PTAB: The “Patent Death Squad”

Mon, 14 Oct 2024

Chris Israel, Executive Director of Alliance of U.S. Startups and Inventors for Jobs, discusses how the Patent Trial and Appeals Board (PTAB) has failed to accomplish its intended purpose, multiplying proceedings and costs for inventors and startups rather than curb unnecessary litigation, and several pieces of pending legislation in Congress – including the PREVAIL Act, PERA, and RESTORE Act – that would help restore some balance and fairness at PTAB and reestablish the presumption of injunctive relief to patent owners who are facing infringement.

Transcription

Giachino (00:05.0409 - 00:34.0833)

Welcome to IP Protection Matters. I'm your host, Renee Giachino. Today we are joined by Chris Israel, Executive Director of Alliance of U.S. Startups and Inventors for Jobs. We'll be talking today about the PTAB. Some folks refer to it as the patent death squad. Chris, welcome to the show. Thank you so much for joining us. Before we dive into this topic and several others, tell us a little bit about what's going on at the Alliance for U.S. Startups and Inventors for Jobs.

Israel (00:34.0844 - 02:48.0220)

Happy to, Renee. Thanks for the opportunity to be here today and join you for the conversation. The Alliance for U.S. Startups and Inventors for Jobs, which is a mouthful, the acronym is USIJ. USIJ is a group of startups, entrepreneurs, venture investors, incubators and entrepreneurs who came together a decade ago when there were several things kind of going on within the patent system that were alarming to them. And since then, the ecosystem has grown, the network has grown. This is a group that really represents what I would call the critical quadrants of the innovation ecosystem. These are companies and individuals and startups that are in the medical device space, life sciences, AI semiconductors, cloud cybersecurity - really critical sectors, companies and endeavors that require often hundreds of millions of dollars of venture capital.

After maybe a decade they really get to a point where they have hopefully a viable and valuable commercial product or service on the market. And the failure rate can be quite high, obviously as you know, in a lot of those endeavors as well. So for those types of companies and the people and the brains that are driving them, the patent system matters profoundly. You really have to base a huge portion of that investment of capital and time on the assumption that the patents and the intellectual property that's generated is protectable, it's secure and it's predictable.

We've seen over the last 10 to 15 years a succession of erosions of that predictability and confidence in the patent system. This group is really trying to give voice to the notion that we need to stop doing things that are harming our patent system and really strengthen it and do things that make it stronger and more predictable for startups, entrepreneurs and investors that really uniquely depend on it in the United States.

Giachino (02:48.0490 - 03:30.0759)

I think it's so important as you mentioned to talk about the predictability of it. Because as you said, with the hundreds of millions of dollars and the time that they put in, they need to be able to rely on their patent rights. As you pointed out, these rights have been under assault in recent years. In the literature and the things that I've read, including some of the pieces that you have authored, it seems that at least in recent years much of the resulting uncertainty perhaps lies at the feet of the PTAB - the Patent Trial and Appeals Board. What is their role, and do you think it has overstepped its administrative bounds?

Israel (03:31.0179 - 04:18.0850)

To start with your first question, the PTAB - Patent Trial and Appeals Board - was established as part of the America Invents Act over a decade ago. The statutory concept there was that there needs to be a kind of a second window within the PTO to review patents that have been granted that possibly on second review had some questions or there's been some issues to raise regarding the overall validity of those of those patents. I think there was a notion at the time that there were a lot of software patents out there. We hear this term “bad patents” that I think is vastly overused and inaccurate.

Israel (04:19.0000 - 06:50.0782)

So Congress put in place the PTAB as a board that would allow any party, at any time, to petition for the review of a valid U.S. patent. And I think if you look at and you read the legislative history and what Senators and Members were saying at the time, I think they expected this to be a targeted, lightly used vehicle for the PTO that would have that intended effect of creating the ability to look at and take a second round review at patents that maybe were missing some prior art or that didn't have the right construction as they were reviewed by the PTO. Remember, these are patents that have already gone through usually a multiyear review to be granted. So that was the foundational theory that was there.

