[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]


                    THE PATENT TRIAL AND APPEAL BOARD AND
                   THE APPOINTMENTS CLAUSE: IMPLICATIONS OF 
                             RECENT COURT DECISIONS

=======================================================================

                                 HEARING

                               BEFORE THE

                        SUBCOMMITTEE ON COURTS,
                     INTELLECTUAL PROPERTY, AND THE
                                INTERNET

                                 OF THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES


                     ONE HUNDRED SIXTEENTH CONGRESS

                             FIRST SESSION

                               __________

                           NOVEMBER 19, 2019

                               __________

                           Serial No. 116-66

                               __________

         Printed for the use of the Committee on the Judiciary
         
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]         


      Available on the World Wide Web: http://judiciary.house.gov
      
                               __________

                    U.S. GOVERNMENT PUBLISHING OFFICE                    
42-423 PDF                 WASHINGTON : 2022                     
          
-----------------------------------------------------------------------------------   
 
                    COMMITTEE ON THE JUDICIARY

                    JERROLD NADLER, New York, Chair
               MARY GAY SCANLON, Pennsylvania, Vice-Chair

ZOE LOFGREN, California			DOUG COLLINS, Georgia, Ranking 
SHEILA JACKSON LEE, Texas		                Member
STEVE COHEN, Tennessee			F. JAMES SENSENBRENNER, Jr.,
HENRY C. ``HANK'' JOHNSON, Jr., 			Wisconsin
    Georgia				STEVE CHABOT, Ohio
THEODORE E. DEUTCH, Florida		LOUIE GOHMERT, Texas	
KAREN BASS, California			JIM JORDAN, Ohio
CEDRIC L. RICHMOND, Louisiana		KEN BUCK, Colorado
HAKEEM S. JEFFRIES, New York		JOHN RATCLIFFE, Texas
DAVID N. CICILLINE, Rhode Island	MARTHA ROBY, Alabama
ERIC SWALWELL, California		MATT GAETZ, Florida
TED LIEU, California			MIKE JOHNSON, Louisiana
JAMIE RASKIN, Maryland			ANDY BIGGS, Arizona	
PRAMILA JAYAPAL, Washington		TOM McCLINTOCK, California
VAL BUTLER DEMINGS, Florida		DEBBIE LESKO, Arizona
J. LUIS CORREA, California	        GUY RESCHENTHALER, Pennsylvania				
SYLVIA R. GARCIA, Texas			BEN CLINE, Virginia
JOE NEGUSE, Colorado		        KELLY ARMSTRONG, North Dakota
LUCY McBATH, Georgia			 W. GREGORY STEUBE, Florida
GREG STANTON, Arizona
MADELEINE DEAN, Pennsylvania
DEBBIE MUCARSEL-POWELL, Florida
VERONICA ESCOBAR, Texas

        Perry Apelbaum, Majority Staff Director & Chief Counsel
                Brendan Belair, Minority Staff Director


            SUBCOMMITTEE ON COURTS, INTELLECTUAL PROPERTY, 
                            AND THE INTERNET

             HENRY C. ``HANK'' JOHNSON, Jr., Georgia, Chair
                   LOU CORREA, California, Vice-Chair

THEODORE E. DEUTCH, Florida          MARTHA ROBY, Alabama, Ranking 
CEDRIC RICHMOND, Louisiana               Member
HAKEEM JEFFRIES, New York            STEVE CHABOT, Ohio
TED LIEU, California                 JIM JORDAN, Ohio
GREG STANTON, Arizona                JOHN RADCLIFF, Texas
ZOE LOFGREN, California              MATT GAETZ, Florida
STEVE COHEN, Tennessee               MIKE JOHNSON, Louisiana
KAREN BASS, California               ANDY BIGGS, Arizona
ERIC SWALWELL, California            GUY RESCHENTHALER, Pennsylvania
                                     BEN CLINE, Virginia

                      Jamie Simpson, Chief Counsel
                  Thomas Stoll, Minority Chief Counsel
                            
                            
                            C O N T E N T S

                              ----------                              

                           NOVEMBER 19, 2019

                           OPENING STATEMENTS

                                                                   Page
The Honorable Henry C. ``Hank'' Johnson, Jr., a Representative in 
  the Congress from the State of Georgia, and Chairman, 
  Subcommittee on Courts, Intellectual Property, and the Internet     1
The Honorable Martha Roby, a Representative in the Congress from 
  the State of Alabama, and Ranking Member, Subcommittee on 
  Courts, Intellectual Property, and the Internet................     2
The Honorable Jerrold Nadler, a Representative in the Congress 
  from the State of New York, and Chairman, Committee on the 
  Judiciary......................................................     3

                               WITNESSES

John F. Duffy, Samuel H. McCoy II Professor of Law, University of 
  Virginia School of Law
  Oral Testimony.................................................     6
  Prepared Statement.............................................     8
Robert A. Armitage, Consultant, IP Strategy & Policy
  Oral Testimony.................................................    38
  Prepared Statement.............................................    40
John M. Whealan, Intellectual Property Advisory Board Associate 
  Dean for Intellectual Property Law Studies, George Washington 
  University Law School
  Oral Testimony.................................................    74
  Prepared Statement.............................................    76
Arti K. Rai, Elvin R. Latty Professor of Law and Faculty 
  Director, The Center for Innovation Policy, Duke University 
  School of Law
  Oral Testimony.................................................   112
  Prepared Statement.............................................   114

                                APPENDIX

A statement for the record from the Honorable Greg Stanton, a 
  Representative in the Congress, from the State of Arizona, and 
  Member, Subcommittee on Courts, Intellectual Property, and the 
  Internet.......................................................   132
A letter for the record from Randy Landreneau, President, US 
  Inventor.......................................................   135

                  QUESTIONS AND ANSWERS FOR THE RECORD

Questions to witnesses for the record from the Honorable Jerrold 
  Nadler, a Representative in the Congress from the State of New 
  York, and Chairman, Committee on the Judiciary.................   140
Questions to witnesses for the record from the Honorable Doug 
  Collins, a Representative in the Congress from the State of 
  Georgia, and Ranking Member, Committee on the Judiciary........   142
A response to questions for the record from Arti K. Rai, Elvin R. 
  Latty Professor of Law and Faculty Director, The Center for 
  Innovation Policy, Duke University School of Law...............   143
A response to questions for the record from Robert A. Armitage, 
  Consultant, IP Strategy & Policy...............................   149

                  QUESTIONS AND ANSWERS FOR THE RECORD

A response to questions for the record from John M. Whealan, 
  Intellectual Property Advisory Board Associate Dean for 
  Intellectual Property Law School...............................   159

 
                 THE PATENT TRIAL AND APPEAL BOARD AND
    THE APPOINTMENTS CLAUSE: IMPLICATIONS OF RECENT COURT DECISIONS

                              ----------                              


                       TUESDAY, NOVEMBER 19, 2019

                        House of Representatives

            Subcommittee on Courts, Intellectual Property, 
                            and the Internet

                       Committee on the Judiciary

                            Washington, DC.

