About a year ago I described a complaint by Apple, Google, Intel, and Cisco over then-USPTO Director Iancu's PTAB rulemaking as "litigation to the rescue of legislation" because the case was brought in defense of the ideas underlying the Leahy-Smith America Invents Act (AIA). Essentially, Mr. Iancu had gutted the PTAB IPR (inter partes review) part of the AIA by establishing a discretionary-denial regime.
By now there is also hope for the PTAB IPR process because of developments on other fronts. The next USPTO Director may undo some of Mr. Iancu's rulemaking, and now there's a proposal in the United Senate that amounts to "legislation to the rescue of (earlier) legislation": the Leahy-Cornyn Restore AIA bill ("RAIA"). Sen. Patrick Leahy (D-Vt.), one of the sponsors of the original AIA, is now the President pro tempore of the Senate. Sen. John Cornyn (R-Tex.) has also taken an interest in patent policy for some time. Both have a reputation for balanced positions on patent enforcement: neither are they in the "Coons camp" (which favors ever stronger enforcement even of weak patents) nor could they be reasonably accused of seeking to weaken patent protection.
Litigation, executive action, legislation--three ways to reverse Mr. Iancu's PTAB rules, any single one of which could do the job. Executive action would potentially be quickest (as it won't take that much longer until the new USPTO Director has been named). Durability is the most important quality of new legislation: the Restore AIA would not only solve the problem at hand but would also prevent it from reoccurring, unless and until Congress would decide otherwise.
None of these options are mutually exclusive, so in the ideal scenario for the U.S. technology industry the USPTO would alter course (the sooner, the better) and Congress would pass legislation with a view to future administrations. App stores are an entirely unrelated subject (except that Apple and Google, which frequently defend against patent infringement complaints, are involved again, though as reform opponents), but it's another example of parallel efforts on multiple fronts (legislation such as the Open App Markets Act (U.S.) and Digital Markets Act (EU), antitrust enforcement, and private litigation such as Epic Games v. Apple), some of which may even serve to reinforce each other.
A few days ago, Law360 published an opinion piece that makes a very compelling case for the RAIA. The author, Haynes Boone's Joseph Matal, was personally involved with the creation of the original AIA, and served as Acting Director as well as Acting Solicitor of the USPTO. Not only does this background make him an interesting voice to chime in but he makes an argument that policy makers can't brush aside in these times of chip shortage: "[T]he bill would protect American manufacturers against the depredations of hedge funds and other unscrupulous actors that have been exploiting recent opportunities to leverage invalid patents against America's industrial base."
Mr. Matal's op-ed points to estimates according to which "American automobile manufacturers are expected to lose almost $300 billion in revenue because of a lack of access to the semiconductors that control so many of the functions on a modern car." That is an example of the disruptive impact of problems at or near the top of a multi-tiered supply chain. It is in the national economic (and also the national security) interest of the United States to encourage manufacturing companies to invest. And industrial policy also involves IP policy.
The opinion pece points to the record $2.175 billion verdict in VLSI v. Intel. According to Mr. Matal's article, one VLSI patent "claimed simple insights into the voltage needs of integrated circuits" and faced a PTAB challenge by Intel that allegedly "showed that these things had been understood by electrical engineers years before the patent was filed." But irrespectively of the merits of that PTAB petition, the USPTO declined to conduct a post-grant review. It was one of many discretionary denials of its kind.
Mr. Matal notes that the amount of that staggering verdict "is a substantial portion of the cost of building a new microchip fabrication plant" and goes on to ask a (rhetorical) question: "Before we transfer that amount from the nation's premier chip manufacturer to a hedge fund, shouldn't we at least want an accurate and technically reliable assessment of whether the patent is valid?"
Due to that VLSI verdict and the chip shortage crisis, Intel may be the perfect poster child in the U.S. when it comes to being a victim of patent overleveraging.
I wish to clarify that I also take criticism of "patent holdout" and "intelligent infringement" very seriously. Others have argued that the PTAB had too much of a motivation to grant IPR petitions, and I'm philosophically against giving government officials the wrong incentives. If there are issues to be addressed with respect to abuse of the PTAB process by defendants, let's have a debate--and come up with solutions. But the RAIA goes in the right direction, and discretionary denials are not the answer. It should be all about the merits, and that's the way I interpret Mr. Matal's Law360 contribution.
He draws an interesting comparison between two cases in which Huawei asserted U.S. patents. Samsung had some success at the PTAB, but later, when Huawei sued Verizon, the U.S. telecommunications carrier "received a total of six discretionary denials from the USPTO -- the agency refused to consider Verizon's challenges on their merits." The end of the story was that Verizon felt forced to settle with Huawei, and to pay up.
Mr. Matal's opinion piece notes that the country of origin of a patent lawsuit is irrelevant: "Regardless of who is asserting a patent, the public interest demands that we only award infringement damages for valid patents — those that claim a technological advance. Allowing invalid patents to be monetized does not reward innovation — it simply corrupts the system and encourages more investment in this type of litigation." In the alternative, we will see more lawsuits over patents of dubious quality, more damages awards and settlements, and as a result, ever more litigation. A vicious circle.
There are other benefits of the RAIA that Mr. Matal touts, such as that it "would also safeguard patent judges' independence by prohibiting political interference in pending PTAB cases — abuses that are currently the subject of a bipartisan Government Accountability Office investigation."
Here's the most optimistic paragraph from the article:
"Americans are a highly inventive people. There is no shortage of strong patents that are being issued and enforced in the U.S. Providing access to accurate and technically proficient validity review ensures that the patent system's rewards flow to the true innovators rather than to legal opportunists and ultimately preserves the integrity and credibility of the U.S. patent system."
As a litigation watcher with a long-standing interest in patent policy, I couldn't agree more. Reward the innovators, not the mere opportunists--and an assessment of patent quality by the agency that is best-placed to do (and infinitely better placed than a layperson jury) is the way to make that critical distinction.
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