Congressional hearing exposes fatal flaws in Patent Office’s proposed rules

Policy changes at administrative agencies like the U.S. Patent and Trademark Office (USPTO) are unlikely to lead the nightly news or appear above the fold in national newspapers. But, the USPTO might be the most important agency your average American hasn’t heard of. How it works, or doesn’t, has billion-dollar consequences for the U.S. innovation economy, and for consumers.

Last week, USPTO Director and Undersecretary of Commerce Kathi Vidal was on Capitol Hill testifying in a House Judiciary oversight hearing. Director Vidal’s testimony came hot on the heels of the USPTO releasing something they called an Advance Notice of Proposed Rulemaking (ANPRM), which contains a grab-bag of dozens of wide-ranging proposals. These rules, together and individually, represent a sweeping departure from current government practices, conflict with bipartisan laws passed by Congress, and would expose American entrepreneurs and the patent system to abuse and waste. The proposals caught most stakeholders — even those within the agency and government, it seems — by surprise.

During Vidal’s testimony, members of both political parties were rightfully concerned about the scope and impact of the new proposals, with many questioning whether the agency is attempting to legislate around Congress. In response, Vidal backpedaled, saying the USPTO might actually lack the authority to institute the proposals and, somewhat confusingly, stating that “those are not our proposed rules,” but are instead options reflecting feedback the agency had received, but has not endorsed.

Why would an administrative agency publish rules it then doesn’t stand behind? It is clear from both the potential rules’ content and the serious concerns Congress has raised, that the USPTO must reconsider the ANPRM in its entirety before enacting scattershot policy that would leave American businesses exposed to frivolous, destructive lawsuits.

The USPTO receives more than half a million patent applications every year and grants 350,000 of them annually. In a perfect world, each patent would be well-examined, describe unique inventions, and meet all relevant statutory checks on overpatenting — but the world isn’t perfect. Patents are frequently granted without meeting baseline, but hard-to-administer, standards, leading to significant legal disputes and economic harm. Opportunistic shell companies — for-profit non-practicing entities (NPEs) run by lawyers — acquire these patents and sue productive companies to extract a tax on innovation. The outcome is thousands of meritless lawsuits and waste, as businesses are often faced with a decision to settle with their accusers or go through the high expense of fighting back in court.

Congress recognized this issue and, in 2011, established the Patent Trial and Appeal Board (PTAB) at the USPTO. The PTAB was given a mandate to review patents that the USPTO had granted, at the urging of third parties, to determine if they were valid. Congress said expressly that the USPTO must correct its past mistakes, and that third parties were best positioned to help them. The PTAB process is and was created to be a more efficient alternative to litigation, and for the most part, it works very well. From 2014-2019, the AIA and PTAB resulted in almost $3 billion in additional U.S. business gross product, by reducing the cost of resolving disputes and reducing the number of lawsuits overall. 

Congress was clear that anyone who can objectively show a reasonable likelihood that a patent is invalid should be allowed to petition the government. The USPTO’s list of proposed rules is too long to detail here, but most concerning are new restrictions that make access to review dependent on who you are, not on the facts of the case. So, it’s understandable that last week members on both sides of the aisle complained about unelected agency officials stepping in to rewrite the process.

Unified Patents, the organization where I serve as General Counsel, works to prevent NPEs’ abuse of the patent system by challenging likely-invalid patents here and abroad. Unified petitions for PTAB review where we see a high likelihood of waste and abuse, and in doing so, protect those who are most at risk of being targeted by frivolous litigation, like small and medium-sized businesses. We help break the vicious cycle of NPEs suing many companies for infringement, pressuring them into a settlement, and then using those profits to litigate against additional productive businesses.

If the proposed rules are enacted, Unified Patents, and all others who are not directly threatened with lawsuits, can no longer petition for review. This is a new standing requirement and it is expressly what Congress considered and discarded when establishing the PTAB. Standing requirements will unleash and embolden the worst actors in the patent system, NPEs who used to demand and get settlements for hundreds of thousands of dollars from an array of businesses, but who now seek tens of thousands or less, having been kept somewhat in check by accessible PTAB review and Unified Patents.

The USPTO claims it wants to limit abuse in the patent system. So why is the agency proposing changes that would directly benefit NPEs? The ANPRM would severely curtail access to the patent validity review Congress created and would pick winners and losers rather than letting the merits of each case speak for themselves. I echo Congress in noting that the agency lacks the authority to legislate in this way and urge the USPTO to reconsider its proposals before betraying American innovators.

Jonathan Stroud is general counsel at Unified Patents, a membership organization that seeks to improve patent quality and deter patent abuse.