    The subcommittee met, pursuant to call, at 2:11 p.m., in 
Room 2141, Rayburn Office Building, Hon. Henry C. ``Hank'' 
Johnson, Jr. [chairman of the subcommittee] presiding.
    Present: Representatives Johnson of Georgia, Nadler, 
Stanton, Bass, Correa, Roby, Johnson of Louisiana, and Cline.
    Staff present: David Greengrass, Senior Counsel; Madeline 
Strasser, Chief Clerk; Jamie Simpson, Chief Counsel 
Subcommittee on Courts, Intellectual Property, and the 
Internet; Matt Robinson, Counsel; MaryBeth Walker, Detailee 
Counsel; Rosalind Jackson, Professional Staff Member; Tom 
Stoll, Minority Counsel; Andrea Woodard, Minority Professional 
Staff.
    Mr. Johnson of Georgia. The subcommittee will come to 
order, and without objection, the Chair is authorized to 
declare recesses of the subcommittee at any time.
    Welcome to this afternoon's hearing on the Patent Trial and 
Appeals Board and the Appointments Clause: Implications of 
Recent Court Decisions. I will now recognize myself for an 
opening statement.
    The Leahy-Smith America Invents Act of 2011 was a sea 
change in patent law. One of the biggest changes was the 
creation of a new way for the Patent and Trademark Office to 
reconsider whether it had properly issued a patent, called 
inter partes reviews, or IPRs, before the Patent Trial and 
Appeal Board, or PTAB. Such IPR challenges have become central 
to the adjudication of patent disputes. There have been almost 
10,000 challenges brought since the PTAB was created in 2012, 
with between 100 and 150 new filings each month.
    The IPR process, in its current form, has its critics and 
its defenders, but that is not why we are here today. Rather, 
we are here today because of a more fundamental issue, whether 
the PTAB, as currently configured, is constitutional. A recent 
court decision, Arthrex v. Smith & Nephew, found that it is not 
that the administrative patent judges, or APJs, who comprise 
the PTAB, were appointed to their positions in violation of the 
Constitution's Appointments Clause. The court further concluded 
that the constitutional violation could be remedied by removing 
the civil service protections offered to the APJs. According to 
the court, this makes the APJs clearly inferior officers in 
line with the way that they are currently appointment. The 
court stated that it believed Congress would have preferred 
this approach had it known about the Appointments Clause issue 
when it passed the America Invents Act.
    Speaking for myself, I find it inconsistent with the idea 
of creating an adjudicatory body to have judges who have no job 
security. It goes against the idea of providing independent, 
impartial justice if a judge is thinking about his or her 
livelihood while also weighing the facts of a case. Many 
Article I judges have fixed-year terms, and Article III judges 
have life tenure, for this reason. I recognize, however, that 
the Arthrex court was in a difficult position with limited 
options after identifying a constitutional defect, but that is 
why I felt that it is crucial that we have a hearing on this 
topic immediately, so Congress can be in a position and in 
possession of the facts and ready to act.
    We need to learn more about the impact of this decision on 
existing cases and the likelihood of the decision being upheld 
or modified by either the en banc Federal circuit or the 
Supreme Court, and most importantly, we need to begin to 
consider whether Congress must get involved to provide a 
sensible solution.
    Frankly, I worry that we cannot trust the courts to fix 
this. We are living through an era where the Supreme Court is 
taking increasingly extreme positions about the 
constitutionality of the administrative structures that have 
existed since the New Deal. These decisions second-guess the 
legislative process and the solutions Congress has worked hard 
to pass in order to handle the realities and complexities of a 
modern society.
    Notwithstanding that trend, I believe it is our 
responsibility to consider a legislative fix to the 
Appointments Clause problem that preserves both due process and 
the careful balances struck by the American Invents Act.
    I am pleased that we have a panel of legal scholars and 
distinguished practitioners. Thank you for being here today, 
and I look forward to your testimony.
    It is now my pleasure to recognize the Ranking Member of 
this Subcommittee, the gentlelady from Alabama, Mrs. Roby, for 
her opening statement.
    Mrs. Roby. Thank you, Chairman Johnson, and thank you to 
our panel of distinguished witnesses for being here today, and 
I apologize for running in. I always like to introduce myself 
to you prior to the hearing, but I do appreciate your 
willingness to come here to discuss these really important 
issues.
    In reaction to concerns about patent litigation abuse, 
Congress, of course, passed the America Invents Act in 2011. 
This legislation created new proceedings within the Patent 
Office to allow companies threatened with infringement to 
challenge the validity of patents. These proceedings are, of 
course, overseen by the Patent Trial and Appeals Board, or the 
PTAB. The intent behind creating the PTAB is to have a quick 
and inexpensive alternative to district court litigation. The 
PTAB has been very effective in validating patents and saving 
companies accused of patent infringement from expense and 
burdens of a lengthy district court case.
    With that success, detractors have argued that PTAB rules 
strongly favor challengers. Some argue that the--because the 
PTAB applies lower court standards, the PTAB can be manipulated 
into invalidating valid patents it should not. Because patents 
are so important to inventors and to companies, it is important 
that the PTAB properly balance competing interests to fairly 
and properly determine a patent's validity.
    The Federal circuit's recent decision in Arthrex, Inc. 
veteran Smith & Nephew, Inc. concludes that the PTAB 
administrative patent judges, known as APJs, were not 
constitutionally appointed and that the current structure of 
the PTAB violates the Appointments Clause. The court reasoned 
that because APJs exercise significant authority, they are 
considered principle officers and should be nominated by the 
President and confirmed by the Senate. The court concluded that 
the appointment of APJs could be constitutionally remedied by 
severing provisions within the American Invents Act that 
provides APJs with Title 5 protections, making them subject to 
removal at will of the director.
    The subsequent decision of the Federal circuit suggests 
that the constitutionality of the PTAB is no longer in doubt. 
However, there are concerns with whether the Federal circuit 
fix is constitutionally adequate. Unlike many other agency 
boards, there is no review of PTAB final decisions within the 
Patent Office. The only review of these decisions is conducted 
by Article III courts. Because these decisions are so 
impactful, sometimes meaning tens or hundreds of millions of 
dollars, or the viability of a small business, it raises doubts 
that agency officials who are not Senate confirmed should have 
so much independent authority.
    So I really look forward to hearing from you, our expert 
witnesses, to hear whether the court correctly concluded that 
PTAB appointments were unconstitutional, that the defect was 
corrected by making their service at all, and what, if any, 
steps Congress should take here.
    So with that, Mr. Chairman, I yield back the balance of my 
time.
    Mr. Johnson of Georgia. I thank the gentlelady and I am now 
pleased to recognize the Chairman of the Full Committee, the 
gentleman from New York, Mr. Nadler, for his opening statement.
    Chairman Nadler. Thank you, Mr. Chairman, and thank you for 
holding this important hearing today. I find it remarkable, 
after the years spent working on the 2011 America Invents Act, 
which created the Patent Trial and Appeal Board, or PTAB, that 
the many cases that have gone before the PTAB and then to 
Federal court, and an earlier constitutional challenge to the 
PTAB that the Supreme Court rejected, that we should now find 
ourselves here today with the constitutionality of the PTAB 
structure in question once again.
    This length of time has allowed PTAB proceedings to become 
the established part of the patent enforcement landscape. That 
makes the Arthrex decision, which found that administrative 
patent judges, or APJs, performed the duties of a principal 
office who were appointed in a manner suitable only for 
inferior offices, particularly disruptive.
    While the Arthrex court tried to limit the disruption by 
providing its own court-ordered fix of removing the civil 
service protections for APJs, and by articulating which open 
cases should be entitled still to raise the issue, it is clear 
that both of these points will be further litigated. In fact, 
they already have been. The appellant, in a case heard after 
Arthrex, also raising an Appointments Clause challenge, 
contended that the Arthrex court's remedy of removing civil 
service protections was not sufficient, and that the PTAB is 
currently configured to be declared unconstitutional in its 
entirety.
    While I take no position on a suitable remedy, I do have 
concerns with the current so-called remedy of removing APJs' 
civil service protections. The apparent thinking behind this 
solution, so-called, to the Appointments Clause problem was 
that such a change would make APJs clearly subordinate to and 
incentivized to be aligned with the policy guidance of the only 
official of the Patent Office who is presidentially appointed 
and Senate confirmed, and is therefore principal officer, the 
director.
    While this may be true, I question whether this is the 
right way to achieve the apparent objective behind the 
Appointments Clause jurisprudence, namely to ensure that there 
is an official sufficiently accountable to the President who 
signs off on important Executive branch decisions.
    I say this because it makes the director's influence on 
administrative patent judges indirect. The judges are likely to 
try to discern what the director wants, particularly if a novel 
question arises and there is no guidance, and litigants will be 
left wondering if the decisions they received truly represents 
the impartial wing of facts and evidence under the law.
    The extent to which the director's views are incorporated 
into any decision will not be transparent, and that is 
generally not consistent with the way that adjudicatory 
tribunals are structured. It may be that under the 
Constitution, the director must be entitled to have a level of 
reviewer influence over any case finally decided by PTAB, but 
it is not clear that this is the best way of allowing that sort 
of review to happen.
    That is why I am grateful that we have with us today 
experts in patent and administrative law, as well as 
individuals familiar with the complexities of the PTAB and 
patent litigation more generally. If the court's ability to fix 
this constitutional defect turns out to this constrained, I 
believe it is wise for Congress to begin to think about what we 
might do in response.
    I look forward to hearing from our witnesses, and I yield 
back the balance of my time.
    Mr. Johnson of Georgia. I thank the gentleman, and I will 
now introduce the witnesses for the first panel.
    John F. Duffy is the Samuel H. McCoy Professor of Law at 
the University of Virginia School of Law, where he teaches 
administrative law and patent law, among other subjects. He was 
previously a professor at several other law schools, including 
George Washington University Law School and the New York 
University School of Law.
    Mr. Duffy clerked for the Honorable Justice Antonin Scalia 
and the Honorable Judge Stephen F. Williams of the D.C. Circuit 
Court of Appeals, and has a BA in physics from Harvard 
University and a JD from the University of Chicago School of 
Law. Welcome, sir.
    Mr. Robert A. Armitage is a consultant on IP Strategy and 
Policy. Previously, he had a long career in the intellectual 
property departments of two leading life science companies. Mr. 
Armitage was the past president of the American Intellectual 
Property Law Association and several other prominent 
intellectual property organizations. He was a founding member 
of the Coalition for 21st Century Patent Reform, which was 
actively involved in the legislative process leading to the 
passage of the America Invents Act.
    Mr. Armitage has a BA in Physics and Mathematics from 
Albion College, a Master's in Physics from the University of 
Michigan, and a JD from the University of Michigan Law School. 
Welcome today, sir.
    John M. Whealan is the Intellectual Property Advisory Board 
Associate Dean for Intellectual Property Law Studies, George 
Washington Law School, where he oversees and coordinates all 
aspects of the law school's intellectual property program. He 
was the Deputy General Counsel for Intellectual Property Law 
and Solicitor at the U.S. Patent and Trademark Office, 
responsible for all IP litigation involving the agency.
    Mr. Whealan clerked for the Honorable Randall R. Rader, of 
the Federal Circuit and the Honorable James T. Turner of the 
Court of Federal Claims, and has a Bachelor's Degree in 
Electrical Engineering from Villanova University, a Master's 
Degree in Electrical Engineering from Drexel University, and a 
JD from Harvard Law School. Welcome, sir.
    And last but certainly not least, Arti K. Rai, is the Elvin 
R. Latty Professor of Law and Faculty Director at the Center 
for Innovation Policy at Duke University School of Law, and is 
the recipient of numerous grants to study innovation and 
technology transfer. She served as the head of the Office of 
External Affairs at the USPTO. Ms. Rai has taught at several 
other law schools, including Yale Law School and the University 
of Pennsylvania School of Law. She clerked for the Honorable 
Judge Marilyn Hall Patel of the Northern District of 
California, and has a BA in biochemistry and history from 
Harvard College and a JD from Harvard Law School. Welcome 
today.
    Before proceeding with testimony I hereby remind the 
witnesses that all of our written and oral statements made to 
the Subcommittee in connection with this hearing are subject to 
penalties of perjury, pursuant to 18 U.S.C. Section 1001, which 
may result in the imposition of a fine or imprisonment of up to 
five years, or both, if should one fall victim to conviction.
    Please note that your written statements will be entered 
into the record in its entirety. Accordingly, I ask that you 
summarize your testimony in five minutes. To help you stay 
within that time, there is a timing light on your table. When 
the light switches from green to yellow you have one minute to 
conclude your testimony, and, of course, when the light turns 
to red it signals that your time has expired.
    Mr. Duffy, you may begin.

