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Jury trials are not an adequate substitute for patent validity review at the PTAB
2021 PRINDBRF 0132
• Practitioner Insights Commentaries
• April 23, 2021
(April 23, 2021) - Joseph Matal, Haynes and Boone LLP partner and former acting director of the U.S. Patent and Trademark Office, explains why the Patent Trial and Appeal Board's "discretionary denial" policies can be problematic.
The March 2 $2.2 billion patent infringement verdict in West Texas puts to rest any notion that American industry can simply learn to live with the USPTO's new policy of applying "discretion" to deny validity review of issued patents.
The patents in VLSI Technology LLC v. Intel Corp. should have been reviewed by the technical experts at the Patent Trial and Appeal Board, and if they had been, their claims almost certainly would have been cancelled.
The fact that Intel's timely challenges were barred from consideration of their merits, and that a manifestly weak patent went on to secure a ten-figure award, indicates a patent system that is badly out of balance — and that threatens to do serious harm to the American economy.
Consider U.S. Patent No. 7,523,373, which alone formed the basis for the bulk of VLSI's award. This patent addresses the "problem" that the memory in an integrated circuit sometimes requires a higher operating voltage than the processor.1
The claimed solution? Apply a "first regulated voltage" to both if they need the same voltage, but if the memory needs more voltage than the processor, then apply a "second regulated voltage" that is "greater than the first regulated voltage." That's it — that is the claimed invention.
This limitation, which appears across all the claims, was the only basis on which VLSI defended the merits of its patent at the PTAB.
Intel's PTAB petition explained that it was known long before the patent's filing date that the different elements of an integrated circuit may require different voltages. It was also known that you can save power by giving each element only what it needs.2
Intel appeared to have a strong case on the merits, but its petition was never considered on its merits.
In its preliminary reply, VLSI successfully argued that the PTAB should apply "discretion" under the USPTO's Apple v. Fintiv policy to reject Intel's petition in favor of a scheduled district court trial.
Weak patents such as the '373 patent are distressingly common. If you are wondering why the examiner allowed this one, the answer is that he did find the relevant prior art and he rejected the claims as anticipated and obvious.
But the applicant came back with legalistic arguments and amendments about how elements of the invention were labeled, and the examiner eventually let the patent go.
The '373 patent is emblematic of a system whose liberal procedural rules and unlimited right to continue prosecution can allow a determined applicant to eventually wear down a patent examiner.
Examiners are experts in their art areas, but they can only be given a limited amount of time to search for prior art, and they are human beings: they grow tired of dealing with same applicant pursuing the same application with an unlimited series of amendments for years on end.
Many a patent has been obtained by waging this war of attrition against the examiner. And the U.S. now issues on average over 1,000 new patents every day.3
PTAB review is often described as a corrective for examination results, but it also helps improve the examination process, by altering applicants' incentives.
In a PTAB review, for example, a higher burden of proof is applied to challenges that are based on prior art that the examiner had already considered.
This creates a strong incentive for an applicant to cooperate with the examiner and help identify relevant prior art. (In district court, by contrast, the same high burden of proof applies regardless of whether the art was presented to the examiner.)
PTAB review is also highly accurate and reliable. Academic studies have confirmed what common sense would suggest: that PTAB judges' technical educations and legal training "aid decision-making on the thorny scientific questions endemic to patent law."4
The high quality of PTAB adjudications is reflected in the results on appeal — "the PTAB is affirmed notably more often than district courts on validity issues."5
In this way, too, PTAB review positively affects examination incentives. When the only option for a litigation defendant is an expensive district court trial and an unpredictable jury verdict, many will settle for substantial amounts even if the patent appears to be invalid.
This nuisance value sustains a robust secondary market for even non-meritorious patents — it makes it worth the effort to obtain even an objectively weak patent. PTAB review's technical reliability and much lower cost, by contrast, substantially reduces the value of an invalid patent.
This not only protects businesses against unnecessary lawsuits, it also encourages applicants to aim for quality rather than quantity in their patent prosecution strategies.
But for PTAB review to provide these benefits, it must be reliably available. The "discretionary denial" policies allow a plaintiff to make such review reliably un-available. In the Intel case, for example, VLSI asserted 430 claims across 21 patents.
Intel understandably waited to file its challenges until it could determine which claims would be litigated, and it still filed its petitions well within the statutory deadline — which, incidentally, Congress extended to one year precisely to account for situations in which the patent owner is slow to identify its claims.
This was enough, however, to cut off access to PTAB review under the Fintiv policy.
In other cases, even review petitions that are filed almost immediately after a complaint is served have been deemed "untimely" under Fintiv.6
By filing in one of the districts that routinely set early trial schedules, a plaintiff is likely to be able to invoke Fintiv and cut off the defendant's access to PTAB review.7
Unsurprisingly, these same districts also are heavily favored by the patent assertion groups that tend to sue on weak patents.
