On September 16, 2011, President Obama signed the American Invents Act (AIA) into law. The first major overhaul of the U.S. patent system since the 1952 Patents Act, the AIA received overwhelming bipartisan support in both chambers when enacted. But, with the recent ten-year anniversary of the AIA, a new director poised to take the helm at the USPTO, and Congress ramping up debate on reforms to the AIA, is now the time for a reexamination? Our speakers will consider the role of the PTAB in resolving patent disputes and the legality of the exercise of significant discretionary authority by the USPTO Director to implement policy outside the authority granted the director under the AIA.
Joseph Matal, partner in the Intellectual Property Practice Group in the Washington, D.C. office of Haynes and Boone, LLP
Paul Brian Taylor, who served over 20 years as Counsel and Chief Counsel for the House Judiciary Committee's Subcommittee on the Constitution and Civil Justice. He also served as Senior Counsel at the House Committee on Oversight.
Moderator: Hon. Bob Goodlatte, Former Congressman, United States House of Representatives
As always, the Federalist Society takes no position on particular legal or public policy issues; all expressions of opinion are those of the speaker.
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Guy DeSanctis: Welcome to The Federalist Society’s webinar call. Today, April 26, we discuss 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 am 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 Bob Goodlatte, former Congressman, United States House of Representatives. Throughout the panel, if you have any questions, please submit them through the Q&A feature so 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. Mr. Goodlatte, the floor is yours.
Hon. Bob Goodlatte: Thanks, Guy. And welcome to all. And a big thanks to The Federalist Society for hosting this event on World IP Day. In 2000, the World International Property Organization’s member nations designated April 26th, the day on which the WIPO convention came into force in 1970 as World IP day, with the aim of increasing general understanding of intellectual property. This year, the theme of World Intellectual Property Day is IP and Youth: Innovating for a Better Future and celebrates youth-led innovation and creativity. Today’s event is on the America Acts and the role of the Patent Trial and Appeals Board, or PTAB, in resolving patent disputes.
I’m Bob Goodlatte, and I had the honor of representing Virginia’s Sixth Congressional District in the US House of Representatives from 1993 to 2019. During my time in Congress, I served as chairman of the House Judiciary Committee from 2013 until 2019, and prior to that, I served as the chairman of the Subcommittee on Intellectual Property, Competition, and the Internet. I have prepared some brief remarks, and after that, I’ll introduce our panelists. When President Obama signed the America Invents Act into law on September 16, 2011, it was the first major overhaul of the US patent system since the 1952 Patents Act. At the time of passage, the AIA received overwhelming bipartisan support in both chambers. Recognizing the fundamental importance of high quality intellectual property to US innovation and the competitiveness of the US economy, the AIA focused on improving the quality of patents issued by the US Patent and Trademark Office while providing reexamination proceedings — such as post-grant reviews, inter partes review, and the covered business method patent program — all designed to provide an alternative to patent litigation.
The Patent Trial and Appeal Board, which the AIA created, administers these reexamination proceedings. The debate over the role of the PTAB continues in Congress, the federal courts, and the US PTO. Proponents of the PTAB continue to argue that wrongly issued patents are the result of administrative error and that defendants in patent disputes should have an effective, efficient means -- alternative to expensive patent litigation that diverts resources from innovation in order to determine whether the US PTO properly granted a patent. Opponents of the AIA and PTAB have argued that the AIA invests too much authority in administrative proceedings that cast a cloud of uncertainty over the intellectual property of patent holders, undermining value and limiting innovation. In the United States v. Arthrex, in 2021, the Supreme Court upheld the constitutionality of the PTAB’s administrative patent judges, or APJs, by placing greater authority over PTAB decision with the US PTO director.
In addition, a series of decisions in recent years — such as In re Bilski, Mayo v. Prometheus, Association for Molecular Pathology v. Myriad Genetics, and Alice Corp. v. CLS Bank International — have raised fundamental questions about subject matter eligibility of method patents and software and, by extension, whether the current scope of IPR is sufficient to resolve fundamental questions of patentability. This debate in the courts has resulted in the extraordinary exercise of discretionary authority by the US PTO director — ranging from the rewriting of examination guidelines, intervention in PTAB proceedings to grant discretionary denial of petitions for review, and the imposition of the so-called Fintiv rule — to deny petitioners access to inter partes review. In response, a series of bills of been introduced in Congress aimed at resolving these issues and others. All of this is occurring against the backdrop of increasingly rapid technological innovation and an emerging consensus about the role of technology and innovation in enhancing US economic competitiveness vis-à-vis China and other global competitors. With the recent 10-year anniversary of the America Invents Act, a newly confirmed director at the US PTO, and Congress ramping up debate on reforms to the AIA, today’s event is very timely. I look forward to our discussion about the role of the PTAB in resolving patent disputes and the legality of the exercise of significant discretionary authority by the US PTO director to implement policy outside the authority granted the director under the AIA.
It’s now my pleasure to introduce our distinguished panelists. Joseph Matal is a partner in the Intellectual Property Practice Group in the Washington, DC office of Haynes, Boones, LLP. Joe has served as both the US PTO’s acting director and acting solicitor during the beginning of the Trump administration. As acting solicitor, he defended the agency in Intellectual Property cases before the US Court of Appeals for the federal circuit and the US Supreme Court. Previously, Joe served as the general counsel to the Senate Judiciary Committee for Senator Jeff Sessions and as committee counsel to Senator John Kyl. In these roles, he participated in the negotiating and drafting of many of the key provisions of the America Invents Act. His practice focuses on US PTO post-issuance proceedings and federal circuit appeals.
