USPTO Director Reclaims Authority to Institute IPRs

The new Under Secretary of Commerce for Intellectual Property and Director of the United States Patent and Trademark Office, John Squires, has reclaimed authority to institute IPRs. Here is his letter regarding the subject:

An Open Letter From America’s Innovation Agency

Bringing the USPTO Back to the Future: Return of Institution Authority under 35 U.S.C. §§ 314 and 324 to the Director

Dear Colleagues, Inventors, and Americans,

Under the America Invents Act (AIA), Congress entrusted the United States Patent and Trademark Office with several mandates to ensure the timely and fair adjudication of patent validity challenges through post-grant review (PGR) or inter partes review (IPR) mechanisms and priority contests via derivation proceedings. As to IPRs specifically, under 35 U.S.C. § 314(a), Congress made plain that: The Director may not authorize an inter partes review to be instituted unless the Director determines that the information presented in the petition … shows that there is a reasonable likelihood that the petitioner would prevail with respect to at least 1 of the claims challenged in the petition. This statutory language expressly vests the authority to institute IPRs and PGRs in the USPTO Director. While 35 U.S.C. § 3(b)(3)(B) permits delegation of that authority, such delegation is non-exclusive. Statutorily, the Director retains full and concurrent authority over whether an IPR or PGR shall proceed. Since the AIA’s enactment, initial operational choices led to the delegation of institution decisions to the Patent Trial and Appeal Board, where panels then adjudicated the merits once instituted. Although this delegation was initially practical, experience has raised structural, perceptual, and procedural concerns inconsistent with the AIA’s design, clear language, and intent affecting, among other things, the public’s rightful expectation of impartiality. Given the statutory charge, my aim as Director is to address these concerns. Under oath in my confirmation hearing before the Senate Judiciary Committee and thereafter in my submitted Questions for the Record responses, I expressed discomfort that data seemed to be “skewed” in favor of certain provisions (namely IPRs over PGRs and a very high invalidation rate). To me, this raised questions about both the administration of IPR proceedings and their institution in particular. I vowed to administer the AIA as the statute provides and as Congress intended.

Today, in keeping with my vow and having now taken the Oath of Office as USPTO Director, I have ordered changes pursuant to my memo to the Board (attached). Below, I describe the reasons for my action today. Over the past several years, the delegated-institution model has given rise to the following difficulties: 1. Perception of Self-Incentivization – While the Board has done an admirable job, performance metrics and workload structures have created the appearance that institution decisions affect docket size, credit, and resource allocation—inviting concern that the Board may be “filling its own docket.” – This may be unfounded, but nevertheless such a perception undermines public confidence in the integrity of our Office’s adjudicatory functions with respect to IPRs. 2. Bifurcated Procedures for Discretionary Considerations – The evolution of the bifurcated processes, which were smart and necessary, was never intended to be permanent. Under those processes, a preliminary review precedes Board referral. However, this appears to have inadvertently produced extraordinarily high institution rates (at one point exceeding 95 percent) for referred cases. 3. Statutory Adherence and Administrative Clarity – Congress expressly charges the Director—not the Board as delegees —to make institution determinations. Returning this function to the Director re aligns our Office’s procedures with the clear language and intent of the statute and returns accountability for such decisions to the Director just as the framework of the AIA provides. In sum, reclaiming the Director’s statutory role is intended to: • Eliminate the appearance of self-interest by separating the power to institute from the body that conducts the trial; • Remove a perceived referral-signal bias by centralizing the decision point; • Enhance transparency and public trust through a single line of authority; and • Re-align the duties and responsibilities of the Director, as a Presidentially appointed and Senate-confirmed officer, to be accountable for this threshold determination and properly effectuate the clear language of the AIA and thus Congress’s intent.

This action aligns the USPTO’s administration of IPRs with both the letter and the spirit of 35 U.S.C. § 314 and strengthens the integrity of the Office’s adjudicatory processes. In closing, the mission of America’s Innovation Agency is to lead the world in intellectual property protection. We can do so and serve the public interest only by maintaining a patent system that is fair, predictable, and respected. Returning institution authority to the Director bolsters our mission because it restores the statutory framework mandated by Congress in the America Invents Act.

