[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]
THE PATENT TRIAL AND APPEAL BOARD
AFTER 10 YEARS: IMPACT ON INNOVATION
AND SMALL BUSINESSES
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON COURTS, INTELLECTUAL PROPERTY, AND THE INTERNET
OF THE
COMMITTEE ON THE JUDICIARY
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTEENTH CONGRESS
SECOND SESSION
----------
THURSDAY, JUNE 23, 2022
----------
Serial No. 117-71
----------
Printed for the use of the Committee on the Judiciary
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Available via: http://judiciary.house.gov
THE PATENT TRIAL AND APPEAL BOARD AFTER 10 YEARS: IMPACT ON INNOVATION
AND SMALL BUSINESSES
THE PATENT TRIAL AND APPEAL BOARD
AFTER 10 YEARS: IMPACT ON INNOVATION
AND SMALL BUSINESSES
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON COURTS, INTELLECTUAL PROPERTY, AND THE INTERNET
OF THE
COMMITTEE ON THE JUDICIARY
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTEENTH CONGRESS
SECOND SESSION
__________
THURSDAY, JUNE 23, 2022
__________
Serial No. 117-71
__________
Printed for the use of the Committee on the Judiciary
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Available via: http://judiciary.house.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
48-844 WASHINGTON : 2022
COMMITTEE ON THE JUDICIARY
JERROLD NADLER, New York, Chair
MADELEINE DEAN, Pennsylvania, Vice-Chair
ZOE LOFGREN, California JIM JORDAN, Ohio, Ranking Member
SHEILA JACKSON LEE, Texas STEVE CHABOT, Ohio
STEVE COHEN, Tennessee LOUIE GOHMERT, Texas
HENRY C. ``HANK'' JOHNSON, Jr., DARRELL ISSA, California
Georgia KEN BUCK, Colorado
THEODORE E. DEUTCH, Florida MATT GAETZ, Florida
KAREN BASS, California MIKE JOHNSON, Louisiana
HAKEEM S. JEFFRIES, New York ANDY BIGGS, Arizona
DAVID N. CICILLINE, Rhode Island TOM McCLINTOCK, California
ERIC SWALWELL, California W. GREG STEUBE, Florida
TED LIEU, California TOM TIFFANY, Wisconsin
JAMIE RASKIN, Maryland THOMAS MASSIE, Kentucky
PRAMILA JAYAPAL, Washington CHIP ROY, Texas
VAL BUTLER DEMINGS, Florida DAN BISHOP, North Carolina
J. LUIS CORREA, California MICHELLE FISCHBACH, Minnesota
MARY GAY SCANLON, Pennsylvania VICTORIA SPARTZ, Indiana
SYLVIA R. GARCIA, Texas SCOTT FITZGERALD, Wisconsin
JOE NEGUSE, Colorado CLIFF BENTZ, Oregon
LUCY McBATH, Georgia BURGESS OWENS, Utah
GREG STANTON, Arizona
VERONICA ESCOBAR, Texas
MONDAIRE JONES, New York
DEBORAH ROSS, North Carolina
CORI BUSH, Missouri
AMY RUTKIN, Majority Staff Director and Chief of Staff
CHRISTOPHER HIXON, Minority Staff Director
------
SUBCOMMITTEE ON COURTS, INTELLECTUAL PROPERTY, AND
THE INTERNET
HENRY C. ``HANK'' JOHNSON, Jr., Georgia, Chair
MONDAIRE JONES, New York, Vice-Chair
THEODORE E. DEUTCH, Florida DARRELL ISSA, California, Ranking
HAKEEM JEFFRIES, New York Member
TED LIEU, California STEVE CHABOT, Ohio
GREG STANTON, Arizona LOUIS GOHMERT, Texas
ZOE LOFGREN, California MATT GAETZ, Florida
STEVE COHEN, Tennessee MIKE JOHNSON, Louisiana
KAREN BASS, California TOM TIFFANY, Wisconsin
ERIC SWALWELL, California THOMAS MASSIE, Kentucky
MONDAIRE JONES, New York DAN BISHOP, North Carolina
DEBORAH ROSS, North Carolina MICHELLE FISCHBACH, Michigan
JOE NEGUSE, Colorado SCOTT FITZGERALD, Wisconsin
CLIFF BENTZ, Oregon
JAMIE SIMPSON, Chief Counsel
BETSY FERGUSON, Senior Counsel
C O N T E N T S
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Thursday, June 23, 2022
Page
OPENING STATEMENTS
The Honorable Henry C. ``Hank'' Johnson, Jr., Chair of the
Subcommittee on Courts, Intellectual Property, and the Internet
from the State of Georgia...................................... 2
The Honorable Darrell Issa, Ranking Member of the Subcommittee on
Courts, Intellectual Property, and the Internet from the State
of California.................................................. 3
WITNESSES
David J. Kappos, Partner and Co-Chair, Intellectual Property
Practice, Cravath, Swaine & Moore, LLP
Oral Testimony................................................. 82
Prepared Statement............................................. 84
Kirupa Pushparaj, General Counsel and Corporate Secretary, Step