Paul Taylor served over 20 years as counsel and chief counsel of the House Judiciary Committee’s Subcommittee on Constitution and Civil Justice. He also served as senior counsel at the House Oversight Committee. During that time, Mr. Taylor helped shepherd dozens of federal bills get signature into law by presidents of both political parties. He’s the author of over a dozen law review articles on legal reform, constitutional law, religious liberty, and other topics and a contributor to The Heritage Guide to the Constitution. Prior to working on Capitol Hill, Mr. Taylor worked as an associate at Kirkland & Ellis and Covington & Burling in Washington, DC. Mr. Taylor is a graduate of Yale College and Harvard Law School.
Welcome to you both, and I’ll direct our first question to Joe. Different industry groups and patent organizations have tried to claim that their views are the conservative position on patent policy. Some of these groups actually even include the word, “conservative,” in their name. They argue that a true conservative supports the side of vigorous enforcement of patents in these debates. What do you see as the true conservative position on patent policy?
Joseph Matal: That’s an interesting question, Mr. Goodlatte, and afraid I’m going to have to give you a longish answer. On Capitol Hill, Republicans and Democrats have divided on different bills and responded to different economic interests and on different issues, but there’s been this -- for about 15 years now, there’s been this consistent narrative that a true conservative, especially a legal conservative, sides in the patent -- with the patent owner on all these policy disputes. And the argument is basically like this that a patent is like a property. Right? We all agree that land is property, that sacrosanct, and a patent is just another type of property, except it's property in an idea. So, if you’re the first one to come up with an idea, the patent protects your rights around that property. It’s yours, and no one else has the right to it, at least, without paying you a license.
And, so, in the -- the idea would be, if you’re on your land, for example, which you definitely own. and you come up with, in the 19th century, a better combine or harvester, or, in the 20th century, a better engine or, in the 21st century, a better microchip, that’s just as much your property as your land. And no one else has the right to practice that without your permission, at least if you’re practicing. And that’s the idealized version of it. And, so, the argument is we need strong patents to protect that right just much as we protect that right in land. The difficulty comes as -- imagine a scenario where you’re on your own land, building engines in your factory, and you thought you invented it, and someone comes along with a patent and says, “I have a patent on what your doing, and, at the very least, you need to pay me a license, if you want to keep doing your business. I’m not contributing anything to your business, but you need to pay me for the privilege of continuing to build those engines,” for example.
Well, if they filed before you disclosed your engine to the world and the patent otherwise meets the validity requirements, that’s the way the patent system works. It's a -- infringement is a strict liability offense. And whoever files first before anyone publicly discloses has a right to a valid patent. But imagine another scenario where this person comes to you with a patent and, by the time that patent was even filed, you’d already thought of the idea and been selling your product to the world or, even more, you’re not even the original inventor yourself. This idea was just in common use, and everyone knew about it long before this patent was filed. Then, the justice of the case is a little less clear. Right?
We all agree, if the person really was the first inventor, the person who invented it to the world, then, justice and natural right is with that person. But, if someone else got a patent improperly and they’re just going after people who are practicing something that was already in the public domain or even invented themselves, that doesn’t seem fair. Right? That doesn’t really accord with some -- one’s sense of natural right. And what that highlights is, in the patent system, the key to the fair and efficient functioning of a system really comes down to validity, accurate and thorough compliance with patent validity. If the patent’s valid and that person really was the -- the person with the patent really was first inventor of the engine, then that’s their idea, and they have that first right to it. And in fact, rewarding that right encourages more innovation of those ideas.
But, if the person who got the patent wasn’t really the inventor and the idea was already in the public domain, you’re not aiding innovation, and frankly, you’re just hurting people who make real things. So validity is really critical to the fair functioning of the system. And here, it’s important we take a step back and look at the character of the actual litigation going on, not these theoretical arguments about property rights, but what is going on. And historically, over the last several decades, when issued patents have been litigated, they’ve been found invalid about 40 to 45 percent of time. These are studies that are not contested. Going back to the ‘90s, finding that, when courts themselves looked at these patents, they found a large portion of them were invalid.
The Patent Office only has so much time to look at it. Some bad patents slip through, and that’s why we’re always had contests over validity when patents are later issued. Another aspect of the litigation we really need to think about is patents aren’t all just fights between different manufacturers. That guy suing you for making engines isn’t necessarily making engines or microchips himself. In fact, the bulk of the litigation in the United States over the last, at least 20 years, has been brought by people who aren’t practicing the invention. And the bulk of those people, those plaintiffs are what we call Patent Assertion Entities, people that acquire patents on the secondary market.
A lot of corporations build up patent portfolios, sometimes just for defensive reasons or just for licensing fights. And then, you have to pay to maintain your patents, just to keep them. And corporations will periodically unload them. And there’s a fair amount of patents that are available on the secondary market. And a major portion of the litigation is just these people who bought the patent on the secondary market. So then, when you look at the issue of is the patent valid or not, it really matters for purposes of the US economy and just the fairness of this whole system whether the patent is valid.
If someone just bought this patent for pennies on the dollar on the secondary market, they’re not even practicing the invention, and the patent’s invalid. It’s not only unfair to the person actually making things and employing people in the US. You’re not encouraging innovation. All you’re encouraging is getting more patents and more lawyering. And this is where I like to come back to the issue of strong patents. The people who talk about strong patents, you might think, “Oh, that means a patent that’s valuable, that really claims an innovation -- innovative idea.”
But the way some of these people use this term is they mean all patents should be made strong, whether they’re valid or not. It should be harder to challenge them, and that’s what a lot of this agenda has meant. It’s not really about protecting patents that are strong. It’s about shielding patents that are invalid. And when we start to go down that path, when it turns into this kind of a lawyer’s game, what this makes me think of, and what a true conservative is supposed to think, is -- did any of y’all remember a Senator John Reid Edwards from North Carolina? He got involved in some scandals at the end of his career that kind of tarred him, but he made his fortune before he got into politics, doing medical malpractice litigation.
