Nos. 19-1434, -1452, and -1458
`
`IN THE
`Supreme Court of the United States
`_________
`
`UNITED STATES OF AMERICA, Petitioner,
`v.
`ARTHREX, INC., ET AL.
`_________
`
`SMITH & NEPHEW, INC., ET AL., Petitioners,
`v.
`ARTHREX, INC., ET AL.
`_________
`
`ARTHREX, INC., Petitioner,
`V.
`SMITH & NEPHEW, INC., ET AL.
`_________
`
`ON WRITS OF CERTIORARI TO THE UNITED STATES
`COURT OF APPEALS FOR THE FEDERAL CIRCUIT
`_________
`
`BRIEF OF 39 AGGRIEVED INVENTORS AS
`AMICI CURIAE IN SUPPORT OF ARTHREX
`_________
`Bridget A. Smith
`Kenneth J. Weatherwax
` Counsel of Record
`Lowenstein & Weatherwax LLP
`1880 Century Park East, Suite 815
`Los Angeles, California 90067
`(310) 307-4500
`weatherwax@lowensteinweatherwax.com
`Counsel for Amici Curiae
`
`
`
`
`
`
`
`
`
`IN THE
`Supreme Court of the United States
`_________
`
`UNITED STATES OF AMERICA, Petitioner,
`v.
`ARTHREX, INC., ET AL.
`_________
`
`SMITH & NEPHEW, INC., ET AL., Petitioners,
`v.
`ARTHREX, INC., ET AL.
`_________
`
`ARTHREX, INC., Petitioner,
`V.
`SMITH & NEPHEW, INC., ET AL.
`_________
`
`ON WRITS OF CERTIORARI TO THE UNITED STATES
`COURT OF APPEALS FOR THE FEDERAL CIRCUIT
`_________
`
`BRIEF OF 39 AGGRIEVED INVENTORS AS
`AMICI CURIAE IN SUPPORT OF ARTHREX
`_________
`Bridget A. Smith
`Kenneth J. Weatherwax
` Counsel of Record
`Lowenstein & Weatherwax LLP
`1880 Century Park East, Suite 815
`Los Angeles, California 90067
`(310) 307-4500
`weatherwax@lowensteinweatherwax.com
`Counsel for Amici Curiae
`
`
`
`
`
`
`
`
`
`II.
`
`TABLE OF CONTENTS
`
`INTEREST OF AMICI CURIAE ................................ 1
`SUMMARY OF ARGUMENT .................................... 1
`ARGUMENT ............................................................... 4
`I.
`The property rights embodied in patents
`are
`vital
`to
`small
`businesses,
`independent inventors, and the startup
`economy poised to compete with the
`large corporations currently dominating
`the AIA trial process. ....................................... 4
`Small innovators like amici curiae, who
`disclosed their innovations to the public
`in return for the promise of patent
`protections, have seen that promise
`broken in IPR decisions rendered by
`decisionmakers
`insulated
`from
`accountability. ................................................ 14
`A.
`Jodi Schwendimann ............................ 14
`B.
`Patrick Buckley ................................... 17
`C.
`Tom Pierson ......................................... 19
`D.
`Gene Luoma ......................................... 20
`E.
