`In the Supreme Court of the United States
`UNITED STATES OF AMERICA.,
`
`
`
`
`
`
`
`v.
`ARTHREX, INC., et al.,
`
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`
`
`SMITH & NEPHEW, INC., et al.
`
`v.
`ARTHREX, INC., et al.,
`
`
`
`
`
`ARTHREX, INC.
`
`v.
`SMITH & NEPHEW, INC., et al.,
`
`Petitioner,
`
`Respondents.
`
`Petitioners,
`
`Respondents.
`
`Petitioner,
`
`Respondents
`
`
`
`
`
`
`
`On Writs Of Certiorari To
`The United States Court Of Appeals
`For The Federal Circuit
`
`
`
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`
`
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`
`
`BRIEF OF HIGH TECH INVENTORS ALLIANCE
`AS AMICUS CURIAE IN SUPPORT OF
`PETITIONERS IN NOS. 19-1434 AND 19-1452
`
`
`
`
`
`
`
`
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`
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`
`
`
`
`
`
`JED W. GLICKSTEIN
`Mayer Brown LLP
`71 S. Wacker Drive
`Chicago, IL
`(312) 782-0600
`jglickstein@mayerbrown.com
`
`
`
`
`ANDREW J. PINCUS
`Counsel of Record
`Mayer Brown LLP
`1999 K Street, NW
`Washington, DC 20006
`(202) 263-3000
`apincus@mayerbrown.com
`
`Counsel for Amicus Curiae
`
`
`
`i
`
`TABLE OF CONTENTS
`
`Page
`
`
`INTEREST OF AMICUS CURIAE ........................... 1
`INTRODUCTION AND SUMMARY OF
`ARGUMENT ........................................................ 2
`ARGUMENT .............................................................. 4
`I.
`Inter Partes Review Is Essential To
`Maintaining A Properly Balanced Patent
`System. ................................................................. 4
`A. Erroneously-Granted Patents
`Obstruct Innovation By HTIA
`Members And Other Businesses. ............. 6
`B. Judicial Assessment Of Patent
`Validity By Itself Is Inadequate For
`Weeding Out Unjustified Patents. ........... 9
`C. Congress Crafted Inter Partes
`Review To Give The PTO An
`Effective Process For Correcting Its
`Erroneous Patent Grants. ...................... 12
`D. Inter Partes Review Has Proven
`Successful In Identifying And
`Invalidating Unjustified Patents. .......... 16
`II. The Appointments Clause Challenge Need
`Not, And Should Not, Disrupt Inter Partes
`Review. ............................................................... 18
`A. APJs Are Validly Appointed Inferior
`Officers. ................................................... 18
`
`
`
`
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`
`ii
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`TABLE OF CONTENTS—continued
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`Page
`
`
`B. Any Appointments Clause Violation
`Could Be Addressed By Severing
`APJ Tenure or Rehearing
`Restrictions. ............................................ 25
`CONCLUSION. ........................................................ 31
`
`
`
`
`
`
`
`
`
`iii
`
`TABLE OF AUTHORITIES
`
`
`
`Page(s)
`
`Cases
`
`In re Alappat,
`33 F.3d 1526 (Fed. Cir. 1994) .................. 24, 25, 27
`
`Barr v. Am. Ass’n of Political
`Consultants, Inc.,
`140 S. Ct. 2335 (2020) .................................... 25, 30
`
`BlackLight Power, Inc. v. Rogan,
`295 F.3d 1269 (Fed. Cir. 2002) ............................ 22
`
`Commil USA, LLC v. Cisco Sys., Inc.,
`135 S. Ct. 1920 (2015) ............................................ 9
`
`Cuozzo Speed Techs., LLC v. Lee,
`136 S. Ct. 2131 (2016) ................................ 3, 12, 15
`
`Edmond v. United States,
`520 U.S. 651 (1997) ...................................... passim
`
`Free Enter. Fund v. Pub. Co. Accounting
`Oversight Bd.,
`561 U.S. 477 (2010) .............................................. 29
`
`Freytag v. Commissioner,
`501 U.S. 868 (1991) .............................................. 18
`
`Halo Elecs., Inc. v. Pulse Elecs., Inc.,
`136 S. Ct. 1923 (2016) ...................................... 9, 11
`
`Harper v. Va. Dep’t of Taxation,
`509 U.S. 86 (1993) ................................................ 29
`
`
`
`
`
`iv
`
`TABLE OF AUTHORITIES—continued
`Page(s)
`
`
`Kimble v. Marvel Entm’t, LLC,
`576 U.S. 446 (2015) ................................................ 4
`
`KSR Int’l Co. v. Teleflex Inc.,
`550 US 398 (2007) ............................................ 4, 10
`
`Lucia v. SEC
`138 S. Ct. 2044 (2018). ................................... 21, 22
`
`Microsoft Corp. v. i4i Ltd. P’ship,
`564 U.S. 91 (2012) .................................................. 9
`
`Moore v. United States,
`40 App. D.C. 591 (D.C. Cir. 1913) ....................... 25
`
`Morrison v. Olson,
`487 U.S. 654 (1988) .............................................. 23
`
`N. Pipeline Constr. Co. v. Marathon
`Pipe Line Co.,
`458 U.S. 50 (1982) ................................................ 29
`
`Oil States Energy Servs., LLC v.