And I think really quickly on the heels of the implementation of PTAB, we started to see things go much beyond the intended usage. People were warned about this. I think members of our group and others had profound concerns about PTAB when it was founded - just turning over this power to any entity at any time to challenge a valid patent that often has a company based on it with investment in place backing it up. I think a decade or so in, we've basically seen PTAB become a venue that is often duplicating what's going on in Federal District Court. The patents that are challenged now at PTAB are not weak or questionable patents. They are typically some of the most commercially viable and invaluable patents that are out there.

If you are a large technology company or a large incumbent company, you're not going to challenge patents that are not meaningful to you or have no relevance to you. You're going to challenge and try to take out patents that are being asserted or that are in the commercial space usually that have been developed by disruptive competitors. That's exactly what's happening. Companies that are disruptive, that have established strong and commercially relevant patents, are often asserting them against large incumbent players. Those are the entities and those are the patents that are most frequently being challenged at PTAB. That, in my opinion, was never the legislative intent here.

Giachino (06:51.0092 - 07:15.0138)

So it clearly seems that PTAB has not met its intended goal of curbing unnecessary litigation. In the research I've done there seems to be a bias when it comes to PTAB’s treatment toward petitioners and against patent holders with PTAB invalidating more than 80% of the patents it fully adjudicates. Can you speak to this? These numbers are daunting.

Israel (07:15.0238 - 09:33.0969)

You're right. The numbers are daunting. That statistic is well chronicled and out there. The institution of petitions at PTAB is also extremely high. I think it was 68% in 2023. So, two thirds of the time if you're a patent owner and someone goes to PTAB with a petition to challenge your patent, you can pretty predictably know you're going to be facing the need to defend what is your property right. The invalidity rate has run as high as about 80%, but it's kind of hovered in that 70 to 80% range for the last several years. It dipped a bit. The institution and the invalidity rates dipped a bit in the Trump Administration when the director at the time, Andre Iancu, instituted some reforms to try to curb some of the abuses at PTAB. Things like duplicative challenges and challenges that were also going on in District Court. But it has sprung back a little bit.

The important piece of this from an economic and a business standpoint, kind of layering on top of those daunting statistics, is that as a patent owner if you're facing the need to defend your patent or property right at PTAB, this is an extensive and expensive proposition. It is probably close to a million dollar endeavor for you to defend that right at PTAB. It's a huge legal expense. It's a huge burden on the company. You're typically not defending just one patent in your portfolio, but potentially many. We've worked with companies and have members of our group who have had multiple patents challenged while they're in District Court litigation. They've had patent challenges instituted at PTAB after their patents have already been found valid multiple times by the PTO and often in District Court. So you really have this double/triple/quadruple jeopardy proposition where, just because as a small business or a startup your patents might be found valid and infringed in District Court, you're still vulnerable at PTAB.

Giachino (09:34.0320 - 10:14.0760)

You mentioned prior administrations that seemed to be a little more friendly, a little more willing to really maintain those patent and property rights. Staying inside the beltway, has IP become a political issue, say in the traditional R versus D sense that we talk about? We can go back over 40 years ago to the Bayh-Dole Act and see where that bipartisan effort really led to the United States becoming a global leader in IP and IP protection. Take us to today. Has the landscape changed?

Israel (10:14.0890 - 11:21.0000)

I think it is changing a bit. I don't think it's fully become a clearly binary partisan issue the way we think about other hot topics of the day. But yeah, I do worry a bit that it's becoming more aligned along some partisan lines, or it's vulnerable to that.

I think there are questions surrounding things like price of goods and inflation. I think there are some who are looking at the patent system and saying “aha, this is another thing we can attack or here's another tool through which we can try to put some constraints on U.S. companies - frankly, some of the most innovative, breakthrough and bleeding edge companies that are in the business of developing and inventing things that are often quite expensive. And some people are looking at those expensive outputs and saying, let's figure out a way to undercut the prices. Let's use the patent system potentially to do it.