He -- and the bulk of his money came from suing obstetricians for failing to do a c-section early enough and, therefore, causing cerebral palsy in the baby. And he earned huge rewards. Cerebral palsy’s a debilitating condition. If the doctor really was negligent and did something wrong that injured this baby, obviously, a jury wants to generously compensate that baby and its family. The problem is, at some point later in his career, it came out that someone did a meta-analysis of all the medical studies and found that whether or not you perform a c-section has virtually nothing to do with cerebral palsy. In fact, it’s a genetic condition, and the fetal heart monitor readings that he used in his studies have nothing -- no predictive power whatsoever over cerebral palsy. And in the end, this guy was just suing baby doctors who had done nothing wrong.
He made health care more expensive, pressured doctors to do things -- to perform c-sections when they weren’t necessarily. John Edwards and the model should not be our model of how the litigation system works. He should not be the conservative legal hero, but that’s unfortunately -- when you allow invalid claims to be asserted and monetized, when you stack the system this way, when you let incorrect scientific evidence get into the jury process and bias these results this way, this is the kind of abuse you result -- that you end up with. And it shouldn’t be any conservative’s model of the system works.
Hon. Bob Goodlatte: Thank you. Paul, your professional experience has been primarily with constitutional law and civil justice reform. The US Constitution makes clear that the purpose of the patent system was to secure exclusive patent rights for inventors “to promote the progress of science and useful arts.” In your mind, is the civil justice system, as it operates today, fulfilling that constitutional purpose?
Paul Bryan Taylor: Yes. So I come from this in terms of trying to understand the default position. If you don’t have a functioning Appeals Board in the Patent Office — it’s there to clean up patents that were weak or invalidate them — you need to default to the litigation system. One thing I’ve found in my research -- I have a law review article coming out next winter. I hope to have it up on SSRN in a month or so, once the editors get the first crack at it. But I found a lot of interesting evidence about how early jurists viewed a valid patent. And part of that interpretation of a valid patent, integral to it was whether or not the patent was commercializable, whether or not someone was actually using it for the useful purpose that the Constitution requires for patenting.
John Marshall, of Marbury v. Madison fame, in 1832, describing the patent statute at the time, said, “The great object and intention of the act is to secure to the public” — to the public — “the advantages to be derived from the discoveries of individuals.” This sort of thinking was akin to the Lockean theory of property, where you had to mix your labor with the land before you really had a true property right in it — in other words, improving its value and distributing its benefits to the public. The famous barbed wire case that the Supreme Court handed down in 1892. It was between the Kelly and the Glidden versions of the barbed wire. The Glidden version had sharper barbs. In upholding the Glidden patent, the Supreme Court pointed to how much more commercially successful the Glidden patent was and how many more tons of barbed wire it had sold in looking to the validity -- upholding the validity of that patent.
And, if you fast forward to the modern day when Congress was creating the International Trade Commission, the statute read that you could take advantage of the ITC if you could show that you were part of a domestic industry that was “efficiently and economically operated and that the infringing goods would destroy or substantially injury an industry.” So they were looking to protect people that were having -- had commercially viable products. And, so, now, when you look at the litigation system, I’m using as my paradigm here, in terms of describing its dysfunctions, as a patent that is overly broad, weak, and -- but still granted. Now, we know that the general distinction of the America legal system is we don’t have a loser-pays law, so what that means is anyone by threat of default judgment can file a complaint against somebody, impose a lot of defense costs on them, and then try to extort a settlement out of them that is somewhat less than what the person sued would have to pay to litigate the case to victory on their side. So, if it would cost you $10,000 to defend yourself successfully in court, someone could say, “Just pay me $8,000 now, and I’ll go away.” So that’s the extortionist effect that is at play in -- as the baseline of our litigation system.
And piggybacking on that are third-party litigation financiers, which we see now. These are folks who come in and agree to pay for the litigation, but, in return, they can put certain restrictions on what the lawyer for the client or for the patent owner can do or not do in court. In fact, when I was working for the Judiciary Committee, Mr. Goodlatte, you, yourself, spearheaded a case action reform bill, which would at least require the bare bones of transparency in terms of third-party litigation financing contracts, at least make them known to the litigants and to the court. In fact, there was some really egregious examples of contracts that tied the hands of the lawyers themselves who were supposedly representing their clients to the best of their ability. These were conditions that the contracts put on in terms of the experts that could be put up, at the fees that would be distributed — fees that would actually detract from the recovery of the plaintiffs themselves. These were all things that various judges found shocking when they came out.
And then, the judges required the disclosure of these terms because, when you have a contract like that from a funder that ties the hand of the lawyer, you’re really separating the representation in the case from the judicial system because, as an officer of the court, you’re supposed to be — in return for the privilege of attorney/client, etc. — you’re supposed to be tied at the hip to your client and not subject to external constraints based on the funding that are handed down by third-party litigation financiers. So, when you combine a patent that’s overly broad and not commercializable, which separates that patent from industry and the economy with third-party litigation financing, which separates the lawyer from the judicial system, as properly understood as an officer of the court, you end up with some severe dysfunctions. Actually, just about a week ago, there was a judge in Delaware District Court who actually issued a standing order that requires all litigants to disclose any third-party litigation financing contracts they’re subject to. This is a judge actually who, I understand, handles about four percent of all patent cases, so I think what he’s done is going to be very influential, probably spread to the other judges in Delaware and probably elsewhere. So, when you have an overly broad patent granted -- minted, I should say -- by the Patent and Trademark Office --
Joseph Matal: By the way, Paul. Just to clarify, you mean he handles four percent of all cases in the US. Right? Not just four percent.
Paul Bryan Taylor: In the US. In the US, yes. Correct.
Joseph Matal: Yeah. Delaware plays an outsized role in adjudicating patent cases.
