues). These changes include:

·        Applicability of the Markman standard in post-grant reviews (and “consideration” of district court claim constructions).

·        Application of the clear and convincing standard of proof in invalidating previously-issued claims.

·        The standing requirements discussed above.

·        Similar prohibitions against multiple post grant reviews as discussed above, and similar prohibitions if a final judgment has been entered by a district court or the ITC.

H.          Composition of Panels

One of the most common complaints against post grant challenges is that it is almost impossible for a patent owner to prevail once a petition is granted because the same panel of judges that decided that the petitioner had shown a likelihood of prevailing makes the final decision. Every six-year old figures out that once mom says he can’t have a cookie, it’s a waste of time to ask her again and much better to go ask dad. Unfortunately, patent owners do not have that option in post grant challenges.

The Act addresses this complaint by prohibiting members of the PTAB who “participate[] in the decision to institute a post-grant review or an inter partes review of a patent” from hearing the review. This is going to create a logistical nightmare for the PTAB because two separate three-judge panels will have to consider each granted petition (the first panel determining whether the petitioner has made a sufficient case as to at least one challenged claim for the petition to be granted and the second to hear the substantive case post grant).

I.            Reexamination of Patents

In addition to addressing IPRs and post grant reviews, the STRONGER Patent Act of 2019 also addresses reexaminations. In particular, it pulls in the one-year window for a person to file an IPR into reexaminations by seeking to modify 35 U.S.C. § 302 by adding a new subsection (d) that reads: “An ex parte reexamination may not be instituted if the request for reexamination is filed more than 1 year after the date on which the requester or a real party in interest or privy of the requester is served with a complaint alleging infringement of the patent.’’

It is interesting to note that because patent owners can seek ex parte reexaminations, this new subsection (d) creates a bar for accused infringers and their privies, but does not create a similar bar for patent owners.

J.            Injunctions

In an attempt to undo the effect of the Supreme Court’s decision in eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006), the Act seeks to amend 35 U.S.C. § 283 by adding a presumption that once a patent is found to be infringed and not proven invalid or unenforceable: “(1) further infringement of the patent would cause irreparable injury; and (2) remedies available at law are inadequate to compensate for that injury.”

The Act is silent as to whether this presumption is absolute or rebuttable. Even assuming that it is rebuttable, this change to the Patent Act would reduce the prevailing patent owner’s burden in showing that it is entitled to an injunction to showing only that: “(3) that considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction.” eBay Inc., 547 U.S. at 391.

Again, this would significantly change the relative bargaining power of patent owners (and entities focused on monetizing patents) in their discussions with potential licensees and accused infringers. The eBay decision has probably had more of a change on patent valuation than any Supreme Court decision in this millennia (with apologies to Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S. Ct. 734 (2013)), and this proposed change would bring about a seismic shift in bargaining power (and would certainly put an end to “efficient infringement” as a business strategy).

K.           Rogue Letters

Not all the sections of the STRONGER Patent Act favor patent owners. The Act includes a Title II entitled Targeting Rogue and Opaque Letters that states in relevant part that “it shall be an unfair or deceptive 8 act or practice within the meaning of section 5(a)(1) of the Federal Trade Commission Act (15 U.S.C. 45(a)(1)) for a person, in connection with the assertion of a United States patent, to engage in a pattern or practice of sending written communications that state or represent that the recipients are or may be infringing, or have or may have infringed, the patent and bear liability or owe compensation to another” if that communication is sent in bad faith and makes a number of enumerated representations.

The FTC shall have sole authority to bring actions based on such rogue letters, and the Act expressly preempts State laws or actions by State attorneys general “expressly relating to the transmission or contents of communications relating to the assertion of patent rights.”

L.            Conclusions and Takeaways

Although well-meaning, and a good place to begin a conversation about addressing the unintended consequences of the AIA, it is hard to imagine Congress passing the STRONGER Patent Act as it is currently drafted. Too many of the changes to post grant challenges have estoppel effects that are extremely difficult to reconcile not just with SAS Institute but with the basic principle that persons have a right to seek redress from governmental agencies. Additionally, the proposed presumption that a patent owner who prevails on infringement (and the patent is not found invalid or unenforceable) is entitled to an injunction is likely going to be too high a bar for Congress. It is not unreasonable to expect many, many members of Congress receiving communications from their constituents (and more importantly donors) bringing up the “horrors” of patent litigation before eBay.

Some of the proposed changes; for example, application of the Markman standard in post grant challenges and having different judges on the petition review panel from those that serve on the hearing panel are more likely to get traction. Others, such as those related to the burden of proof and standing may also pass with some changes and tweaks. It is hard, however, to see many of the other portions of the STRONGER Patent Act of 2019 passing any time soon. It will, however, make for interesting viewing.