Oral Testimony................................................. 90
Prepared Statement............................................. 92
Jonathan Rogers, Chief Operating Officer, Centripetal Networks,
Inc.
Oral Testimony................................................. 95
Prepared Statement............................................. 97
Joseph Matal, Partner, Haynes and Boone, LLP
Oral Testimony................................................. 108
Prepared Statement............................................. 110
Eldora L. Ellison, Director and Co-Chair, Patent Office
Litigation Practice, Sterne, Kessler, Goldstein & Fox
Oral Testimony................................................. 123
Prepared Statement............................................. 125
Earl ``Eb'' Bright, President & General Counsel, ExploraMed
Oral Testimony................................................. 130
Prepared Statement............................................. 132
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Materials submitted by the Honorable Darrell Issa, Ranking Member
of the Subcommittee on Courts, Intellectual Property, and the
Internet from the State of California, for the record
A statement by the Honorable Senator Patrick Leahy, Chair of
the Subcommittee on Intellectual Property, United States
Senate Committee on the Judiciary............................ 6
A statement from Biosimilars Council, AAM...................... 8
A statement from United for Patent Reform...................... 10
A statement from Garrick Francis, Vice President, Federal
Affairs, Alliance for Automotive Innovation.................. 14
Materials submitted by Honorable Henry C. ``Hank'' Johnson, Jr.,
Chair of the Subcommittee on Courts, Intellectual Property, and
the Internet from the State of Georgia, for the record
A statement from Robert A. Armitage, Consultant, IP Strategy &
Policy....................................................... 20
A statement from Molly Metz, JumpNrope......................... 55
A statement from Engine, ACT | The App Association, Consumer
and Technology Association, and Developers Alliance.......... 63
A statement from Brian Pomper, Executive Director, The
Innovation Alliance.......................................... 66
Materials submitted for the record by the Honorable Thomas
Massie, a Member of the Subcommittee on Courts, Intellectual
Property, and the Internet from the State of Kentucky, for the
record
An article entitled, ``China Hijacks US Patent System to Steal
American Inventions,'' US Inventor........................... 166
An article entitled, ``How Google and Big Tech Killed the U.S.
Patent System,'' IPWatchdog.................................. 178
An article entitled, ``Big Tech's Sticky Fingers Are Still at
Work in Washington,'' Hudson Institute, Inc.................. 189
APPENDIX
Materals submitted by the Honorable Darrell Issa, Ranking Member
of the Subcommittee on Courts, Intellectual Property, and the
Internet from the State of California, for the record
A presentation entitled, ``An Analysis of Multiple Petitions in
AIA Trials,'' United States Patent and Trademark Office...... 194
A presentation entitled, ``Analysis of multiple petitions in
AIA Proceedings: (December 2020 update),'' United States
Patent and Trademark Office.................................. 236
A letter from Francisco R. Sanchez, Vice President & General
Counsel, Law & IP Unit, American Honda Motor Co., Inc........ 250
A statement from Engine, ACT | The App Association, Consumer
and Technology Association, and Developers Alliance.......... 253
A statement from Conservatives for Property Rights............. 256
A statement from Eagle Forum Education & Legal Defense Fund.... 262
A statement from the Software and Information Industry
Association, submitted by the Honorable Henry C. ``Hank''
Johnson, Jr., Chair of the Subcommittee on Courts, Intellectual
Property, and the Internet from the State of Georgia, for the
record......................................................... 265
QUESTIONS AND RESPONSES FOR THE RECORD
Questions for the witnesses submitted by the Honorable Henry C.