Paul Bryan Taylor: Right. So, when you have a situation where there’s a patent that is overly broad but has been granted and it’s not commercializable and it can be subject to a third-party finance litigation, in my mind, you end up with a magic casino chip. That patent can be plunked down on a table in the patent litigation casino, and it can force others to come to the table. And there are just -- there are vast, disproportional forces are work in that litigation. For example, there’s a presumption of validity on that patent -- the chip. That means that, for that person who has the chip, to win the case, their patent infringement case, they only need to meet a preponderance of the evidence standard. Whereas, their opponent, who was forced to come to the table, can only win their case claiming that that chip is an invalid patent by clear and convincing evidence.
And, in very confusing cases, where juries are having to deal with the subject of quantum-computing technology and the like, juries can get very confused about the technology. And the dynamic that I see happening is that a confused jury, if they’re talking about a complex system — they’re trying to figure all this stuff out; who invented what, when; what designs were already obvious or not obvious — they’re going to be struggling to come to any determination at all. But, if any determination on their part is a stretch, it’s going to be a shorter stretch to reach up to the preponderance of the evidence bar than it is higher to the clear and convincing evidence bar. So you’re going to find confused juries just tapping out at the preponderance of the evidence bar and calling it a day. You add onto that the disproportionate discovery costs. If you’re making a commercially viable product and you’re sued for patent infringement, you’ve got a lot of stuff in your files about the salient development of that product.
Whereas someone who sues you for infringement, who doesn’t have any commercialized product to show, they’re not going to have anything in their files that they’ll have to produce. And, so, there’s a disproportionate number of chips that are forced to be put on that casino table. There are lots of other imbalances that come into play in the damages arena, but I won’t belabor those too much. But look --
Hon. Bob Goodlatte: We’ll come back to you. I’ve got another question for Joe, and then --
Joseph Matal: Hey, Mr. Goodlatte, I see we have a question from the audience. Should we -- you want to ask that one, and maybe Paul and I can weigh in on it. Seems to lead nicely from the issues we’ve raised.
Hon. Bob Goodlatte: So we have a question. Says, “Should judges hearing patent and other scientific and technical cases be required to be scientifically educated?” I think you can both take a shot at that. Why don’t you start, Joe?
Joseph Matal: Sure. So I was thinking about that, then I realized it doesn’t matter because it’s a jury trial, right, in the US system. The jury trial right attaches to litigation of patent infringement cases. And, so, whether the judge is scientifically educated or not, it’s the jury that’s going to be making all the determinations. And, if you leave the determination of validity — patent validity — of what was obvious to a person of skill in the art at a various point in time, you’re just not going to get accurate results. And I -- I’ve got great respect for the jury system. It definitely has its purpose in our system.
First of all, it’s an excellent check on the power of the government. It prevents government overreach, prevents the government from going after political opponents and things like that or just prosecuting improper cases. And then, jury -- there are certain factual determinations juries are good at. They’re good at telling when someone’s lying or when someone’s dissembling, who’s coming forward with the truth. But one thing that they’re just not as good at deciding scientific and technical questions. This is why, generally, in the federal system, we have Rule 702, the rules about the submission of scientific evidence.
The rules have just evolved to recognize that an expert up there in a white lab coat, saying, “My -- you know, I have my PhD, and I think x caused y and this person is liable.” That’s going to be highly persuasive to a jury. And when there competing experts, they’re not going to get as much into whose scientific theory is correct in light of the latest study or article. They’re going to be influenced by other factors. This is, frankly, how John Edwards made his living. There’s no Rule 702 in the North Carolina state courts.
He wasn’t bringing these medmal cases in federal court. There you’d have Rule 702, and a doctor would have been able to say, “Look. There’s no scientifically reliable evidence that anything I did could have caused cerebral palsy.” But, if that didn’t exist in state court, the guy with the light -- white lab coat — and you can find these people — got up there and testified, “This guy caused this.” And the jury sympathy is with the baby. And a similar dynamic will apply in patent cases. A lot of these cases, although there’s a nominal validity -- invalidity defense mounted, a lot of them degenerate into portraying the parties and who’s the little guy and who’s the big guy.
And the patent owners often try to -- they want to portray themselves as the little guy up against some nasty corporation. And that sells well. It sells well with juries. And one of the phenomena you see these days is you think, “Well, why would a jury sympathize, though, with a pure patent assertion entity, someone that’s litigation funded. It’s really just a hedge fund. But these -- a lot of these plaintiffs have been successful at persuading judges to exclude that evidence from the jury.
They say, “It’s not relevant who I am.” And, so, this patent assertion entity — again, is funded by a pretty large litigation hedge fund — will just present itself as Texas Tech, a scrappy little startup. And the whole fight turns on whether the defendant can get into the case the evidence of who this entity really is and who’s really suing them. I’ll just submit this is a ridiculous way of adjudicating intellectual property rights. No other country in the world does it this way. Any assessment of -- an assessment of a patent’s validity should be done by someone with a background degree of skill in the art, someone who’s already familiar with the subject matter and already is familiar with the terminology and the technology.
You’re going to get a much more accurate assessment of whether a claimed invention was obvious at a particular time or not from a person who already has that background level of knowledge
Hon. Bob Goodlatte: So, Paul, this was a question that I had prepared for you, and our viewer has teed it up already. So anything you want to say in addition to what Joe’s just observed about the role of jurors in our patent litigation system?
Paul Bryan Taylor: Yeah, no. There’s an interesting quote I found from a Judge Grier, back in 1852. Patent litigation abuse has gone back a long time, and there was a big spree of farm patent litigation. And in one case, he made clear in his opinion itself that the case involved “the application of principles of science in the law to admitted facts” and by a jury “in which 10 out of 12 jurors do not understand the principles of science or mathematics.” So we are stuck with the jury system, but we’re not stuck with a system in which overly broad and invalid patents can continue to float around in the system without some correction in the Patent Office itself. And I was struck by a quote by James Madison in the Federalist Papers.
