As Congress approached its annual Thanksgiving recess, a Senate IP Subcommittee hearing tackled a familiar topic: reform at the Patent Trial and Appeal Board (PTAB). The bill under discussion, the Promoting and Respecting Economically Vital American Innovation Leadership (PREVAIL) Act, would make a series of significant changes favored by some patent holders, including the imposition of a standing requirement (limiting who may file a PTAB petition), the further expansion of inter partes review (IPR) estoppel (requiring that defendants choose between challenging validity at the PTAB or in district court), and new restrictions on the filing of multiple petitions against the same patent. Witnesses at the hearing offered competing takes on the proposal, possibly reflecting the lack of broader consensus that has hamstrung similar bills in the past. Yet while it is far from a given that any legislative proposal will gain enough traction to become law, the USPTO itself has been making a series of smaller refinements in response to stakeholder feedback—including some structural changes designed to streamline the use of the USPTO director’s post-Arthrex review power, and others to address allegations of political pressure and perceived bias.

Witnesses Spar over PREVAIL Act in Hearing Testimony

The PREVAIL Act was announced in early August by Senators Chris Coons (D-DE), Thom Tillis (R-NC), Dick Durbin (D-IL), and Mazie Hirono (D-HI), and is in some respects a narrower version of the Support Technology & Research for Our Nation’s Growth and Economic Resilience (STRONGER) Patents Act. That bill, which stalled in 2019 following a contentious hearing, imposed some of the same limits on IPR but also sought to make it easier for plaintiffs to obtain injunctive relief by effectively overturning the Supreme Court’s decision in eBay v. MercExchange.

This newer bill drops the language addressing injunctions but includes some of the same IPR provisions, including the aforementioned standing requirement, expansion of estoppel, and limits on so-called “serial” petitions. Also carried over from the STRONGER Patents Act are provisions that would require the PTAB to use the same, higher evidentiary standard as district courts: While the Board currently requires that validity be proven by a preponderance of the evidence (meaning that arguments must be slightly more convincing than not), the bill would impose a presumption of validity, under which a court presumes the patent is valid unless challenger proves to the contrary by clear and convincing evidence. Another change maintained in this bill would be to mandate that the Board use the same claim construction standard used in district court, Philips, which is seen as slightly narrower standard than the broadest reasonable interpretation (BRI) currently required by law and would allow the PTAB to directly consider district court claim constructions. This change was already implemented by former USPTO Director Andrei Iancu, but the bill would codify this to ensure that this cannot be walked back by subsequent administrations. Also carried over is language that would bar the USPTO director from influencing the outcome of PTAB decisions—though, as noted further below, USPTO Director Kathi Vidal implemented interim rules to this effect in May 2022, and has recently proposed final rules to formalize the practice.

The Senate IP Subcommittee held a hearing to discuss the PREVAIL Act on November 8, with witnesses offering a series of different perspectives on the bill. One was former Representative Lamar Smith (R-TX), the House cosponsor of the AIA, who argued that IPR has come to be used inconsistently with the intent behind that law—i.e., to provide an alternative to district court litigation. Smith cited statistics showing that a high number of PTAB challenges are instead “brought in addition to district court litigation”, asserting that “large companies routinely use PTAB challenges as a litigation tactic” and objecting to the fact that “almost one-fourth of all PTAB challenges come from just ten very large petitioners”—all of which, Smith contends, “is not how we wanted or expected the program to operate”. Smith expressed support for the bill under the assumption that its goal is to bring the IPR system “more in line with our original intent and prevent it from being used as a tool for litigation gamesmanship”.

Offering a much different take was witness Joseph Matal, who previously performed the duties of the USPTO director (essentially, though not formally, serving as acting director) starting in 2017 until the confirmation of Andrei Iancu and is now a principal with Clear IP. Matal pushed back on the notion that the PTAB is hostile to patents, citing a study indicating that PTAB gets reversed far less often thanks to the technical expertise of its judges. While he argued that abuse of a good process is possible, and limits to prevent harassment and gamesmanship are important, he countered that certain provisions of the PREVAIL act “go far beyond what’s necessary”.

Matal was particularly opposed to the bill’s new limits on estoppel that would, as described in a proposed Section 315(f), limit companies to a single IPR petition against a given patent for any ground they “raised or reasonably could have raised” unless the company is later accused of infringing additional claims. The fact that there are page limits on PTAB petitions, but no limits on patent claim number—not to mention that additional analysis may be necessary to address especially complex claims or deal with issues like disputed priority dates—means that some patents effectively could not be fully challenged via IPR under this provision, he explained. Matal also opposes the proposed codification of the “clear and convincing evidence” standard, asserting that the USPTO originally opposed this because it does not make sense to require the agency to defer to its own prior decisions on patentability that were the “product of less deliberation and analysis, and that often did not consider the most relevant prior art”.