 STATEMENTS OF JOHN F. DUFFY, SAMUEL H. McCOY II PROFESSOR OF 
LAW, UNIVERSITY OF VIRGINIA SCHOOL OF LAW; ROBERT A. ARMITAGE, 
     CONSULTANT, IP STRATEGY AND POLICY; JOHN M. WHEALAN, 
    INTELLECTUAL PROPERTY ADVISORY BOARD ASSOCIATE DEAN FOR 
   INTELLECTUAL PROPERTY LAW STUDIES, GEORGE WASHINGTON LAW 
   SCHOOL; ARTI K. RAI, ELVIN R. LATTY PROFESSOR OF LAW AND 
   FACULTY DIRECTOR, THE CENTER FOR INNOVATIVE POLICY, DUKE 
                    UNIVERSITY SCHOOL OF LAW

                   STATEMENT OF JOHN F. DUFFY

    Mr. Duffy. Thank you, Chairman Johnson, and Ranking Member 
Roby, and distinguished Members of the Subcommittee. I 
appreciate you inviting me here to appear before you, and I 
really appreciate you spending time on this important 
constitutional issue, especially because in light of recent 
decisions I think it is fairly clear that the constitutional 
structure is under a cloud of doubt right now. And I think one 
of the main goals, as referenced in the opening statements we 
just heard, is to try to find some sort of clear solution that 
might cut down on litigation.
    As things currently stand, I think the Judicial branch 
would be unable to come up with a final resolution until many 
months, possibly until 2021 or even beyond, given the pace of 
litigation in the appellate courts. Given that, I think one of 
the goals here today, as I understand it, should be to try to 
understand the problem and perhaps look at legislation that 
could remedy the problem.
    With that basic introduction, I will just give a quick 
summary of the Appointments Clause. The Appointments Clause is 
something I have written about before. In fact, I wrote an 
article about 12 years ago called ``Are Administrative Patent 
Judges Unconstitutional?'' and the answer then was yes, and the 
Congress responded to that constitutional problem. I think the 
hearing today could be entitled ``Are They Unconstitutional 
Again?'' And I think the answer might very well be yes.
    The Appointments Clause itself, though, is very, very 
simple. The first basic principle of the Appointments Clause is 
that all officers who are not elected officials, as you are, 
have to go through the Appointments Clause if they are 
exercising any significant authority under the laws of the 
United States. The Supreme Court established this nearly a half 
century ago, and I think it is a fundamental cornerstone of the 
jurisprudence in the area.
    The second principle that we have to understand is there is 
four, and only four, ways to appoint people to offices in the 
United States. It is an open set of large number of different 
appointment mechanisms. There are only four. And the final 
principle is that if we use--if the Congress wants to use three 
of those appointment mechanisms--and those three are the 
President acting alone without the advice and consent of the 
Senate, or the courts of law, or head of department--then that 
officer has to be what the Constitution calls an inferior 
officer. And that is what we are focused on today.
    And there is one small point I would have to say, is that 
both scholarship and judicial statements often counterpoise 
inferior officer to principal officer, and I have even done 
that as a shorthand in my own scholarship. I think that we 
should stick to inferior officer because that is the only word 
that is used in the Appointments Clause.
    The word ``principal officer'' is used in another place in 
the Constitution, but I think it has a different meaning there 
than what the shorthand that it is used in Appointments Clause 
scholarship and jurisprudence. So I am going to try my best not 
to use the word ``principal officer.'' I am just going to talk 
about whether these judges are inferior officers.
    There is a long history to this, which is summarized in my 
written testimony, but to summarize that very quickly is that 
this did not spring unexpected. There were prior decisions, 
prior constitutional problems with administrative patent 
judges, and also prior D.C. circuit court rulings on another 
set of judges who worked in the copyright area, that also 
declared--who were appointed in a similar way, and were 
declared unconstitutional some years ago, and their tenure 
protections were severed as a remedy.
    By the way, that litigation that led to that was actually--
or the D.C. circuit's ruling was based on an earlier concurring 
opinion by then Judge Kavanaugh. So he laid out the 
constitutional problem in a concurring opinion and then the 
D.C. circuit, a unanimous panel of the D.C. circuit later 
adopted that analysis. I mention that just because I think it 
gives us one insight into whether any justice might think there 
is a constitutional problem, and I think the answer is probably 
yes, given now Justice Kavanaugh's early concurring opinion.
    That is an introduction to the basic constitutional issues. 
What I think the main goal of this hearing is to try to find 
solutions, and I have set forth three possible solutions.
    One solution is to simply have Senate confirmation for all 
the APJs, all 200-and-so APJs. I think that is possible. In the 
past, many officers in the Executive branch, hundreds, were 
confirmed by the Senate in one fell swoop, but I think that 
might be considered administratively difficult these days.
    The two other remedies which I think are more in play is to 
establish a small number of additional officers in the Patent 
Office who are confirmed by the Senate, and have those few 
officers review decisions, or simply to give a clear path of 
review to the director of the PTO. Those are the solutions that 
I think are the most obvious ones and that we would spend time 
on today.
    Thank you very much.
    [The statement of Mr. Duffy follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Johnson of Georgia. Thank you, and next we will hear 
from Mr. Armitage, for five minutes.