`Glenn Sanders ..................................... 22
`
`
`
`
`i
`
`
`
`ii
`
`III. For AIA trials to be an extra-judicial
`mechanism of revoking patent property
`rights,
`the Appointments Clause
`requires that the agency decisionmakers
`rendering
`the
`final decisions be
`constitutionally appointed. ............................ 24
`IV. The remedy for the decisionmakers’
`improper appointment must eliminate
`final cancellation of patent rights by non-
`Senate confirmed officers, which the
`Federal Circuit’s remedy
`failed
`to
`ensure. ............................................................ 30
`CONCLUSION .......................................................... 35
`
`
`
`
`
`
`
`
`iii
`
`TABLE OF AUTHORITIES
`
`Cases
`Aqua Prods., Inc. v. Matal,
`872 F.3d 1290 (Fed. Cir. 2017) (en banc) ...... 34
`Arthrex, Inc. v. Smith & Nephew, Inc.,
`941 F.3d 1320 (Fed. Cir. 2019) ...................... 34
`Arthrex, Inc. v. Smith & Nephew, Inc.,
`953 F.3d 760 (Fed. Cir. 2020) ........................ 32
`Fregeau v. Mossinghoff,
`776 F.2d 1034 (Fed. Cir. 1985) ...................... 34
`Impax Labs. Inc. v. Lannett Holdings Inc.,
`893 F.3d 1372 (Fed. Cir. 2018) ...................... 26
`In re Gartside,
`203 F.3d 1305 (Fed. Cir. 2000) ...................... 33
`In re Morsa,
`713 F.3d 104 (Fed. Cir. 2013) ........................ 26
`Lucia v. SEC,
`138 S. Ct. 2044 (2018) .................................... 31
`Microsoft Corp. v. i4i L.P.,
`564 U.S. 91 (2011) ............................................ 8
`Novartis AG v. Noven Pharm. Inc.,
`853 F.3d 1289 (Fed. Cir. 2017) ...................... 25
`Novartis Pharm. Corp. v. Watson Labs., Inc.,
`611 Fed. Appx. 988 (Fed. Cir. 2015)
`(unpublished) ................................................. 25
`
`
`
`
`
`iv
`
`Randall Mfg. v. Rea,
`733 F.3d 1355 (Fed. Cir. 2013) ...................... 26
`
`St. Regis Mohawk Tribe v. Mylan Pharms.,
`Inc., 896 F.3d 1322 (Fed. Cir. 2019),
`cert. denied, 139 S. Ct. 1547 (2019) ............... 24
`Thryv, Inc. v. Click-to-Call Techs., LP,
`140 S. Ct. 1367 (2020) .................................... 26
`Statutes
`5 U.S.C. § 554 ............................................................ 34
` — § 554(a)(1) ............................................. 33, 34
` — § 554(b) ....................................................... 34
` — § 556 ............................................................ 34
`35 U.S.C. § 3 .............................................................. 30
` — § 3(a)(1) ..................................................... 24
` — § 6(a) ......................................................... 27
` — § 271(a)........................................................ 6
` — § 281 ............................................................ 6
` — § 282 ............................................................ 8
` — § 283 ............................................................ 6
` — § 284 ............................................................ 6
` — § 285 ............................................................ 6
`
`
`
`
`
`v
`
`35 U.S.C. § 311(b) ....................................................... 9
` — § 314(a)........................................................ 8
` — § 315(e)(2) ................................................... 9
` — § 316(e) ........................................................ 8
` — § 318(a)...................................................... 25
` — § 318(b)................................................ 25, 32
` — § 319 .......................................................... 25
` — § 324(a)........................................................ 8
` — § 326(e) ........................................................ 8
`Legislative Material
`157 Cong. Rec. H4,486
`(daily ed. June 23, 2011) ................................ 10
`157 Cong. Rec. S1,362
`(daily ed. Mar. 8, 2011) .................................. 10
`H.R. Rep. No. 112-98 (2011) ....................................... 8
`H.R. Rep. No. 79-1980 (2d Sess. 1946),
`reprinted in Administrative Procedure
`Act Legislative History, S. Doc. No. 79-
`248 (2d Sess. 1946) ......................................... 33
`S. Rep. No. 79-752 (1st Sess. 1945), reprinted
`in Administrative Procedure Act
`Legislative History, S. Doc. No. 79-248
`(2d Sess. 1946) ................................................ 33
`
`
`
`
`
`vi
`
`U.S. Dep’t of Justice, Tom C. Clark, A.G.,
`Attorney General’s Manual on the
`Administrative Procedure Act (1947) ............ 33
`Administrative Materials
`37 C.F.R. § 11.803 ..................................................... 31
`Changes to Implement Inter Partes Review
`Proceedings, 77 Fed. Reg. 7041 (Feb. 10,
`2012) ................................................................. 8
`MPEP § 903.08(a) ..................................................... 28
` — § 903.08(b)...................................................... 28
` — § 904 ............................................................... 28
` — § 904.01(c) ...................................................... 28
`Other Sources
`Alliance of U.S. Startups and Inventors for
`Jobs, U.S. Startup Company Formation
`and Venture Capital Funding Trends
`2004 to 2017 (June 2019), available at
`https://www.usij.org/research/2018/7/9/u
`s-startup-company-formation-and-
`venture-capital-funding-trends-2004-
`to-2017 ............................................................ 13
`Am. Intellectual Property Law Ass’n, Report of
`the Economic Survey (June 2017) ................. 12
`
`
`
`
`
`
`
`
`vii
`
`Brian Fung, The Antitrust Lawsuits Against
`Google Just Keep Coming, CNN (Dec.