The combined effect of these policies is what led to the VLSI result: a likely invalid patent garnered a damages award that is about the same size as the cost of building a new semiconductor fabrication plant.
No credible system of patent adjudication and enforcement can operate this way. A well-functioning patent system requires a balance between rewards for inventors and legal certainty for manufacturers.
It must encourage innovation while providing the predictability that businesses need to be able to invest in plants and equipment in the United States.
And the fulcrum of that balance is patent validity. Allowing a valid patent to secure a commensurate award incentivizes innovation and limits the burden on manufacturers to the cost of paying for advances that had not previously been disclosed.
Enforcement of an invalid patent, by contrast, can hardly be said to reward innovation. It simply places an unnecessary burden on businesses that make products and provide jobs.
And when that burden becomes as high as the award in the VLSI case — and can be replicated with the many other invalid patents that are available — the viability of manufacturing advanced products in the United States is called into doubt.
When the USPTO finally sought public comments on its discretionary denial policies, American industry overwhelmingly opposed these limits on PTAB review.
Those that called for rescinding the policies included not just leading chip makers such as Intel and manufacturers of computer and telecommunications equipment, but also diverse interests such as medical device makers, software designers, generic drug manufacturers, start-up companies, and small service businesses that are sued as end users.
One industry that was particularly united in its opposition was automobile manufacturers. A coalition that represents the makers of virtually all cars and light trucks that are built in the United States expressed its strong opposition to the discretionary denial policies.8
It should be of special concern to U.S. policymakers that many foreign companies that have built factories in the United States also felt compelled to express their objections.
The automakers' coalition, for example, included Asian and European companies that operate scores of manufacturing plants and design facilities across the United States and provide tens of thousands of jobs to Americans.
One individual comment letter was submitted by a Taiwanese chip maker that recently began building a $12 billion fabrication plant in the United States.
These companies have a choice where to build their next manufacturing plant.
They are aware of the $2.2 billion verdict against Intel, a recent $506 million judgment against Apple in which PTAB review was also blocked by Fintiv,9 and the dozens of suits moving forward against other companies in which patent validity challenges were "discretionarily denied" — and that these policies so far have continued under the new Administration.
Allowing juries to decide patent validity is unique to the American system, and just one award such as that against Intel can erase the value a chip fab that is built in the United States.
When any company, foreign or domestic, is considering whether to invest in the United States, the last thing we want is for it to be deterred by the prospect that it will be unable to effectively defend itself against assertions of invalid patents.
For the sake of the economy and the integrity of the patent system, the U.S. needs to restore reliable access to technically proficient validity review at the PTAB.
Notes
1 See '373 Patent at column 2, lines 4 through 9 ("[T]he memory in a data processing system may fail at a higher voltage than the processor. That is, the processor may be able to operate at a lower voltage than is possible for the memory. Therefore, in many embodiments, the memory has a higher minimum operating voltage than the processor.").
2 See Intel v. VLSI Tech., IPR2020-00158, Paper 3 at 7-8 (Nov. 20, 2019).
3 See USPTO, "U.S. Patent Statistics Chart: Calendar Years 1963-2019," at https://bit.ly/2QKBqag.
4 Matthew G. Sipe, "Experts, Generalists, Laypeople — and the Federal Circuit," 32 Harv. J.L. & Tech. 576, 627 (2019).
5 See id. at 610. This study, which reviewed the results of all patent appeals that were docketed at the U.S. Court of Appeals for the Federal Circuit in fiscal years 2015 and 2016, found that district courts are almost two and a half times more likely than the PTAB to be reversed on appeal when deciding patent validity issues.
6 See Joseph Matal, "Mapping the Contours of PTAB Discretionary Denials in 2020," Law360, Dec. 16, 2020, at https://bit.ly/3gs91AO.
7 See Brenton Babcock and Tyler Train, "A Proposed Alternative to PTAB Discretionary Denial Factors," Law360, Oct. 1, 2020, at https://bit.ly/2RU6Mw5.
8 These and other comment letters, on both sides of the issue, are available at Unified Patents, "The Results Are In: The USPTO's Request for Comments on Discretionary Denials," at https://bit.ly/32Ak5U8.
9 Optis Wireless Tech. LLC v. Apple Inc., No. 19-cv-66, jury verdict entered, (E.D. Tex. Aug. 11, 2020).
Joseph Matal is a partner in the Intellectual Property Practice Group in the Washington, D.C., office of Haynes and Boone LLP. His practice focuses on U.S. Patent and Trademark Office post-issuance proceedings and appeals at the U.S. Court of Appeals for the Federal Circuit. Earlier in his career, he served as both the U.S. PTO's acting director and acting solicitor. He can be reached at [email protected].
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