``Hank'' Johnson, Jr., Chair of the Subcommittee on Courts,
Intellectual Property, and the Internet from the State of
Georgia, for the record........................................ 272
Questions for Joseph Matal, Partner, Haynes and Boone, LLP;
Jonathan Rogers, Chief Operating Officer, Centripetal Networks,
Inc.; and David Kappos, Partner and Co-Chair, Intellectual
Property Practice, Cravath, Swaine & Moore, LLP, submitted by
the Honorable Zoe Lofgren, a Member of the Subcommittee on
Courts, Intellectual Property, and the Internet from the State
of California, for the record.................................. 276
Questions for Joseph Matal, Partner, Haynes and Boone, LLP,
submitted by the Honorable Scott Fitzgerald, a Member of the
Subcommittee on Courts, Intellectual Property, and the Internet
from the State of Wisconsin, for the record.................... 278
Response from David Kappos, Partner and Co-Chair, Intellectual
Property Practice, Cravath, Swaine & Moore, LLP, submitted by
the Honorable Henry C. ``Hank'' Johnson, Jr., Chair of the
Subcommittee on Courts, Intellectual Property, and the Internet
from the State of Georgia, for the record...................... 279
Response from David Kappos, Partner and Co-Chair, Intellectual
Property Practice, Cravath, Swaine & Moore, LLP, submitted by
the Honorable Zoe Lofgren, a Member of the Subcommittee on
Courts, Intellectual Property, and the Internet from the State
of California, for the record.................................. 281
Response from Earl ``Eb'' Bright, President & General Counsel,
ExploraMed, submitted by the Honorable Henry C. ``Hank''
Johnson, Jr., Chair of the Subcommittee on Courts, Intellectual
Property, and the Internet from the State of Georgia, for the
record......................................................... 284
Response from Eldora L. Ellison, Director and Co-Chair, Patent
Office Litigation Practice, Sterne, Kessler, Goldstein & Fox,
submitted by the Honorable Henry C. ``Hank'' Johnson, Jr.,
Chair of the Subcommittee on Courts, Intellectual Property, and
the Internet from the State of Georgia, for the record......... 290
Response from Jonathan Rogers, Chief Operating Officer,
Centripetal Networks, Inc., submitted by the Honorable Henry C.
``Hank'' Johnson, Jr., Chair of the Subcommittee on Courts,
Intellectual Property, and the Internet from the State of
Georgia, for the record........................................ 292
Response from Jonathan Rogers, Chief Operating Officer,
Centripetal Networks, Inc., submitted by the Honorable Zoe
Lofgren, a Member of the Subcommittee on Courts, Intellectual
Property, and the Internet from the State of California, for
the record..................................................... 295
Response from Joseph Matal, Partner, Haynes and Boone, LLP,
submitted by the Honorable Henry C. ``Hank'' Johnson, Jr.,
Chair of the Subcommittee on Courts, Intellectual Property, and
the Internet from the State of Georgia, for the record......... 297
Response from Joseph Matal, Partner, Haynes and Boone, LLP,
submitted by the Honorable Scott Fitzgerald, a Member of the
Subcommittee on Courts, Intellectual Property, and the Internet
from the State of Wisconsin, for the record.................... 307
Response from Joseph Matal, Partner, Haynes and Boone, LLP,
submitted by the Honorable Zoe Lofgren, a Member of the
Subcommittee on Courts, Intellectual Property, and the Internet
from the State of California, for the record................... 308
Response from Kirupa Pushparaj, General Counsel and Corporate
Secretary, Step, submitted by the Honorable Henry C. ``Hank''
Johnson, Jr., Chair of the Subcommittee on Courts, Intellectual
Property, and the Internet from the State of Georgia, for the
record......................................................... 323
THE PATENT TRIAL AND APPEAL
BOARD AFTER 10 YEARS: IMPACT ON INNOVATION AND SMALL BUSINESSES
----------
Thursday, June 23, 2022
House of Representatives
Subcommittee on Courts, Intellectual Property,
and the Internet
Committee on the Judiciary
Washington, DC
The Committee met, pursuant to call, at 10:06 a.m., in Room
2141, Rayburn House Office Building, Hon. Hank Johnson [Chair
of the Subcommittee] presiding.