And central to his understanding of the very concept of the rule of law was the idea that the government not be administering the law in a willy-nilly fashion, in other words, too sloppily. And the quote from Federalist Paper No. 62 is “law is defined to be a rule of action; but how can that be a rule, which is little known, and less fixed? What prudent merchant will hazard his fortunes in any new branch of commerce when he knows not but that his plans may be rendered unlawful before they can be executed?” Perfect analogy with overly broad patents, where people subsequently come around, innocently invent something, commercialize it. It’s very popular, and then, out of the blue, comes someone, asserting a vague patent improperly granted to gum up the works of the productive companies trying to spread the innovation. In fact, researchers have done studies of medical imaging companies where -- that were sued for patent infringement.
And it turned out that, while they were being sued, they didn’t produce any new medical imaging. They didn’t want to get themselves in anymore hot water. And in the meantime, medical imaging is a pretty important technology, and I wish we had more of it rather than less.
Hon. Bob Goodlatte: So, Joe, this leads us right back around to the America Invents Act and the intention to -- before we get to very expensive litigation, where very technical issues are going to have to be decided by people, judges and jurors, that may not have the background for it and puts it back into the US PTO. So been a lot of debate in recent years about the role of the Patent Trial and Appeal Board in reviewing issued patents. The Board is staffed with administrative judges with technical educations and experience and has been tasked with reviewing the validity of issued patents. Do you think that the PTAB is functioning as intended? And what lessons do the experience with PTAB procedures have for administrative law.
Joseph Matal: Well, we now have a -- I think there’s two answers to that. One is just the core function that was assigned to the Board of assessing validity. Are they doing that right? Are they doing that well? And there, I think, the answer is clearly, yes. When the Board judges review a case, you get three judges with relevant technical backgrounds deciding it.
They issue a detailed decision, by the way. In these cases where a patent’s validity is challenged at the agency board, you tend to get a -- I’d say, probably the mean decision is about 60 pages long. And among other things, that means it’s judicially reviewed. When you get a decision back from a jury, first of all, validity is just one of several issues thrown at them. Juries have a tendency to decide all issues for one side or another. And then, on the issue of validity, all you get back is a bunch of checked boxes. Did you find this patent invalid or valid?
And they just check, “No, no, no. Did not meet the burden of proving invalidity.” Good luck even testing that on appeal. And the other thing is we know the decisions are more -- of the Board are more accurate because, frankly, the federal circuit has said so. In 2019, an academic did a study of all of the patent validity decisions that had been made by district judges and by the PTAB in the years 2015, ’16 and just tracked what went up on appeal. And lo and behold, the results of the study were that the Board -- I think the exact words were “the Board is affirmed notably more often than district judges when these cases go on appeal.” And the study concluded, obviously, having a technical background helps when you’re reviewing these issues.
And to get back to Paul’s discussion of early 19th-century history, I'm going to out-19th century, Paul, and say, “Look, obviously having a technical background helps. In fact, this has been the premise of patent examination since 1836. Under the seven -- the very early Patent Act had the Thomas Jefferson and the attorney general and the secretary of state reviews all the patents. That was too much work. They repealed that in the 1793 Act. And the US went through this almost 40-year period when the patent system was just a registration system.
You didn’t exam it. And it led to problems that would be familiar to people today. You had a lot of invalid patents being enforced against people that never should have issued. And in 1836, the US finally decided, “We’re going to have the patents examined, and we’re going to have people with a relevant technical background looking at the different technologies.” So it’s been the premise of our system for over 180 years now, that, yes, having an education in a relevant technology is an aid to an accurate assessment of patent validity, that you’re really judging -- someone who’s skilled in this art, what would they have seen as obvious at the time? And what better person to judge what’s -- a person in the skill of the art would have thought than someone who actually has skill in that art.
I -- frankly, there’s no reasonably argument that having the relevant technical background isn’t an aid in making judgments and assessing patent validity. And so, you asked a broader question, though. The second part of this question is, “Well, has the functioning been the way things should be?” When the Board’s allowed to do its job, it’s done what Congress expected. There have been problems with having the Board and administrative agents in an administrative agency, and I -- frankly, I can’t really tell you how to fix these. If you put these cases in court, I think the -- there’s a good chance the jury trial right would attach.
So, if you really want an expert looking at these cases, you have to put it in an agency. The problem is there’s been a fair amount of manipulation of the system and the agency, and we’ve had rules adopted that basically restrict access to these proceedings. There’s been this argument that, “Well, if the jury trial might reach the case more quickly, we should defer to that because it’d be faster.” Well, never mind that going through a trial is much more expensive. Also, the whole premise of all these proceedings has always been that having technical experts produces a more accurate result. And, when you’re getting these multi-hundred-million-billion-dollar judgments against critical technologies in the US, I think there’s a premium on patent validity, but we’ve seen the agency adopt rules that say it has discretion not to decide a case on the merits and that it can defer to district courts, etc.
And that’s just part of being in an administrative agency. You have that kind of power over the Board. Frankly, if we had it to do over again, I think it would have been a good idea to, at least, make the PTAB judges something like Article I judges, like the claim court -- claims court, where they have a 15-year term and a little more independence and are appointed by the president. But this idea of the agency just picking and choosing whenever people can get validity review, it’s just no way to run a modern industry economy.
Hon. Bob Goodlatte: And what’s your thought on how the courts have overseen that jockeying that been going on in the PTO with some of the last director’s decisions? So the 20th century saw enormous growth in the administrative state and a vast accumulation of power by administrative agencies, such as the power to interpret the law. How has this played out in the patent system. And in particular, what has the Patent Office’s experience been with doctrine, such as Chevron deference? And for some, you may want to explain the Chevron deference doctrine from the Supreme Court.