`Greene’s Energy Grp., LLC,
`138 S. Ct. 1365 (2018) ............................................ 3
`
`Return Mail, Inc. v. United States
`Postal Svc.,
`139 S. Ct. 1853 (2019) .......................................... 14
`
`SAS Inst., Inc. v. Iancu,
`138 S. Ct. 1348 (2018) ...................................... 5, 15
`
`
`
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`
`
`
`
`
`v
`
`TABLE OF AUTHORITIES—continued
`Page(s)
`
`
`Seila Law LLC v. Consumer Fin.
`Prot. Bureau,
`140 S. Ct. 2183 (2020) .................................. passim
`
`Thryv, Inc. v. Click-to-Call Techs., LP,
`140 S. Ct. 1367 (2020) ............................................ 3
`
`United States v. Germaine,
`99 U.S. 508 (1878) ................................................ 19
`
`Weiss v. United States,
`510 U.S. 163 (1994) .............................................. 23
`
`Statutes and Constitutional Provisions
`
`5 U.S.C. § 7513(a) ................................................ 20, 26
`
`35 U.S.C. § 3 ...................................................... passim
`
`35 U.S.C. § 6 ...................................................... passim
`
`35 U.S.C. § 101 ............................................................ 5
`
`35 U.S.C. § 102 ............................................................ 5
`
`35 U.S.C. § 103 ............................................................ 5
`
`35 U.S.C. § 112 ............................................................ 5
`
`35 U.S.C. § 282 ............................................................ 9
`
`35 U.S.C. § 302 .......................................................... 14
`
`35 U.S.C. § 311 .......................................................... 14
`
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`vi
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`TABLE OF AUTHORITIES—continued
`Page(s)
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`35 U.S.C. § 312 .......................................................... 20
`
`35 U.S.C. § 314 .......................................................... 20
`
`35 U.S.C. § 321 .......................................................... 14
`
`35 U.S.C. § 284 .......................................................... 10
`
`U.S. Const. art. II, § 2, cl. 2 ....................................... 18
`
`Legislative and Administrative Authorities
`
`American Inventors Protection Act,
`Pub. L. 106-113, 113 Stat. 1636 .......................... 14
`
`Act of Dec. 12, 1980, Pub. L. No. 96-517,
`94 Stat. 3015 ........................................................ 14
`
`Act of March 2, 1927, ch. 273, 44 Stat.
`1335 ...................................................................... 24
`
`Act of Dec. 12, 1980, Pub. L. No. 96-517,
`94 Stat. 3015; 35 U.S.C. § 302 ............................. 14
`
`Am. Intellectual Prop. Law Ass’n, 2017
`Report of the Economic Survey (2017) ................. 17
`
`H.R. Rep. 112-98 (2011) .......................... 12, 14, 15, 16
`
`Leahy-Smith America Invents Act, 125
`Stat. 284 (2011) ...................................................... 2
`
`
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`
`
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`
`vii
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`TABLE OF AUTHORITIES—continued
`Page(s)
`
`
`Pub. L. No. 110-313, 122 Stat. 3014,
`3014 (2008) ........................................................... 23
`
`Rules of Practice for Trials Before the
`Patent Trial and Appeal Board and
`Judicial Review of Patent Trial and
`Appeal Board Decisions, 77 Fed.