`17, 2020), https://www.cnn.com/
`2020/12/17/tech/google-antitrust-
`lawsuit/index.html ........................................... 5
`Eduardo Porter, Where Are the Start-Ups?
`Loss of Dynamism Is Impeding Growth,
`The New York Times (Feb. 6, 2018),
`https://www.nytimes.com/2018/02/06/bu
`siness/economy/start-ups-growth.html ......... 13
`Eric P. Vandenberg, Note, America Invents
`Act: How It Affects Small Businesses,
`Idaho L. Rev. 201 (2013) .................................. 7
`Federal Trade Comm’n, FTC Sues Facebook
`for Illegal Monopolization (Dec. 9,
`2020), https://www.ftc.gov/news-
`events/press-releases/2020/12/ftc-sues-
`facebook-illegal-monopolization ...................... 5
`Gene Quinn & Steve Brachmann, No End In
`Sight for Rule 36 Racket at Federal
`Circuit, IP Watchdog (Jan. 29, 2019),
`https://www.ipwatchdog.com/2019/01/29
`/no-end-sight-rule-36-racket-cafc/ .................. 27
`Jack Lu, Patent Market Dynamics and the
`Impact of Alice and the AIA, IP
`Watchdog (May 17, 2015),
`https://www.ipwatchdog.com/2015/05/17
`/patent-market-dynamics-aia-and-
`alice/id=57728/................................................ 13
`
`
`
`
`
`viii
`
`Jeanne Whalen, Europe Fined Google Nearly
`$10 Billion for Antitrust Violations, But
`Little Has Changed, The Washington
`Post (Nov. 10, 2020),
`https://www.washingtonpost.com/techno
`logy/2020/11/10/eu-antitrust-probe-
`google/ ............................................................... 4
`Jeff Alstott, Giorgio Triulzi, Bowen Yan &
`Jianxi Luo, Inventors’ Explorations
`Across Technology Domains, 3 Design
`Science e20 (2017) .......................................... 28
`Judge Paul Michel, Big Tech Is Overwhelming
`Our Political System (Nov. 20, 2020),
`https://www.realclearpolicy.com/articles/
`2020/11/20/big_tech_is_overwhelming_o
`ur_political_system_650331.html ................ 6, 7
`Matteo Sabatini, PTAB Challenges and
`Innovation: A Probabilistic Approach
`(Aug. 6, 2020),
`https://papers.ssrn.com/sol3/papers.cfm?
`abstract_id=3668216 ...................................... 12
`Ryan Whalen, Complex Innovation and the
`Patent Office, 17 Chi.-Kent J. Intell.
`Prop. 226 (2018) ............................................. 28
`Sen. Charles McC. Mathias, Jr., Advice and
`Consent: The Role of the United States
`Senate in the Judicial Selection Process,
`54 Univ. Chi. L. Rev. 200 (1987) ................... 29
`
`
`
`
`
`
`
`
`ix
`
`Steven E. Friedland, “Advice and Consent” in
`the Appointments Clause: From Another
`Historical Perspective, 64 Duke L.J. 173
`(2015) .............................................................. 29
`U.S. Patent & Trademark Office, Ethics
`Guidance, https://www.uspto.gov/
`patents-application-process/patent-trial-
`and-appeal-board/ethics-guidance ................. 32
`U.S. Patent & Trademark Office, Patent
`Technology Centers Management,
`https://www.uspto.gov/patent/contact-
`patents/patent-technology-centers-
`management ................................................... 28
`U.S. Patent & Trademark Office, Performance
`and Accountability Report (2020),
`https://www.uspto.gov/sites/default/files/
`documents/USPTOFY20PAR.pdf ............ 28, 29
`U.S. Patent & Trademark Office, Trial
`Statistics: IPR, PGR, CBM: Patent Trial
`and Appeal Board (Sept. 2020),
`https://www.uspto.gov/sites/default/files/
`documents/trial_statistics_20200930.pdf .. 9, 13
`Unified Patents Portal,
`https://portal.unifiedpatents.com/ptab/
`caselist ............................................................ 10
`
`
`
`
`
`
`
`
`x
`
`Venable Fitzpatrick, 2020 Analysis on PTAB
`Contested Proceedings (Nov. 24, 2020),
`https://www.venable.com/-
`/media/files/publications/2020/11/2020-
`analysis-on-ptab-contested-
`proceedings.pdf ............................................... 11
`
`
`
`
`
`
`
`
`
`
`INTEREST OF AMICI CURIAE
`The
`curiae
`are
`39
`inventors,
`
`amici
`entrepreneurs, principals, and founders of entities
`that own patents issued by the U.S. Patent and
`Trademark Office
`(“Office”) that were, or are
`currently, subject to inter partes review (“IPR”) and
`other post-issuance proceedings before the Office’s
`Patent Trial and Appeal Board (“PTAB”).1
`In light of their personal experiences in the
`conduct and operation of the PTAB in presiding over
`such proceedings, the amici are well suited to bring to
`this Court a perspective on the real-world impact of
`the PTAB’s unprecedented structure and its decision
`in this case. The list of amici are provided in the
`Appendix.
