Yesterday, Senator Coons introduced his STRONGER Patents Act. Senator Coons provided a section-by-section description of the bill, as well as the text of the bill. And after reading it, I have some concerns. Patent Progress previously covered Senator Coons’ STRONG Patents Act. Much of STRONG Patents wound up in STRONGER Patents, and our analysis back then remains valid. But, as the “ER” on the end implies, there’s more this time, and it’s even worse.
Nice IPR You Have There—Shame If Something Happens To It
The majority of the STRONGER Patents Act is dedicated to changing the inter partes review (IPR) process available at the Patent Office. Those changes generally weaken the procedure, make it harder to file an IPR (or prevent filing entirely), and make it far easier for a patent owner to avoid the procedure. Some of the changes are, quite frankly, so blatantly biased towards patent owners that I’m surprised they were introduced with a straight face.
Here’s the highlights:
- If a patent claim has ever been IPRed, no one else can ever IPR it again, no matter who they are or if they have totally new art.
- You can never file multiple petitions against the same patent, even if it has 300 claims.
- The Patent Office can never revisit a patent once a federal court has.
- Patent owners can appeal institution of an IPR before the final written decision, but petitioners can’t appeal denial of institution.
- Only people who have actually been sued can file an IPR.
- Anyone who financially supports the petitioner becomes a real party in interest.
- Unlike everywhere else in the Patent Office, you have to prove claims are invalid by clear and convincing evidence using a narrow construction rather than the broadest reasonable interpretation.
- Patent owners are effectively entitled to amend their claims.
- Patent owners can, instead of going through IPR, ask to go through an “expedited reexamination,” allowing them to change their claims and have their patent treated as if it was a fresh application. The petitioner isn’t involved in the reexamination, so it’s just the patent owner and the Patent Office.
There’s a lot there. I’m going to take a look at how it would have affected one well-known IPR—EFF’s campaign to invalidate Personal Audio’s “podcasting patent.”
You Can Only File An IPR If You’ve Been Sued Or Threatened
The STRONG Patents Act included this, and so does the STRONGER Patents Act. Right now, anyone can file an IPR if they think a patent is invalid. I don’t have to wait to be sued. But after this bill, you have to have been sued (or have had a serious threat of lawsuit made against you.)
EFF was never sued by Personal Audio. They couldn’t have filed their IPR at all. The story would end here, even though that patent was invalid.
The requirement that you actually be sued goes too far. A patent owner can wait until people have built up businesses before suing, and in the interim, no one can challenge their patent. An IPR would let me see if the patent is valid before I invest resources in developing my product. Requiring an actual lawsuit before filing an IPR would incentivize patent owners to sit and wait until products are developed and profitable before filing their lawsuits.
Sen. Coons says this is necessary because of “the strategic filing of post-grant review proceedings to depress stock prices and extort settlements.” The ballyhooed Kyle Bass stock-shorting challenges didn’t work and he’s shut down the approach. And I’m not really sure that a comparison of who’s “extorting settlements” is going to favor IPR patent owners over IPR petitioners.
But let’s set that aside and say that EFF joined forces with someone who had been sued, so that they could file their IPR on that person’s behalf. What’s next?
Everyone Is Now A Real Party In Interest
Next, EFF would have to identify the “real party in interest” for the IPR. After the STRONGER Patents Act, that includes anyone who:
directly or through an affiliate, subsidiary, or proxy, makes a financial contribution to the preparation for, or conduct during, an inter partes review on behalf of the petitioner
So, did you donate to EFF during the past 4 years? Congratulations, you’re now a real party in interest to the podcasting IPR.
That means that you can’t challenge the patent in court if you’re ever sued. It also means that if you were sued on the patent more than 1 year ago, then EFF would have been prevented from filing the IPR. It means that, if EFF failed to name you in their petition as a real party in interest, the patent owner can ask for the petition to be denied because of that failure. And it means that anyone else you contribute to winds up prevented from challenging the validity of the patent anywhere (including in court.)
And it doesn’t stop there. If I’m a startup developing new technology and I file an IPR, any VC who funds me during the process is a real party in interest. If that VC then funds another company, that company can no longer file an IPR or challenge the validity of the patent. VCs will be wary of funding anyone who’s filed an IPR as a result, and startups who have to choose between an IPR and funding are going to pick funding.