`Reg. 48,612 (Aug. 14, 2012) ................................. 28
`
`Perspective on Patents: Harmonization
`and Other Matters: Hearing Before
`the Subcomm. on Intellectual Prop.
`of the S. Comm. on the Judiciary,
`S. Hrg. 109-182 (2005) ......................................... 15
`
`S. Rep. No. 1313, 69th Cong. (1927) ......................... 25
`
`S. Rep. 110-259 (2008) ............................................... 16
`
`S. Rep. 111-18 (2009)................................................. 20
`
`153 Cong. Rec. 23,941 (Sept. 7, 2007) ....................... 13
`
`155 Cong. Rec. 6,270 (Mar. 3, 2009) ......................... 13
`
`157 Cong. Rec. 2,843 (Mar. 1, 2011) ......................... 13
`
`157 Cong. Rec. 3,413 (Mar. 8, 2011) ......................... 14
`
`157 Cong. Rec. 3,430 (Mar. 8, 2011) ......................... 16
`
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`
`viii
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`TABLE OF AUTHORITIES—continued
`Page(s)
`
`Other Authorities
`
`
`
`Scott Baker, Can the Courts Save Us
`From the Patent Crisis?,
`88 Tex. L. Rev. 593 (2010) ................................... 10
`
`Julie Cohen & Mark Lemley, Patent
`Scope & Innovation in the Software
`Industry, 89 Cal. L. Rev. 1 (2001) ......................... 7
`
`John F. Duffy, Are Administrative
`Patent Judges Unconstitutional?,
`77 Geo. Wash. L. Rev. 904 (2009) ........................ 23
`
`Joseph Farrell & Robert Merges,
`Incentives to Challenge and Defend
`Patents: Why Litigation Won’t
`Reliably Fix Patent Office Errors and
`Why Administrative Patent Review
`May Help, 19 Berkeley Tech L.J. 943
`(2004) .................................................................... 11
`
`Michael D. Frakes & Melissa F.
`Wasserman, Irrational Ignorance at
`the Patent Office, 72 Vand. L. Rev.
`975 (2019) ............................................................... 6
`
`Alberto Galasso & Mark Schankerman,
`Patents and Cumulative Innovation:
`Causal Evidence from the Courts,
`130 Q.J. Econ. 317 (2015) ...................................... 8
`
`
`
`
`
`
`
`
`
`ix
`
`TABLE OF AUTHORITIES—continued
`Page(s)
`
`
`Fed. Trade Comm’n, To Promote
`Innovation: The Proper Balance of
`Competition and Patent Law and
`Policy (Oct. 2003) ............................................. 7, 13
`
`Josh Landau, Patent Progress, Inter
`Partes Review: Five Years, Over $2
`Billion Saved (Sept. 14, 2017) ............................. 17
`
`Mark Lemley & Bhaven Sampat,
`Examiner Characteristics and Patent
`Office Outcomes, 94 Rev. of Econ. &
`Stat. 817 (2012) ...................................................... 6
`
`Christopher R. Leslie, The
`Anticompetitive Effects of Unenforced
`Invalid Patents, 91 Minn. L. Rev.