`
`SUMMARY OF ARGUMENT
`The property rights embodied in patents are
`vital to small businesses, independent inventors, and
`the startup economy that brings their patented
`inventions to market. Those property rights are
`under attack by large corporations that are motivated
`to devalue patents and quell competition by small-
`entity patent owners purportedly protected by their
`patents.
`
`
`1 No counsel for a party authored this brief in whole or in part,
`and no such counsel or party made a monetary contribution
`intended to fund the preparation or submission of this brief. No
`person or entity other than the amici curiae or their counsel
`made such a monetary contribution. The parties have provided
`blanket consents to the filing of amicus briefs.
`
`1
`
`
`
`
`
`2
`
`The PTAB is a product of these large entities’
`influence on legislation, as the briefest glance at the
`roster of amici curiae briefs filed in support of each
`side in this case makes plain. The PTAB was
`deliberately restructured in 2011 to administer fast-
`track proceedings for deciding issues of patentability,
`without the statutory presumption of validity afforded
`to patents in district court. Unsurprisingly, in these
`novel
`administrative
`proceedings
`patent
`challengers—overwhelmingly
`large
`corporations
`charged with infringing patents—enjoy a favorable
`likelihood of invalidating patents. And even in the so-
`far statistically improbable event the challengers do
`not succeed in the PTAB, they face minor or no
`consequences, for they still retain ample opportunity
`to challenge validity again in district court. Put
`simply, the America Invents Act
`(“AIA”) that
`established the PTAB added drastically more
`opportunities for
`large companies to invalidate
`patents, and no commensurate new means for small
`patent owners to secure, identify, or confirm “good”
`patents. Indeed, due in part to the overwhelming
`expense of these proceedings for small businesses,
`such businesses have little opportunity to avail
`themselves of any limited benefit PTAB trials might
`provide. What remains in the wake of creation of
`these PTAB trials, therefore, is unpredictability and
`depressed patent values.
`The clear winner is large companies who use
`PTAB trials to eliminate upstart competitors and take
`the competitors’ valuable, successful inventions as
`their own. That story plays out in the stories of amici
`like Jodi Schwendimann, Patrick Buckley, Tom
`Pierson, Gene Luoma, Glenn Sanders, and countless
`
`
`
`
`
`
`
`3
`
`others, which all too frequently end with small
`businesses overwhelmed or forced into insolvency by
`infringers leveraging the power of PTAB trials in wars
`of attrition against patent rights.
`If PTAB trials are to be an extra-judicial
`mechanism for revoking small businesses’ patent
`rights, the Constitution’s Appointments Clause
`demands that the Office’s Administrative Patent
`Judges
`(“APJs”) rendering
`final decisions on
`patentability be constitutionally appointed with
`advice and consent of the Senate. When APJs make
`mistakes or otherwise render decisions motivated by
`bias—errors entitled to great deference on appeal—
`they are accountable to no one. And the Office’s
`statistics show that some group within the Office is, in
`fact, erring at a high rate: either the examiners who
`issued the patents or the PTAB who revokes them.
`There is no reason to conclude that these errors, or at
`least many of these, are not originating within the
`PTAB itself, as it takes the Office’s second or
`subsequent look at patents the Office itself already
`issued. The best way to mitigate these errors is to
`make the APJs’ decisionmaking accountable using the
`established process of appointment and confirmation.
`Patent owners facing elimination of their rights are
`entitled to a hearing before such properly appointed
`officers.
`There is no place for overlooking constitutional
`violations and contrived, convoluted administrative
`shortcuts when the future of small businesses and
`their owners’ livelihoods hang in the balance.