Like so much of this bill, in an attempt to address a problem that doesn’t seem to exist in reality, the law is rewritten in incredibly overbroad ways.
But let’s assume that EFF still funded the challenge and managed to name all the necessary real parties in interest.
IPR? Not So Fast!
We’ve made it through the procedural hurdles so far. And let’s assume, as happened in real life, that the PTAB decided that there was a reasonable likelihood EFF would invalidate at least one of Personal Audio’s patent’s claims. The PTAB would decide to institute the IPR.
At which point the STRONGER Patents Act gives the patent owner to appeal the institution if there were procedural defects (like failing to name all the real parties in interest, being filed after a year from a lawsuit, or—new to the STRONGER Patents Act—if someone else had previously challenged the claim.) They can appeal even though the patent owner had every opportunity to point these defects out before the decision on institution was made.
But for some reason it doesn’t give the petitioner the right to appeal a denial if the denial was made for a procedural defect. You can only appeal if the patent is determined likely to be invalid. Seems “balanced,” doesn’t it?
But let’s assume there were no defects and therefore no appeal by Personal Audio. The PTAB decides to institute.
Switching Judges In Midstream
Right now, the group of judges who decide to institute an IPR are the same judges who make the ultimate decision. This is how all of our courts operate—the same judge decides on summary judgment and on the ultimate outcome, the same judges decide whether to institute en banc review and write the en banc decision, and the same Justices decide whether to grant certiorari and write the Supreme Court decision.
The STRONGER Patents Act decided that wasn’t a good idea. Instead, once the decision to institute is made, a whole new set of judges come in. A whole new set of judges have to learn about the patents and the technology and have to read and understand the parties’ arguments. Even though using the same judges for deciding threshold questions and the ultimate decision is just fine everywhere else.
IPR? Not So Fast, Part 2!
The STRONGER Patents Act also creates a new procedure, called the “expedited IPR reexamination.” This is itself a misnomer, because the “inter partes” in IPR means “between parties,” and the expedited reexamination explicitly does not include the petitioner, only the patent owner.
But setting aside the deceptive labeling, the expedited reexamination means that when an IPR is instituted, instead of actually responding to the IPR, the patent owner can simply request to cancel all their claims, file amended claims, and request a new examination of their patent. In this examination, it goes back to a regular patent examiner. The petitioner is totally cut out of the process.
So Personal Audio could simply go through reexamination, add some meaningless limitations to their claim, and come back with their patent. And by this point, it’s probably been more than a year since Personal Audio sued Adam Carolla, which means that EFF and Carolla are barred from challenging the new claims. (And if it hasn’t been more than a year, well, if it gets instituted then they can just request another expedited reexamination to keep running out the clock.)
I leave it as an exercise to the reader how often the patent owner won’t try and use this approach. But my money would be on a number approaching “never.”
Finally, A Decision
Maybe this is one of the few cases where the patent owner doesn’t use expedited reexamination. We go through the IPR process and the PTAB is set to issue a final decision on patentability. But now, the PTAB has to find invalidity by “clear and convincing evidence,” not the “preponderance of the evidence” standard used everywhere else in the Patent Office.
At this point, I have to ask: what’s left of inter partes review? Given the changes being made in this bill, you’re better off in district court. After STRONGER Patents, the concept of inter partes review as a way to “screen out bad patents while bolstering valid ones” and to “enable valid challenges based on meritorious grounds” is dead.
The Supreme Court Makes Bad Law, Apparently
By my count, this bill overturns at least 5 different Supreme Court cases dating from 2005-2016. § 108 of the STRONGER Patents Act overturns multiple different Supreme Court cases in one section of the bill! And not minor cases, either – each of these decisions is the kind of decision that gets taught in every patent law class and reprinted in patent law textbooks.
For example, § 106 of the bill “restores the presumption of injunctive relief upon a finding that a patent is valid and infringed.” In 2005, the Supreme Court decided the opposite in the eBay v. MercExchange case. The FTC’s 2003 “To Promote Innovation” Report highlighted the reasons why an automatic rule in favor of injunctions harms innovation and the economy, in particular noting that because injunctions typically issue after a product has been designed and manufacture has begun, injunctions put patent owners in a position to demand a “supra-competitive royalty rate.”