                STATEMENT OF ROBERT A. ARMITAGE

    Mr. Armitage. Yes. Chairman Johnson, Chairman Nadler, 
Ranking Member Roby, Vice Chairman Correa, and other members of 
the subcommittee, thank you for the opportunity to testify 
today on issues arising from the recent court decisions as they 
relate to the constitutionality of the PTAB under the 
Appointments Clause. The Arthrex decision addressing this 
issue, if nothing else, creates an opportunity to look back at 
how the PTAB was initially conceived, and perhaps spur some new 
thinking on a key issue, specifically whether one 
administrative board charged with handling both patent and 
trials and patent appeals should remain in the Patent and 
Trademark Office.
    When the PTAB statute was enacted, Congress, in large 
measure, accommodated views of the United States Patent and 
Trademark Office that the PTAB simply continue with a new name, 
the same statutory provisions that the PTAB's predecessor, the 
Board of Patent Appeals and Interferences, had had. Otherwise, 
this new PTAB statute was largely unchanged except expanding 
its jurisdiction to include these trials arising from the 
party's review, which we discussed earlier, and also post-grant 
review.
    With the benefit of both hindsight and the Arthrex 
decision, I believe there is a different and better way in 
which Congress could have written the PTAB statute, and one 
that would have assured better Appointments Clause compliance.
    First, the old Board of Patent Appeals and Interferences, 
in spite of its name, was mostly a patent appeals board, one 
that rarely conducted trials under its jurisdiction over patent 
interferences.
    Second, the scope of the new jurisdiction of the Patent 
Office under the AIA, over the validity of issued patents, 
especially through this second procedure, the post-grant 
review, was entirely unprecedented in the more than 200-year 
history of the office. As a result, this new jurisdiction 
required the office to create an entirely new capability to 
conduct potentially large numbers of patent validity trials, 
including in the case of post-grant reviews, trials on any 
patent validity issue that a district court judge might hear in 
a patent infringement action.
    For these reasons, the AIA might better have created, in 
the Patent Office, a patent trial board, specifically charged 
with conducting these new validity trials and distinct from the 
old Board of Patent Appeals and Interferences. This would have 
allowed the Board of Patent Appeals and Interferences to return 
to being just a patent appeal board. Until 1984, such an 
appeals-only board existed and heard only ex parte patent 
appeals from inventors whose claims had been rejected by patent 
examiners.
    Moreover, historically, the Patent Office Director could 
exercise plenary control over the decisions on appeals decided 
by this pre-1984 Board of Patent Appeals. The AIA might have 
specifically reaffirmed that the Director could continue to 
have plenary supervision and review authority over patent 
appeals, specifically all appeals where a decision was rendered 
that would allow a patent to issue.
    Doing so would have assured that the Director's supervision 
and review of decisions to issue a patent was so complete as to 
preclude any possibility of a violation of the Appointments 
Clause if the members of a patent-only board continued to be 
appointed by the Secretary of Commerce without Senate 
confirmation.
    As far a new patent trial board, it would be adjudicating 
patent validity claims as between private litigants, where the 
Patent Office Director need not have any role given the public 
interest in these proceedings is, at best, of a secondary 
nature.
    For this reason, a new patent trial board under the AIA 
could have excluded the need for any Director oversight of 
these invalidity trials, instead investing that supervision and 
review authority in a new presidentially appointed and Senate-
confirmed chief administrative trial judge who would lead the 
new board. Such a structure would have permitted the members of 
the patent trial board, other than the Senate-confirmed chief 
judge, to be appointed by the Secretary of Commerce, again 
without offense to the Appointments Clause.
    In sum, I believe that there may be policy-driven 
organizational changes to the current PTAB structure that could 
represent optimal policy choices for any new legislation that 
would all but assure Appointments Clause compliance.
    [The statement of Mr. Armitage follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Johnson of Georgia. Thank you. Now, Mr. Whealan, you 
may begin.

                  STATEMENT OF JOHN M. WHEALAN

    Mr. Whealan. Chairman Johnson, Ranking Member Roby, 
Chairman Nadler, and Members of the Subcommittee, thank you for 
inviting me here today to discuss the Arthrex decision, the 
PTAB, and IPRs. I served as a solicitor, as was noted, of the 
PTO, and I also served as counselor to the Senate Judiciary 
Committee while the AIA was pending.
    The Appointments Clause governs the appointment of officers 
of the United States. Principal officers must be appointed by 
the President and confirmed by the Senate. Inferior officers 
may be appointed by the heads of departments.
    Three weeks ago, the Federal circuit held that APJs were 
unconstitutionally appointed since they are principal officers 
who must be appointed by the President. To remedy this problem, 
the court invalidated, therein, civil service protection and 
made them fireable at will. They demoted them to inferior 
officers who the secretary could then appoint.
    Many questions have arisen. First, does the Appointments 
Clause problem still exist, given APJs still issue final 
decisions on behalf of the USPTO? Second, did Arthrex adopt the 
correct remedy? I question whether Congress would have chosen 
this remedy, especially given the other remedies available, 
including second levels of review at places like the ITC and 
the SEC.
    The courts could take a year to resolve these issues, and 
in the end ultimately may not even have the power to do so. 
Uncertainty abounds. Prompt legislative action may be 
necessary.
    At the time, Congress may also wish to consider whether the 
IPR system is functioning as Congress had originally intended. 
Eight years have passed, over 10,000 IPRs have been filed, so 
this may be a good time for Congress to take a second look, as 
it often does after it has created a new administrative regime.
    IPRs have had a profound effect on the patent system. 
However, they received little debate during the AIA, as 
compared to the highly controversial post-grant review second 
window, that ultimately had to be stripped from the bill in 
order to obtain passage. Yet IPRs share many of the attributes 
as were feared of PGR's second window, including inability to 
quiet title and multiple and serial petitions.
    IPRs have devalued every single U.S. patent. Patents are 
supposed to be presumed valid. They are not before the PTAB. 
Invalidity must be proven by clear and convincing evidence. Not 
at the PTAB. The numbers confirm this. There are over 1,400 
IPRs filed each year. That is 3.5 times as many as the USPTO 
estimated to Congress.
    IPR petitioners fare much better than patentees, given IPRs 
are instituted over 60 percent of the time, and in final 
decisions some claims are invalidated 80 percent of the time.
    To my knowledge, no one, or almost no one thought, that 
there would be 1,400 IPRs per year, that there would be 260 
APJs, so many claims would be invalidated, and that the 
estoppel provision would be so weak. And no one thought that 
APJs were unconstitutional. But laws can have unexpected and 
unintended consequences.
    I want to applaud Director Iancu for several changes he has 
recently made. However, he alone can only do so much. For the 
last eight years, many interested parties have said repeatedly 
that the system was working just fine. It wasn't and it still 
is not.
    A critical voice seems to have been missing from the 
discussion, that of the patent owner. Patentees must pay 
thousands of dollars and wait years to get a patent, and then 
they must sometimes have to pay hundreds of thousands of 
dollars and wait years to see if it is valid. I know of no 
other Federal agency where one party may thousands of dollars 
to get a patent, or get a grant, and then another party pays 
the institution to invalidated that grant, but that is what we 
have today.
    Something odd is happening at the PTO. Every business day, 
1,000 patents are issued. But when the PTO re-evaluates some of 
those patents and writes a final decision, it invalidates some 
claims 80 percent of the time. It is also amazing to me that 
the only institution in the United States that does not give 
PTO credit for its work is the PTO. It can't. Patents are not 
presume valid at the PTAB.
    So as Congress thinks about this, some issues it may wish 
to consider--presumption of validity, standing, estoppel, and 
realizing that IPRs are often not a substitute for but are in 
addition to litigation. And most of all, consider IPRs from the 
perspective of the patentee. After all, without them we 
wouldn't be here.
    It has been an honor and a privilege to appear here today, 
and I am at your service. Thank you.
    [The statement of Mr. Whealan follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Johnson of Georgia. Thank you, and Ms. Rai, you may now 
begin.

