A Response to: Ten Years On: The America Invents Act and the role of the Patent Trial and Appeal Board in resolving patent disputes

Guy DeSanctis:  Welcome to The Federalist Society's webinar call. Today, July 27, we present a response to our previous event, "Ten Years On: The America Invents Act and the role of the Patent Trial and Appeal Board in resolving patent disputes."

 

My name is Guy DeSanctis, and I'm an Assistant Director of Practice Groups at The Federalist Society. As always, please note that all expressions of opinion are those of the experts on today's call.

 

Today, we are fortunate to have with us our Moderator, Honorable Paul Michel, U.S. Court of Appeals, Federal Circuit (ret.). Throughout the panel, if you have any questions, please submit them through the question-and-answer features that our speakers will have access to them for when we get to that portion of the webinar. 

 

With that, thank you for being with us today. Judge Michel, the floor is yours.

 

Hon. Paul Michel:  Thank you so much. The briefest introduction of our two experts who have enormously varied backgrounds each. I'll start with Tom Grant. You see behind him the magnificent buildings of Cambridge University, where he teaches and researches and writes. He is frequently flying between England and America, his country of origin, because he also teaches and practices in the US. He has a PhD in International Law, a law degree from Harvard, and he's an expert in a great many things.

 

      Scott Kieff, presently at George Washington University, also is a multi-threat man. He has taught at universities in the United States in multiple different disciplines. He also served on the International Trade Commission as a commissioner for a considerable number of years before returning to his present position at the law school at the George Washington University in Washington DC. You see behind him a glimpse of the Washington Monument on the top of the Jefferson Memorial. And if you look carefully over his shoulder, you can see the logo of the George Washington University.

 

      Welcome to you both. It's been suggested that a cynic might say that the inter partes reviews at the Patent Trial and Appeal Board are an example of bait and switch. That is when the statute was enacted and conceived of and various compromises were engineered among contending stakeholders, there was one set of expectations. But the reality over the last ten years has turned out to be, I'd say, somewhat different.

 

      So I want to start with you, Tom, to just give us a little bit of context about the nature of patent rights and the role of the U.S. Patent and Trademark Office. And then, we can delve into the specifics of inter partes reviews. 

 

Prof. Thomas D. Grant:  Judge Michel, thank you very much for that very kind introduction. And thank you, Guy, and to The Federalist Society for inviting Scott and me and Judge Michel for this discussion.

 

      When talking about inter partes review and the structure of our dispute settlement system around patent law, I think it may pay some dividend if we step back at the beginning and think a little bit about the nature of the rights that we are dealing with. Patent rights are a form of property right which has been subjected to some contestation in recent years, especially in the United States and perhaps more in the United States than in a lot of other places.

 

      Without charactering or oversimplifying the position of some of the thinkers and practitioners who have started to take a different look at patent as property, I think, in a nutshell, what has been proposed by some skeptics about patent law is that patents, for some reason, in some way, are fundamentally different in nature from the property rights that we see in other parts of the law. That, I think is, in a nutshell, the proposition that some of the modern-day—especially American—critics of patent law have levied against the patent system.

 

      But I think that it also pays dividend to think a little harder about the comparisons between patent law and other property systems before we jump to a conclusion that patents are somehow fundamentally different. Proposition is that patents rely upon language to describe intangible things. An invention is a cognitive construct. It's something that comes out of the creativity of peoples' minds. And therefore, it has to be described with legal formulae and words in a patent claim, and the proposition of the skeptics is that that's somehow different from other property rights. Blackacre, Greenacre, land tenure, the things learned about in first-year law school property class, the skeptics say are tangible, not intangible, and therefore, somehow, these two systems have to be seen as different systems entirely rather than sharing any common roots in property.

 

      Well, I would say that, actually, when you look at traditional property, we describe it with language with legal formulae. And we also encumber property, and we've been doing this a really long time, even before the America Invents Act We had covenants. We had easements. We had different rites of passage over land and territory. We had leases. We had mortgages. We had joint tenancies. We had all sorts of tenant relationships. We had parceling and division of mineral rights versus farming rights versus the right of residency. This is not new. This is pretty old stuff, and it's also pretty intangible, the notion of a mortgage. That's not an object that exists in the wild and nature. It's a construct. It's an intellectual construct.

 

      So starting at this admittedly very high altitude view, I just think there may be more reasons to think about patent law and patent property rights as part of a larger picture and a larger tradition of property. So that's just an opener to frame the critical view that has emerged in the United States in recent years and maybe take a little bit of a step back from that.

 

      I don't know if Scott has thoughts, or Judge, if you have, but that's --.

 

Hon. Paul Michel:  I just have a footnote to your helpful introduction, which is that the relevant section of the Patent Act contains the command from Congress that "patents shall have the attributes of personal property." It would seem like that would settle the argument, but the skeptics don't agree.