`Amici agree with the arguments presented to
`the Court in the merits brief of patent owner Arthrex
`
`
`
`
`
`
`
`4
`
`showing that in PTAB trials the APJs act as “principal
`Officers” under the Constitution’s Appointments
`Clause. This friend-of-the-court brief will focus on
`assisting the Court in areas not addressed in detail in
`Arthrex’s brief, by providing the Court with
`information on the real-world consequences of the
`unprecedented and unaccountable PTAB trial regime
`on small entities and individuals—and, given that
`APJs are unconstitutionally appointed, which
`potential “severance” remedies would and would not
`cure the constitutional problem.
`
`ARGUMENT
`
`I.
`
`The property rights embodied in patents
`are vital to small businesses, independent
`inventors, and the startup economy
`poised
`to compete with
`the
`large
`corporations currently dominating the
`AIA trial process.
`America is at an economic crossroads: our
`biggest companies are bigger than ever before and
`getting bigger, and there are few forces left to curb
`their growth. The billions of dollars in fines levied
`against Silicon Valley’s wealthiest corporations have
`been ineffective at slowing their march toward
`domination, with attendant profits that render those
`fines mere pinpricks on their unprecedented balance
`sheets.2 Indeed, the problem has become so urgent
`that the federal government and individual states
`
`
`2 Jeanne Whalen, Europe Fined Google Nearly $10 Billion for
`Antitrust Violations, But Little Has Changed, The Washington
`Post
`(Nov. 10, 2020), https://www.washingtonpost.com/
`technology/2020/11/10/eu-antitrust-probe-google/.
`
`
`
`
`
`
`
`5
`
`recently resorted to highly publicized antitrust
`lawsuits against two of these giant tech companies.3
`Despite their origins in the world’s largest hub of
`innovation, these behemoths are now the biggest
`backers of the new unconstitutional proceedings at
`issue, which have left the Nation’s patent system, its
`primary innovation engine, a shell of what it once was.
`This case represents a unique opportunity to
`close the floodgates feeding the world’s largest, most
`aggressive users of others’ technology. A decision in
`favor of Arthrex will help reinvigorate the amici on
`this brief and the tens of thousands of other small
`businesses and independent inventors that are poised
`to compete with large corporations if only provided
`with a viable chance to protect their contributions to
`innovation.
`It may seem counterintuitive to think of
`patents as promoting competition. Opponents of
`patents, many of them well-paid to be so, routinely
`deride them as a species of “monopoly.” In fact, the
`rights conferred by patents provide their owners with
`a valuable foothold—but no more than that—in
`competitive and anticompetitive markets alike.
`Patents’ exclusionary rights, strictly limited in scope,
`allow even the most impecunious patent owner to
`choose, for a time far shorter than the term of other
`time-limited intellectual property rights, whether or
`
`
`3 Brian Fung, The Antitrust Lawsuits Against Google Just Keep
`Coming, CNN (Dec. 17, 2020), https://www.cnn.com/2020/
`12/17/tech/google-antitrust-lawsuit/index.html; Federal Trade
`Comm’n, FTC Sues Facebook for Illegal Monopolization (Dec. 9,
`2020), https://www.ftc.gov/news-events/press-releases/2020/12/
`ftc-sues-facebook-illegal-monopolization.
`
`
`
`
`
`
`
`6
`
`how others are allowed to make, use, sell, offer to sell,
`or import the claimed invention.4 The Patent Act was
`intended by its drafters to provide recourse when
`others infringe those rights.5 By providing for
`enforceable rights to exclude others from using the
`claimed invention and reasonable compensation for
`infringement of those rights, patents provide their
`owners with limited power to level the playing field
`against would-be copyists, even large and powerful
`ones. And after the patent’s limited term expires,
`everyone is free to make the now-public invention,
`without the patent owner’s permission.
`The power to level the playing field that is
`embodied in a U.S. patent is not immediately valuable
`to most small businesses, but is instead nascent.
`Startups need funds to grow, and those funds typically
`must come from others. Because startups and
`independent inventors lack profits and sometimes
`even products, investors, whether small or large, look
`to assets associated with their venture to hedge their
`risk.6 And patents are the primary example of such
`assets, for they are property rights that can be
`leveraged and sold. Patents gives investors greater
`confidence that the venture will actually receive a
`return on their investment.7 And if the startup fails,
`as many do, the investors can often monetize this
`intellectual property to recoup the funds they risked
`
`
`
`4 35 U.S.C. § 271(a) (2018).