Members present: Representatives Johnson of Georgia, Lieu,
Stanton, Lofgren, Ross, Jordan, Issa, Gohmert, Johnson of
Louisiana, Massie, Bishop, Fischbach, Fitzgerald, and Bentz.
Staff present: Aaron Hiller, Chief Counsel and Deputy Staff
Director; John Doty, Senior Advisor and Deputy Staff Director;
David Greengrass, Senior Counsel; Moh Sharma, Director of
Member Services and Outreach & Policy Advisor; Gabriel Barnett,
Professional Staff Member; Casey Lee, Staff Assistant; Merrick
Nelson, Digital Director; Jamie Simpson, Chief Counsel for
Courts & IP; Kristi L. R. Sawert, Detailee for Courts & IP;
Tyler Grimm, Minority Chief Counsel for Policy and Strategy;
Ella Yates, Minority Member Services Director; Andrea Woodard,
Minority Professional Staff Member; Kiley Bidelman, Minority
Clerk; and John Lee, Minority USPTO Detailee.
Mr. Johnson of Georgia. The Subcommittee will come to
order. Without objection, the Chair is authorized to declare
recesses of the Subcommittee at any time. We welcome everyone
to this morning's hearing on The Patent Trial and Appeals Board
after 10 Years: Impact on Innovation and Small Businesses.
Before we begin, I would like to remind Members that we
have established an email address and distribution list
dedicated to circulating exhibits, motions, or other written
materials that Members might want to offer as part of our
hearing today. If you would like to submit materials, please
send them to the email address that has been previously
distributed to your offices. We will circulate the materials to
Members and staff as quickly as we can.
I'd like to ask all Members to please mute your microphones
when you are not speaking. This will help prevent feedback and
other technical issues. You may unmute yourself anytime you
seek recognition.
I will now recognize myself for an opening statement.
The Leahy-Smith America Invents Act of 2011, or AIA, made
the most fundamental changes to the patent laws that our
country had not seen since the Patent Act of 1952. One of those
fundamental changes was the creation of the Patent Trial and
Appeal Board, an adjudicatory body within the United States
Patent and Trademark Office. The PTAB as the Patent Trial and
Appeal Board is known conducts trials to review the validity of
patents that the patent office previously issued.
Congress designed the PTAB with the intent of providing a
faster and less expensive alternative to patent litigation
before the District Courts for determining the validity of a
patent. One of the most popular types of trial the PTAB
conducts is called inter partes review, or IPR. I believe that
we will hear this term frequently today.
This September, the PTAB would be 10 years old, and it has
been busy. To date, the PTAB has received more than 13,000
petitions for trials and has issued nearly 4,000 decisions on
the validity of patents. So, this is a natural time to evaluate
the impact of the PTAB's work.
Today, we will do so with an eye toward the backbone of
America's economy, the small business. The importance of small
businesses to job creation, economic productivity, and
innovation in the United States cannot be understated. Small
businesses create most of our country's new jobs. They drive
our economy, and they are responsible for a substantial portion
of our gross domestic product.
Small businesses also drive innovation in our country. For
example, the Small Business Administration reports that small
businesses are more likely to develop emerging technologies
than large business firms. In the U.S. Senate Committee on
Small Business and Entrepreneurship reports that small
businesses produce more than 14 times more patents that large
businesses and universities and employ nearly 40 percent of
America's scientists and engineers.
