`
`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