The Supreme Court didn't kill off patent reviews

Some thoughts on U.S. v. Arthrex

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The Supreme Court has decided the last two patent cases it had before it this term, and I’m going to write some thoughts about each, starting with last week’s U.S. v. Arthrex.

People who make money by enforcing patents really, really don’t like inter partes review (IPR). Inter partes review is a system where petitioners can ask for specialized patent judges to take a second look at already granted patents, rather than having courts deal with it.

Congress voted to create IPR in 2011, and it has worked better than expected at killing off some of the worst patents. The intense dislike of IPR, especially by pharmaceutical companies, heavy patent enforcers like TiVo, and patent trolls, is why the U.S. v. Arthrex case went to the Supreme Court. The high court delivered its fractured 72-page opinion on June 21.

Arthrex is actually the second attempt to dismantle IPR that has gone to the Supreme Court—and the IPR process isn’t even ten years old. The first attempt, which was unsuccessful, was the the Oil States case, decided two years ago.

The short take on the 5-4 Arthrex decision? IPR is still alive and well. That’s very good for those of us who are hoping for a more balanced, less extortionate patent system.

It’s a tougher game when the other team gets to show up

“Inter partes” is Latin for “between the parties” and “review” is English for “review.” IPRs are like mini-litigations that take place in the U.S. Patent and Trademark Office. There’s testimony, evidence, and limited discovery. But it all takes place in front of a panel of administrative patent judges (APJs), rather than a federal district court judge. And the process is generally limited to 18 months, unlike federal litigation, which can drag on for years. The APJs just decide whether the patent claims are OK, or if they need to be tossed out. If the patent owner wants damages or an injunction—that still happens in court, not at the PTO.1 Like in litigation, the judges hear from both sides of the dispute—the owner(s) of the patent, and opponents of the patent who believe it is invalid. Hence, the “inter partes” nature of the procedure.

The process of getting a patent from the patent office is “ex parte.” That means wannabe patent owners get to have private meetings with the government. Other inventors and competitors aren’t allowed to show up. That’s part of the reason why so many patents suck, and why the government issued nearly 400,000 of them last year.

There’s an old military saying that no plan survives first contact with the enemy. Well, lots of patents don’t survive contact with actual experts who aren’t on the patent owner’s payroll. That’s why, in cases when the IPR process actually gets to a final written decision, most patents end up having at least some claims canceled.

The IPR process is also relatively “cheap.” It lowered the median cost to invalidate an undeserved patent from millions of dollars to around $250,000. That’s still a lot of money to fight off a possibly ridiculous patent, especially for a small company or a new one. But it’s much less than the $2-4 million it can cost to go to a federal jury trial.

IPRs have changed the economics of patent exploitation. Small businesses can now afford to fight off bad patents, especially if they band together; big businesses can afford to file IPRs on the regular; and specialized patent-defense companies like Unified Patents and RPX have helped their members avoid extortionate patent demands by challenging hundreds of patents using the IPR system.

Stop calling my officers inferior

Arthrex owns a patent on a knotless suture anchor. The patent explains that there are various ways doctors have of re-attaching tissue to bone when it becomes detaches, some of them involve tying knots, and apparently tying knots is a pain.

Competitor Smith & Nephew filed an IPR petition claiming Arthrex’s patent was invalid. After hearing evidence, a panel of administrative patent judges (APJs) agreed with Smith & Nephew, and invalidated Arthrex’s patent. Arthrex didn’t like that result, and argued to the Federal Circuit that the panel of APJs it faced was bogus, because they were appointed unconstitutionally.

The argument goes deep into the weeds of U.S. administrative law. Arthrex said the 200 or so APJs were just too darn powerful, with their annoying abilities to sometimes nuke patents. That made them “superior officers” who should have been appointed by the President and approved by the Senate (like the USPTO director herself). In a 2019 decision, the Federal Circuit agreed with Arthrex—but also imposed an immediate “solution” to the problem. They kept APJs as “inferior officers,” by saying they could be fired by the USPTO director. Voila, new rule, APJs now have less power, so everything is theoretically OK.2

Neither company was happy with this solution, and neither was the U.S. government, which felt that the IPR process had been thrown into disarray by the Federal Circuit’s Arthrex decision. Both parties and the U.S. government petitioned the Supreme Court, which took up the case and heard arguments on March 1, 2021.

In an extremely fractured decision, a majority of five justices agreed that there was a constitutional problem with the way APJs were appointed. But only four of those justices agreed on the fix to the problem, which was to let the USPTO director review the outcome in all IPR cases—thus continuing to keep APJs as inferior officers. The fifth vote, Justice Neil Gorsuch, wanted to throw out IPRs altogether. (Just as he did in Oil States.)

So to create a majority for the solution, the four judges were able to bring in three more votes—Breyer, Kagan, and Sotomayor. This extremely confusing constellation of agreement and disagreement is best understood by staring at this Venn diagram, created by Josh Landau, of Patent Progress.

A 5-4 decision sounds like a nail-biter, but in this case, it really wasn’t. Remember that on the really important issue, which is the legitimacy of IPR, it wasn’t actually that close. Only Gorsuch would have voted to dismantle IPR.

Gorsuch, the new patent maximalist

Gorsuch really doesn’t care for IPR, and he’s made that clear in two cases now. In his dissent, he describes IPR as “a panel of bureaucrats wields unreviewable power to take vested property rights.”

If my view on IPR hasn’t been clear already: it’s the only chance for competitors or the public to get a second look at monopoly rights that get handed out willy-nilly by a government office. Given the views he has expressed in Oil States and now Arthrex, I am concerned we’ll never see a patent decision from this justice that treats users and everyday people fairly.

Gorsuch’s views obviously don’t dominate the court, and he’s apparently the only one that feels this strongly about the issue. But the high court changes over time. If and when Breyer retires, the court will lose its best advocate for a balanced approach to patents. Gorsuch will be sticking around for a long while.

Future USPTO directors will have more power over IPR

The USPTO director will now get to review IPR cases and throw out results she doesn’t like. That’s potentially not great, since USPTO directors often come from law firms or companies that enforce lots of patents. (We don’t yet know who Biden is going to pick to head the USPTO, but this decision raises the stakes somewhat.)

However, some smart folks have told me that the USPTO director wouldn’t dare to use this power to regularly intervene in patent cases, or the President might step in. How much intervention will we actually see? “Only time will tell,” as we say in the journalism biz.

So overall, the Arthrex decision is good news. IPRs have done a better-than-expected job of knocking out bad patents for almost a decade now, and they can keep on trucking, under the watchful eye of non-superior APJs.

Top image from Pixabay

1

It’s common for IPR to be filed after litigation is initiated or when litigation is threatened. It’s also common for federal judges to stay litigation until an IPR is resolved, but that doesn’t always happen, especially in Waco, Texas.

2

The Federal Circuit didn’t allow for retroactive application except in cases where parties had raised the constitutionality issue in their PTAB briefs. However, that resulted in the court vacating decisions in more than 100 cases. Those decisions were on hold pending the Supreme Court decision.