USPTO Advanced Notice of Proposed Rulemaking on IPRs and PGRs

The USPTO has released advanced notice of proposed rule making concerning regulations addressing changes to Inter Partes Review and Post Grant Review practice, including addressing multiple challenges, parallel district court litigation and the institution of proceedings.  The USPTO is inviting comments concerning the proposed rule making.  The USPTO document states, in part:

The changes under consideration provide that, in certain circumstances in which specific elements are met (and applicable exceptions do not apply), the Director, and by delegation the Board,^[1] will exercise the Director's discretion and will deny institution of an IPR or PGR. The USPTO is also considering broadening the types of relationships between petitioners and other entities the Office will consider when evaluating discretionary denial in order to ensure that entities related to a party in an AIA proceeding are fully evaluated with regard to conflicts, estoppel provisions, and other aspects of the proceedings. The Office is also considering whether, in certain circumstances, challenges presenting “compelling merits” will be allowed to proceed at the Board even where the petition would otherwise be a candidate for discretionary denial (as is the current practice under the Director's Memorandum Regarding Interim Procedure for Discretionary Denials in AIA Post-grant Proceedings with Parallel District Court Litigation of June 21, 2022 (discussed below)). In addition, the Office is considering whether to promulgate discretionary denial rules to ensure that certain for-profit entities do not use the IPR and PGR processes in ways that do not advance the mission and vision of the Office to promote innovation or the intent behind the AIA to improve patent quality and limit unnecessary and counterproductive litigation costs.

Recognizing the important role the USPTO plays in encouraging and protecting innovation by individual inventors, startups, and under-resourced innovators who are working to bring their ideas to market, the Office is considering limiting the impact of AIA post-grant proceedings on such entities by denying institution when certain conditions are met. The Office is seeking input on how it can protect those working to bring their ideas to market either directly or indirectly, while not emboldening or supporting economic business models that do not advance innovation. For example, the Office seeks input on to whether to require identification of anyone having an ownership interest in the patent owner or petitioner. The USPTO welcomes thoughts on any additional disclosure requirements needed and how the Board should consider that information when exercising Director discretion.

The Office is also considering additional measures to address the concerns raised by repeated validity challenges to patent claims (potentially resulting in conflicting outcomes and overburdening patent owners). The USPTO is considering further modifying and clarifying circumstances in which the Board will deny review of serial and parallel petitions. As to parallel petitions, the Office is also considering changes to provide that, as an alternative to filing multiple petitions, a petitioner may pay additional fees for a higher word-count limit.

Furthermore, the Office is considering rules related to the framework the Board will use to conduct an analysis under 35 U.S.C. 325(d), which provides that in “determining whether to institute [an AIA post-grant proceeding], the Director may take into account whether, and reject the petition or request because, the same or substantially the same prior art or arguments previously were presented to the Office.”

In addition, the USPTO is considering a rule clarifying that if institution of an IPR is not discretionarily denied in view of any other criteria, the Board shall consider whether to deny institution if there is a pending district court action involving claims challenged in the IPR. In the case of a parallel district court action in which a trial adjudicating the patentability of challenged claims has not already concluded at the time of an IPR institution decision, the USPTO is proposing rules to install Apple v. Fintiv and related guidance, with additional proposed reforms. See Apple Inc. v. Fintiv, Inc., IPR2020–00019, Paper 11, 2020 WL 2126495 (PTAB Mar. 20, 2020) (designated precedential May 5, 2020); Director's Memorandum Regarding Interim Procedure for Discretionary Denials in AIA Post-grant Proceedings with Parallel District Court Litigation (June 21, 2022) (Guidance Memorandum).^[2] The USPTO is considering separate rules for instances in which a trial adjudicating the validity of challenged claims—in district court or during post-grant proceedings—has already concluded at the time of an IPR institution decision.