Small businesses need to be able to protect their
innovations with patents. Indeed, we know that small businesses
that apply for patents and other types of intellectual property
protections are more likely to grow quickly and succeed than
businesses that do not. Economists studying the impact of the
award of a patent to small businesses concluded that the award
of the first patent to a startup on average leads to 16
additional employees after five years and 10.6 million dollars
in additional sales over five years.
Businesses of all types have also come to Congress
raising--excuse me. Businesses of all sizes have also come to
Congress raising concerns about lawsuits based upon patents
they believe should not have been issued, causing them to spend
money on lawsuits instead of R&D. That brings us to the issue
before us today.
Has the PTAB with its goal of quickly and efficiently
determining the validity of a patent hurt or helped small
businesses? To be sure, the PTAB has both its defenders and its
critics. I believe we will hear from both today.
Some stakeholders are concerned that PTAB proceedings are
unfair to small inventors and businesses. For example, some
stakeholders argue that only large corporations benefit from
the PTAB's high patent invalidation rate. Other stakeholders
strongly support the need for PTAB proceedings to protect small
businesses from unreasonable patent licensing demands.
These companies point to the existence of PTAB as giving
them a less expensive forum to challenge the patent which can
also drive down the cost of settling cases. Our job in
Congress, however, is to figure out how to balance the many
competing interest to ensure that the patent system
incentivizes and promotes innovation to the greatest extent
possible. That is the conversation I hope to have here today.
I'm pleased that we have a panel of distinguished
practitioners, patent law experts, and representatives from
small businesses who can speak directly to their experiences
with the PTAB. Thank you for being here today, and I look
forward to your testimony.
With that, I will recognize the Ranking Member of the
Subcommittee, the gentleman from California, Mr. Issa, for his
opening statement.
Mr. Issa. Thank you, Mr. Chair, and thank you for calling
this hearing. A little over a decade ago, or a decade ago, I
proudly voted for this act, often known as the Leahy-Smith
America Invents Act. I did so not because it was a perfect. We
don't do perfect bills here.
I did so because for more than a generation, we hadn't had
a real look at the problems and legislation to address them.
Before I came into Congress and before those years that led to
the Leahy-Smith bill and I might mention also the Patent Pilot
bill, I had been an inventor with over 37 patents. I had been a
plaintiff. I'd been a defendant.
I'd been the user of ex parte reexamination and recipient
of ex parte attempts. I'd additionally been in Article III
Court and in the ITC. In other words, I got my law degree the
hard way, one payment to my lawyers at a time.
For that reason, I came with a passion to address these
issues. That passion now 22 years later burns just as bright. I
want to thank the Chair for his passion to deal with this.
This is not a perfect system. PTAB is not perfect. Some of
us do not even agree with the last administration's handling of
many cases and have said so. I may not even agree with the
Supreme Court decision on how they felt the authority at the
Patent and Trademark Office should be vested in one Senate
confirmed Under Secretary.
All of these are the problems that are here today. Let us
go back those 22 years where, as a freshman, I came in and had
been quite frankly shocked at what it cost to go through patent
litigation. Whether you were the plaintiff or the defendant,
how terribly long it took to get through that litigation.
How case after case in front of a busy Federal Article III
Judge was, in fact, extended, delayed, put off where there are
no timelines. Often, and in my case on multiple occasions,
handed off to the next poor, dumb you know what who got
elevated to the bench and they dump their cases on them because
nobody really wanted patent cases, or at least most people
didn't.
We were dealing with over 40 percent reversal by the Fed
Circuit which essentially meant that the Fed Circuit was
viewing the work of Article III Judges as de novo as if they
were in fact trying those cases. That was what we inherited
when I came to Congress. The ex parte system worked very well
as an inventor.
Most of the time, you survived because what got winged at
you behind closed doors you could argue was somehow not
related. There was no real admission of your plaintiff's case.