 

Prof. Thomas D. Grant:  Well, Scott, maybe I'll just defer for a moment, but yeah. That is a really good point.

 

Prof. F. Scott Kieff:  Just to build on all of this, when those who are concerned about the shock and awe or the surprise, the ambush effect or the confusion effect that a large implementer of patented technologies who's built a large, expensive fabrication facility, we can feel that sympathy while also noticing that with mortgages and easements and entitlements and a whole vast array of legal regulatory regimes at the federal and state level, these entities manage to deal with those kinds of systems. And those kinds of systems are, in many respects, much fuzzier and much more subject to surprise than the concreteness of the disclosure rules and patent law enshrined in patent applications that are required to be on file. The patentee is hemmed in by the text as originally filed. That's how the legal rules in patent law restrain a patentee.

 

And it's quite ironic that you talk about bait and switch. In some ways, the America Invents Act was bait and deliver, hook, line, and sinker because, if anything, it has taken whatever restraint was provided by the legal tools, the legal doctrines of the disclosure rules of patent law, and the facts of the patent applications' textual record and has replaced all of those with administrative deference and political whim inside an Executive Branch administrative agency which just subjects all of that factual and legal predictability, which admittedly is imperfect but it makes it vastly more fluid and fluid in a way that is most responsive to large, entrenched politically active players which progressives ought to bristle at because they are most concerned about further entrenching entrenched power and conservatives ought to bristle at because it is the leviathan at its worst, not predictable rules at their best.

 

Hon. Paul Michel:  Let me ask you both this fairly fundamental question. It seems like the Patent Trial and Appeal Board procedures were sold on the theory that there would be "an alternative to expensive court litigation." But the figures I see suggest that the vast majority of IPR proceedings have parallel proceedings in the district court, and indeed, the district court case started first. But then it shifts over in nearly every case to the Patent Trial and Appeal Board; usually the district court stays the district court case. So instead of being an alternative, it starts to look more like a prelude or a parallel. So could I ask you each to comment on that? We'll start with Tom.

 

Prof. Thomas D. Grant:  Yeah, absolutely. One recurring characteristic of parallel procedure is that it gives rise to a sort of underbrush of challenges for stays, counter stays, stays against stays. This is visible internationally as countries, including China, get more and more involved in things like FRAND rates, I think, where you could have courts in very far-flung places asserting jurisdiction.

 

      Well, we in our own federal system might have had the raw materials for getting control over this and having a more predictable, even if not quite a one-stop shopping location for all patent issues, at least something relatively streamlined and rational. The problem is it appears, looking at the evidence like you just pointed out, Judge, it's going the other direction. And with inter partes review, you're not getting a one-stop shop, but instead, you're getting a division of patent claims into their component issues, and then each issue is being separately argued, adjudicated, quasi-settled—and I say quasi because there are lots of further bites in every apple when you've got that many different instances—each of which can treat each principle legal issue as a separate incident.

 

      So, yeah, it's very problematic.

 

Hon. Paul Michel:  Scott, as I recall, Justice Breyer wrote that an IPR more compares to an examination than an adjudication, but I wonder if that's really accurate in light of the fact that there's no discovery, there's no live testimony at the IPR as a practical matter. And the result is the patent is either invalidated or not. That really looks to me like it resembles a declaratory judgment action of invalidity in a district court, not an examination where endless negotiations go on between the examiner or re-examiner and the applicant and where there's free amendment and limitations are added either voluntarily by the applicant or demanded as a precondition of allowance by the examiner. So it seems to me Justice Breyer got it exactly backwards.

 

Prof. F. Scott Kieff:  Yeah. I agree, Judge. And I noticed a few things. If, back in 2011, what society really wanted was more accurate and more predictable and faster adjudication of patent issues, they would have noticed that we have tribunals that can do that. Some of the district courts are famously or infamously fast. And certainly, the US International Trade Commission's 337 docket is infamously or famously fast—18 months.

 

      But what is key to court adjudication and ITC adjudication is, as Tom alluded to, a few key factors about the way the adjudication is done. It's not done by political whim or political fiat or fashion or even hyper-technical technicalities. Instead, it's done using full and fair fact-based adjudication technique grounded in a record. You then can disagree with a written opinion by referring to the public record grounded in the facts. You don't defer to scientific and legal expertise of the district judge or the ITC Commission. You defer to the ideas reflected in the legal reasoning and the facts in the record that have been interrogated by the cross-examination adversarial process.

 

      So to put a fine point on it, it's one thing to take an executive branch employee in a given year today and ask her or him, “What exactly was the state of the prior art July 27, ten years ago, and how did it differ from July 26, ten years ago?” And hope to God that person's going to get it right. That puts an immense amount of deference onto that individual human being's expertise, and I assure you, no matter how much a superhero she or he is, that's just an impossible burden.