                    STATEMENT OF ARTI K. RAI

    Ms. Rai. Thank you very much, Chairman Johnson, Chairman 
Nadler, Vice Chairman Correa, and Ranking Member Roby for 
inviting me. I am honored to be here and I also thank the other 
distinguished Members of the Committee.
    There are few issues about which I am more passionate than 
the PTAB. In that regard, I will have to limit myself to five 
minutes, but I do want to make one introductory point and then 
two other points.
    My written testimony lists the empirical and analytical 
work I have done on the PTAB. I have done a number of empirical 
and analytical studies. Based on this work, I do believe the 
PTAB is largely functioning as Congress envisioned in the 
America Invents Act. It is an expert, efficient, and fair 
alternative to expensive Article III litigation of the validity 
of issued patents.
    Second, the Federal Circuit's opinion in Arthrex, though in 
my view unduly formalist, may represent the views of the 
current Supreme Court.
    Third, from the standpoint of sound administrative 
procedure, the Arthrex remedy is not optimal as a policy 
matter. I believe it does make the PTAB constitutional, even 
under the current Supreme Court's jurisprudence, but it is not 
optimal as a policy matter. As a consequence, Congress could 
and should cure the problem by enacting a surgical alteration 
to the patent statute that gives the Director a unilateral 
right of review of PTAB decisions.
    So let me unpack each of those three points.
    I will start very quickly with my introductory point. I 
believe that the data showed that not only is PTAB serving the 
purpose that Congress intended, but this data has been used by 
the USPTO Director to take a number of important steps to make 
the PTAB function better.
    For example, the USPTO Director used data that my AUTHORS 
and I generated on the substitution effects that the PTAB is 
having to have the PTAB serve as an even more effective 
substitute for Article III. The Director has aligned PTAB's 
claimed construction procedures based upon that data with those 
used in the Article III so that substitution can occur even 
more efficiently.
    In addition, the Director has implemented procedures to 
curb serial petitioning and other potentially abusive 
practices. And then finally, and most relevant to the panel 
today, the Director has implemented procedures through which 
he, working with other senior USPTO personnel, creates 
presidential opinions that ensure policy consistency across the 
PTAB. Policy consistency, as we all know, is a very important 
feature of the administrative state.
    More specifically, under the procedure the director has 
created, the Director can determine that a particular PTAB 
opinion may warrant rehearing and convene a Precedential 
Opinion Panel to determine whether to grant rehearing. By 
default, this panel consists of the director, the commissioner 
of patents, and the PTAB chief.
    Now this last change leads directly to the Arthrex opinion. 
In that opinion, the Federal circuit panel determined that the 
creation of this Precedential Opinion Panel was insufficient 
because the director is only one member of a three-member 
panel. In my view, this is probably an unduly formalist reading 
of what is required for purposes of giving PTAB judges, quote, 
``adequate direction and supervision,'' unquote, under the 
Supreme Court's Edmond case. But as Professor Duffy has noted, 
it may be consistent with what a majority of the current 
Supreme Court would find.
    So now to my third point on the issue of remedy. On the 
positive side, the Arthrex panel's decisions to sever removable 
protections, I think, is a mechanism for curing the 
constitutional infirmity. Not only did the intercollegiate 
decision that Professor Duffy mentioned from the D.C. circuit 
use the same remedy but it is also consistent with the Supreme 
Court's decision in Free Enterprise Fund v. PCAOB, which also 
used severance to deal with an Appointments Clause challenge.
    So I think that the remedy is constitutional. But I do 
think as a policy matter it is a bad idea. Why is it a bad 
idea? I think, as Chairman Johnson has mentioned, it puts 
considerable pressure on the policy principle that political 
review of adjudicators should be transparent. The 
administrative state generally has such transparent review, 
whether the administrative adjudication is covered by the APA 
or whether it is a so-called Type B hearing, as the 
Administrative Conference of the United States has called these 
other types of hearings.
    So if the Congress were so inclined, it could just imitate 
the other parts of the administrative adjudicatory state that 
give a politically appointed official a clear right of review, 
and it would largely replicate the review that is already 
occurring in the POP panel but that the current Federal circuit 
and maybe the current Supreme Court would think is not 
sufficiently unilateral.
    Thank you, and I look forward to your questions.
    [The statement of Ms. Rai follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Johnson of Georgia. Thank you. Votes have been called. 
We have one or perhaps two votes, and the time for voting has 
expired, but there are still 255 people who have not voted. So 
we are going to scamper over, do this one vote, perhaps there 
will be another vote which would be five minutes after that. 
And so I look forward to us being back here in about 15 
minutes.
    So with that I will recess.
    [Recess.]
    Mr. Johnson of Georgia. We are back in session, and I will 
now proceed under the five-minute rule with questions, and I 
will begin by recognizing myself for five minutes.
    Ms. Rai, should we assume that the ruling that the PTAB 
violates the Appointments Clause will stand up on appeal, and 
isn't it possible that the courts will work this out 
themselves?
    Ms. Rai. So it is a very good question, and when you say 
appeal I assume you mean not en banc but appealed to the 
Supreme Court, or perhaps you mean both.
    Mr. Johnson of Georgia. Both.
    Ms. Rai. I think en banc it may not stand up, but that is a 
question that I haven't thought through, you know, with great 
rigor. But I think on appeal to the Supreme Court it may well 
stand up, given Justices Gorsuch, Kavanaugh, and Roberts. I not 
sure about Thomas and Alito, but those three, I--I think are 
fairly formal when it comes to these questions.
    Mr. Johnson of Georgia. Thank you. I would like to get the 
panel's reaction to some potential legislative ideas to address 
the Appointments Clause problem. Should all PTAB judges be 
appointed by the President and confirmed by the Senate? Should 
PTAB decisions be subject to discretionary review by the 
director of the PTO, or should PTAB decision be reviewable by a 
special panel of Senate-confirmed PTAB judges, or should PTAB 
decisions be reviewable by the PTAB chief judge, which would be 
made into a Senate-confirmed position, or should the PTAB be 
divided into two entities, one to hear ex parte proceedings and 
the other to hear inter parte proceedings?
    And I will start with you, Professor Duffy.
    Mr. Duffy. I think that all--the first four of your 
suggestions all make the final decisions of the PTAB, in one 
way or another, reviewable by a Senate-confirmed person. And so 
I think that all four of those are constitutional. Three of 
them are expressly suggestions in my written statement. The 
fourth one is making the Senate--pardon me, making the chief 
judge of the PTAB the person who gets to review, but you would 
have to change that person into a Senate-confirmed person.
    The fifth option, I think, about dividing the court into 
two parts, I think that is a matter that is sort of sideways to 
the constitutional issue. The constitutional issue is just 
making sure that all the decisions are reviewable by somebody 
who is Senate-confirmed. And I think actually in the opening 
statements, all the panelists seem to agree that that was the 
clearest solution, but then there are different examples of 
that.
    Mr. Johnson of Georgia. Let me ask you. Whose alternative 
do you prefer?
    Mr. Duffy. So, from a lawyer's standpoint I think they are 
all constitutional, so then I think it is just a matter of 
policy. I think probably the Director review is the easiest one 
to do, that would not require changing the appointment of any 
existing officers and just reinstalling a sufficient lever of 
control. In my written statement--so I would suggest that one.
    Mr. Johnson of Georgia. Thank you.
    Mr. Armitage. I agree with Professor Duffy. I would say two 
things. One, I think it is important to do something quickly, 
so whatever provides the soonest, best political consensus 
should be given a priority.
    Second, I think there is merit to thinking about whether 
there should be a separate trial-only function in the Patent 
Office, headed by a presidential appointee, because these are 
private litigants, basically, asking the PTO to adjudicate a 
private litigation.
    Mr. Johnson of Georgia. Thank you. Mr. Whealan.
    Mr. Whealan. Thank you, Mr. Chairman. I agree with at least 
some of the people on the panel that Director review, simply 
making that change, would be the quickest and most efficient 
way to probably make it constitutional. And in some ways, to be 
fair, I think the director has already been trying to do that, 
although not by himself, through the precedential panel 
proceedings that he as recently instituted.
    Mr. Johnson of Georgia. All right. Thank you. And Ms. Rai?
    Ms. Rai. Yes. I agree that unilateral Director review, 
really just one sentence, maybe in the patent statute, the 
Director shall have a right of review, would be the best 
option. It would be surgical. It would be quick, and hopefully 
