Wednesday, April 25, 2018

Supreme Court SAS ruling: higher principles decide, patent review efficiency suffers collateral damage

Someone wrote on Twitter that patent holders had something to celebrate yesterday: After the Supreme Court's Oil States (7-2 confirming constitutionality of PTAB inter partes review) and SAS (5-4 holding that PTAB must render decision on all challenged patent claims after granting review), patent holders were allegedly in a stronger position than before, which--as the same tweeter (I forgot the name) noted--is rarely the case when the Supreme Court overrules the Federal Circuit as it did in SAS.

Classical spin doctoring? A comparison of the number of amicus briefs filed shows where most of the attention was. 54 briefs in Oil States vs. only 2 in SAS. If patent holders at large had cared a lot about SAS, more of them than just the Intellectual Property Owners Association (amicus brief, PDF) would have chimed in. However, many of those who'd have preferred to have done away with PTAB IPR in the first place presumably welcome anything that adversely affects PTAB's operational efficiency--and even when (as is the case here) it's not easy to predict the fallout, someone who hates PTAB probably just thinks it can hardly get worse from that particular vantage point.

It is perfectly plausible that many experts believe the USPTO, which on average grants IPR under the America Invents Act with respect to not even half of all the claims that are challenged, may now have to hand down decisions on twice as many claims and may, in order to keep its workload at the same level, simply deny a lot of petitions that might have previously succeeded because they raised issues worthy of review with respect to one or more, but not all, challenged claims.

That would be understandable, but not desirable. At the same time, under a Republican administration and a Republican Congress it would be hard for PTAB to get a whole lot more resources. Unfortunately, some of what's going on politically aims to weaken PTAB.

The PTAB IPR timeline is tight. The AIA says a final written decision must come down within one year of instituting a review. For good cause, this can be extended by up to six months. That framework doesn't lend itself to simply taking twice as much time per case while waiting for more resources.

Whether PTAB will need to spend about twice as much time per review is, however, far from clear:

First, if challenges to claims are so weak that those claims wouldn't have been reviewed in the past, the average per-claim effort to uphold those claims on review should be less--the question is, however, how much less--than a rejection decision. Also, while the number of claims to rule on may (more than) double, all challenges already had to be looked at in the past to form an initial opinion. More work for PTAB for sure--but probably not twice as much.

Second, a much bigger factor than the previous one. It's not a static environment where all players will behave just as before, except that PTAB has to make an all-or-nothing review decision. Different types of petitioners will pursue different tactics, and as PTAB reactively (but probably rather quickly) adapts to the effects of numerous tactical decisions, the players will adjust their tactics.

In the "smartphone patent wars" I've seen some of the most extreme stalling efforts one could imagine. There was one Android device maker that had hardly any patents (especially not patents of the kind that would scare anyone) to countersue, but its lawyers were stalling artists on both sides of the Atlantic. Then there was Apple, which generally had a great deal of urgency in cases in which it was the only part asserting offensive claims, or was asserting more or potentially more impactful ones, while taking its time when defending itself--but nowhere near as extreme as some Android companies. Microsoft was pretty unique because it tried to accelerate pretty much everything (except maybe ITC proceedings in which it was the respondend). For an example, Microsoft went to a UK court to obtain a quick ruling on a Motorola patent in order to influence some German decisions, and it obtained an antisuit injunction to prevent Motorola from enforcing two German patent injunctions (arguably, an antisuit injunction is a form of stalling, but unlike traditional stalling, it requires speed in one jurisdiction).

PTAB IPR petitioners are also diverse. Some primarily want to slow down infringement proceedings, which often get stayed. Others are more focused on strategically striking down certain claims.

Some "stallers" may like parallel proceedings where they challenge some claims before PTAB and others in district court. Post-SAS, if more claims of a patent are reviewed than would have been reviewed before, litigation estoppel may result in some consolidation. That was a policy argument made by those advocating all-or-nothing. In my opinion, that was a far weaker policy argument than efficiency, especially in light of all the positive effects of PTAB on "patent hygiene," but we'll get to what the case turned on in a moment.

Statistics will show some SAS effects, but I'm quite sure many petitioners will now choose more wisely--especially once the percentage of granted petitions goes down. No one will act in the interest of the collectivity of all petitioners; as always in litigation, each party will do what serves its own interests. But sometimes that does, in the end, also serve a greater good.