They couldn't say, well, this is how the plaintiff or the
patent holder is defining their technology. Isn't that
different than what they said when they got their patent? Oh,
by the way, wouldn't that be so broad as to invalidated?
That wasn't what a patent examinator or a review board was
prepared to do. So, let's be honest. There was a problem.
Senator Leahy very well put together some ideas. Now, 10 years
later, we're here to talk about the strengths and the
weaknesses of that implementation.
I'd be pleased to ask unanimous consent to introduce into
the record a statement by Senator Leahy who has certainly a
unique perspective on this.
Mr. Johnson of Georgia. Without objection.
Mr. Issa. Thank you, Mr. Chair. I'd ask unanimous consent
to insert into the record a statement from AAM, United for
Patent Reform, and the Auto Inventors.
Mr. Johnson of Georgia. Without objection.
[The information follows:]
MR. ISSA FOR THE RECORD
=======================================================================
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Issa. Okay. In closing, and I'll put the rest of my
opening statement in for the record so we can get to our
distinguished panel, we have a patent system that in the 20-
plus years I practiced got much more expensive. By the way, the
number of cases went up. In the 22 years that I've been honored
to sit on this dais, we have seen cases increase, cases moved
to interesting places, first the Eastern District of Texas, now
the Western District of Texas, in spite of the Supreme Court's
rulings that kind of concentration is inappropriate.
We have seen so many cases end up in the technology area in
the San Jose region that some would say it represents the
second West Texas. We have certainly seen the cost of
litigation spiral up. It is higher at the PTAB than we wanted
it to be and takes exactly the amount of time we statutory
allow.
As you will hear today, there are some cases in which the
process may be being abused and multiple demands for no reason
other than delaying implementation may be used. We continue to
have the ITC often consider cases in which two behemoth
American companies are each calling the other one a sleazy
importer and asking for exclusions because there would be no
other choice, when I fact each of them has billions of dollars
of assets in the United States. So, let's leave one thing
clear.
Our Witnesses will talk about what they don't like about
the bill. I want to challenge every one of them to talk about
possible solutions today. If you come without solutions, you
come with exactly what many people on this panel know which is
we can do better. Together, we must do better, and I'm
committed to do that with our Chair. With that, I yield back.
Mr. Johnson of Georgia. I thank the Ranking Member for his
very informed testimony. We will now introduce the panel of
Witnesses. Before I do, let me apologize to you for not being
there in person. I have domestic issues here in Georgia that
compelled me to be here.
I did attempt to fly up yesterday afternoon so that I could
be there in person to handle this hearing. Unfortunately, due
to weather, all the flights ended up being canceled and then
everything was booked this morning. So, it caused me to have to
do this virtually.
So, I appreciate you all bearing with me during this time.
I do thank the Witnesses for being here. I want to first
introduce the Honorable David Kappos who is an attorney
engineer and former United States Patent and Trademark Office
Director.
When Congress passed the American Invents Act or the
America Invents Act, I'm sorry, Director Kappos set the work by
working the Act's provisions, including the establishment of
the PTAB. Before holding this position, Mr. Kappos served for
more than 25 years at IBM as Vice President and Assistant
General Counsel. In that role, he managed IBM's patent and
trademark portfolios.
He's currently the Co-Chair of the intellectual property
practice at Cravath, Swain & Moore. Director Kappos earned a
B.S. in electrical and computer engineering from the University
of California, Davis and a J.D. from the University of
California, Berkeley. Welcome, sir.
Mr. Jonathan Rogers has held multiple leadership positions
at Centripetal, a company that provides cybersecurity services.
He currently serves as Chief Operating Officer. Mr. Rogers is
an inventor and patent owner on various patents related to
methods and systems pertaining the cyber threat intelligence
and the prevention of cyber-attacks.
Mr. Rogers holds a B.A. in electrical engineering from
Boston University. He also received an MBA from the University
of Maryland, Robert H. Smith School of Business. Welcome, sir.