not too controversial. And, I think it could actually work in 
tandem with the Precedential Opinion Panel system that has 
already been set up, and so there wouldn't even be a need to 
change that system. It would just be on top of that system.
    Mr. Johnson of Georgia. Thank you. Mr. Duffy, do you 
believe the Arthrex court remedy of removing civil service 
protection for PTAB judges could lead to situations where there 
are due process concerns, and if yes, can you elaborate?
    Mr. Duffy. I think it is not a great remedy, because it 
says the Director can maybe be displeased with a decision and 
fire this person. So the judge is gone--the judges or judge is 
gone, but their judgment still is very hard to unwind in a 
particular case. So it is kind of like the Cheshire Cat. The 
cat is gone but the smile is still there, and I think that is 
not a great remedy.
    Then you also have to say, well, to what extent can people 
get some sort of process before the Director, and say this was 
an incorrect decision. There is no mechanism to try to 
influence the director's exercise of discretion.
    I think many of the members mentioned due process. I think 
that is in play here and it does create a sort of difficulty 
for controlling these judges under the current structure.
    I can say one last thing, which is the Chief Justice of the 
United States, in the Oil States case actually brought up due 
process with respect to what is called panel stacking, which is 
one way that a director might be able to control the judges 
under the current mechanism. And you can read that portion of 
the oral argument transcript. I think the Chief Justice was 
extremely frosty about whether this was constitutional or not. 
He thought that was probably not, I think, from his remarks. 
And so that shows the awkwardness of the current system.
    Mr. Johnson of Georgia. Thank you. I now recognize the 
Ranking Member for five minutes. Mrs. Roby.
    Mrs. Roby. Thank you, Chairman. So beyond constitutional 
deficiencies, which I think you all have weighed in very 
clearly on what your suggestions may be, are there amendments 
to AIA that Congress should consider to ensure PTAB proceedings 
are fair for both parties? Anybody.
    Mr. Whealan. So my written testimony talks about this, but 
I think the two things that Congress should do is it should go 
back and look at the debate that was going on between the IPR 
system, as I laid out. There was almost no debate. There was a 
lot of debate about the PGR second window that was taken out of 
the bill. And if you see some of the same problems, you could 
compare and contrast, are there things that you did not intend 
to occur that are basically occurring now.
    But the second--to answer your direct question, the 
simplest fix, if what we have now is basically a validity 
challenge, not a re-exam, a straight-up validity challenge, 
then make the playing field fair. Presumption of validity, 
clear and convincing evidence, Phillips, and just make the 
standards what are in district court, make them the same at the 
PTAB.
    Mrs. Roby. That was my second question, so anybody else 
want to jump in? Do you think--and others can weigh in--do you 
think that it makes better sense, as was just suggested, to 
have PTAB apply the same standards district courts apply to 
claims invalid in those related proceedings?
    Mr. Armitage. Yes, absolutely. We now know from experience 
that 80 percent or so of IPR proceedings are actually part of 
the district court validity challenge to the patent, and it 
simply makes no sense to give the appearance of unfairness to 
the patent owner. Whether it is unfair or not, if these 
procedures are actually going to be sustainable and sustained 
they need to not only be fair but have the appearance of 
fairness, and they won't do that without the clear and 
convincing evidence standard.
    Mrs. Roby. I would say, Professor, you look like you want 
to say something.
    Ms. Rai. Yes, I agree, as a policy matter, with the 
argument that claim construction should be the same as between 
Article III and the PTAB, and, in fact, submitted comments to 
the PTO and was very pleased that Director Iancu decided to go 
in that direction.
    As an administrative law professor, it is not--I don't have 
a huge love of Congress necessarily coming in and micromanaging 
administrative adjudication. It seems to me that that this is 
the sort of thing that is appropriately delegated to the 
agency, which can adapt its adjudicatory practices within the 
limits of the Constitution to the needs before it. I think 
having Congress put that into statute would unduly box in the 
agency.
    Mrs. Roby. Should companies be allowed to bring multiple 
challenges to the same patent, either directly or through a 
follow-on attack by a surrogate, like the organizations that 
exist to invalidate patents and who clearly represent the 
interests of the companies who fund them?
    Mr. Whealan. Two responses to Ms. Rai's point, just a quick 
response. Congress put preponderance in the statute. Congress 
has to take it out if they want to change it.
    As to your second point, estoppel is meant to be real. It 
was meant to be a pick-one forum. Don't let some member or 
organization do it for you. And so I think Congress wanted you 
to pick, and, you know, clearly when you have laws people 
figure out ways around them. You should investigate how they 
are going around them and put tighter estoppel in, because I 
think, as Arti Rai said, then you have a fair shot. You pick 
your shot, and that, to me, would be more balanced.
    Mrs. Roby. Anybody else?
    Well, Mr. Chairman, I would just ask, I mean, there is 
clearly--you all have provided, both in your written testimony 
and here today, lots of suggestions, and I would just ask that 
we continue this conversation as we look to solutions. So I 
really do appreciate each of you coming here today and offering 
us very candid testimony from each of you. So thank you so 
much, and I yield back.
    Mr. Johnson of Georgia. Thank you, and I now recognize the 
gentleman from Louisiana, Mr. Johnson, for five minutes.
    Mr. Johnson of Louisiana. Thank you, Mr. Chairman, and 
thank you all again. We are all saying it but we appreciate 
your expertise. It is a crazy day on Capitol Hill, as you know, 
so do not interpret the empty seats as a lack of interest. It 
is just everyone is scattered to the four winds today.
    The record of these proceedings, as you know, is really 
important to us, because this is what we go back and study, the 
staff and all the members, so I don't want you to think your 
testimony is in vain. We appreciate you being here.
    I am really grateful for the level of attention that is 
being paid to the Appointments Clause here in the Intellectual 
Property Subcommittee, and we all recognize, we feel that this 
Subcommittee plays a key role in ensuring the U.S. remains the 
global leader in innovation, and we all know how important that 
is.
    Our country is an exceptional beacon for innovation because 
our founders took the bold step to enshrine both property 
rights and a guarantee that enforcement of our laws be done in 
a manner that is consistent with the underlying principles that 
govern our republic.
    I just had two pretty simple questions for you, but I am 
trying to summarize this for people who are not deep in the 
weeds on all the details. How is the background and the 
appointment of PTAB APJs different from the selection of ALJs 
appointed throughout the government? And if you have already 
answered this, forgive me. I have been in and out, like 
everybody else. But anyone, I guess. Mr. Duffy.
    Mr. Duffy. Well, from a constitutional standpoint, I think 
they are currently now, after the Supreme Court's decision in 
Lucia from last term, they are now quite similar 
constitutionally, in the sense that administrative law judges 
generally now must have the appointment from a head of 
department. Now that could be a multi-member commission like 
the SEC, and the Supreme Court precedent has made that clear, 
but it has to be an appointment from the head of department.
    The administrative patent judges have had that since 2008, 
because I had an article and sort of pointed out that they were 
not being appointed by a head of department, and the Congress 
changed that rather quickly to be appointment by the Secretary 
of Commerce. So in that sense they are similar.
    The way they are different is their duties. Their duties 
are different because the administrative law judges are subject 
to plenary review, discretionary plenary review in many 
agencies, but plenary review at the agency head level. So there 
are Senate-confirmed full officers, non-inferior officers who 
have the final say, whereas the administrative patent judges 
and the PTAB that they staff really is not. And there are 
various ways that people can say, well, the Director could 
influence it this way or that way, but ultimately there is no 
firm control by any Senate-confirmed officer.
    So that is the major difference, and that is what is 
causing a constitutional problem in this case.
    Mr. Johnson of Louisiana. Thanks for that.
    Ms. Rai. Can I just make one additional point? The statute 
does provide that the administrative patent judges have to be 
persons of competent scientific ability and patent ability, 
which is a requirement that is not there in the organic statute 
for many other agencies. And so to the extent we are concerned 
about expertise, I think it is fair to say that the statute 
provides for a basic level of expertise.
    Mr. Johnson of Louisiana. Well, that actually kind of leads 
to my next question, and that would be, should Congress amend 
the statute further, define minimum qualifications to require 
more than just a technical degree and experience as a patent 