If even outsiders like me can sometimes (especially if we take the necessary time for research) figure out which invalidity contentions are relatively strongest, petitioners and especially their counsel should have a clear idea of realistic priorities in most cases. Probably not immediately, but after a year or two, I guess the number of claims challenged on a per-patent basis will drop significantly.

PTAB efficiency wasn't really the Supreme Court majority's primary concern here. The Supreme Court does usually promote balance in patent litigation. But here, the efficiency impact of the procedural question at issue was of limited importance, and absolutely not outcome-determinative (as the result shows).

In Oil States, the Supreme Court had only two dissenters (Justice Gorsuch, joined by Chief Justice Roberts). All others supported PTAB IPR, with some left-wingers (Justice Breyer, joined by Justices Ginsburg and Sotomayor) filing additional thoughts in concurrence. By contrast, SAS resulted in an ideological 5-4 right-left split. The tweeter I mentioned further above would undoubtedly have preferred it the other way round: a 5-4 decision against PTAB in Oil States (then SAS would have been moot).

Justice Gorsuch has now been on the opposite side of my desired outcome in three cases (Dimaya, Oil States, and SAS) in short succession. I still like his judicial style very much--including his highly explanatory writings that others mock as #GorsuchStyle. He's an independent thinker, and despite his great background (including his family) and career, he's absolutely not an "elitist" of the kind that Trump supporters like me view skeptically. I wouldn't describe him as anti-elitist, but his take on Chevron (deference to government agencies) shows that he has less trust in unelected elites in government agencies than in elected lawmakers. And that's what SAS ended up being about more than anything else.

The Ginsburg-Breyer style is reflected by their dissenting opinions: the majority's literal reading of the statute in question is deemed "wooden," the statute is allegedly "difficult" (while to Justice Gorsuch and his entire camp its language is crystal clear), the USPTO should have the wiggle room to second-guess lawmakers (it's not just "what" Congress wanted and "why," and it comes across as extremely liberal when they suggest judges should simply take the position of "reasonable" legislators). By contrast, the majority opinion, while the outcome is inefficient, is a principled one. It's almost like saying "stupid but constitutional" (three words that Justice Scalia told his clerks and other jurists). The first Chevron hurdle requires a lack of clarity: lawmakers' intent must not be discernible. Only then can a government agency adopt its own rules, provided those are reasonable.

I honestly wish the intent of Congress had not been perfectly discernible in this context. Then the more efficient PTAB approach (reviewing only claims that face a credible challenge) could have been affirmed. But while I agree with the left wing on policy, after reading everything I can appreciate why no conservative judge would have been prepared to concur for a different set of reasons with the left camp and affirm the Federal Circuit majority.

The sole linguistic argument for a lack of clarity was centered around the reference to claims challenged in the "petition" in one place and "by the petitioner" in the relevant statute here, but that is a small difference and justified by the fact that initially there's a petition, but later the petitioner might have dropped challenges (under a settlement). The legislative record provides a few quotes from Capitol Hill lawmakers that really support the idea that all claims challenged by a petitioner should be reviewed, or none at all.

Ultimately it came down to how high the first Chevron hurdle should be. No conservative judge could have set the hurdle low enough for affirmance in SAS without spill-over effects on numerous other cases in which government agencies set their own rules.

Justice Gorsuch has a history of expressing a critical perspective on Chevron. The following passage from page 11 of yesterday's SAS decision is more than telling:

"But whether Chevron should remain is a question we may leave for another day. Even under Chevron, no affirmance]."

It's just an occasional remark, so it may not mean too much that no member of the majority dissented from it. But imagine a patent ruling in which the Supreme Court would say: "But whether eBay should remain is a question we may leave for another day. Even under eBay, [...]"

Chevron may be history at some point as the friends of Big Government and DC elites don't have a majority on the current Supreme Court. With such a strategic target in mind, there was no way that conservative justices could have widened the applicability of Chevron in a patent case that wasn't really about life or death of the innovation economy (unlike eBay, or even the Samsung design patent damages case, by way of comparison).

Justice Gorsuch has finally positioned himself as the thought leader of the Chevron-critical movement. What's remarkable is that Chevron upheld an air quality standards regulation by the Environmental Protection Agency (EPA), which at the time was headed by Anne Gorsuch Burford, Justice Gorsuch's mother. The Chevron opinion by the Supreme Court refers, in the context of the history of the case, to Natural Resources Defense Council, Inc. v. Gorsuch, an appeal (of an EPA decision, thus Mrs. Gorsuch was formally the defendant) decided by the United States Court of Appeals for the District of Columbia.

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