PTAB and the threat to American Innovation

Imagine coming up with an innovative solution that solves a significant, real-world technical problem. Imagine proving that solution works, and having it recognized and utilized by an entire industry. Imagine filing for a patent on your idea to protect your intellectual property against infringement and enduring nine years of examination by the USPTO (including an appeal) before finally getting your patent issued. Imagine then discovering a knowing infringer, suing them to enforce your rights over your innovation, only to end up in an adjunct administrative court that is part of the USPTO in which your patent is challenged, construed in a way that erroneously ignores a critical patent claim characterization, and ultimately having your patent invalidated due to prior art that you yourself had already spent much effort on explaining and differentiating in your actual issued patent.

Sounds Nightmarish? Well, this is essentially what happened to David Furry in 2015 with the patents he had for his “Hawk” Camera – an innovative device he designed, that uses IR imaging to enable optical detection of hydrocarbon gas leaks under real-world field conditions, across variable weather conditions. This device, his invention, was proven to be reliable and accurate, and successfully utilized commercially, solving a real-world technical problem for the petrochemical industry. The patents he filed and was issued related to his invention were infringed upon by FLIR systems. In the subsequent legal battle, FLIR petitioned the Patent Trial and Appeal Board (PTAB) for an Inter-Partes Review (IPR) trial, challenging the validity of the patents. The IPR was instituted, and the PTAB judges construed the patent claims in a way that substituted the phrase “under variable ambient conditions” with “under ambient conditions” noting that ambient conditions may vary. This erroneous construction effectively cancelled to the most essential and critical differentiating factor of Mr. Furry’s invention over prior art: its ability to successfully image gas leaks across any real-world, variable ambient conditions (as related prior art was able to do so only under some, limited ambient conditions). Armed with such a construction and following the then-used Broadest Possible Interpretation (BRI), PTAB invalidated Mr. Furry’s hard-earned intellectual property, finding them unpatentable due to obviousness.

And while his case is but one of many, it acutely underscores the many issues that plague PTAB and the IPR process and the damaging impact it has had on American innovators and American innovation.

PTAB was established in September 2012 as one part of the America Invents Act (AIA). It is an administrative law body of the United States Patent and Trademark Office (USPTO), and it is made up of an appeals division (handling patent examiner rejection appeals) and a trial division (handling IPRs, as well as PGRs). The legislative establishment (via AIA) of PTAB, its trial division, and the IPR process itself was done with the intent of providing a lower-cost alternative to district court for patent disputes and help offload the judicial system at a time when patent litigation cases reached an all-time peak. In addition, it was meant to help weed out low-quality patents, something that is undeniably and sorely needed, while upholding those with actual merit. The purpose was indeed excellent and worthwhile, but the reality of the implementation? Far from it.

In its first two years of operation, PTAB instituted about 80% of the petitions for IPR trials and invalidated nearly 90%(!) of the claims in those—horrifying statistics for any patent owner, prompting lead Federal Circuit Judge Randall Rader to call PTAB “death squads killing property rights.” It did not get much better after that. Over the following years and through 2020, IPR institution rates per petition hovered around 60-70% (climbing to 70-80% when examined per patent), with about 80% of the trials resulting in patent invalidations (about a fifth of the were partial invalidations while the rest were total patent dismissals).

With such draconian odds, challenging the patentability of issued US patents very rapidly became the most common patent litigation defense strategy. Infringing entities knew they could delay and bypass traditional judicial judgment and petition for IPR trial that, once instituted, granted them a greater than 80% chance of minimal to no penalty. The PTAB IPR trial option was blatantly exploitable. That is exactly what big companies successfully did, securing themselves advantages over rivals, smaller business/innovators (such as David Furry), and mainly over NPEs.

The growing backlash from Inventors and small businesses eventually lead to some attempted reforms within PTAB, specifically during the tenure of USPTO Director Andrei Iancu (appointed by President Trump in 2017). Most notably, he changed PTAB’s claim construction standard from Broadest Reasonable Interpretation (BRI) to the Phillips Standard (could have been helpful in David Furry’s case, had it not been 3 years late), and designated several decisions as precedential with respect to discretionary denial of institution, thereby creating what is known as the NHK-fintiv discretionary framework for IPR denials. These changes were indeed steps in the right direction, meant to better protect and enable patent holders to withstand challenges. Still, their net result was much like Advil is to a fever—mitigates a problematic symptom, but does little else to cure underlying illness. The NHK-Fintiv framework, for example, indeed made it harder for big companies to exploit PTAB and forced them to face tougher litigation paths, but it also created another exploitable path—this time for Non-Practicing Entities (NPEs) seeking quick and opportunistic monetization (as detailed in last week's blog). As NPEs can be just as suppressive and dangerous to US business and innovation as big company monopolies, the core fundamental problem remained untouched: Smaller companies and individual innovators are at a constant and often crushing disadvantage within the US patent protection and litigation system.

As envisioned by AIA, PTAB was supposed to be a significant contributor to fixing this issue. However, flaws inherent to its processes and organization cause it only to exacerbate it, as is dauntingly exemplified by David Furry’s case. Superficial, reactive actions—well-intended as they may be—cannot be expected to truly remedy the situation. Only by reforming PTAB’s processes and overall organization can the inherent flaws be corrected. Several of these fundamental issues with PTAB have recently been raised and heard by the US Supreme Court, pending decisions: The dubious PTAB Administrative Judges’ appointment process (United States v. Arthrex, Inc., et al. ), the problematic, bias-inducing relationship between IPR institution and trial decisions and the PTAB judges’ compensation structure (New Vision Gaming and Development* v. SG Gaming), and the unfair and damaging retroactive application of AIA’s patent standards to patents filed and issued before it.

Perhaps SCOTUS will issue decisions/opinions on the above matters that will help garner momentum towards real change at PTAB. But a lot more will be required if a proper and complete reform to the system is to be achieved. Congressional and legislative intervention will be necessary to amend the AIA where needed, to fix the IPR process and securing it from abuse, and even to overhaul and modernize section 101 to ensure a broader yet sensible interpretation of what is patentable. All of these steps must be taken with a single all-encompassing goal in mind: to protect the true innovators—people like David Furry—and their intellectual property rights.

And the is the central tenet here that should always be remembered. Sure, low-quality patents should be weeded out. Certainly, users and small businesses should be protected from an overbearing burden of avoiding infringement of vague and ambiguous patents. But above all, the system must be upended and re-tooled so that the true innovators, small or big, are never at a disadvantage. That they are empowered and secured in their patent property rights, for that is the only way, and perhaps only hope, to revive and re-embolden the once-mighty spirit of American innovation.