`101 (2006) ............................................................... 8
`
`Jonathan Masur, Patent Inflation,
`121 Yale L.J. 470 (2011) ........................................ 6
`
`Michael Meurer, James Bessen, &
`Jennifer Ford, The Private and
`Social Costs of Patent Trolls,
`Regulation 26 (Winter 2011-2012) ...................... 12
`
`Shawn P. Miller, Where’s the
`Innovation? An Analysis of the
`Quantity and Qualities of
`Anticipated and Obvious Patents,
`18 Va. J.L. & Tech. 1 (2013) .................................. 7
`
`
`
`
`
`
`
`
`
`x
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`TABLE OF AUTHORITIES—continued
`Page(s)
`
`
`Nat’l Research Council, A Patent System
`for the 21st Century (Stephen Merrill
`et al. eds. 2004) ................................................ 7, 13
`
`Patent Trial and Appeal Board,
`Standard Operating Procedure 1
`(Rev. 15) (Sept. 20, 2018) ..................................... 20
`
`Patent Trial and Appeal Board,
`Standard Operating Procedure 2
`(Rev. 10) (Sept. 20, 2018) ..................................... 21
`
`PwC, 2018 Patent Litigation Study
`(May 2018) ............................................................ 10
`
`Matthew G. Sipe, Experts, Generalists,
`Laypeople—and the Federal Circuit,
`32 Harv. J. L. & Tech. 575 (2019) ....................... 17
`
`U.S. Patent and Trademark Office,
`FY 2020 U.S. Patent and Trademark
`Office: Performance and
`Accountability Report ............................................. 6
`
`U.S. Patent and Trademark Office,
`Trial Statistics: IPR, PGR, CBM
`(Sept. 2020) .................................................... 14, 17
`
`Unified Patents, 2019 Patent Dispute
`Report–Year in Review
`(Jan. 1, 2020) .......................................................... 9
`
`
`
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`xi
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`TABLE OF AUTHORITIES—continued
`Page(s)
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`Unified Patents, Patent Quality
`Initiative Statistics—Dispelling
`PTAB Myths (Feb. 5, 2020) .................................. 17
`
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`
`INTEREST OF AMICUS CURIAE1
`is a
`High Tech Inventors Alliance (HTIA)
`consortium of some of the world’s most innovative
`technology companies: Adobe, Amazon, Cisco, Dell,
`Google, Intel, Microsoft, Oracle, Salesforce, and
`Samsung. It supports fair and reasonable patent
`policy
`through publication of policy research,
`providing testimony and comments to Congress and
`government
`agencies,
`and
`sharing
`industry
`perspective with courts considering important issues
`to the technology industry.
`HTIA’s members collectively invest more than
`$130 billion in research and development each year
`and have been granted more than 300,000 patents.
`Due to the complexity and success of their products,
`HTIA’s members are also frequently the subject of
`patent infringement claims, and for that reason
`frequently invoke the inter partes review procedure
`that enables the experts at the U.S. Patent and
`Trademark Office (PTO) to determine whether a
`patent was erroneously granted. As both patent
`owners and significant users of inter partes review,
`these members have a unique perspective
`in
`recognizing the importance of appropriate protection
`for patents and at the same time ensuring that
`necessary procedures exist to eliminate improperly-
`
`
`1 Pursuant to Supreme Court Rule 37.6, amicus affirms that no
`counsel for a party authored this brief in whole or in part and
`that no person other than amicus, its members, and its counsel
`made a monetary contribution to its preparation or submission.
`All parties have filed blanket consents to the filing of amicus
`briefs with the Clerk’s office.
`
`
`
`
`
`
`
`2
`
`granted patents that otherwise would obstruct
`innovation.
`
`INTRODUCTION AND
`SUMMARY OF ARGUMENT
`HTIA’s members are frequent users of the inter
`partes review system—and therefore know first-hand
`its critical importance to ensuring that the U.S.
`patent system actually serves the goals of the patent
`law. By giving the PTO the opportunity to fix its own
`mistakes, inter partes review lowers costs, fosters
`consistent decision-making, and weeds out invalid
`patents that would otherwise obstruct innovation—
`goals that have long eluded policymakers.
`Patent examiners on average can spend no more
`than 19 hours evaluating a patent application—and
`do not have the benefit of an adversary presentation.
`Those constraints result in the erroneous issuance of
`a substantial number of patents that,
`if not
`eliminated, prevent HTIA members, and many other
`companies,
`from engaging
`in entirely
`lawful
`innovation. Inter partes review allows third parties to
`identify these questionable patents that threaten
`innovation, and—through a fair, adversary process—
`give the PTO an opportunity to re-assess the
`correctness of its initial decision to issue the patent.
`The Federal Circuit affirms the PTO’s inter partes
`review determinations at least as frequently, and by
`some measures more frequently, as that court affirms
`patent adjudications by district courts.
`Since Congress created inter partes review as part
`of the Leahy-Smith America Invents Act (“AIA”), 125
`Stat. 284 (2011), however, this Court has seen a
`parade of unjustified objections to various aspects of
`
`
`
`
`
`
`
`
`
`
`
`3
`
`the review process: (1) timeliness determinations by
`the Director of the PTO, Thryv, Inc. v. Click-to-Call
`Techs., LP, 140 S. Ct. 1367
`(2020);
`(2) the
`reviewability of institution decisions, Cuozzo Speed
`Techs., LLC v. Lee, 136 S. Ct. 2131 (2016); and (3) the
`procedure’s compliance with Article III of the
`Constitution, Oil States Energy Servs., LLC v.