Joseph Matal: I’ll give a bit of background; although, I suspect many people from in the -- involved in The Federalist Society know all about Chevron and have strong views on it. And a lot of them will be pleased to know that Chevron is -- basically, doesn’t exist in the patent space. So Chevron is this doctrine that goes back to the early ‘80s, that when an agency construes a statute, as long as its interpretation of a statute is reasonable, the Article III judiciary should defer to the agency’s interpretation of the statute. And this has been textbook law for quite a while now; although, a number of justices have started to express reservations, especially among the conservatives. One of the strange features of Chevron is -- well, agency heads change quite a bit more often than courts do. If a new agency head appointed by a new president has a different interpretation of the law, do we have to defer to that too?
And the answer is, yes. There have been cases -- infamous cases involving the status of broadband at the FCC, where the agency has gone back four or five times now as to whether it’s under Title II and regulated as a public utility or not. And it’s just -- I think it strikes a lot of conservatives as strange that the meaning of the law, an affirmatively enacted statute, depends on the opinion of some political appointee. In the patent space, this hasn’t happened, and that’s largely been the result of the Federal Circuit. The Federal Circuit really doesn’t give the agency any meaningful Chevron deference. And this is strange for a number of reasons.
First of all, the -- I think, a majority of the court is still Obama appointees or, at least, half of it and, mostly, Democratic appointees. And the other thing is the Federal Circuit actually does give Chevron deference to other agencies under its purview. I think the court -- the US Court of Appeals for the Federal Circuit has just recognized that it’s uniquely inappropriate to give Chevron deference in the patent space because you are dealing with a property right that’s expected to last for years. And a recent experience we’ve had with this is the Agency tried to issue its guidance on Section 101 of the Patent Act. Section 101 is this core section that defines what kind of subject matter is patentable. What kind of area can you get a patent in? And it limits patenting to machines, manufacturers, process, or composition of matter.
Overall, this kind of industrial, technical area. And there’s been back and forth. And at the end of the 20th century, the courts in charge of patent cases decided more things ought to be patentable, and we shouldn’t be so uptight about all this stuff. If a little patenting is good, then even more is better, if that’s good for me as a lawyer and my friends, then even better. This bottomed out when, in 1998, the court ruled, literally, that you can a patent for a business method. If you come up with a better idea of selling something or some entrepreneurial idea, that’s just as patentable as a new vaccine or a better microchip.
This led to, eventually, a backlash at the -- a lot of improper patents were issued, some of which were facially ridiculous. Eventually, this led to a backlash at the US Supreme Court, which, in a five-year period in the early part of the last decade, issued four decisions, curtailing patentable subject matter. And those four decisions are our lode star now, guiding this area. Well, a lot of patent lawyers didn’t like this, and there’s been all this complaining about it and etc. I think those decisions are mostly correct. At least, business methods and other sociological things shouldn’t be eligible.
But recently, the agency tried this experiment of, “Well, if we don’t like the way the jurisprudence has gone in the court, let’s issue agency guidance and see how that goes. Maybe we’ll get Chevron deference, right, like all these other agencies have.” And let’s just say it’s gone over with the Federal Circuit like a lead balloon. Pretty much any time you get in a fight with a court about who’s in charge of something, especially the law, you’re going to lose. And the Federal Circuit, in particular, has recognized, “Look. The definition of what’s even patentable subject matter cannot change every time we have a new patent director.” Say the Federal Circuit had deferred to the most recent guidance, which pretty clearly expands what’s eligible for a patent. Great.
We issue several hundred thousand patents a year these days. If the court adopted this guidance and we operated under that for several years, then we issued all these patents that wouldn’t have issued before. Right? Well, what happens when we get another director who takes a narrower view of what should be patent eligible? And that director issues his or her own guidance? Under the Chevron doctrine, that guidance would be come the law. Chevron is -- I call it a rule of judicial transubstantiation.
It may just seem like an agency’s opinion, but it becomes the body and blood of the law. Well, what would happen to all those patents issued previously? Are they invalid? The new guidance would be the law under Chevron. Or are you going to say, “Well, it’s whatever guidance was issued at the time.” Then, you get into issues of what if it’s a continuation patent?
There has to be -- it’s hard enough to administer and try to rationally interpret one body of law for what type of subject matter is eligible for a patent. The idea that the patent -- the law could shift back and forth, and things suddenly become ineligible that were eligible before and vice versa. It should give you a headache, the more you think about it. And in a way, the patent system is kind of a textbook example of why the Chevron doctrine doesn’t really make sense. The old Supreme Court decision by Justice Marshall didn’t say, “It’s emphatically the duty and province of the administrative agencies to say what the law is.” It’s the job of the courts.
It’s pretty clearly defined in our Constitution, and, when something’s a statute and it’s a question of statutory interpretation, it’s courts that need to say what the law is and have that be binding for -- until Congress changes and until the courts change their mind, it shouldn’t change every time you get a different head of an agency. So that’s --
Hon. Bob Goodlatte: Okay, folks. Let me interrupt because we’re getting some more questions from some of our attendees, so I’ll throw this one in the mix. Is a basic hallmark of fairness that the judge and the body that employees the judge not have a financial interest in finding for a particular party? Should we be concerned that the US PTO has a financial interest in encouraging the filing of IPRs and instituting them to the tune of $40,000 per case? Should we be concerned that APJs are reported to get higher bonuses for invalidating patents, issuing more decisions -- I can’t -- I think there’s maybe more, but I can’t read it. So either one of you want to take that one?