Israel (11:21.0030 - 13:19.0840)

You mentioned Bayh-Dole. I think it would be hard to find a more seminal piece of legislation in the innovation space than the Bayh-Dole Act and what it has done for the U.S. economy over the last generation and the growth in the companies it has unleashed. As we fast forward to today there are proposals that have been put forward by the Biden Administration to “march in” on patents that have been licensed and commercialized through the Bayh-Dole process and basically reclaim those patent rights, take those patent rights from companies that have commercialized them and build products and entire companies or industries around them.

That is an amazingly far fall from where we were with the origination of the Bayh-Dole Act and this notion that we really need to get this amazing innovation/intellectual property into the hands of entrepreneurs and companies and great businesses to bring it to market. Now some are approaching it from the standpoint that we need to take it back. We need to take it out of the commercial sector and reclaim it. For what purpose, I don't know. But it would have a massive negative effect on the entire innovation ecosystem in the United States. It would mean entire companies and industries that just wouldn't get investment.

Think about it. If you're a venture investor and someone comes to you and says, “I've licensed this wonderful technology from a leading research university and we're going to build a company. It's going to take 5, 6, 7 years. I think it'll work and if it does it's going to be great and we need $50 million.” If you now face the potential for the U.S. government to come back and take that patent or that intellectual property back from that company, you're never going to write that check, right? So it's just a piece of it that people aren’t willing to accept or believe.

Giachino (13:20.0179 - 13:57.0219)

Our guest is Chris Israel, Executive Director of the Alliance of U.S. Startups and Inventors for Jobs (USJI.org). Chris, going back to the discussion of bipartisanship. We do see some efforts that I think maybe bring a little ray of sunshine. Senators Chris Coons and Tom Cotton recently introduced legislation to restore the presumption of injunctive relief to patent owners who are facing infringement - The RESTORE Act. Yet there are these critics of this who claim it's not necessary. How do you respond to that?

Israel (13:57.0299 - 14:49.0968)

It’s a great piece of legislation. I think of the startups, the investors and the folks in the innovation ecosystem we talk to. If you ask them, “What would be the single most powerful thing you could do to unleash even more of what they do every day?”, I think almost all of them would tell you restoring injunctive relief would probably be the number one thing.

For over 200 years, the presumption in the United States was if I'm asserting my patent against the alleged infringer in court and that court determines that infringement has likely occurred, that court has the ability or has the presumption or the likelihood of issuing an injunction - telling the infringer they can't keep selling that product until we work through the process and determine damages, validity and all these things.

Israel (14:49.0978 - 16:40.0312)

Right now, there is no real check on the ongoing infringement of patented technology. So re-establishing that presumption in the U.S. court system that was really kind of stripped away as a result of a decision in the Supreme Court in what's known as the eBay case from over 10 years ago would be huge because it rebalances the scale. It allows me as a startup or as a small company that does not have anything near the leverage that a large global technology or other company has. It gives me some symmetry in that relationship - to come and say, “Look, let's figure out a deal here. We all we want a marketplace solution where you compensate me for my IP.”

The critics are exactly those who would say, “We don't want that symmetric relationship. We’re perfectly content and our business runs very well when we can base it on the idea that we can integrate and ingest as much technology as we need or we want to put our products out there. We get them out quickly. We run up a huge market share based on the products that often have other people’s IP embedded in it and no one can stop us.”

The worst that can happen is we go through a multi-year court case that most small companies can't afford. PTAB gets involved and maybe invalidates some of those patents and maybe we're found to be infringing, maybe we're not. If you put the presumption of an injunction back into that equation, you suddenly have a much more balanced relationship between the inventor, patent owner and the companies that are integrating and ingesting that technology to go market a product.