attorney? And if so, what would that criteria be? What is the 
ideal?
    Mr. Duffy. So I think that the Congress could do that if 
they found that there was a problem already with the hiring 
practices of the PTO. But I think that if you did want to make 
that change you might want to first investigate what the 
Administration is doing in terms of its hiring practices.
    Usually this body doesn't legislate unless they think that 
there is a problem. I think that the administrative patent 
judges, I think most of them are attorneys. I would be 
surprised to find that they are not, or that a large number of 
them are not. And I think they do try to hire people who have 
some degree of technical expertise too.
    Mr. Johnson of Louisiana. So if it is working well in 
practice we don't need to--I mean, I am not suggesting we 
should get into the middle of that, but I just wanted to know 
what you all thought, as experts in the field.
    Mr. Armitage. There actually appears to be very little 
criticism of the quality of the work because they don't have 
the legal expertise or the technical expertise to understand 
what they are doing. So I think this is not a problem in the 
real world.
    Mr. Johnson of Louisiana. Good. Thanks for clarifying that.
    I will yield back, Mr. Chairman. Thank you for being here.
    Mr. Johnson of Georgia. Thank you. Next we will hear from 
the gentleman from Virginia, Mr. Cline, 5 minutes.
    Mr. Cline. Thank you, Mr. Chairman. I thank our witnesses 
for being here.
    I want to take issue with the last statement that it seems 
to be working so well. Isn't it absurd for a Federal district 
court, or the Federal circuit to issue a decision upholding the 
validity of a patent only to have the PTAB invalidate the same 
patent on the grounds similar to those rejected by the courts?
    Mr. Whealan. I think that goes to the both the purpose and 
how is it working, and I would say, but you can get different 
outcomes, unfortunately, if you have different standards. And 
so this might be a reason, again, another reason, to align the 
two standards and not have different outcomes, and essentially 
make whichever is the first standard--whichever is the first 
decision, be binding on the second decision.
    Mr. Cline. Well, does the fact that the PTAB invalidated 
patents upheld by Article II courts demonstrate a lack of 
oversight authority within the Executive branch?
    Mr. Whealan. No, not necessarily. I mean, it is a different 
standard. So if you need to prove clear and convincing evidence 
and there is a presumption of validity in district court and 
you can't win, and all you need to do is prove by preponderance 
of the evidence, which is a lower standard, in theory they 
could prove it by 51 percent, and prove invalidity at the PTAB 
but not in district court. Whether that makes sense to have 
that system is a different question.
    Mr. Cline. Okay.
    Ms. Rai. And I wanted to add that in addition to the 
difference in burden, clear and convincing versus 
preponderance, in the district courts, when validity is 
challenged, a district court can only determine that the patent 
is not invalid. The patent adjudication in district court does 
not determine that the patent is valid. So if another party 
comes along and challenges the patent in, for example, the 
PTAB, again, whatever one thinks of whether it is good as a 
policy matter, there is nothing illegitimate about another 
party challenging that patent because it has only been declared 
not invalid.
    Mr. Duffy. So I think that the history here is a little 
complicated, and you first have to go back to talking about the 
presumption of validity, because you talk about a lack of 
judicial supervision. What the Congress did in 1952 is codify a 
presumption of validity that had been built up by case law, but 
that was a massive shift in power away from the courts to the 
administrative agency.
    So my colleagues on the panel have said there is a 
different standard and the court is only saying that the patent 
is not clearly invalid. That actually is a change that occurred 
in the mid 20th century that shifted power, that aggrandized 
the power of the administrative agency.
    So if your concern is a lack of judicial supervision, you 
might go back and look at why an agency gets to issue a patent, 
oftentimes by just a single examiner, and that that actually 
gets an extraordinary amount of deference from the Judiciary so 
that they review it under this very deferential standard, and 
on top of that, from an administrative law standpoint, there 
is, under current lower court case law, though, not Supreme 
Court case law, there is no judicial review of the 
administrative action issuing the patent.
    The Federal circuit has held there is simply no way to 
review that. It is outside the Administrative Procedure Act, 
which is an extraordinary ruling. But nonetheless, that is an 
enormous amount of administrative power on the front end, that 
you can't forget about if you are trying to get back to first 
principles and separation of power.
    Mr. Cline. Thank you. Yes.
    Mr. Whealan. We talk as if once you are done with the PTAB 
the patentee has a valid patent. He doesn't. He just can't have 
it challenged again under 102 and 103, based on basically the 
same priority of something that would have been available. When 
you go to district court, they could still challenge the 
validity of that same patent, based on 101 or 112. So it is 
only a subset that the patentee is now free from challenge in 
the district court.
    Mr. Cline. Thank you. Mr. Chairman, I yield back.
    Mr. Johnson of Georgia. Thank you. At this time I would 
like to commence a second round of questions. My first will be 
to the panel, and anyone who wants to respond may.
    There are a number of competing theories about whether the 
PTAB is constitutional right now. The government has suggested 
that the Arthrex decision was effective immediately. Another 
set of judges suggested that Arthrex should apply retroactively 
to curing constitutional defects. Yet the mandate in the 
Arthrex case has not issued.
    What is your view on this issue, and how disruptive could 
the Arthrex decision actually be?
    Mr. Duffy. So I have thought a lot about this, and I want 
to begin this statement by saying it is extraordinarily 
complex, and that is why my written statement and my oral 
statement talked about uncertainty and about the years that are 
going to--where the courts are going to have to unwind these 
things.
    In terms of the decision, one theoretical objection to what 
the Arthrex panel did, which was made by a separate opinion by 
Judge Dyk, framed in terms of retroactivity, but it can be 
framed more clearly, I think, by simply saying that if you go 
back to Marbury v. Madison, all the court does, courts don't 
actually strike down statutes. They simply say what the law is. 
And if the judges cannot constitutionally have tenure, if that 
actually is the correct view of the Constitution and the laws 
and the statute, then the judges never did have tenure, because 
the law never was that way. Even before a court says it is the 
law, it still was the law. That is the sort of basic, sort of 
very formalistic view that judges don't make law. They simply 
announce what the law is and has always been. That is something 
Justice Scalia was a very big fan of.
    Now that would mean that the judges never had tenure and, 
therefore, if the removal of their tenure protection solves the 
constitutional defect, then they never had tenure in the first 
place.
    Now in my written statement I said that it is not clear 
that that is a sufficient remedy, and I think that the panel 
here suggested that the only sufficient remedy that is clear is 
having some sort of Senate-confirmed officer or officers review 
the decision.
    But the Arthrex decision has many sub-issues, many sub-
issues underneath of it, and we will eventually, in a couple of 
years, get a final decision on at least some of them. But I 
don't know if we can wait that long.
    Mr. Johnson of Georgia. Yes.
    Mr. Whealan. I would just add, somebody said to me 
recently, ``It is interesting, how could the APJs previously 
had thought they could have been fired at will when they didn't 
know they could be fired at will, and then would have acted 
differently.'' So we are acting in an imaginary universe.
    But I do agree with John, that the uncertainty--many people 
think these decisions are not correct, but talking to 
constitutional lawyers, administrative colleague who never talk 
about patent law, they are talking to me about patent law and 
they don't even know all the answers and everybody disagrees. 
So this is going to take at least a year en banc. It could be 
another year at the Supreme Court. And the courts could decide 
the judges, the APJs still have too much authority, still have 
too much decision-making authority, the Director is still not 
reviewing their work, and it is still unconstitutional unless 
Congress acts.
    Mr. Johnson of Georgia. Thank you.
    Mr. Armitage. One of the last thing I do before I go to bed 
each night is hope that Judge Dyk is correct, because if we get 
an en banc ruling that he is correct, if nothing bad happens 
until the Supreme Court does something different, and that 
gives you all time to have a permanent fix along the lines I 
think we have been discussing, about review and authority.
    Ms. Rai. And in terms of the permanent fix, I do think that 
a retroactive permanent fix would be useful as well, because I 
think in creating the certainty we need, we need to make sure 
that not simply prospectively, but retroactively the director 
was deemed to have the right of review.
    Mr. Johnson of Georgia. Thank you. Professor Rai, would it 
