Wednesday, September 2, 2020

Apple, Google, Intel, Cisco sue USPTO Director Iancu over gutting the America Invents Act: litigation to the rescue of legislation

Andrei Iancu, an IP litigator and former chairman of a firm that primarily represents patent trolls, has been persistent and creative in his efforts to prove that it's bad idea to put the fox in charge of the henhouse. The Director of the United States Patent & Trademark Office is one of the three most dangerous men in the U.S. from a patent policy perspective. The other two are Senator Chris Coons (D-Del.) and Antitrust Assistant Attorney General Makan Delrahim, with whom Mr. Iancu teamed up to abandon a very balanced U.S. policy position on the enforcement of standard-essential patents (SEPs).

The Patent Trial and Appeal Board (PTAB) has been in Mr. Iancu's crosshairs for years. After all, it's a troll patent graveyard--and that's just not conducive to the business of Mr. Iancu's former (and presumably future) firm. Last year's revision of the PTAB Trial Practice Guide raised a number of issues that made it harder to challenge weak patents. While those guidelines contain a set of roadblocks that have practical consequences, they did far less damage to the post-grant review process than Mr. Iancu's decisions to designate as "precedential" (and, therefore, binding on the PTAB) two PTAB decisions relating to discretionary denials of the institution of inter-partes reviews (IPR): NHK and Fintiv.

Taken together as the NHK-Fintiv rule, those decisions run counter to what was arguably the single most important idea behind the IPR part of the America Invents Act (AIA): patents that shouldn't have been granted in the first place (because the claimed inventions weren't new, or íf new, then not inventive) shouldn't give their owners leverage in litigation. Otherwise the owners of weak patents are overcompensated, which is a misallocation of economic resource that impedes actual innovation.

In order to strike a reasonable balance between the interests of plaintiffs and defendants, Congress decided--when the AIA was enacted in 2011--to require an IPR petition to be filed within one year of being sued over the relevant patent. Without that requirement, defendants to infringement complaints could file a petition at a late stage of litigation and then move for a stay. The twelve-month window means there is normally enough time to identify relevant prior art--but delaying tactics won't work.

The net effect of Mr. Iancu's NHK-Fintiv rule is that discretionary denials by the PTAB to institute IPR proceedings have become far more frequent than previously, especially in cases in which product-making and service-providing companies have to defend themselves against patent troll lawsuits in the Western and Eastern Districts of Texas. That's because the NHK-Fintiv "factors" make a discretionary denial of an IPR petition particularly probable if the parallel infringement litigation is pending in a district that schedules a near-term trial date (though even so-called rocket dockets often have to push their trial dates back later) and are statistically unwilling to stay their cases. Simply put, the troll-friendlier the district, the harder it is to redress balance through an IPR petition.

Actually, when the one-year deadline set by Congress has been met, it should be all about the likelihood of success of a petition. But only the last one of the six NHK-Fintiv "factors" involves that aspect, and it does so in a way that minimizes the weight of the merits:

"6. other circumstances that impact the Board’s exercise of discretion, including the merits"

As a result, ever more discretionary denials don't even address the merits.

A discretionary denial is fatal to a petition in two ways: even if the circumstances (such as a district court's trial date) change, you can't request reconsideration after 30 days; and when the PTAB has definitively denied your petition, you practically can't appeal that decision to the Federal Circuit.

The net effect is really absurd. Congress wanted IPR petitions under the AIA to bring some balance to patent litigation, considering that juries rarely hold patents invalid. While there is no formal distinction between patent assertion entities and other litigants, the problem of patent trolls was already rampant in 2011, and it was certainly part of the plan to make trolling less lucrative. But now, with NHK-Fintiv, the IPR part of the AIA ever more often fails to come to the aid of defendants when they need it the most, which is precisely when they have to defend themselves in the aforementioned troll-friendly districts.

Four Silicon Valley icons--Apple, Google, Intel, and Cisco--jointly brought a complaint in the Northern District of California (where all four are based) against Mr. Iancu (in his capacity as USPTO Director) in order to overturn NHK-Fintiv (this post continues below the document):

20-08-31 Apple Google Intel... by Florian Mueller

The second paragraph of the complaint raises a key policy question: what makes a patent system strong? Misguided policy-makers believe that a patent system is strong if it favors those enforcing patents. But the leverage a patent owner gets in litigation must be proportionate to the quality of the patent. Patents that were granted only because the very limited amount of time patent examiners (not only, but also at the USPTO) have to find prior art should be invalidated swiftly and reliably once they are asserted in litigation. Bad patents weaken a patent system.

The four co-plaintiffs explain how much they invest in innovation, how many jobs they've created, and how many U.S. patents they hold. No one will seriously believe that those companies--who, by the way, don't always agree--didn't want innovators to be fairly compensated. When they get sued, they obviously defend themselves, and they'll do what any well-advised defendant would do in their place. But all they want is a balanced, functioning system.

The relief they are seeking is declaratory ("[d]eclare that the NHK-Fintiv rule is unlawful"; "[s]et aside the NK-Fintiv rule") and injunctive ("[p]ermanently enjoin Defendant, and his officers, agents, employees, assigns, and all persons acting in concert or participating with him, from relying on the NHK-Fintiv rule or the non-statutory factors it incorporates to deny institution of IPR").

The statutory basis for this is a mix of two laws whose acronyms are distinguishable only by the middle letter: the Administrative Procedure Art (APA), which allows parties to bring challenges to certain actions by government agencies, and the 2011 AIA.

The complaint challenges Mr. Iancu's decision to designate the NHK-Fintiv pair of decisions as "precedential" in three ways:

  • Ideally, the four tech giants would like the court to hold that NHK-Fintiv exceeds the USPTO Director's authority and violates the AIA. This is an argument about the limits of the USPTO Director's discretion in how his agency implements the AIA.

  • Plan B would be for the court to deem the NHK-Fintiv rule arbitrary and capricious.

  • As a last resort (Plan C), the complaint claims that the USPTO Director failed to fulfill the requirement of "notice-and comment rulemaking." If the complaint succeeded only on this basis, the USPTO might ultimately adopt the same rule again, but at least there would have to be some consultation of stakeholders.

The complaint doesn't mention Chevron, a Supreme Court doctrine according to which a government agency is entitled to deference when applying an ambiguous statute. Justice Gorsuch is a known critic of that doctrine and apparently waiting for the best opportunity to have it overruled. The USPTO will likely make a Chevron argument. The complaint suggests that plaintiffs anticipate that line of defense, as it stresses how clearly Congress doesn't want to limit parallel PTAB and district court proeedings other than by way of the one-year deadline. If the courts agree with the four tech giants, Chevron doesn't apply anyway.

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