Joseph Matal: I’ll take this one. This has been a recent line of legal attacks against the Patent Trial and Appeal Board. A lot of the Patent Bar -- look, if you spent years obtaining a patent, and then you get it. And then you’re hoping to make money off it, and you’re litigating it. And someone goes to the Patent Trial and Appeal Board and gets a judgment that it was invalid. It never should have issued.
You’re going to be unhappy. Right? And you don’t really care whether the Board was right. You’re just unhappy that that happened. You get a lot of people who make a lot of attacks on the Board. The Patent Bar, in particular, has been unhappy for being called out on patents they obtained that they really shouldn’t have. As to the two questions asked, the first one is to the legal principles. Yeah, that’s right. A decision maker and a judicative decision maker can’t be biased.
There’s a series of Supreme Court decisions, all, oddly enough, involving the state of Ohio that held that, look, the judge can’t have a pecuniary interest. His salary can’t come out of how he rules in a case. It can’t affect him directly. Or, if he has -- I don’t need to get in the legal standard. This issue, though -- some patent owners tried to bring this attack against the Board, saying the Board is biased. And the Federal Circuit unanimously rejected this argument.
The Board’s budget is actually set by Congress, and that alone settles the issue. When a -- whether a PTAB judge institutes or doesn’t institute a case has no impact on that judge’s income. And there’s no competent evidence to the contrary. All the evidence is that there’s plenty of work for the judges to do. You can get a bonus for doing more work. They do -- sometimes, when they’re busy, they offer bonuses to get the judges to work overtime.
But there’s -- when they do that, there’s plenty of work to do, and, if you decline a case, you just get assigned another one. Instituting a proceeding -- instituting a challenge does not affect how much of a bonus or -- you’re going to get or what your salary is. The legal standard is correct. It just -- the Board has -- clearly complies with the due process standard. They’re getting the case right on the facts as the results on the appeals show.
Hon. Bob Goodlatte: Okay. So we’ve gone through more than three-quarters of our time. Let me switch gears here and ask both of you about the fact that we now have a brand-new US PTO director, Kathi Vidal. What priorities do you think that our new director should have?
Joseph Matal: Well, I’ve been doing a lot of talking, so do you want to address one first?
Paul Bryan Taylor: Yeah, just from a relative outsider perspective to the patent world, in reading a lot of history books of different industries through American history, the issue of getting these patents right from the get-go is so crucially important. If you read any book from a historian on the history of the railroad industry, there’s always a chapter on the patent wars. There’s an interesting discussion of how engineers from the Pennsylvania Railroad, in the 1870s, thought they could come up with a better ventilation system to get smoke out of the train. But they went to the Patent Office, and they saw “a jumble of patents” overly broad, covering huge swaths of technology. And they decided, “You know what? We’re not going to risk a patent lawsuit by even trying to improve the ventilation system in this case.” You had, with Henry Ford and the Model T, there was a guy — I think his name is Selden — who had patented a -- something akin to a lightweight internal combustion engine.
And Henry Ford had to pay royalties to him forever and always hated it, that there was this patent out there that he had to pay royalties to for an overly broad patent. So that -- I think that is the -- that’s the central problem of all of this is the initial issuance of these overly broad patents and that -- to my mind, which should be the top priority, patent examiners taking more time, being more careful, and serving the technical universe in advance so juries don’t have to.
Joseph Matal: I just had that -- in some ways, being a director -- being the director in some ways isn’t that hard because so much of this is dictated by the law, and you actually don’t have discretion to make up your own patent eligibility jurisprudence, for example, so trying to digest and refine that jurisprudence in intelligible guidance for examiners is work enough of its own and just running the Office and ensuring the highest quality of patents are issued. But because of the lack of Chevron deference and broad policy-making authority, if you just follow the law and do what you’re -- the law — a lot of the law’s been around for two centuries, by the way. It’s pretty well set. You can’t fault the director for just doing that and issuing the highest quality patents that you can.
Hon. Bob Goodlatte: So what should new director do, regarding the decision made by the previous director that created much more discretion in terms of when the PTO takes a case through the PTAB and when do they give deference to the courts?
Joseph Matal: Now, I think there are two things you have to ask. First of all, is the way I’m exercising discretion consistent with the statute? Agencies are pure creatures of statute. They have no power that is not granted to them by statute, and whatever discretion -- with the discretion you have, is always bounded by law. The rule I -- the recent policy I’ve view as most problematic is this one that you defer to a district court, if they’re going to reach more quickly. First of all, the whole purpose of these Office proceedings was to get an expert analysis, especially in complex cases.
And secondly, the statute already sets a deadline. The statute itself says, “You can file a case up to one year within one year sued.” When the statute sets a deadline in relation to district court proceedings, the agency doesn’t have the discretion to change that. You’re obliged to follow that legislative choice that was made. And in regard to other issues, like 101, the Federal Circuit’s made pretty clear it’s not going to give any kind of deference. You just need to -- we can grumble about the case law, argue for changing it in Court of Appeals or US Supreme Court cases, but you have to follow what an Article III court says is the proper interpretation of the Patent Act.
And secondarily, with regard to the issue of discretion, I just add, to the extent that an issue is within your discretion, you have to ask, “What’s good policy for the United States?” And the patent system’s always been a balance. You want to encourage innovation, rewards for innovation while ensuring that people can still use things that are in the public domain, that way rewarding actually is novel and nonobvious innovation and not just -- the patent system isn’t meant to reward lawyers or just the act of obtaining a patent. And when you do do that, you got to increase the incentive and pressure to get patents that shouldn’t have issued and to assert them. We really balance the system by vigorously enforcing all of those conditions of patentability at all stages in the process. And a director who does that is one that’s -- is focused on that and remembers that purpose is one that’s doing a good job.