 

      But when you instead rely on the world of actors to bring to the attention of some kind of official body, like a court or an agency, actual documents, a laboratory notebook, a student thesis published in a university law library, or scientific library, a sample product on a shelf at a company in Detroit, when you have to make the decision about what was the state of the prior art, and you hang it on simple facts like a document or a thing, then a lay judge, a lay jury, a lay ITC commissioner, they can handle these things just fine precisely because those are not the kind of hyper-technical questions. They're the kind of pedestrian, factual questions that allow markets and especially the disenfranchised minorities in markets to have a fair shake at a competitive landscape.

 

Hon. Paul Michel:  Tom, go ahead.

 

Prof. Thomas D. Grant:  Yeah. It is also an advantage of recruiting the claims process to defining the issues and marshaling the evidence on one side or the other of an adversarial proceeding. We've placed our trust and our faith in adversarial proceedings to get good outcomes in practically every branch of law for a very long time in the American and Anglo-American legal systems. It's kind of curious to argue for a departure from that approach, especially in an area where we are dealing not just with things that exist today but with invention. And invention, by definition, involves things that are yet to be, things that haven't yet come out of people’s imaginations and creativity but instead are future tense.

 

      Now, what you see -- I think this also opens up a question, "What is the function of a patent office, especially our own patent office?” What is its function? And if you start drifting into what I think of as a sort of preemptive dispute settlement function -- that is to say, “Let’s try, through technocratic expertise in the hands of civil servants, let's try to preempt all imaginable future disputes around a patent claim. Let us make our patent office so all-knowing, a sort of panopticon, not just of today's prior art, a thesis at the Heidelberg Library, an implementer in South Korea, an African inventor, not only to a sort of all-knowing, all-seeing eye of today's state of affairs but also a sort of predictive preemptive function so as to freeze in place, freeze in aspect a picture of all social and legal relations at this point in time that will then be good forever.

 

      I don't think it's exaggerating to say that's the functionality that the more ambitious proponents of the expansion of the patent office function are, in fact, calling for. And I don't see it as a very realistic thing to try to achieve.

 

Hon. Paul Michel:  You know, the doctrine in the case law says that the perspective that's to govern these adjudications, whether in court or at the Patent Trial and Appeal Board, is the perspective of the ordinary artisan in that exact technology. But when I look at the witnesses called by each side in a typical IPR, they're not the average artisan. They're superstar people with astonishing credentials, way more creative and better informed than the ordinary artisan. And they have to put themselves back in the mindset of what other people knew, say, ten years ago, as in Scott's example, which is hard for anybody to do.

 

And then on top of that, it seems to me that what you get is each side has a super expert. He or she opines. The panel of three administrative patent judges then pick which expert they like better for whatever reason. They follow what that conclusion was, and they rule accordingly. And meanwhile, they've never seen the witness in the same room with them. They've never had any chance to ask any questions, so they're judging credibility in various respects with no direct access to the expert and no chance to compare experts as distinct, for example, from some arbitration practices where the two experts are put on the stand side by side at the same time and cross-examined on their reports by opposing counsel and then by the arbitrators. The Patent Trial and Appeal Board practices the opposite of that.

 

      So, Scott, what do we make, then, of the Patent Office compared to other administrative agencies?

 

Prof. F. Scott Kieff:  That's another great point, and it gives a chance to highlight as well a thread that Tom had started to pull on earlier which is that in a typical district court where ITC patent litigation, there are really four main topics in issue at the same time—patent validity, patent infringement, remedy, and anti-competitive effect—and is a feature of those adjudication systems that all four of those topics are on the table at the same time because two of those topics provide powerful incentives to view the patent very broadly for the patentee while two of them push in exactly the opposite direction. And the incentives on the alleged infringer are, of course, the opposite of those on the patentee.

 

      So both sides of the lawsuit have selfish, reasonable, rational incentives to do the horrible thing of be self-aware, self-limited, of moderate and fact-based in their arguments. But as soon as you strip away self-restraint, both sides have, for example, an argument over only validity where only anti-competitive effect before an antitrust body. Parties in those settings have hyperbolic incentives that one side argues infinity, and the other side argues zero and absolute zero point zero zero. And then they put a period on it for emphasis and an exclamation point after that. And it's just a very tortured form of argumentation that you see when you only have validity on the table or, for example, anti-competitive effect on the table.

 

      So it's that presence of the self-cabining or self-disciplining incentives on the advocates themselves that makes for a very hard -- I would not like to be sitting in a patent office on the board trying to struggle with a record you described, Judge. It's a hyperbolic set of arguments with fancy experts, with fancy credentials, in a highly abstract setting with no self-discipline.

 

Hon. Paul Michel:  Tom?