Giachino (16:40.0421 - 17:18.0569)

It just seems like over the course of the last two decades our current patent system has changed enough that it seems that it's cheaper to steal patented technologies from these inventors and these entrepreneurs than to license those technologies lawfully. One thing we probably can seem to all agree on, whether you're a critic or in favor of it, is that we are suffering from the so called “China problem.” How is it that we've continued to allow the theft of our intellectual property, both stateside, but even probably more so from overseas?

Israel (17:18.0579 - 18:36.0177)

You're right. There's even a phrase for it. It's called predatory infringement. That was a phrase actually coined by an executive at Apple who said publicly several years ago that as a fiduciary for my company, it's a better policy for us to just do this. We just take what we need and we play it out. If we get caught with our hands in the cookie jar, so be it. We'll write a check. But otherwise, it is much easier and more efficient for us to just take what we need and roll it out there. That's an inversion of the process. That’s a perversion of what the patent system was designed to do. We've kind of lost this balance where the inventor has at least some leverage or capability to get involved in a market discussion with other players in the marketplace.

Now, that should be the goal we're driving for where there's equivalence. If I invent something great and someone wants to use it, that's fantastic. That's the goal of the system. But it should be respected, compensated and licensed. It's the way the system is supposed to work and was designed to work. We created these obstacles for the inventors and the patent owners to get to that end game.

Israel (18:36.0187 - 19:57.0530)

Simultaneously, there's no shortage of attacks from China. The story of Chinese theft of American intellectual property is well known and goes back decades. By making it harder for us to strengthen and enforce our own patents, we have allowed China and other countries who have kind of counterintuitively or interestingly tried to strengthen their patent system, to better protect the intellectual property that their companies are creating. A lot of U.S. companies are looking at places like Europe and Germany where you can get injunctive relief and where they haven't restricted what is even eligible for patents the way we have in the United States. So we're kind of tacking in the wrong direction while some of our competitors are going in a direction where they seem to have more respect for the need to promote and protect IP than the U.S. does.

And these are all foundational rights and things that we largely created. It's a painful byproduct of all this that doesn't escape the gaze of a lot of startups, inventors, policymakers and great folks like Senator Coons, Senator Tillis, Senator Cotton and others on the Hill who are trying to do something about it.

Giachino (19:57.0699 - 20:20.0449)

We appreciate all that you and the Alliance of U.S. Startups and Inventors for Jobs are doing. Thank you so much, Chris, for joining us today to talk about why we should care about IP protection and why IP protection matters. I want to give you the last couple of minutes to give us your closing thoughts. Is there anything else you want to educate us on before we conclude this podcast?

Israel (20:20.0459 - 21:14.0595)

It's been a real pleasure, Renee. I appreciate it. I think we covered a lot of ground. We mentioned a couple pieces of legislation. There's a few other things that we're very focused on. There's a bill called the PREVAIL Act in the Senate and in the House that would do a lot to restore balance to the PTAB. I'd encourage folks to look at that. There's a bill called the Patent Eligibility Restoration Act, which was introduced in the House and the Senate and is being reviewed by the judiciary committees there. They would do a lot to clarify what is actually eligible for a patent in the United States. We talked a lot about some concerns and problems today, but we're always in the business of looking for the silver linings and trying to do everything we can to heal and strengthen the system. So I'd encourage folks to look for those as well and do everything they can to support great pieces of legislation such as those.

Giachino (21:15.0046 - 21:46.0260)

That's incredible. We've got RESTORE, PREVAIL, PERA, lots of good things that hopefully we may see. Perhaps not by the end of the current Administration, but maybe in the new year things will look a little bit brighter.

Chris, thank you again for your time today. We appreciate all of your time and the hard work that you are doing. Our guest has been Chris Israel, Executive Director of the Alliance of U.S. Startups and Inventors for Jobs. Follow them at USJI.org. Chris, have a grat day.

Israel (21:46.0750 - 21:52.0260)

Thank you.