Mr. Kirupa Pushparaj is the General Counsel and Corporate
Secretary for Step, a company that gives families and teens
tools to manage money while learning financial literacy. He was
formerly counsel to other successful startup companies in
Silicon Valley and an associate in a prominent law firm.
Besides his legal practice, Mr. Pushparaj taught as an Adjunct
Professor at Stanford Law School for six years.
He received a B.S. in electronics and communication
engineering from PSG College of Technology. He received a M.S.
in electrical and computer engineering from UC Santa Barbara
and a J.D. from the University of the Pacific, McGeorge School
of Law. Welcome, sir.
Mr. Joseph Matal is a partner at the law firm of Haynes and
Boone, LLP. He previously held several positions at the Patent
and Trademark Office, including as the Acting Director and the
Acting Solicitor. Before that, he was counsel to the Senate
Judiciary Committee.
Mr. Matal also served as a clerk to the Honorable William
Canby of the Ninth Circuit and the Honorable Justice Rabinowitz
of the Alaska Supreme Court. He has a J.D. from UC Berkeley
School of Law and B.A. from Stanford University. Welcome, sir.
Ms. Eldora Ellison is the Co-Chair of the patent office
litigation practice at Sterne, Kessler, Goldstein & Fox. Over
the course of her distinguished career, she has represented
clients in over 70 inter partes review and post-grant review
proceedings, more than 15 patent interferences, and various
patent reexaminations and District Court litigations. Ms.
Ellison has been recognized as a leading practitioner in the
life sciences field.
She received LMG Life Sciences Post-Grad Proceedings
Attorney of the Year award on two occasions and was inducted
into the organization's prestigious Hall of Fame. Ms. Ellison
earned her J.D. from Georgetown University Law Center, her
Ph.D. in biochemistry, molecular, and cell biology from Cornell
University where she serves on the Board of Trustees. She also
holds a B.S. in biology from Haverford College. Welcome, ma'am.
Mr. Earl Bright has many years of technology development,
company formation, and financing experience. He is a founder of
several companies, a patent attorney, and has served on the
executive management teams of many startup companies in
multiple capacities. He is a Co-Founder of and serves on the
Alliance for U.S. Startups & Inventors for Jobs Advisory
Committee.
Mr. Bright is an inventor on 14 U.S. issued patents with
others currently pending. He has an MBA from both Columbia
University and the University of California, Berkeley, a J.D.
and B.S. in mechanical engineering degrees from the University
of Oklahoma. He currently leads ExploraMed as President,
General Counsel, and Chief Officer. Welcome, sir.
Before proceeding with testimony, I would like to remind
all our Witnesses that you have a legal obligation to provide
truthful testimony and answers to this Subcommittee and that
any false statement you make today may subject you to 18 U.S.C.
1001. Before turning to our panel of Witnesses, without
objection, I will enter several written Witness statements that
the Subcommittee has received before our hearing today. I make
particular note of a few of those written statements.
The first is a Witness statement from Robert A. Armitage, a
well-known leader in the intellectual property law. Mr.
Armitage's statement voices support for the work of this
Subcommittee in holding this hearing and suggests several PTAB
reforms for increasing the integrity of and respect for our
patent system.
The second is a written statement from Molly Metz, a former
five-time world jump rope champion and owner of a small company
called Jumping Rope. Ms. Metz statement describes how she was
proud to have obtained two patents for her precision-based
speed handle technology that was used to break Guinness Records
in the sport of jump rope. She lost faith in our patent system
following her attempts to enforce her patents against a larger
company.
A third is a written statement from Engine, ACT, The App
Association, Consumer and Technology Association, and
Developers Alliance Project, nonprofits and trade associates
that support and advocate for the nation's tech startups and
small businesses. This written statement urges us to remember
the important role the PTAB plays in curbing abuse of the
patent system and mitigating the harm of low-quality patents.
The fourth is a written statement from Brian Pomper,
Executive Director of the Innovation Alliance, a coalition of
research and development-based technology companies. Mr.
Pomper's statement emphasizes that maintaining a strong patent
system is critical to supporting innovative enterprises of all
sizes and for protecting our nation's economy and national
security.