 

Prof. Thomas D. Grant:  Judge, yeah, thank you. To pick up a thread from Scott -- it's that old chestnut that you learn at law school that says it's quite typical to argue, “My client did not run over the old lady, but if he did, she jumped out in the middle of the road.” And to a certain extent, in an adversarial system, we accept that you've got to sometimes make these arguments, arguments in the alternative, arguments in the tertiary alternative. That's part of lawyering. But with patent, what Scott's describing is a dynamic toward escalation and hyperbole in critical phases of an argument that is intended to get down to the facts of validity and infringement and then find a remedy and then also deal with antitrust issues.

 

      And the way that the different issues are working in opposite directions is that if you are challenging a patent and saying, “Oh no, it's not a valid patent. Why? Well, because there is prior art --" this is what Scott was referring to—the thesis in the library overseas. But the chances of there being prior art increase if you make the case that the patent is a really, really broad patent, a really capacious set of words reaching the sun, the moon, and the stars, that ups the chances of winning your infringement claim because it's a higher chance that somebody somewhere had prior art on evidence.

 

      All right. But what if you lose that chance? Well, now you're in a position of defending yourself against an allegation that you've infringed. Now, at that point, now that you're being accused of being an infringer of a perfectly valid patent, ha! “Broad patent? Oh, no, no, no, no, no, no. It's the smallest, tiniest pinprick of a patent that I've ever seen; it's so small you need a magnifying glass.” Well, that's a totally different argument from the one you made before. Now you're arguing that it is a really tiny piece of art that's covered.

 

      Now, all well and good. All's fair in love and war and especially in litigation. But if we are trying to make the system more efficient and we are trying to encourage the market to actually have good, open bargaining over these very important equities, it's not a very good way to deal with patent disputes—parceling them out so that the legal counsel, the advocates, do not even have to worry about that straight-faced test. Can I argue the old lady never jumped in front of the car, or if she did, she didn't know what she -- or do you want to remove that hydraulic pressure that tends toward more reasoned, more disciplined argument?

 

In other words, you do it at once so I can have 337 action, or in a district court where you deal with your issues holistically, counsel are under a type of self-imposed discipline that's going to get them closer to being actually helpful to the adjudicator and to one another. Whereas, if you allow them each to have separate bites of the apple behind the screen of a separate process, the dynamic that Scott described is toward escalation of claims and departure from evidence-rooted terraform. So yeah, I just --.

 

Hon. Paul Michel:  Scott, let me pick up on your reference to multiple bites at the apple and highlight that aspect. In my understanding of the realities at the Patent Trial and Appeal Board, virtually anybody can file an IPR petition at any time in the life of a patent, 20 years, for any reason with any motivation they may have, including stock short selling and Lord knows what else.

 

      So how is it making the system of adjudication of patent infringement as alleged in district court more efficient to have multiple validity trials over at the PTAB throughout the life of the patent, at least potentially?

 

Prof. F. Scott Kieff:  Yeah. I mean, it's only a form of strange efficiency if the goal you're trying to maximize is more a process that goes nowhere except each time a good chance at delaying structure settlements in the marketplace or delaying a remedy for a valid patent, or what you really just would like to do is remove the patent system and you haven't accomplished that, so your next best alternative is tie up every patentee in lots of processes.

 

It's highly reminiscent of what Dickens wrote about in the British patent system around the time the US was being founded. He wrote a short story about patents called "A Poor Man's Tale of a Patent." And in this story, the patentee goes from office to office to office to office. This is also a story that describes the patent office as one of the worst parts of government—not quite as bad as the Circumlocution Office, but almost as bad as the Circumlocution Office. But the "Poor Man's Tale of a Patent" ends with a patentee getting all of his approvals and then being worn out, in Dickens’s words, "patience in pocket." It's very hard to structure transactions in the marketplace while you announce to the marketplace, “Please hold. We’re just going to spend some more time in multiple patent office proceedings, waiting in line for more people to question the patent.”

 

Hon. Paul Michel:  Yeah, Tom, let me ask again -- on this theme of multiple bites, isn't it the case that the statistics show that every time a patent owner has to defend against an IPR, it's likely to cost somewhere between $300,000-$600,000? And if there are multiple petitions filed either simultaneously or serially, that cost adds up pretty fast. We all know that district court litigation that goes all the way to trial and judgment typically costs multiple millions of dollars. So now we've increased the cost of the patent owner, it would seem like, significantly, which puts a big advantage on an implementer who has a lot of money at the expense of a smaller, less-rich patent owner who can just lose the war of attrition in the end because he runs out of cash. Is that a serious threat to fair adjudication, do you think? 