`Greene’s Energy Grp., LLC, 138 S. Ct. 1365 (2018).
`The Court has also denied certiorari petitions raising
`purported violations of the Due Process and Takings
`Clauses. E.g., Celgene Corp. v. Peter, No. 19-1074;
`Enzo Life Scis., Inc. v. Becton, Dickinson & Co., No.
`19-1097.
`This case, involving claims that administrative
`patent judges (“APJs”) on the Patent Trial and
`Appeals Board (“Board”) are appointed in violation of
`the Appointments Clause of Article II, is the latest
`attempt to upset Congress’s careful design.
`The Appointments Clause challenge to inter
`partes review has no more merit than the prior
`challenges rejected by this Court. This Court’s
`precedents make clear that APJs are “inferior”
`officers, permissibly appointed by the Secretary of
`Commerce in consultation with the Director of the
`PTO.
`Even if that were not the case, the Court’s well-
`settled severability principles mandate a targeted
`remedy. Congress plainly would have preferred a
`functioning Board to no Board at all. And there are
`several ways that this Court could invalidate and
`sever discrete provisions of the statute if necessary to
`achieve that result.
`
`
`
`
`
`
`
`
`
`
`
`4
`
`the
`the Court could sever
`For example,
`restrictions on removing APJs, 35 U.S.C. § 3(c), as the
`Federal Circuit concluded. Alternatively, the Court
`could sever the statutory requirement that at least
`three members of the Board hear all ex parte appeals,
`inter partes reviews, and other review proceedings, id.
`§ 6(c), leaving it to the Director to choose both the
`number and composition of panels. Or the Court could
`strike the neighboring statutory text requiring that
`only the Board may grant rehearing, ibid., which
`would have the effect of permitting the Director to
`grant rehearing and select the panel to make the
`rehearing decision. Each
`of
`these
`remedial
`approaches—if a remedy is necessary—would address
`any Appointment Clause concerns.
`However the Court resolves the constitutional
`question, it should not undermine the AIA’s post-
`grant review procedures, which are critical to HTIA
`members’—and the Nation’s—ability to continue the
`innovation that fuels our economy.
`ARGUMENT
`I. Inter Partes Review
`Is Essential To
`Maintaining A Properly Balanced Patent
`System.
`This Court has long recognized that patent law
`aims to strike a balance “between fostering innovation
`and ensuring public access to discoveries.” Kimble v.
`Marvel Entm’t, LLC, 576 U.S. 446, 451 (2015). Patent
`protection provides an essential economic incentive
`for
`innovation, but erroneously-granted patents
`“withdraw[] what already is known” and thus
`“diminish[] the resources available”
`for
`lawful
`innovation. KSR Int’l Co. v. Teleflex Inc., 550 US 398,
`
`
`
`
`
`
`
`
`
`
`
`5
`
`415-416 (2007). As leaders in high-tech fields such as
`computers,
`software,
`communications,
`semi-
`conductors, and artificial
`intelligence, HTIA’s
`members are keenly aware of the importance of both
`of these goals—and of the need to ensure the proper
`balance between them.
`Congress has directed the PTO to ensure that
`patents are granted only when the subject matter is
`(1) eligible, (2) useful, (3) novel, (4) non-obvious, and
`(5) adequately described. 35 U.S.C. §§ 101, 102, 103,
`112. As this Court has recognized, however, “bad
`patents” will “sometimes * * * slip through” the PTO’s
`examination process. SAS Inst., Inc. v. Iancu, 138 S.
`Ct. 1348, 1353 (2018).
`is an under-
`Unfortunately,
`“sometimes”
`statement. The complexity of modern technology and
`the very limited time and resources available to PTO
`examiners make it impossible for the PTO to screen
`out a significant number of unpatentable claims. And
`these erroneously-granted patents are asserted at
`high rates against HTIA members, making patent
`quality an issue of critical concern.