Trump to Push Pharma on Drug Pricing

President Trump is continuing his push to fulfill campaign promises.  Apparently, he is meeting with pharmaceutical companies this week to negotiate lower drug prices.  This seems to be in response to his supposed Executive Order to link the drug prices that Medicare is charged to prices paid by foreign nations.  This was not an exciting development to pharmaceutical companies and they canceled a scheduled meeting with the President to discuss it.  It will be interesting to see if pharmaceutical companies will be willing to "play ball" with President Trump given the election.  For sure, part of the calculation is whether Presidential Candidate Joe Biden's administration would be better for pharmaceutical companies.  My guess is no.  However, I think the Obama Administration did not do as much as it could have on drug pricing directly--except that President Obama signed the Leahy-Smith America Invents Act into law which included rules concerning Inter-Partes Review Proceedings.  Also, pharmaceutical companies may be worried about additional Democratic appointees to the U.S. Court of Appeals for the Federal Circuit, where the battle over the scope of patent eligible subject matter is being waged (See American Axle en banc denial), and appointees to the U.S. Supreme Court.  FTC and DOJ antitrust enforcement is another issue as well as trade agreements.  Bayh-Dole Act march in rights could be an issue.  Moreover, under President Trump, pharmaceutical companies may be seeing some light at the USPTO concerning patent eligible subject matter.  Let's see if pharmaceutical companies are going to give President Trump a big win with Seniors (aka people who reliably vote). A compromise setting Medicare pricing near the most developed European countries would be interesting and an improvement.  

U.S. Court of Appeals for the Federal Circuit: Public Universities do not have Sovereign Immunity from Patent IPRs

In a new U.S. Court of Appeals for the Federal Circuit opinion, Regents of the University of Minnesota v. LGI Corporation, et al., the court held that states, including public universities, are not entitled to sovereign immunity from Inter Partes Review (IPR) proceedings filed at the United States Patent and Trademark Office (USPTO) to challenge an issued patent.  Judge Dyk, writing for the court, provides a nice overview of the history of administrative challenges to issued patents as well as the process for filing and prosecuting an IPR.  Notably, Judge Dyk points to the resource constraints of the USPTO in evaluating patentability and that the federal government is essentially drafting third parties through IPRs to test patentability.  Judge Dyk discusses and relies upon the reasoning of Saint Regis Mohawk Tribe v. Mylan Pharmaceuticals Inc., 896 F.3d 1322 (Fed. Cir. 2018).  In that case, the Federal Circuit refused to apply tribal sovereign immunity to IPRs.  The court notes that it was unnecessary to reach the issue whether the University of Minnesota waived sovereign immunity for an IPR by filing a patent infringement suit concerning the IPR challenged patent.  This decision puts U.S. public university generated and owned patents in the IPR crosshairs.  Interestingly, it puts U.S. public university patents on the same footing as foreign university owned and generated U.S. patents for purposes of challenge through IPRs, thus, removing a potential advantage for U.S. public universities versus foreign universities in the United States.  

Hatch-Waxman Integrity Act is Introduced in U.S. House of Representatives

U.S. Representative Tom Flores has introduced the Hatch Waxman Integrity Act in the House of Representatives.  The Act has also been introduced in the Senate.  The Act is designed to curb the use of some methods to challenge patents at the United States Patent and Trademark Office.  A Press Release from Representative Flores’ Office states:

The Hatch-Waxman Integrity Act of 2018 would require a generic manufacturer wishing to challenge a brand-name drug patent to choose between the Hatch-Waxman framework, which affords certain advantages such as being able to rely on the drug innovator’s safety and efficacy studies for FDA approval, and inter partes review, or IPR, which is cheaper and faster than Hatch-Waxman litigation but does not provide the advantages of a streamlined generic approval process. The bill would apply similarly to patents on biologics.

The bill would preserve Hatch-Waxman as the standard path for generic manufacturers to challenge brand patents, while keeping IPR as an option where other interests come into play. It would not have any impact on the use of IPR by the tech community.

Senators Thom Tillis and Orin Hatch have released statements concerning the bills along with Representative Flores:

The Hatch-Waxman Integrity Act ensures that America remains a leader in developing life-saving and accessible therapies, cures and treatments for patients," said Flores. "It restores an effective balance between the interests of brand-name and generic drug manufacturers so that innovation and competition will continue to flourish.  It is fulfilling to work with Senator Hatch to modernize the Hatch-Waxman Act so that hardworking American families continue to benefit from health care innovation."

"As the coauthor and namesake of Hatch-Waxman, I have a keen interest in ensuring we have a well-functioning generic drug industry," said Hatch. "This means making sure that generic companies are able to develop drugs while also ensuring that brand companies have sufficient protections in place to recoup their investments. Hatch-Waxman struck a careful balance that achieved these goals and in doing so helped to create the modern generic drug industry. The Hatch-Waxman Integrity Act, which I’m pleased to be introducing today with Senator Tillis and Representative Flores, will help preserve that careful balance going by ensuring that newer, alternative procedures for challenging drug patents do not give one side an unintended advantage."