 

Prof. Thomas D. Grant:  Judge, I think you've identified something that's very important in thinking about how we manage or design a system for patent, and that is the larger the bureaucratic input, the more substantial the technocratic input, then the more idiosyncratic and more also politicized the process is likely to become. It's the nature of the governmental bureaucracy ultimately to respond to political input. We do have civil service protections. We have principles that say the bureaucracy is a sort of objective remote group of technocrats. And at an individual level, in my experience, the technocrats really try to be that way, and they mean well. They try to do their best. The problem is the reality writ large when you look at these institutions as institutions and not just well-meaning individuals, the reality is that they do have to be responsive to the political inputs, whether it's appropriations, whether it's new legislation coming down the pipe from Capitol Hill, whether it's personnel because, in our system, we have lots of important decision-making functions performed by political appointees.

 

      Now, if you go back to the quotation you had, Judge, earlier about property in the Patent Act, property is a general principle applicable across many different domains of law. We've worked with it as lawyers for a really long time. We have a rich set of argumentative tools, evidence-[inaudible 0:33:00] rules to deal with property-type disputes. It's a nice general framework in which to think of the dispute.

 

      Bureaucracy's the opposite. Bureaucracy's not about general frameworks. It's about the highly idiosyncratic priorities under a given statute, a given regulation as implemented by given decision-makers, some of whom will, in fact, be explicitly directed through political decision. Problem there is you don't have equal access to political decision. The best-running democracies in the world, including our own, have channels of input to the political process, which are inherently less egalitarian, less open than pure evidence-based forensic process. So the further you get away from classic adversarial procedure, and the more you get into technocratic functions in a political frame, the more the large players and the incumbent players are going to have leverage over outcome. I think that's a systemic problem that could be addressed by stepping back a little bit from vesting so much functionality in these technocratic offices and the patent office being the main example we're talking about.

 

      So I think the evidence does suggest -- Judge, you were looking at the fakers, the statistics on litigation cost -- that I think it's common sense, I think, to say that when the defense of your patent is going to be that expensive, you had better be a very deep pocket to begin with. And then, here again, it's a question of appreciation but is it really the very large -- is it the behemoths who are always the most creative? Or is it sometimes smaller players, idiosyncratic players who come up with interesting, new ideas? Some of them are crazy and aren't worth it, but others are really valuable productive ideas, and trial and error is part of it. I'm a little afraid of a system that starts to squeeze out trial and error.

 

Hon. Paul Michel:  Scott, let me ask you this since you're a former adjudicator at the essentially trial-like level. Does it bother you that the standard -- the burden of proof in a PTAB proceeding is lower than the burden of proving invalidity in a court or the trade commission?

 

Prof. F. Scott Kieff:  Yeah. It strikes me as, frankly, strange that those who are most interested in having the Patent Office do more at the same time think it should do more on the one hand because it's so expertise, it's got so much talent, and then, on the other hand, give it such a low bar. It seems to not have the courage of one's conviction. If you think the Patent Office really is the best place to focus all the understanding of the prior art and the disclosures, then it seems to me you've spent a few billion dollars on that office, you've staffed it with thousands of technologically trained, legally trained human beings, I'm not sure it makes sense to give them the lowest bar to climb over.

 

      In fact, if you located it in a politically responsive branch of the government and given it a very low bar, I think you'd -- I'm kind of shocked why anyone is shocked there are politics at play in that. It's just strange.

 

Hon. Paul Michel:  On the point of politics, Tom, obviously in the wake of the Arthrex decision, the ability of the politically appointed director of the USPTO or his lieutenants to influence or actually reverse panel decisions made by the board in inter partes reviews certainly suggests that since Arthrex, the political input is real and actually constitutionally required, not just theoretically available.

 

Prof. Thomas D. Grant:  That's the other thing. In a system of responsive government, if you set up an administrative apparatus, you can have the ambition of imparting independence to it, but our constitutional law over generations has demonstrated that the independence of these bodies has to be tempered with a transmission belt to the elected officials. Now, in its proper space, that's a good thing. The problem is, here, we're talking about dispute settlement over particularly commercially important equities and equities that you want to encourage the development of by future inventors, future contributors to the market in technology. And it's not clear you're leaving the door open to the really inventive segments of society, the diverse inputs that you get from different types of people and in organizations, if the system is so much more congenial to the really big actors and so much less congenial to the smaller ones.

 

Hon. Paul Michel:  One way to capsulize this is that decisions about validity ought to be made based on merit, not money, not as the bigger --

 

Prof. F. Scott Kieff:  Merit --.

 

Hon. Paul Michel:  -- to carry on the fight forever.

 

Prof. F. Scott Kieff:  Well, and isn't it noteworthy that even back in the quaint, cute, old-fashioned days of 2011, when a typical presidential campaign only cost a billion dollars that the publicly disclosed lobbying spend on the America Invents Act, which, by the way, was done before 2011 ended -- it was signed by the president in September. Both Houses of Congress were done with it, basically, by the start of the summer. It had huge bipartisan support, just like the current quarter of a billion-dollar spending bill has bipartisan support. It's easy to buy a lot of votes across the aisle with a lot of money going in or out of Washington.