`Congress recognized, and addressed, this serious
`problem in 2011 by authorizing the PTO itself to
`correct
`erroneous
`patent
`grants
`through
`administrative procedures—most notably inter partes
`review, which has proved to be a critically-important
`process enabling the PTO to apply its expertise to
`eliminate patents that should not have been granted
`and that, if left in place, would prevent future
`innovation.
`
`
`
`
`
`
`
`
`
`
`
`6
`
`A. Erroneously-Granted Patents Obstruct
`Innovation By HTIA Members And Other
`Businesses.
`The Patent and Trademark Office today receives
`approximately 650,000 applications and
`issues
`approximately 350,000 new patents each year.
`FY 2020 U.S. Patent and Trademark Office:
`Performance and Accountability Report
`(“PTO
`Report”) at 188. That is an increase of over 100% since
`2000. Id. at 189, 192. The PTO employs approximately
`8,400 patent examiners, id. at 231, so each examiner
`must
`review and process approximately 80
`applications a year on average to keep up with the
`incoming flow.
`Examiners therefore are able to spend just 18 or
`19 hours on average to evaluate each application,
`search for prior art, address amendments or interview
`requests, and document the decision. Michael D.
`Frakes & Melissa F. Wasserman, Irrational Ignorance
`at the Patent Office, 72 Vand. L. Rev. 975, 978 (2019).
`Because the application process is ex parte, there is a
`natural pressure to grant rather than deny an
`application. After all, interested parties opposed to
`the grant of the patent do not appear before the
`examiner, and when a patent issues, “there is no
`losing party to appeal.” Jonathan Masur, Patent
`Inflation, 121 Yale L.J. 470, 474 (2011).
`These constraints inevitably lead examiners to
`grant applications that do not meet the statutory
`criteria for patentability. Indeed, more experienced
`examiners—whose allotted time decreases with
`seniority—often have higher grant rates than their
`less senior colleagues. Mark Lemley & Bhaven
`Sampat, Examiner Characteristics and Patent Office
`
`
`
`
`
`
`
`
`
`
`
`7
`
`Outcomes, 94 Rev. of Econ. & Stat. 817 (2012). These
`patents may remain in force twenty years or more,
`which means that hundreds of thousands of erroneous
`patents will be in force at any given time.
`The initial examination process is particularly
`error-prone in the high-tech sectors in which HTIA’s
`members do business—and are sued. Industries like
`computer software and hardware evolve rapidly,
`making it difficult even for seasoned examiners to
`evaluate the claimed invention and keep up with
`developments in prior art. See Nat’l Research Council,
`A Patent System for the 21st Century, at 51 (Stephen
`Merrill et al. eds. 2004) (“NAS Report”) (observing
`that patent-quality problems are “more pronounced in
`fast-moving areas of technology * * * than in
`established, less rapidly changing fields”); Fed. Trade
`Comm’n, To Promote Innovation: The Proper Balance
`of Competition and Patent Law and Policy, Ch. 4 at 41
`(Oct. 2003) (“FTC Report”) (“[t]he PTO recognized
`that applying patentability criteria to emerging
`technologies may be difficult”).
`In addition, in fields such as computer software,
`most inventions “are not described in published
`journals,” a problem that—as “the PTO itself ha[s]
`recognized”—makes searching for prior art in the
`software realm difficult. Julie Cohen & Mark Lemley,
`Patent Scope & Innovation in the Software Industry,
`89 Cal. L. Rev. 1, 13, 42-44 (2001). One scholar
`estimated that 27% of all patents are partially or
`entirely
`invalid on anticipation or obviousness
`grounds—with even higher rates in the software field.
`Shawn P. Miller, Where’s the Innovation? An Analysis
`of the Quantity and Qualities of Anticipated and
`Obvious Patents, 18 Va. J.L. & Tech. 1, 24-27 (2013).
`
`
`
`
`
`
`
`
`
`
`
`8
`
`These erroneously-granted patents significantly
`obstruct innovation throughout the economy. E.g.,
`Jonathan S. Masur, Patent Liability Rules as Search
`Rules, 78 U. Chi. L. Rev. 187 (2011); Christopher R.
`Leslie, The Anticompetitive Effects of Unenforced
`Invalid Patents, 91 Minn. L. Rev. 101, 113-27 (2006).