"The biotechnology and life sciences industry undertakes tremendous risk and costs to develop new, life-saving drugs, with the vast majority of products never making it to the market at great expense to the manufacturer. These drugs save millions of lives every year and are a critical component of our nation’s healthcare system. While it is important to call out bad actors who price gouge, we must allow sufficient time and balance so companies can continue to develop life-saving drugs and help people with the countless illnesses and diseases that affect millions of Americans," said Tillis. "The Hatch-Waxman Integrity Act of 2018 will restore a proper balance in the market so that companies will continue to spend billions of dollars to develop life-saving and life-altering treatments. I want to thank Senator Hatch for his leadership on this issue and I look forward to building support for this bill within the Senate."

A copy of the bill is here, and a summary analysis of the bill is here. 

USPTO Discards Broadest Reasonable Interpretation Standard

The USPTO has discarded the broadest reasonable interpretation standard.  This may lead to fewer patents held to be invalid during IPR, PGR, and CBM proceedings.  The announcement states: 

The United States Patent and Trademark Office (USPTO) has published a final rule changing the claim construction standard applied during inter partes review (IPR), post-grant review (PGR), and the transitional program for covered business method patents (CBM) proceedings before the Patent Trial and Appeal Board (PTAB). 

The final rule replaces the “broadest reasonable interpretation” standard with the federal court claim construction standard that is used to construe a claim in a civil action under 35 U.S.C. § 282(b). This is the same claim construction standard articulated in Phillips v. AWH Corp., 415 F.3d 1303 (Fed. Cir. 2005) (en banc), and its progeny. Additionally, under the final rule, when construing a claim term in an IPR, PGR, or CBM, the PTAB will take into consideration any prior claim construction determination that has been made in a civil action, or a proceeding before the International Trade Commission (ITC), if that prior claim construction is timely made of record in that IPR, PGR, or CBM.

. . . As noted in the rule package, the change will lead, among other things, to greater consistency and harmonization with the federal courts and the ITC and lead to greater certainty and predictability in the patent system. . . .  Several comments questioned the proposed “retroactive” application of the rule. In response to these comments, the final rule will not be retroactively applied and instead will apply only to IPR, PGR, and CBM petitions filed on or after the effective date of the final rule, which is November 13, 2018.

Reducing Regulation at the United States Patent and Trademark Office

The United States Patent and Trademark Office [USPTO] has formed a “Working Group on Regulatory Reform.” [Working Group].  The Working Group is responsible for following President Trump’s Executive Orders concerning reducing regulations: “federal agencies [must repeal] two regulations for every new significant regulation, and in such a way that the total cost of regulations does not increase.”  Notably, the USPTO website has a somewhat broader charge than that: “consider, review, and recommend ways that USPTO regulations can be improved, revised, and streamlined.”  The USPTO website further states:  

This Working Group consists of subject matter experts who are familiar with all of the agency’s regulations and will meet on a weekly basis. Members of this Working Group will also represent the USPTO on the Department of Commerce’s Regulatory Reform Task Force. Throughout this process, the USPTO Working Group will be seeking public input for any rulemaking that would revise or eliminate regulations.

Nicolas Oettinger, Senior Counsel for Regulatory and Legislative Affairs in the USPTO’s Office of General Counsel, will be leading this effort.

Additionally, members of the public may submit their ideas to improve, revise, and streamline USPTO regulations to: RegulatoryReformGroup@uspto.gov (link sends e-mail).

The Working Group’s recommendations will be interesting to follow.  Notably, the public can submit comments. 

Disincentivizing the Use of IPRs and PGRs Against Pharmaceutical and Biologic Patents

Senator Orrin Hatch has introduced legislation designed to curb the use of IPRs and PGRs against pharmaceutical and biologic patents by essentially denying the benefits to generic/biosimilar companies of the Hatch-Waxman Act and the Biologics Price Competition and Innovation Act.  Allowing the usage of IPRs against pharmaceutical and biologic patents was a serious oversight in enacting the America Invents Act.  Senator Hatch’s Office has released the following information concerning the new Hatch-Waxman Integrity Act of 2018 (which includes a section by section analysis):

In 2012, Congress enacted the America Invents Act to fix a problem unrelated to drug/biologic innovation and drug/biologic affordability; it created the inter partes review (“IPR”) and post-grant review (“PGR”) processes to combat the growing problem of patent trolls.