`5 35 U.S.C. §§ 281, 283, 284, 285.
`6 Judge Paul Michel, Big Tech Is Overwhelming Our Political
`System (Nov. 20, 2020), https://www.realclearpolicy.com/articles/
`2020/11/20/big_tech_is_overwhelming_our_political_system_
`650331.html.
`7 Id.
`
`
`
`
`
`
`
`7
`
`and lost.8 Strong patent rights are thus critical to
`small business, independent inventors, and the
`startup economy, for they promote investment and
`protect small entrants’ power to compete in the
`marketplace that would otherwise be out of reach.
`Large corporations recognize
`the barrier
`patents pose
`to
`their untrammeled market
`dominance. So for years a movement to weaken
`patent rights has been underway. Deploying vast
`cash
`reserves,
`the market dominators have
`overwhelmed our political system with lobbyists,
`flacks, and think tanks touting a narrative of “patent
`trolls” filing extortionate suits based on so-called
`“bad” patents, which turn out to include all patents
`ever asserted against these entities.9 And it has
`worked. The AIA of 2011 created new, fast-track,
`administrative trials within the Office’s freshly and
`vastly empowered PTAB for deciding the patentability
`of issued patents, including patents already in
`litigation. It is these unprecedented proceedings that
`the court of appeals found to be unconstitutionally
`administered.
`Crucially, that administrative fast track was
`exempted from the statutory presumption of validity
`afforded to patent owners in Article III court trials.
`The House Report on the AIA envisioned the new
`Article I “trials” as “quick and cost effective
`
`
`
`8 Id.
`9 Id.; see also Eric P. Vandenberg, Note, America Invents Act:
`How It Affects Small Businesses, Idaho L. Rev. 201, 227 (2013)
`(“[M]any of the largest lobbyists and spenders in support of the
`AIA are in fact large, international corporations.”).
`
`
`
`
`
`
`
`8
`
`alternatives to litigation.”10 Yet, these trials are not a
`true “alternative” to litigation. They are a very
`different animal. For instance, litigation in district
`court requires proof of invalidity by clear and
`convincing evidence in light of patents’ presumption
`of validity in that forum.11 The petitioner’s burden of
`proving invalidity in AIA trials, by contrast, is a
`preponderance of the evidence.12 And it is not difficult
`for a patent challenger to avail itself of this greatly
`relaxed burden. Any patent for which a patent
`challenger can demonstrate “a reasonable likelihood
`. . . [of] prevailing with respect to at least 1 of the
`claims challenged in the petition” satisfies the
`statutory threshold for institution of IPR.13 The Office
`has done little to clarify what this standard requires,
`except to state that “[a] reasonable
`likelihood
`standard is a somewhat flexible standard that allows
`the [PTAB] judge room for the exercise of judgment.”14
`A precise definition has never been offered. Based on
`the differing burdens of proof alone, it should be far
`easier for a patent challenger to invalidate a patent in
`the Patent Office than it is to do so in district court.
`The Office’s statistics support the already plain
`conclusion that patent challengers enjoy a favorable
`likelihood of invalidating a challenged patent in AIA
`trials. According to the Office’s website, 80 percent of
`
`10 H.R. Rep. No. 112-98, pt. 1, p. 48 (2011) (emphasis added).
`11 35 U.S.C. § 282; Microsoft Corp. v. i4i L.P., 564 U.S. 91, 99–
`100, 103–04 (2011).
`12 35 U.S.C. §§ 316(e), 326(e).
`13 35 U.S.C. § 314(a); cf. 35 U.S.C. § 324(a) (propounding similar
`threshold for post-grant reviews under “more likely than not”
`standard).
`14 Changes to Implement Inter Partes Review Proceedings, 77
`Fed. Reg. 7041, 7046 (Feb. 10, 2012).