`But the problems caused by poor-quality patents are
`especially pressing in high-tech sectors. See Alberto
`Galasso & Mark Schankerman, Patents and
`Cumulative Innovation: Causal Evidence from the
`Courts, 130 Q.J. Econ. 317, 321 (2015) (discussing the
`empirical finding that invalidation of patents has a
`“significant effect on cumulative innovation” in
`“computers and communications, electronics, and
`* * * biotechnology”).
`That is because technology products, such as
`those developed and marketed by HTIA’s members,
`are extraordinarily complex, involving hundreds of
`purportedly patentable technologies. With so many
`different areas of potential overlap, it is much more
`likely that a wrongfully-issued patent will be used as
`the basis for an unjustified infringement claim or as
`leverage in cross-licensing negotiations in the high-
`tech industry.
`Often the threat of litigation by itself obstructs
`innovation, because a company will choose to remove
`or re-design an innovative feature rather than
`expending millions of dollars defending a patent
`infringement lawsuit. In the years leading up to the
`enactment of the AIA, for instance, one HTIA
`member—faced with a highly burdensome set of
`patent infringement lawsuits—elected simply to
`remove the challenged technology to mitigate its
`exposure. When the inter partes review process
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`became available, the member successfully filed a
`petition and invalidated the asserted claims. But by
`then, the product had evolved in a different direction,
`and—because of a wrongfully-issued patent—the
`public was unable to benefit from a useful innovation.
`The increasing assertiveness of non-practicing
`entities compounds these problems. See Halo Elecs.,
`Inc. v. Pulse Elecs., Inc., 136 S. Ct. 1923, 1935 (2016)
`(noting that such entities acquire and hold patents
`“for the primary purpose of enforcing them against
`alleged infringers, often exacting outsized license fees
`on threat of litigation”); Commil USA, LLC v. Cisco
`Sys., Inc., 135 S. Ct. 1920, 1930 (2015) (recognizing
`that “companies may use patents as a sword to go
`after defendants for money, even when their claims
`are frivolous,” in effect “impos[ing] a ‘harmful tax on
`innovation’”). Recently, nearly 90% of patent litigation
`in the high-tech industry has involved non-practicing
`entities. Unified Patents, 2019 Patent Dispute Report–
`in Review
`fig.
`8
`(Jan.
`1,
`2020),
`Year
`https://bit.ly/2H0LUy4.
`B. Judicial Assessment Of Patent Validity
`By Itself Is Inadequate For Weeding Out
`Unjustified Patents.
`Companies accused of infringement can challenge
`the validity of the patent, but the realities of litigation
`make it an expensive and risky means of weeding out
`wrongly-issued patents.
`it receives a
`Once a patent
`is granted,
`presumption of validity, 35 U.S.C. § 282, placing on
`alleged infringers the burden of showing by clear and
`convincing evidence that the patent is invalid.
`Microsoft Corp. v. i4i Ltd. P’ship, 564 U.S. 91, 97-98
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`10
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`(2012). The justification for that evidentiary burden is
`“that the PTO, in its expertise, has approved the
`[patent] claim.” KSR Int’l Co., 550 U.S. at 426. But, as
`a result of the inherent limitations of the examination
`process just discussed, much of the information
`relevant to that expertise may not be available to, or
`considered by, the examiner when he or she decides
`that the application should be granted.
`Moreover, litigation is complex and expensive.
`Litigating an infringement case to judgment typically
`requires fact and expert discovery on a range of
`issues—infringement, validity, and damages—
`followed by a time-consuming trial and verdict by lay
`decision-makers without a prior background in the
`relevant technology. Typical fees to trial exceed $5
`million. When there is a clear validity problem that an
`expert agency could efficiently resolve, allowing a
`skilled agency adjudicator to consider the validity
`challenge is far superior from a cost, efficiency, and
`accuracy perspective.
`Litigation also is extremely risky for defendants,
`with some patent cases resulting in enormous
`damages awards. See PwC, 2018 Patent Litigation
`Study, at fig. 2 (May 2018) https://pwc.to/38BlfmJ.
`That creates significant incentives to settle even
`where the underlying patent claims are dubious.