raise due process concerns if the director uses his new power 
to remove PTAB judges without restriction, firing a judge in 
the middle of a case for the way the judge was inclined to 
handle the case?
    Ms. Rai. Yes, it would. I think certainly in the middle of 
the case, yes, I think that would be a serious due process 
issue.
    Now the Alappat case was a little bit different, and I am 
not sure if the Alappat case, which we haven't really talked 
about, but was a decision from the Federal Circuit, an en banc 
decision, from 1994, where--well, I supposed we have talked 
about it in that Professor Duffy talked about so-called panel 
stacking--I would be reluctant to call it panel stacking. There 
was a new panel created to rehear the case. I don't think that 
that is a due process problem but I do think firing somebody in 
the middle of his or her deciding a case is a due process 
problem, yes.
    Mr. Johnson of Georgia. Anyone else?
    Mr. Whealan. Could APJs currently argue that they had 
something taken away from them, by their civil service 
protection taken away from them, and now they can be fired at 
will. You know, can they argue that if they are fired for 
another reason? I mean, and I can't believe, you know, although 
I don't think that Director Iancu is going to start firing 
people, as a practical matter, I can't believe it is a warm and 
fuzzy feeling to find out one way you were protected by the 
Civil Service like everybody else, like I was as a government 
employee, and then to find out the next day you are not.
    Mr. Duffy. I think that there is a constitutional question 
about the due process, but it is very complex, because it would 
depend on how the--the director, I think, under the current 
Federal circuit ruling, could do that and could fire somebody. 
As long as the hearing continues and, I think, the 
constitutional due process hearing right would be the basic 
right from Morgan v. United States, where the court said that 
he who decides has to be the one who hears, in other words, 
reads all the documents and has the briefs and everything 
submitted, has the oral argument, if it is statutorily 
available. That is the person who has to be the decider. That 
is a crucial feature of administrative due process, and that 
was established in the first half of the 20th century.
    So the Director could fire somebody. Now, frankly, I don't 
know the Director would know somebody is going to rule--
questions at oral argument, or something like that? It would be 
very hard to figure out how the Director would figure that out. 
But if the Director did do that and just substitute in a new 
person, it probably would be constitutional but it may raise 
policy concerns, which I think are certainly within the 
prerogative of the Congress to decide that it is not good 
policy.
    Mr. Johnson of Georgia. All right.
    Mr. Armitage. I think that there are really two relevant 
hypotheticals here. The Patent Office was created largely to 
decide if a patent should issue. So if a patent examiner, 
having a patent application in front of him or her, was going 
to allow a patent to issue, that the Director did not want to 
issue, it actually wouldn't offend me if the Director took that 
patent application away and explained to the applicant why the 
patent should issue. That is fundamentally the Director's job 
to set policy and understand which patents should and shouldn't 
issue.
    On the other hand, if a litigant is in a private litigation 
in a Federal district court, and a Federal District Court Judge 
is about to rule in favor of one party relative to a patent, 
the director of the Patent and Trademark Office should not have 
the ability to have that Article III Judge change because of 
the way that judge might rule on the patent.
    So why would it appear fair if instead of having that 
litigation take place, as it always did before the IPR statute 
in the Federal District court, we now have the Patent Office 
conducting that before an Administrative Patent Judge, and the 
Director can say, ``I don't like the way this private 
litigation issue may come out. I'm going to put someone else 
in.'' I think that is highly offensive, whether it is due 
process or not, as a technical matter, and does suggest that 
what the Patent Office does ex parte, in deciding if patents 
should issue, should not be the relevant framework for deciding 
the director's authority in these what otherwise would have 
been private litigation matters.
    Mr. Johnson of Georgia. Thank you. Mrs. Roby.
    Mrs. Roby. Well, I just want to talk to you in terms of, 
you know, the matter at hand really is how this affects 
companies, so businesses. If it is determined that the fix is 
not enough then what happens to the decision? I mean, can a 
company rely on the decision? I think this is really the heart 
of the matter in terms of urgency and the need to take this up, 
and why today's discussion is so important, but not just ending 
here today but moving forward on actually putting these 
solutions into practice. So feel free to comment on that, but I 
do think it is an important question to ask. I mean, both of 
you can--I have got four minutes.
    Mr. Whealan. Just quickly, the two things companies that I 
talk to complain about are uncertainty, and the only thing 
worse than uncertainty is delayed uncertainty. They need to 
make decisions. You tell them what the answer is, they can make 
a decision. If they don't know what the answer is, they can't 
act. A lot of money and time is being spent right now trying to 
figure this out, and as we have all talked about, the final 
answer may not be until the Supreme Court, which would take two 
years, and if they don't have the power to solve it, it may not 
even be done then.
    Mr. Duffy. And so I agree with that, and I think that my 
colleague, Bob Armitage, said that like that Judge Dyk's 
solution would work, because at least it wouldn't be a problem 
for another two years, until the Supreme Court said something 
differently.
    But, since a lot of people would think that the Supreme 
Court might very well say something differently, the problem is 
still present today. It is not that it is the sword of 
Damocles' fault. It is that it is hanging there that is the 
problem. And I think the sword of Damocles is there and the 
uncertainty is there, unless there is some sort of legislative 
fix. It is not going to come from the courts. It is not going 
to come from Judge Dyk. It is not going to come from the 
Arthrex en banc panel. It would only come from the Supreme 
Court, and for complex reasons they may not even give a final 
solution because there are a variety of issues associated with 
remedy. They usually grant certiorari on one question and limit 
themselves to that question, and then that can create sub-
questions that go back and be litigated for years longer.
    Mr. Whealan. And just to complement what John said, or add 
to it, although Bob may like Judge Dyk to make that en banc 
decision, he is not going to. There are 12 of them, and if you 
have looked at their en banc decisions in the last 5 to 10 
years, they don't always agree, and sometimes they write lots 
of different opinions. So you would have a decision, but it 
would only be until the Supreme Court took it up, and there 
would be ample, probably, dissenting opinions from the Federal 
circuit which essentially are turned into a cert petition to 
the Supreme Court.
    Mr. Armitage. Let me just clarify, if weren't clear what I 
hope I said. I go to bed at night hoping Judge Dyk is right, 
because he would do, retroactively, something that during an 
interim period of time would cause no harm, and give the 
Congress time to act, as Arti Rai says, retroactively to do 
some good, one of the good things would be to presumably moot 
the issue so the Supreme Court would actually never have to 
decide the current issue that we face with the current statute.
    So it is really the ability of nothing bad to happen before 
Congress acts. And what do I mean by ``bad''? For example, the 
PTAB decisions basically being all of questionable 
constitutionality, so who knows if decisions invalidating 
patents really invalidated those patents? I mean, the 
unthinkable things need to be solved before they become 
thoughts we all have to live with.
    Ms. Rai. And one last thing to add to the chorus that I 
think is being generated, that it is up to you to do the right 
thing and fix this, and that is that the due process issue, one 
component of it, which is procedural due process, is being 
litigated right now, and this Arthrex decision makes that 
procedural due process problem even more complicated because 
the question, if, for example, a litigant wanted to say that 
there is a procedural due process problem with the way that 
IPRs are working, they could certainly point to the fact that 
now judges can be fired at will.
    Mrs. Roby. Well again, thank you all for being here. We 
really appreciate your time today, and thank you, Mr. Chairman. 
I yield back.
    Mr. Johnson of Georgia. Thank you. With that we will 
conclude today's hearing. I want to thank the panelists for 
their attendance today, and without objection all members will 
have five legislative days to submit additional written 
questions for the witnesses or additional materials for the 
record. And with that the hearing is adjourned.
    [Whereupon, at 5:25 p.m. the subcommittee was adjourned.]

      

                                APPENDIX

=======================================================================

      
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
      

                  QUESTIONS AND ANSWERS FOR THE RECORD

=======================================================================

      
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
                             [all]