 

      The lobbying spend on the 2011 America Invents Act in just the first several months of 2011 was a billion dollars. Industry was not spending a billion dollars to lobby the America Invents Act because they thought they'd get nothing out of it. They were spending a billion dollars to help themselves in a very short-term way that lobbying spend always helps short-term interest of large established players. 

 

Hon. Paul Michel:  Now, I asked earlier about the money problem for, particularly, less-rich companies owning patents, but let me ask now about delay. Given that the district courts typically stay the case, at least until the Patent Trial and Appeal Board in an instituted petition is done and very often until the Federal Circuit has reviewed that decision—so now, we're talking about 18 months to two years or two and a half years or something like that—it seems like the AIA architecture has given us something that's not only more expensive to the patent owner and more risky because of the lower burden of proof but also slower as against the promise that it would be faster, simpler, cheaper.

 

Prof. Thomas D. Grant:  Yeah. It's not clear why rational decision-makers writ large and not just decision-makers for certain large incumbent players would design an architecture like the architecture of the America Invents Act. Maybe it goes back to what do we want the Patent Office to do as its functionality? What is its job? And if you go back to this idea that, really, you cannot preemptively settle every dispute percolating in the back burner today, much less preemptively settle all future disputes over intellectual constructs that is inventions that haven't even been invented yet, then it's a little bit of a fool's errand to invest more and more technocratic capital and real money capital into a government functionality whose purpose seems to be to try to preemptively settle the disputes.

 

We don't do this in other systems. If you file your deed in the country registry, you are under rules that constrain how you do it. There are forms. There is tested language that courts have adjudicated over centuries in the case of real property, and does that mean that every single potential dispute over the incumbencies on your property, the metes and bounds of your property, are settled? Does that mean all the disputes today and in the future over your land are settled? No. Nobody would imagine that. But if we can suppose the AIA mentality onto the county land registry, the state legislature has to quintuple the funds for that registry. They need ten times more staff, and they need smarter staff with PhDs rather than just BAs or street smarts about registering deeds. But nobody would do that. Nobody would think to do that. But for some reason, we're thinking that that will work with patent.

 

Hon. Paul Michel:  Scott, the defenders on the prior panel of the current structure of IPRs and their implementation at the board asserted that the district courts were flooded with unnecessary excess and frivolous infringement claims. But when I look at the statistics as to what percentage of cases are adjudicated as frivolous, it's minuscule.

 

Prof. F. Scott Kieff:  Absolutely. Absolutely, Judge.

 

Hon. Paul Michel:  Do you have any reaction to the idea that the courts are flooded with frivolous cases and that somehow justifies the shift over to the board? 

 

Prof. F. Scott Kieff:  Yeah. Absolutely. It's a fascinating set of arguments that had been made. They start with the idea that the so-called American rule that each side pays its own fees is a fundamental contributing exacerbator of the problems in the US patent system. And yet, even during the period when the U.S. Court of Appeals for the Federal Circuit—your court where you sat—even in the days when that court was viewed as pro-patent, it was a court that was quite clear, quite active, quite explicit in using fee-shifting techniques to punish bad faith litigation on both sides including very famous cases against patentees, patentees' lawyers, patentees' trial and appellate lawyers, and including cases where some very famous law firms and lawyers had their names discussed in the record because they had signed on to pretty obviously thin opinions of counsel. And the market and the legal system provided the necessary feedback loops, which was to put some of those law firms out of business because they were getting too loosey-goosey with their willingness to assert bad patent arguments, by the way, on the side of the patentee.

 

And when it comes to the notion that the fix for all of this is going to somehow be an administrative agency tribunal, that's such a strange fix for this kind of stated problem if what we're really talking about in, for example, several of the high profile cases where arguments about patent hold up and patent litigation expenses and patent surprise – those cases became so salient in academic and policy discussions because lobbying and governing communications and corporate communications budgets have grown so big. But of course, those were cases that made themselves all the way to the Supreme Court. And they made themselves all the way to the Supreme Court usually on issues of remedy or of arcane patent doctrines like patentable subject matter.

 

      But that means that the objective disclosure rules, the patent law 112 rules about written description, enablement, definiteness, those objective legal rules were met by those patents. And those were mostly willful infringement cases, which means not only were those patent documents objectively clear, they were subjectively litigated by the infringer side as willful infringement, which is pretty close to bad faith argument made by the infringing community. So they were not a surprise set of cases and I guess the way I think about this one is you have to have a pretty capacious notion of what surprise means to have it include “My lawyer said it would happen, I had a legal opinion that it would happen, but I'm surprised.” 