Hon. Bob Goodlatte: So patent trolls frequently use and abuse the patent continuation process to obtain multiple patents over a period of many years, which effectively extends the term of exclusivity available to patent holders. This evergreening effect allows patent trolls to prosecute patents to issue and also keep a continuation application on file to seek additional and often broader claims from the same patent applications. As a result, patent trolls are free to assert and issue patents while making changes to pending applications to address validity challenges and noninfringement defenses raised against issued patents. The continuation process also allows patent trolls to change their target over time by drafting patent claims that read on future products or delay the issuance of patents to target a mature industry. Obviously, that’s a problem. How do you fix it?
Joseph Matal: Well, look, there are bad litigants out there who will assert patents just for a nuisance settlement. Unfortunately, that’s just part of the system. People who assert patents who don’t have a legitimate interest in them and are indifferent to invalidity. Some of the things you mentioned, like extension of patent terms, there are rules that limit your ability to extend your patent term by obtaining multiple patents, especially since we’ve shifted to the 20-year patent term. It's been much easier to enforce that. I think, if we get into a discussion of obviousness-type double patenting, though, The Federalist Society will never invite us back for a seminar.
The other -- the US also does have a very liberal system of seeking continuation applications, where you can get more patents off the same specifications. Sometimes, that’s legitimate. Sometimes, you want people to be able to refine their claims as they do further tests, for example, of a drug on patients. They come to appreciate new efficacies, and, if that was part of the original disclosure, they want to be able to claim. Sometimes, that’s abused, as well. That’s actually an area where the Office does have some discretion as to what kind of rules to set up, governing continuation patents and things like that.
It’s a contentious issue within the patent community but one where there clearly is a bit of a discretion. And again, the issue of — I’m not going to use the “t” word — but abuse of litigants. This is something we all -- that always needs to be kept in mind when you hear these narratives about the independent inventor and how -- protecting that property right is like protecting your land. Keep in mind there are a lot of people out there asserting patents who bought them on the secondary market. A lot of them are backed by hedge funds. A lot of those hedge funds rarely heavily on foreign investors.
If we’re letting these people assert, monetize invalid patents against American manufacturers, against makers of core technologies, like microchips and routers and networking equipment, we’re not advancing the economic interests of the United States. At the very least, that patent has to be invalid -- has to be valid before you’re plausibly advancing innovation in some way. We’re just letting people take advantage of the system, and a lot of those people aren’t even -- they’re not even Americans. Some of these big hedge funds that invest in patent litigation, they’re foreign owned. They get money from foreign investors. There’s suspicion that a lot of them get quite a few Middle Eastern investors who are looking for a place to park their money.
It’s hard to think of anything that’d be more damaging to American economic interests than to allow people like that to leverage invalid patents against American companies making core technologies that are critical to the rest of our economy and even to our national security. Given that that’s the character of so much of this litigation, we really want that accurate and authoritative assessment of patent validity.
Hon. Bob Goodlatte: So we’re down to four minutes, so I’ll give each of you two minutes to touch on the myriad of topics we haven’t had the opportunity to cover or to enhance something that you’ve already spoken about. And I’ll start with Paul.
Paul Bryan Taylor: Just off the top of my head, in order to get a -- at least from my relatively outsider perspective, I found it very valuable to do things, like just search through patents, see how complicated they are, and see -- envision in my mind how well a jury could adequately cope with these scientific issues. And if you just search random patents, you’ll immediately realize that it’s much better that people with technical backgrounds on the front end get the patent decision right before anything goes to a jury. Also, jury instructions are very educational. If you just look at the issue of obviousness, a typical jury instruction is going to introduce jurors to the concepts of prior art with printed publications, prosecution history, the date of an invention, a person of ordinary skill in the art, the obviousness standard, improper hindsight, motivation to combine prior art teachings, long-felt need. I can go on -- and there are even more concepts in there. And these are for trials that only go on about two weeks.
And to educate a jury about all angles of all those of issues in a fair way. The issues of damages is going to involve questions of whether or not multiple alternative products could have been used to accomplish the same goal as would have been accomplished by using the patent that’s allegedly infringing. So my only point is that it’s really interesting to look at jury instructions, patent themselves, and reading the history of American industry to really get a sense of why, ultimately, we would have to make sure you get the patent decision correct on the front end of the Patent and Trademark Office.
Hon. Bob Goodlatte: Thank you. Joe, you get the last word.
Joseph Matal: Thanks. I just -- since there’s only a little time, I just want to thank the Federalists for inviting us and having this debate. I feel like a lot of the debate on patent policy has been a bit distorted. People are trying to claim this label or that, and those of you watching this who don’t already have [inaudible 00:58:08] in your camp, patent policy and are trying to decide what to think, my advice is you just have to think for yourself on these issues. Patent policy is one of those things that, to benefit America, we just want to get it right. I tell people it’s like antitrust law. There’s no true conservative position on antitrust law.
You don’t want excessive antitrust litigation, but conservatives don’t support monopolies, either, or agreements and restraint of trade. A legal conservative should support enforcement of the law as it’s written. Someone who’s invented something nominal and nonobvious and that meets the other conditions of patentability, that’s their invention, and they’re entitled to enforce that patent. But, if you don’t meet those conditions, you're not really benefiting the economy. You’re not benefiting -- you’re not pursuing the legitimate ends of the system. And that patent should be invalided, if it doesn’t meet those conditions. Accurate and objection enforcement of the law is critical to the fair and efficient functioning of the patent system.
Hon. Bob Goodlatte: Thank you. And I want to thank The Federalist Society, again, for having this. I hope you continue this discussion with some future events as well. And I’ll turn it back to Guy.
Guy DeSanctis: Thank you, all. 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@example.com. As always, keep an eye on our website and your emails for announcement about upcoming virtual events. Thank you, all, for joining us today. We are adjourned.
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 member, please visit our website at fedsoc.org.