A consistent patent system is in everyone's interest | Opinion
Michael Mukasey served as U.S. attorney general, 2007-2009, and as a U.S. district judge, 1988-2006. Donald B. Verrilli Jr. served as the U.S. solicitor general, 2011-2016.
The U.S. Patent and Trademark Office (USPTO) has reached an inflection point in an ongoing debate about federal agency authority after releasing new proposed rules for handling patent reviews. As this debate proceeds within the agency and in the courts, U.S. companies face billions of dollars in patent-related liability and legal fees because the USPTO is exercising its authority unlawfully and irresponsibly.
A predictable, consistent patent system is in everyone’s interest – especially American inventors and innovators. To provide that, the USPTO needs to hit the reset button on recent policy changes, comply with laws passed by Congress, and keep rulemaking within the guardrails of its legal authority.
The problem stems, in large part, from a rule change that the USPTO adopted in 2020. The awkwardly-named NHK-Fintiv rule changed a patent review practice known as inter partes review (IPR), which had been in place and functioning reasonably well for nearly a decade after Congress established it in the America Invents Act (AIA). Congress created IPR as an alternative to wasteful patent infringement litigation and gave the USPTO a mandate to review questionable patents that should not have been granted in the first place. IPR allows businesses harassed with frivolous patent infringement lawsuits to challenge the validity of patents being wielded against them.
Fintiv made it harder to use IPR’s fast-track process, contradicting what Congress sought to achieve in the AIA. Under Fintiv, expert review is denied in cases where litigation involving the challenged patents has already begun. In these situations, the USPTO won’t consider challenges to patents presented in IPR petitions, but instead defers to the pending court proceedings. In theory, this avoids duplicative challenges. But in reality, it enables shell companies known as non-practicing entities to continue to abuse the patent system by harassing legitimate innovators with the very kinds of frivolous infringement suits that Congress sought to halt in the AIA.
A few recent decisions illustrate Fintiv’s economic damage.
Years after citing Fintiv to deny the semiconductor manufacturer Intel a review of two patents used in a lawsuit against them, the USPTO subsequently allowed the reviews to move forward after the same patents were challenged by different petitioners. In June, it finally declared the second of those patents invalid. This decision, however, came after Intel was ordered to pay more than $2 billion for patent infringement, over what the agency has now determined were invalid patents. Similarly, in February, the agency invalidated patents that had been used to get hundreds of millions of dollars in verdicts from PNC Bank for alleged infringement related to its mobile banking app. Two of the three patents asserted against PNC had been denied IPR previously because of the Fintiv rule.
All the Fintiv rule managed to accomplish in these cases was prolonging expensive, unnecessary lawsuits and threatening to put two American companies on the hook for billions of dollars based on meritless accusations. These examples vividly illustrate economic analysis showing that merely scaling back the Fintiv rule (not even eliminating it entirely) would add nearly $500 million in gross product to the U.S. economy over the next decade.
The Fintiv rule has been challenged in court and has drawn congressional scrutiny. But the USPTO is pressing forward.
In March, the Federal Circuit determined that Apple could continue its lawsuit against the USPTO, based on Apple’s assertion that the agency improperly implemented the Fintiv rule by skipping required notice-and-comment rulemaking procedures. But in April, the USPTO announced its new set of proposed rules, which would cement – and in some areas expand – the misguided Fintiv framework. Current and former members of Congress and former agency officials have expressed concern that the proposals go beyond the USPTO’s legal authority because they violate the AIA – a statute passed by Congress. The USPTO proposal also generated over 14,500 comments from concerned members of the public, more than 95% of which oppose the rules.
Unless the USPTO relents, we face the anomaly of core rules governing the patent system fluctuating from one director to another while new – potentially illegal – rulemaking continues. Caught in the crossfire are American companies that have had to divert funds from manufacturing, research and development, bank lending, and a range of other productive uses, to defense of baseless patent infringement lawsuits.
It’s time for a reset at the USPTO.
The agency should abandon its new proposals and return to the clear instructions established in the bipartisan AIA. Either the proactive repeal of Fintiv by the USPTO or the courts striking the rule down as part of the ongoing legal challenge would prevent invalid patents from being weaponized against companies that are not guilty of infringement and restore commonsense, predictable procedures for all innovators who depend on the patent system that the founders of this nation wrote into the Constitution to assure our prosperity and protect our security.
This article originally appeared on The Providence Journal: We face core rules governing the patent system fluctuating from one director to another while new rulemaking continues.