Even though Congress did not intend to upset its drug/biologic-specific Hatch-Waxman and BPCIA procedures with the enactment of the IPR and PGR processes, generic drug and biosimilars manufacturers have increasingly used the IPR process to circumvent the Hatch-Waxman Act and BPCIA patent challenge processes while nonetheless taking advantage of their abbreviated processes for drug entry.1  Moreover, hedge funds with no interest in manufacturing or marketing drugs have filed IPR challenges against drug patents with the goal of profiting from stock market declines triggered by the IPR filings—a type of market manipulation.

The Hatch-Waxman Integrity Act of 2018 would close the loophole unintentionally created by the America Invents Act. To restore the careful balance of the Hatch-Waxman Act and the BPCIA, and to prevent the IPR or PGR processes from undercutting them, the FD&C Act and the PHS Act would be amended to prevent using IPR (or PGR) challenges to circumvent the specific patent challenge processes for drugs and biologics painstakingly created by Congress. In addition, the federal securities rules would be clarified to indicate that filing IPR patent challenges and profiting from resulting stock price changes is a form of prohibited market manipulation.

The Press Release is available, here.  The text of the proposed legislation is available, here.  [Hat Tip to Professor Dennis Crouch’s Patently Obvious Blog]

Ending Soveriegn Immunity for Tribes from Inter Partes Review

U.S. Senator McCaskill has introduced a Bill that would remove sovereign immunity as a defense against Inter Partes Review of patents for Indian Tribes.  The Bill is refreshingly short.  It states:

A BILL

To abrogate the sovereign immunity of Indian tribes as a defense in inter partes review of patents.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. Abrogation of tribal immunity in certain patent claims.

(a) Definition.—In this section, the term “Indian tribe” has the meaning given the term in section 4 of the Indian Gaming Regulatory Act (25 U.S.C. 2703).

(b) Abrogation of immunity for purposes of inter partes review.—Notwithstanding any other provision of law, an Indian tribe may not assert sovereign immunity as a defense in a review that is conducted under chapter 31 of title 35, United States Code.

As previously discussed, the Bill is directed at Allergen’s recent attempt to use sovereign immunity of Indian Tribes to insulate patents from Inter Partes Review at the PTO by transferring its patents to the tribe in exchange for cash.  Notably, Judge Bryson (of the Federal Circuit), sitting at the trial court level, recently asked Allergen to demonstrate that its transfer is not a “sham."  Judge Bryson further found the Allergen patents to be obvious.  

Gaming IP: Smart or Damaging the Entire System

Here is an interesting case of gaming the IP system.  I believe this type of tactic hurts the IP system as whole even if we may disagree about the need for reforms. 

The New York Times has an informative article titled, “How to Protect a Drug Patent?  Give It to a Native American Tribe.”  The article describes how Allergen, the pharmaceutical company:

will pay the [Native American] tribe $13.75 million. In exchange, the tribe will claim sovereign immunity as grounds to dismiss a patent challenge through a unit of the United States Patent and Trademark Office. The tribe will lease the patents back to Allergan, and will receive $15 million in annual royalties as long as the patents remain valid.

As discussed in the article, this is apparently a strategy to protect the patents from Inter Partes Review Proceedings at the United States Patent and Trademark Office.  As discussed in other posts, public universities have successfully claimed sovereign immunity under the 11^th amendment of the U.S. Constitution from IPR Proceedings.  I doubt this strategy will last long.  I can understand how Allergen may think this may play well with the public because Native American tribes will receive much needed funding, but really?  This looks very bad.  Of course, folks are going to start asking what that funding is being used for.  

The Most Important Patent Case in Modern History: Oil States Energy Services and the Constitutionality of IPRs

Yesterday, June 12, 2017, the U.S. Supreme Court surprisingly granted cert to hear the Oil States Energy Services v. Green’s Energy Group’s case (Notably, a Rule 36 affirmance by the Federal Circuit which means there is not an opinion—the Federal Circuit is just affirming without giving reasons.).  The U.S. Supreme Court has limited its review to one question: “Whether inter partes review, an adversarial process used by the Patent and Trademark Office (PTO) to analyze the validity of existing patents, violates the Constitution by extinguishing private property rights through a non-Article III forum without a jury.”  Could this case completely wipe out inter partes review proceedings (IPRs)?  That is certainly the hope of some.  Notably, the U.S. Supreme Court refused cert to hear the MCM Portfolio v. HP case in 2016 which raised a very similar issue.  As stated by Judge Dyk in the below Federal Circuit opinion: “On the merits, we reject MCM’s argument that inter partes review violates Article III and the Seventh Amendment, and we affirm the Board’s decision that claims 7, 11, 19, and 21 of the ’549 patent would have been obvious over the prior art.”