The bill’s “proposal to bar the PTAB's consideration of any evidence that was ‘presented during examination’” also “could lead to mischief”, said Matal: An applicant could cite “potentially thousands of references in an information disclosure statement during prosecution”; even though an examiner likely would not be able to “meaningfully consider those references”, they would still “then be immunized against any consideration in PTAB review”. Per Matal, “[t]he law shouldn’t encourage that kind of applicant behavior”.

Matal would also “counsel against” the bill’s proposed standing requirement, which he argues “would cut off many beneficial patent challenges”, including petitions filed by a manufacturer when customers are sued over its “own product”; those filed in response to “vaguely worded demand letters that don’t go as far as threatening suit”; and those designed to test a patent when exploring a new product in a given space (“clearance petitions”). Additionally, Matal argued that such a standing requirement, combined with the legislation’s proposed “expansion of real parties in interest”, would deter petitions from third-party petitioners like Unified Patents. These entities, he asserts, play a “valuable role in the patent system” and are often the only petitioners that challenge certain patents that are “repeatedly, abusively asserted for nuisance value” (citing the example of file-and-settle plaintiff SportBrain Holdings LLC, which filed nearly 150 infringement suits before Unified invalidated its patent).  

Michelle Armond, the cofounder of IP litigation firm Armond Wilson LLP, offered a largely positive view of the PTAB’s performance from the perspective of a Iitigator who has represented both sides in AIA reviews. Armond argued that PTAB outcomes have “settled down” in the years since the Board’s formation: she cited statistics that 59% of the time, the PTAB denies institution or upholds the validity of at least one claim, contending that the latter “of course” is “a win for the patent owner”. That said, Armond also expressed an openness to reassessing aspects that have not worked as well—which, in her opinion, includes the issues of both the burden of proof as well as “duplicative litigation”. For the latter, Armond expressed support for the PREVAIL Act’s proposed changes to Section 315(c), which would establish that if an IPR is instituted, the petitioner may not “file or maintain” an invalidity claim or counterclaim in parallel district court or ITC litigation; this change, she argued, would “absolutely reduce that duplicative litigation cost”.

The USPTO’s Rulemaking Proposals: Changes from Within

Some of those same changes are also under consideration by the USPTO itself. In April, the agency released a sweeping Advance Notice of Proposed Rulemaking (ANPRM) that could potentially reshape some of the same aspects of PTAB proceedings—including a proposed standing requirement, here based on an expanded view of corporate relationships as well as certain exceptions concerning business models. The ANPRM would also codify certain aspects of the PTAB’s existing practices regarding the discretionary denial of petitions due to the status of parallel proceedings—as governed by the NHK-Fintiv rule—with new exceptions allowing petitioners to sidestep discretionary denials for petitions showing “compelling merits” and those filed within six months of the service of an infringement complaint (as opposed to the one-year time bar currently required by statute). Public comments submitted in response to the ANPRM reflect a lack of consensus on these and other issues, with some stakeholders arguing that the above changes in particular would violate the AIA and thus exceed the agency’s rulemaking authority.

That said, USPTO Director Kathi Vidal has since clarified in public comments that the agency would only move forward on some of the proposals in the ANPRM in response to stakeholder comments. In July, Vidal explained in testimony before the Senate IP Subcommittee that that the ANPRM was overinclusive by design, encompassing outside proposals not necessarily favored by the Patent Office. Vidal has not conclusively stated which substantive proposals will make the cut, but she expressed some openness to a standing requirement for the PTAB at that same hearing, albeit in the context of preventing rent-seeking and gamesmanship from certain third-party petitioners. That particular saga, which culminated earlier this year after a series of sanction orders and led to the invalidation of patents asserted by VLSI Technology LLC against Intel, has been a point of contention for Senator Coons: At the November 8 hearing, he decried such “[a]buses” of the AIA review system as being enabled by a “statutory loophole”, indicating that the petitioners in question (OpenSky Industries and Patent Quality Assurance) should not have been able to file their IPRs in the first place.

As indicated above, the USPTO has also recently made changes to processes related to the review of prior PTAB decisions. Here, the sequence of events that led to these changes was triggered by the Supreme Court, which in its June 2021 Arthrex decision resolved a constitutional challenge over the appointment of the PTAB’s Administrative Patent Judges by holding that the USPTO director must have the authority to rehear final validity decisions in America Invents Act (AIA) reviews. The Patent Office implemented the Arthrex holding through an interim director review program created shortly after the decision’s issuance, laying down certain procedural and substantive requirements the following month. As subsequently clarified, those interim rules established that parties could request director review of final decisions on several bases, including material errors by PTAB panels as well as issues of broader importance, such as “novel issues of law or policy”, issues that have split PTAB panels, and other significant policy issues. Later updates clarified that while parties could not seek director review of institution decisions, the director could initiate such review sua sponte (i.e., on her own initiative).