`
`
`
`
`
`
`
`9
`
`the 3,414 final decision on the merits through
`September 30, 2020 invalidated some or all of the
`challenged claims.15 Indeed, the Office reports that 62
`percent (2,114) of these final decisions found all
`challenged claims unpatentable.16
`The Office’s figures showing such peril for
`challenged patents are particularly attractive for
`petitioners, because even in the statistically unlikely
`event they are unsuccessful before the Board, they
`will face few consequences for their unsuccessful
`attempt, for they will still have ample opportunities to
`challenge validity again in district court. AIA trials
`are merely a prelude or concurrent path to litigation:
`particularly after IPR, the defendant still has
`innumerable additional mechanisms for challenging
`validity in the district court, including challenges
`under 35 U.S.C. §§ 101 and 112, as well as
`anticipation and obviousness challenges based on
`prior public use or knowledge and patents or printed
`publications that could not have been raised in
`the IPR.17
`Small innovators might have been able to find
`cold comfort in these proceedings if they reaped some
`benefit from these “quick and cost effective” trials
`
`15 U.S. Patent & Trademark Office, Trial Statistics: IPR, PGR,
`CBM: Patent Trial and Appeal Board, 10 (Sept. 2020),
`https://www.uspto.gov/sites/default/files/documents/
`trial_statistics_20200930.pdf.
`16 Id.
`17 35 U.S.C. § 311(b) (limiting scope of IPR to §§ 102 and 103 “and
`only on the basis of prior art consisting of patents and printed
`publications”); 35 U.S.C. § 315(e)(2) (IPR estoppel only attaches
`to grounds that were raised or could have been raised during
`trial).
`
`
`
`
`
`
`
`10
`
`themselves. For example, Congress theorized that
`small businesses would rely upon AIA trials to combat
`the “patent trolls” that, according to an oft-echoed
`narrative, were wreaking havoc upon
`them.
`Representative Lamar Smith, the AIA’s co-sponsor,
`cautioned that “patent trolls can hurt small
`businesses and independent inventors before they
`even have a chance to get off the ground.”18 Senator
`Patrick Leahy, another
`co-sponsor,
`similarly
`expressed concern about “patent trolls who extort
`unreasonable
`licensing
`fees
`from
`legitimate
`businesses” with “[p]atents of low quality and dubious
`validity . . . .”19 Yet, as tabulated below, it is
`exceedingly uncommon for a small- or medium-sized
`business to avail itself of IPR in this way. Of the more
`than 11,000 IPR petitions classified on the Unified
`Patents website, less than two percent were filed by
`small- or medium-sized entities against non-
`practicing entities.20
`
`
`18 157 Cong. Rec. H4,486 (daily ed. June 23, 2011).
`19 157 Cong. Rec. S1,362 (daily ed. Mar. 8, 2011).
`at
`20 Data
`obtained
`from Unified Patents, LLC
`https://portal.unifiedpatents.com/ptab/caselist on December 11,
`2020.
`
`
`
`
`
`
`
`11
`
`
`
`
`These new Article I proceedings are, instead,
`ordinarily the province of large companies seeking to
`obliterate patents they allegedly have infringed.21 As
`shown above, large operating companies file over 80
`
`21 Venable Fitzpatrick, 2020 Analysis on PTAB Contested
`Proceedings, 13 (Nov. 24, 2020), https://www.venable.com/-
`/media/files/publications/2020/11/2020-analysis-on-ptab-
`contested-proceedings.pdf (Almost 90% of IPR proceedings
`involve patents in district court litigation.).
`
`
`
`
`
`
`
`12
`
`percent of petitions for IPR, with those petitions about
`evenly split between challenges to other operating
`companies’ patents and challenges to patents of non-
`practicing entities. That is not surprising, for the cost
`structure of AIA trials make it overwhelmingly
`expensive for small innovators to bring (or defend)
`them. The average cost for an AIA trial is over
`$450,000.22 That number is pocket change for billion-
`and trillion-dollar companies but is out of reach for
`most small businesses and independent inventors.
`The AIA, thus, created a forum within the
`Office that provides a second bite at the apple for
`invalidating not only the alleged “bad patents” that
`may have improvidently issued after their original
`examination, but indeed any patent at all amenable to
`a validity challenge—which means all of them.23 Yet
`it has provided no commensurate means of securing
`“good patents” of reasonably reliable validity: all of its
`provisions, and all of its results, are in the direction of
`cancelling patent rights with sharply limited review
`of these decisions. What remains in its wake is not a
`more stable, predictable patent system, but even more
`unpredictability and depressed patent values.
`According to economist Jianqing (“Jack”) Lu, the AIA
`“significantly depressed the transaction prices of
`patent assets,” which, on average, have fallen 60
`
`
`22 Am. Intellectual Property Law Ass’n, Report of the Economic
`Survey, I-163 (June 2017).