 

Hon. Paul Michel:  Let me ask you another question, Tom, about structure. It seems to me, in a way, there's an inversion going on here. That is, there've been cases where the validity of a certain patent has been upheld in court and on appeal. And then subsequently, an IPR against the same patent invalidates the patent. So, in that circumstance, it looks like you have a subordinate tribunal in the patent office that's supposed to be underneath the district court and the court of appeals, in a way being more powerful and dominating the district court and the court of appeals. And when you couple that with the affirmance rate of IPR results, which is somewhere in the neighborhood of 90 plus percent, then you not only have a potential inversion, you've made the Federal Circuit a meaningless adjunct to the system. It's really all about what happens in the Patent Trial and Appeal Board, at least as far as validity is concerned. Does that make any sense to you?

 

Prof. Thomas D. Grant:  Once again, yeah. Whilst in many areas of law, the devil's in the details, we also sometimes have to think about first principles and the way we've constructed our constitutional system. We do have a system of Article III courts, and they're rather important. They're a coordinate branch of government. Now, that system where you have a federal circuit with the expertise and the history and the jurisprudence that has developed over a long time to deal with patents, it is facially very strange to have a technocratic structure put in place through statute at its appropriate level, at least on its face, it's where it belongs in the structure of United States federal law. But then, in practice, performing a function that supervenes the decision-making of courts that not merely have the formal authority to do that work but are pretty well-equipped because of their history and their long development of the jurisprudence around patent law to do that work.

 

      So inversion's a good way to put it, Judge. I think it's also a little bit of building a new architecture because you don't like the paint on the wall in one room in the house. It'd be kind of strange to tear down the house just because you'd rather have a blue room than a green room. All you do is you --.

 

Hon. Paul Michel:  Some people claim that the American system of politics always yields overcorrection of perceived problems, never due correction of perceived problems, even assuming the perception is correct. It's another dimension here.

 

Prof. F. Scott Kieff:  If I may just build on that for a moment by saying if the central criticism of patent adjudication in district court is that it, golly gee, is technologically and legally complex, I guess I'm just curious, how do courts handle tort cases involving the exact same technologies, contract cases involving the exact same technologies, let alone all sorts of even more complicated statutory regulatory cases involving the exact same technologies where the legal systems are, let's just say, longer and denser than Title 35 and 37 CFR, the Federal Register section corresponding to the Patent Office?

 

Hon. Paul Michel:  Tom, let me ask you this. If some of the criticisms that we've suggested here in this panel today, or that others have previously, are reasonably sound to the degree that some adjustment of the architecture and the practice are both needed, would you view the so-called stronger Patent Act provisions as appropriately addressing those criticisms of IPRs and the PTAB?

 

Prof. Thomas D. Grant:  Difficult to predict exactly how a new solution's going to play out in practice. It goes back to the devil being in the details. You have, also, the inherent challenge -- if you're trying to adopt a corrective to something that itself was built as a corrective, but it's turned out to be a complicating factor rather than a correction, it's just very hard to tell how it would play out. And I think aiming for a place where you adjudicate your disputes in the round and where that hydraulic influence on counsel militates against exaggeration and hyperbole, finding some more direct path to quiet title so that then commercial parties can go out and do what they do, which is actually negotiate with one another in the market, that's the target.

 

      I'm not sure we even all agree -- I think on this panel, we're coming to some common ground, but I'm not sure in the wider world in Washington, we even have agreement on those outcomes. Let's just say that there are pressures from other dispute settlement environments, other sovereigns who do this, but then also things like arbitration which is always an option to parties who can see through to agree to an arbitral clause, including in their patents in regard to their patent issues.

 

      So then maybe, you may reach a point where the flaws and the drawbacks are so, dare I say, patent, that parties will go elsewhere if they possibly can. And that may turn out to be a pressure of its own that ultimately disciplines us. I'm not sure. It remains to be seen. 

 

Hon. Paul Michel:  Scott, we're getting close to the time where we should see if there are questions, so let me give you a last shot here. 

 

Prof. F. Scott Kieff;  Well, I'll just echo what's been said that district court in the US, the International Trade Commission in the US, arbitration and mediation in the US, and tribunals outside of the US, including private tribunals, these are all options for more predictable fact-based, record-based determinations rather than the kind of more bureaucratic and politically driven agency determination that somehow -- we don't do this for any other area of law, we don't in environmental law, in financial securities regulation, in food and drug, in telecom, in so many other areas of law, we don't try to do what we've tried to do with the Patent Office through the America Invents Act, and it's because doing that was and is and always will be a bad idea.

 

Hon. Paul Michel:  We apparently have no questions, so let me just ask this final question to each of you. I was told at the time the act was passed that people shouldn't be so worried about its impact for two main reasons. First, I was told that delay won't become a problem because district judges will never stay the case, but that turned out to be the opposite of reality. And I was told, “Don’t worry, the patent owner will be okay because he'll get to freely amend his claims to avoid invalidation.” That also turned out not to be true. So in light of those kinds of disparities between expectation or promise on the one hand and actual experience on the other hand, do you think that alone justifies a relook at the IPRs?