Those interim rules also included some redundancy, as they provided that the director review program would exist (at least at the time) alongside the PTAB’s Precedential Opinion Panel (POP), a body created in September 2018 when the agency was under the leadership of former USPTO Director Andrei Iancu. The POP was tasked with deciding issues of “exceptional importance” to the PTAB. Starting in early 2019, the POP steadily expanded the circumstances in which the PTAB may opt to exercise its discretion, doing so both through the issuance of its own rulings (of which it only issued five) and by designating existing PTAB decisions as precedential or informative—the latter notably including the NHK Spring and Fintiv decisions, which outlined several factors for discretionary denials based on the status of parallel litigation and were designated as precedential in May 2019 and May 2020, respectively.

Yet as the director review program evolved alongside the POP, Vidal later remarked that the two processes had come to operate essentially “backwards”: The POP could set precedent for the PTAB but was not set up to correct errors by PTAB panels, a function that was handled far more, as a result, by the director—a task that Vidal suggested had been preventing her from spending enough time on more important policy issues. This would change, Vidal indicated: “We’re going to likely evolve that, so there will be a panel that can address error correction, so director review can stay focused on the bigger issues”. In July 2022, the USPTO solicited the public’s feedback on these interim programs, including the director review process, the POP, and the Circulation Judge Pool (CJP), a new procedure designed to insulate the PTAB’s Administrative Patent Judges (APJs) from perceived political pressure, to inform potential changes.

This past July, the USPTO revamped the first two of these processes, informed in part by the public’s feedback. Most significantly, the agency announced that it was eliminating the POP altogether, replacing it in part with a revised director review process that now allows parties to request such review of institution decisions, though on a narrower basis than for final decisions: Institution decisions may only be challenged through director review to address possible abuses of discretion or important issues of law or policy, whereas for final decisions director review may also be sought to correct errors of fact or law. The Patent Office also clarified that director review decisions on institution may still not be appealed, consistent with the AIA (in particular, 35 USC § 314(d)) and the Supreme Court’s 2020 decision in Thryv v. Click-to-Call. That new guidance also established that the director may delegate the review of PTAB decisions, either those for which director review has been sought or sua sponte, to a newly created Delegated Rehearing Panel. As later explained in a USPTO webinar, the director may do so “for cases that warrant further consideration by an independent panel”, such as those involving legal and factual errors (i.e., the ones that Vidal indicated were deterring her from focusing on more important issues). Additionally, the power to designate cases as precedential or informative, formerly handled by the POP, now rests with the director herself.

Since then, the USPTO has also revisited its interim rules concerning the pre- and post-issuance review of PTAB decisions, which established the CJP. Those interim rules were designed in part to counter the perception that the USPTO director may wield her authority to influence the outcomes of AIA review decisions; they explicitly provided that “the Director is not involved, pre-issuance, in directing or otherwise influencing panel decisions”. In October 2023, after weighing stakeholder feedback from a July 2022 Request for Comment, the USPTO released a Notice of Proposed Rulemaking that would codify this interim approach to pre-issuance review. Among other practices that would be formalized, as discussed during a November 16 PTAB webinar, the rulemaking proposal would establish that none of the Board’s statutory members (the USPTO director and deputy director, the Commissioner for Patents, and the Commissioner for Patents and Trademarks), as well as PTAB management, would essentially be barred from communicating with a PTAB panel before it issues its final written decision—except under certain circumstances, such as where the panel actually seeks input from management (which would be optional to consider). Additionally, the rules would confirm that there are no “unwritten agency or board policy or guidance that is binding on any member of the panel”, and that all written policy or guidance must be made public.

By implementing these new procedures on an interim basis at the outset, Vidal appears to be acting consistently with her previously stated view that such temporary measures are necessary to determine how reform measures work in practice before they are formalized. More specifically, in a late February interview with IAM, Vidal remarked that there remains value in pursuing changes at the PTAB both through formal rulemaking as well as through interim guidance, characterizing the latter as a halfway point between rulemaking and the use of her post-Arthrex director review power to unilaterally set policy, in terms of those mechanisms’ level of formality and finality. The director emphasized that rulemaking is valuable because it is “important to memoriali[z]e these types of things so that they don’t change over time” and gives the “public some certainty”. However, she also observed that beginning the reform process with an interim guidance allows the PTAB to consider the practical impact of changes before they are formalized: “The way we’ve done it is interim until final, and that’s worked really well because it’s taught what has worked well and what could be improved. By the time we go to rulemaking, we’ve lived with some of this for a little while”.

Stay tuned for more on these rulemaking proposals—including the upcoming final rules based on the April ANPRM that have been teased by Vidal.