`23 The probability of invalidation of all patents, even high-quality
`patents, begins to approach 100 percent when a patent is
`repeatedly subjected to challenges. Matteo Sabatini, PTAB
`Challenges and Innovation: A Probabilistic Approach, 5 (Aug. 6,
`2020),
`https://papers.ssrn.com/sol3/papers.cfm?abstract_id=
`3668216.
`
`
`
`
`
`
`
`13
`
`percent.24 Concomitant with that drop in value,
`studies found a sharp decline in venture-capital
`money going into technology.25 The startup formation
`rate in the United States has been declining for four
`decades and has fallen even more precipitously in
`recent years.26 It is difficult for patentees, investors,
`and other stakeholders in the startup economy to have
`reasonable confidence in U.S. patents if the Office
`claws back issued claims at least four-fifths of the time
`in final decisions and any issued patent has less than
`a 50 percent chance of surviving at all in these
`decisions.27 And that statistic includes the very few
`patent owners who have submitted proposed
`amendments to their patent claims in PTAB trials,
`most of which the PTAB has rejected.
`
`
`24 Jack Lu, Patent Market Dynamics and the Impact of Alice and
`AIA,
`IP
`Watchdog
`(May
`17,
`2015),
`the
`https://www.ipwatchdog.com/2015/05/17/patent-market-
`dynamics-aia-and-alice/id=57728/.
`25 Alliance of U.S. Startups and Inventors for Jobs, U.S. Startup
`Company Formation and Venture Capital Funding Trends 2004
`to 2017, 9 (June 2019), available at https://www.usij.org/
`research/2018/7/9/us-startup-company-formation-and-venture-
`capital-funding-trends-2004-to-2017.
`26 Eduardo Porter, Where Are the Start-Ups? Loss of Dynamism
`Is Impeding Growth, The New York Times (Feb. 6, 2018),
`https://www.nytimes.com/2018/02/06/business/economy/start-
`ups-growth.html.
`27 USPTO, supra note 15.
`
`
`
`
`
`
`
`14
`
`II.
`
`Small innovators like amici curiae, who
`disclosed their innovations to the public
`in return for the promise of patent
`protections, have seen that promise
`broken in IPR decisions rendered by
`decisionmakers
`insulated
`from
`accountability.
`The clear winners after the AIA are large
`entities accused of using patented inventions without
`permission. They have exploited the new regime of
`administrative trials, that cancel patents the same
`agency originally issued, to weaken U.S. patents and
`stifle competition. Small companies and independent
`inventors, including the amici, are suffering the
`consequences of this topsy-turvy new system. Some of
`their exemplary experiences, detailed below, cannot
`be what Congress or the Constitution intended.
`Jodi Schwendimann
`A.
`Jodi
`small-town
`Wisconsin,
`From
`Schwendimann did not attend college; but she had the
`drive, ingenuity, and work ethic to succeed. Early in
`her career, Ms. Schwendimann joined a small local
`business, a paper coating company called American
`Coating Technologies. She worked directly for the
`company’s founder, Bill Nasser, to learn everything
`she could about paper coating technology a
Accessing this document will incur an additional charge of $.
After purchase, you can access this document again without charge.
Accept $ Charge
Still Working On It
This document is taking longer than usual to download. This can happen if we need to contact the court directly to obtain the document and their servers are running slowly.
Give it another minute or two to complete, and then try the refresh button.
A few More Minutes ... Still Working
It can take up to 5 minutes for us to download a document if the court servers are running slowly.
Thank you for your continued patience.
This document could not be displayed.
We could not find this document within its docket. Please go back to the docket page and check the link. If that does not work, go back to the docket and refresh it to pull the newest information.
Your account does not support viewing this document.
You need a Paid Account to view this document. Click here to change your account type.
Your account does not support viewing this document.
Set your membership
status to view this document.
With a Docket Alarm membership, you'll
get a whole lot more, including:
- Up-to-date information for this case.
- Email alerts whenever there is an update.
- Full text search for other cases.
- Get email alerts whenever a new case matches your search.
One Moment Please
The filing “” is large (MB) and is being downloaded.
Please refresh this page in a few minutes to see if the filing has been downloaded. The filing will also be emailed to you when the download completes.
Your document is on its way!
If you do not receive the document in five minutes, contact support at support@docketalarm.com.
Sealed Document
We are unable to display this document, it may be under a court ordered seal.
If you have proper credentials to access the file, you may proceed directly to the court's system using your government issued username and password.
Access Government Site