 

Prof. Thomas D. Grant:  Short answer would be yes. It's not the worst thing in the world to get something wrong. The worst thing, though, is once you've made a mistake, to just double down and repeat the mistake. That's the definition of not very good. So yeah, there were voices in the wilderness who admonished before America Invents that maybe that new statute, that wasn't really the way to go, but now that we have an evidentiary record, I think the case is a lot stronger that it needs a fresh look. 

 

Hon. Paul Michel:  Scott? 

 

Prof. F. Scott Kieff:  Yeah, I agree. And I would just say, for the reasons that you each have identified, this might be in the category outside of unintended consequences. It's certainly not unanticipated consequences. And then one starts to wonder, “Well, then who intended them?” I'm sure that the America Invents Act suited the short-term business interests of those who were pouring the billion dollars down K Street at the time and for the seven years that led up to that statute. But I don't think that that means it's a good idea for our system, nor, by the way, do I think we should do something in our system that is fundamentally antithetical due to those companies.

 

      I think that the patent system of yesteryear before the America Invents Act worked pretty well for everybody, and going back to something like that would really be a good idea for everybody. And to the extent there are specific concerns, they can be addressed with much more moderate tailored fixes like those that the Federal Circuit implemented through, for example, its fee-shifting rules and judgments, many of which, to be clear, were against the patent plaintiff community, not just the infringer community.

 

Hon. Paul Michel:  Do you think that the fact that the most frequent filers at the Patent Trial and Appeal Board of IPR petitions are ten of the biggest mega companies on the planet, most being American, gives us a hint about who wanted IPRs as they're actually legislated?

 

Prof. F. Scott Kieff:  Yeah. And I think this starts to get to more subtle topics that we could explore in another discussion about what can be done with a large patent portfolio in the current system. And I think, in a nutshell, a lot of these patent portfolios are used by these large players in ways that are, frankly, pretty foreign to the basic idea of the patent, where the patent has a right to exclude people in the marketplace. Large players use patents now to transact with each other and to transact with regulators.

 

So you say if you're a large player to an antitrust regulator or a consumer safety regulator, “I cry uncle, you caught me, I'm going to change my behavior, but going forward, will you please allow me some freedom to operate or some pricing flexibility to the extent I'm now innovative? And let me show you how innovative I am. Let me count my patents.” And now they dish out their patent portfolio to regulators in industry in areas of law that have nothing to do with patent law and are then basically told, “Please trust the good folk over at the Patent Office who issued me this large portfolio of patents as a measure of how inventive I am so that you, an antitrust regulator or safety regulator, you can tell your appropriators that you're not gumming up the works of innovation when you regulate because me, I'm a large player and I have lots of patents, and you're going to let me continue to sell my product into the marketplace.”

 

So I think we've bastardized the patent system and made it into a set of chips that companies use to coordinate with each other and to coordinate with regulators rather than a commercialization tool.

 

[Crosstalk]

 

Hon. Paul Michel:  A final question to each of you, if you had the proverbial magic wand, would you discontinue IPRs, or would you address the discreet alleged problems and try to change them that way? Which of the two basic strategies do you think is more appropriate? Tom? 

 

Prof. Thomas D. Grant:  I think in the interest of intellectual consistency, I would say it would be sensible to try to reform and modify around the edges in order to set a point, to make a point, for future reference if people try, for example, to replicate this in the environmental field or the food and drug field or the transportation field. In other words, send a signal; let's do incremental change before we do whole cloth change. But I'm skeptical, or I'm pessimistic, about IPRs being fixed in that liminal way. I think you might have to go to the heart of the matter.

 

Hon. Paul Michel:  Scott, would you wave your magic wand for abolition or refinement?

 

Prof. F. Scott Kieff:  I think it's hard to refine this one.

 

Hon. Paul Michel:  Well, that's a very good closing line for our time together. The time has expired, as we used to say at the Federal Circuit when the red light went on. I want to thank The Federalist Society and Guy DeSanctis for organizing this and recruiting us. I thank the audience for tuning in, and hopefully, it was interesting and useful. These issues certainly are fateful for our country. So, Guy, back to you.

 

Guy DeSanctis:  Thank you. On behalf of The Federalist Society, I want to thank our experts for the benefit of their valuable time and expertise today. And I want to thank our audience for joining and participating. We also welcome listener feedback by email at [email protected].

 

As always, keep an eye on our website and your emails for announcements about upcoming virtual events. Thank you all for joining us today. We are adjourned.

 

[Music]

 

Dean Reuter:  Thank you for listening to this episode of Teleforum, a podcast of The Federalist Society’s practice groups. For more information about The Federalist Society, the practice groups, and to become a Federalist Society mem