Notably, that particular case was graced with several amicus briefs, including by 13 law professors, the Houston Inventors Association and the University of New Mexico.  The conservative Heritage Foundation has a piece discussing the importance of the MCM Porfolio case and a call for congressional action on IPRs after the U.S. Supreme Court denied cert in 2016.  Part of the attack on IPRs includes the argument by the University of New Mexico that it essentially devalues university patent rights.  The amicus brief by 13 law professors, led by Professor Adam Mossoff, specifically confronts the question of whether patent rights are public rights or private rights:

By resting its decision on the premise that “patent rights are public rights,” MCM Portfolio LLC, 812 F.3d at 1293, the Federal Circuit directly contradicts these numerous, longstanding, and binding decisions of this Court. Furthermore, the two primary administrative law cases relied on by the Federal Circuit, see id. at 1292–93, are inapplicable in determining whether the PTAB is respecting vested property rights secured under the separation of powers doctrine and under other substantive constitutional provisions, such as the Due Process Clause of the Fifth Amendment or the Seventh Amendment. These two modern cases address solely creatures of modern administrative statutes—procedural entitlements solely created in and adjudicated by modern regulatory regimes. See, e.g., Atlas Roofing Co. v. Occupational Safety & Health Review Comm’n, 430 U.S. 442, 455–56 (1977) (addressing procedural rights within the administrative regime created by the Occupational Safety and Health Act of 1970); Tull v. United States, 481 U.S. 412, 425–27 (1986) (addressing procedural rights within administrative regime created by the Clean Water Act of 1972). Decisions by this Court addressing modern regulatory procedural entitlements are distinct from the constitutionally protected private property rights in patents long recognized by this Court and by Circuit Courts for over two hundred years. This Court recently and repeatedly confirmed the principle that patents are private property rights that are secured under the Constitution. See, e.g., - 10 - Horne, 135 S. Ct. at 2427; Fla. Prepaid, 527 U.S. at 642. This Court also warned the Federal Circuit in Festo Corp. v. Shoketsu Kinzoku Kogyo Kabushiki Co., 535 U.S. 722, 739 (2002), that it must respect “the legitimate expectations of inventors in their property” and not radically unseat such expectations by changing doctrines that have long existed since the nineteenth century. Moreover, Chief Justice John Roberts specifically stated in eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006), that nineteenth-century patent law should be accorded significant weight in modern patent law in determining the nature of the private property rights secured to patent-owners. Id. at 393–94 (Roberts, C.J., concurring).

So, the question is why now?  Why does the U.S. Supreme Court grant cert now (especially a Rule 36 affirmance without a written opinion below) and not in 2016?  For sure, inter partes review proceedings, perhaps intended to wipe out bad software patents has been used surprisingly against biotech/pharma patents.  Could it be new Associate Justice Neil Gorsuch?  Assuming the timing works out, it takes four justices to take a case by writ of certiorari. (Gorsuch, Thomas, Alito and Roberts?)  Would Kennedy swing?  Curiously, over the years, I have heard many complain about the loss of the American jury system.  

Public Universities Bringing More Patent Suits and May Be Immune to IPRs

A recent Technology Transfer Tactics article by Jesse Schwartz published on February 22, 2017 states that universities are bringing more intellectual property suits, particularly patent infringement actions, against large companies.  Notably, the article points to the University of Minnesota infringement suit against Gilead Life Sciences and states:

Litigation like the UM lawsuit indicates that universities are warming up to the idea that fighting for their patent rights is worth the effort and expense, says Joshua H. Haffner, JD, an attorney with Haffner Law in Los Angeles. The UM case continues a trend of schools stepping up and demanding payment for use of their patents, he notes. Carnegie Mellon University settled a patent infringement case with Marvell Technology Group for $750 million in 2016, and later that year a jury ordered Apple to pay the University of Wisconsin more than $234 million for using its microchip technology in iPhones and iPads without permission. In 2015, a jury awarded Boston University more than $13 million from three companies that infringed on its patent for blue light emitting diodes (LEDs).