`Plaintiffs frequently increase the settlement
`pressure by asserting treble damages claims, which
`have a significant in terrorem effect. 35 U.S.C. § 284;
`see Scott Baker, Can the Courts Save Us From the
`Patent Crisis?, 88 Tex. L. Rev. 593, 598 (2010)
`(describing how entities will “use[] the threat of a
`punitive remedy” like treble damages “to extract a
`settlement that exceeds what [they] would have
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`gotten if [they] licensed [their] patent ex ante); Halo,
`136 S. Ct. at 1937-38 (Breyer, J., concurring)
`(recognizing the “risk” that enhanced damages
`awards may mean that patents “will reach beyond
`[their] lawful scope to discourage lawful activity, and
`. . . frustrate, rather than ‘promote,’ the ‘Progress of
`Science and useful Arts’”).
`Non-practicing entities have no operating
`business, no exposure
`to a counterclaim of
`infringement, and no real costs other than the fees
`needed to prosecute infringement litigation—fees that
`often are provided by a third-party funder. These
`realities also feed the impulse to settle. As a report
`from the Executive Office of the President explained,
`this persistent asymmetry between plaintiffs and
`defendants often results in settlements “for amounts
`that have not so much to do with the economic value
`of
`[the] patents or the probability that
`[the
`defendants] have infringed,” but the “the parties’
`relative opportunity costs of going to trial and
`attitudes towards risk.” Executive Office of the
`President, Patent Assertion & U.S. Innovation, at 6
`(2013); see also Joseph Farrell & Robert Merges,
`Incentives to Challenge and Defend Patents: Why
`Litigation Won’t Reliably Fix Patent Office Errors and
`Why Administrative Patent Review May Help, 19
`Berkeley Tech L.J. 943, 968 (2004) (describing how
`the “grave imbalance of incentives between a patentee
`and a potential challenger to the patent . . . makes
`litigation an inadequate substitute for adequate
`patent examination at the USPTO”).
`Event studies estimate that lawsuits by non-
`practicing entities resulted in nearly half a trillion
`dollars in wealth transfers from 1990 to 2010,
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`12
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`virtually none of which benefitted inventors. Michael
`Meurer, James Bessen, & Jennifer Ford, The Private
`and Social Costs of Patent Trolls, Regulation 26
`(Winter 2011-2012). Put another way, the potential
`gains from patent litigation channel investment
`dollars into low-quality patents—because of the
`possibility
`of
`litigation
`returns—and
`divert
`investment away from the research and development
`that fuels actual innovation, which harms consumers
`and our entire economy.
`In sum, the inherent characteristics of the
`litigation process make lawsuits an inadequate
`mechanism for weeding out unjustified patents that
`chill genuine innovation.
`C. Congress Crafted Inter Partes Review To
`Give The PTO An Effective Process For
`Correcting Its Erroneous Patent Grants.
`Congress recognized the problems resulting from
`the significant number of low-quality patents—and
`sought to address them by enacting the AIA in 2011.
`The Act’s principal purpose was to “improve patent
`quality and restore confidence in the presumption of
`validity that comes with issued patents.” Cuozzo, 136
`S. Ct. at 2139-40; see also H.R. Rep. 112-98, Pt. I, at
`39 (2011) (describing the “growing sense that
`questionable patents are too easily obtained and are
`too difficult to challenge”).
`the
`documented”
`Congress
`“meticulously
`problems in the patent system over the course of 23
`House and Senate hearings. H.R. Rep. 112-98, pt. I, at
`38-39. These hearings demonstrated widespread
`dissatisfaction with existing procedures for PTO
`reassessment of granted patents, expressed
`in
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`numerous fora, including seminal reports by the
`National Academy of Sciences and the Federal Trade
`Commission. NAS Report at 95-101 (recommending
`new post-grant procedures before an APJ or panel of
`APJs); FTC Report, Exec. Summ. at 7-8 (calling on
`Congress to enact “a new administrative procedure to
`allow post-grant review of an opposition to patents”).
`Congress recognized that “[p]atent examiners are
`facing a difficult task” in weeding out unjustified
`patent applications “given the explosion in the
`number of applications and the increasing complexity
`of those applications.” 155 Cong. Rec. 6,270 (Mar. 3,
`2009) (remarks of Sen. Leahy); accord 153 Cong. Rec.
`23,941 (Sept. 7, 2007) (“The rapid pace of innovation
`and increasingly complex patent filings have strained
`the Patent and Trademark Office and patent claims of
`questionable validity have been granted