The Coons bill would bring us back to the world in which a patent troll who patented a lug nut on a car could get an injunction on the entire car. That forces the manufacturer to choose between halting production on the entire vehicle until they can redesign and reorganize their manufacturing process (an incredibly expensive process) or paying the troll more than their lug nut’s technical value justifies. That’s not promoting innovation, or the economy—in fact, it’s the opposite.
One part of § 108 of the bill changes the standard for induced infringement so that “proving inducement only requires showing that the alleged infringer intended to cause the acts that constitute infringement.” That’s overturning the 2011 Global-Tech v. SEB case (which itself was simply reaffirming the Supreme Court’s view of this area of law going back to Aro II in 1964 and Henry v. A.B. Dick all the way back in 1912). So this is overturning over a century of precedent in patent law.
Here’s the basic issue. Let’s say Linus has a patent on a method for kicking a football. Lucy doesn’t kick footballs herself, but she has a link on her website to a YouTube video showing how to kick a football. Charlie Brown follows that link and kicks a football. Lucy doesn’t know about the patent.
Did Lucy infringe the patent? Global-Tech says no, because she didn’t know about the patent. This bill says yes. This sounds like a silly example, but when you look at it in the context of the modern world, it’s hugely important. If you’ve ever forwarded a Word document to someone, you could be liable for inducing infringement if Word is alleged to infringe a patent. If you’ve ever texted someone, you could be liable for inducing infringement of patents on cellular standards.
The scope of inducement liability in a world in which you only have to intend to cause the acts, without any knowledge of the patent, is nearly infinite. Those are STRONGER patents, all right; maybe too strong.
Sending Innovation Overseas
Senator Coons says the bill is needed to make sure that innovation fuels the American economy.
But, as ably described by EFF’s Vera Ranieri on Twitter, it’ll do the opposite.
In 2007, the Supreme Court decided Microsoft v. AT&T. And what they decided is that if the actual infringement is happening outside of the U.S., then actions taken in the U.S. that might contribute or induce those actions don’t trigger patent liability. The STRONGER Patents Act overturns that rule.
So now, if you’re a U.S. company and you design your products in the U.S. and ship them overseas, you could be liable for inducing infringement, which means that the patent owner can go after damages for your sales everywhere in the world. But if you’re a foreign company and you design overseas and ship to the U.S., you’re only liable for inducing infringement based on your U.S. sales.
If you want to convince companies to shift their investment in research and development overseas, I’m not sure there’s a better way to do it.
IPR Claim Construction
While the above changes affect all of patent law, a fourth case being overturned is specific to the inter partes review process. In Cuozzo, the Supreme Court decided that the “broadest reasonable interpretation” standard is the right one for claim construction in IPRs. This bill reverses that decision. It does so even though the Patent Office applies the “broadest reasonable interpretation” to patents everywhere else it reviews patents, and even though the broadest reasonable interpretation standard is essential to making sure patent claims aren’t reviewed under a narrow interpretation for validity in the Patent Office and a broad interpretation for infringement in the courts.
In addition to the eBay, Global-Tech, Microsoft, and Cuozzo cases, the bill would also overturn Akamai v. Limelight (the single entity rule in induced infringement). The common thread in these cases (other than eBay and Cuozzo) is that they’re all about induced infringement.
And broad inducement liability runs the risk of completely eliminating innovation by making it so easy to infringe that you just don’t do anything, rather than run the risk of violating a patent you never knew about.
STRONGER Patents? No. WEAKER Innovation.
The STRONGER Patents Act was introduced because of claims that stronger patents will strengthen the U.S. economy.
That’s true, if you define a strong patent as “a patent on something that’s genuinely new and innovative.” But the STRONGER Patents Act doesn’t do anything to help make sure patents are genuinely new—in fact, it prevents challenges to patents that aren’t, and makes it easier to assert those patents.
The end result isn’t more innovation. It’s companies choosing not to invest in innovation because of the risk of liability. It’s companies choosing not to use the services of small businesses, which can’t afford to fight a patent lawsuit. If the patent system provides strong enforcement of bad patents with no way to effectively challenge them—and that’s exactly what the STRONGER Patents Act does—the end result is that innovation is chilled by the threat of bad patents and baseless litigation.