“This trend is continuing because they’re making money off the cases,” Haffner says. “Patent infringement cases can be very profitable, and with every win by a university others are looking at that and saying maybe they could reap the same rewards. There are other principles at play, like protecting the inventors and the principle of ownership, but really if the invention is not making money those principles tend to fall by the wayside.”

Interestingly, the Patent Trial and Appeal Board (PTAB) recently decided the Covidien v. University of Florida Research Foundation (UFRF) matter.  In that matter, the PTAB analogized inter partes review proceedings (IPRs) to litigation and decided that public (state) universities have 11^th Amendment immunity against IPRs.  Basically, this means that parties cannot bring IPRs against public universities to challenge their patents.  Notably, this immunity may be waived by the public university.  Interestingly, UFRF brought an action in state court for breach of a license agreement.  Covidien counterclaimed for a declaratory judgment of noninfringement and then filed IPRs at the United States Patent and Trademark Office challenging UFRF’s patents.  Covidien then removed the action to federal court; however, the federal district court sent the action back to state court because of UFRF’s 11^th Amendment immunity.  That decision is pending resolution at the U.S. Court of Appeals for the Federal Circuit (Federal Circuit). 

Interestingly, the PTAB states:

Petitioner additionally argues that “immunizing patents owned by alleged state entities from IPR proceedings would have harmful and far-reaching consequences.” Opp. 15–17. Here, Petitioner’s arguments are three-fold. One, invalid patents would stand simply because they are assigned to a state entity. Two, a patent owned by a monetization foundation affiliated with a state university would be insulated from the inter partes review process. Three, determining whether an entity is entitled to sovereign immunity is a fact-intensive inquiry that the Patent Office is not designed to adjudicate.

With respect to the first two arguments, we are cognizant of the fact that applying an Eleventh Amendment immunity to inter partes review, absent waiver by the state entity4, precludes the institution of inter partes review against a state entity entitled to Eleventh Amendment immunity. This, indeed, is precisely the point of the Eleventh Amendment, which is the preservation of the dignity afforded to sovereign states. “The preeminent purpose of state sovereign immunity is to accord States the dignity that is consistent with their status as sovereign entities.” FMC, 535 U.S. at 760 (citing In re Ayers, 123 U.S. 443, 505 (1887)). When sovereign immunity conflicts with legislation, Congress may abrogate sovereign immunity if it has unequivocally expressed its intent to abrogate the immunity and has acted pursuant to a valid exercise of power. Seminole Tribe, 517 U.S. at 55. Petitioner does not point to, and we do not find there is, an unequivocal, express intent by Congress in the AIA to abrogate immunity for the purposes of inter partes review.  

[Footnote 4 states: Because there is no related federal district court patent infringement (or declaratory judgment of validity) case brought by Patent Owner, we do not decide here whether the existence of such a case would effect a waiver of sovereign immunity.]

Further, we are not persuaded that an application of sovereign immunity to inter partes review will do violence to the patent system. The Supreme Court in Florida Prepaid Postsecondary Education Expense Board v. College Savings Bank, 527 U.S. 627 (1999) held that Congress does not have authority to abrogate Eleventh Amendment immunity with respect to patent infringement by the States, for “Congress identified no pattern of patent infringement by the States, let alone a pattern of constitutional violations.” Id. at 640. Based on the record before us, there is no evidence that the harm to the patent system, described by the Petitioner, will come to pass, let alone exists as a basis to divest States of sovereign immunity.

Finally, we are not persuaded that our tribunal cannot perform the fact-finding duties that Petitioner alleges would be required to determine whether an entity is entitled to sovereign immunity. Our rules and procedures provide for discovery and motion practice which, at a minimum, would provide the parties an opportunity to present arguments and supporting evidence pertaining to sovereign immunity.  

The Federal Circuit decision on this issue will be interesting, particularly if public universities continue to bring more litigation matters involving patents.  However, if there is a pending federal patent infringement claim brought by the university, I believe the PTAB (and Federal Circuit) will find a waiver of sovereign immunity.  The monetization firm argument is interesting.  [Hat tip to the Goodwin Keeping Tabs on the PTAB Alert for the lead to the case.]