[The information follows:]
MR. JOHNSON OF GEORGIA FOR THE RECORD
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Mr. Johnson of Georgia. Now, turning back to our Witnesses
with us today, please note that your written statements will be
entered into the record in their entirety. Accordingly, I ask
that you summarize your testimony in five minutes. To help you
stay within that time frame, there is a timing light on your
table.
When the light switches from green to yellow, you have one
minute to conclude your testimony. When the light turns red, it
means that your five minutes have expired. We will have five-
minute rounds of questions after the Witnesses' testimonies.
Mr. Kampos, you may begin.
STATEMENT OF DAVID KAPPOS
Mr. Kappos. Good morning, Chair Johnson, Ranking Member
Issa, and Members of the Subcommittee. Thank you for the
opportunity to provide my views on the USPTO's Patent Trial and
Appeal Board and ways to improve the PTAB to enhance innovation
and competitiveness. I'm testifying today solely on my own
behalf.
I was director of the USPTO 11 years ago when the AIA
created the PTAB. Since then, the PTAB has on balance been a
success, providing our country a cost-efficient way to
reevaluate important patents. Invalid patents are eliminated,
and the owners of valid patents are timely assured of their
rights.
My appreciation goes out to Congress, the Federal Circuit,
the USPTO, and the PTAB, especially the chief judges and the
many APJs for their work in building a first-class adjudication
body within the USPTO. The PTAB on balance has achieved the
vision that Congress set for it. We've learned a lot during the
PTAB's first 10 years with some things going extremely well and
others of course not so well. While there's plenty that should
be preserved, there are some places where the PTAB's operations
can be improved and I'm here to talk about those.
Turning to those specific improvements, Congress should
address the PTAB's Fintiv Rules. Now, while the number of
Fintiv challenges have significantly declined, a congressional
fix to this divisive issue would benefit U.S. innovation. I
encourage Congress, however, to strike a balance between
opposing interests when addressing Fintiv.
In that regard, I'm concerned with fixes that are too
extreme or too easily gamed. Any legislation requiring an
expert agency to ignore obvious and important facts, for
example, requiring the USPTO to ignore one or more court cases
considering a patent at issue in a PTAB proceeding, is
problematic. Fixes to abusive IPR filings that address IPRs
filed on different days but not multiple IPRs filed on the same
day will be easily gained.
Well-founded concerns have been raised over IPR petitioners
holding up good faith patent owners indefinitely with multiple
proceedings. The law must provide mechanisms to discourage
these abusive practices by petitioners. Congress should also
codify the Phillips standard for claim construction.
Congress should refrain from limiting IPR estoppel based on
a final written decision that the claims are not unpatentable.
Estoppel currently applies to enforceability, eligibility, and
other non-prior art issues. Limiting estoppel would encourage
duplicative validity challenges in parallel proceedings.
Significant estoppel implications were a critical component
of the original AIA. Good policy calls not for limiting
estoppel but for applying it to the full scope of PTAB
decisions. I'd also like to mention two other critically needed
improvements to the PTAB.
As a threshold matter, any changes to the law that governs
the PTAB must account for something we did not anticipate in
2011. The PTAB has become the dominant venue for determining
patent validity. The law should reflect the role that PTAB has
taken on.
First, Congress should move the PTAB from the preponderance
of evidence to the clear and convincing evidence standard of
proof to invalidate a patent. As the predominant venue for
determining patent validity, the PTAB's standard of proof
should be aligned with the standard of proof used in all other
venues, clear and convincing evidence.
Second, Congress should create an IPR off ramp to
reexamination to permit efficient claim amendments.
This provision makes for sound policy. The PTAB has
struggled with claim amendments. The central reexamination unit
is well suited to manage such amendments.
With the IPR offramp to reexamination, the ability to
narrow claims affords fairness to patent owners and challengers
enabling our post-grant system to meet the AIA's challenge.
Thank you, Mr. Chair, Ranking Member. I look forward to your
questions.
[The statement of Mr. Kappos follows:]
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Mr. Johnson of Georgia. Thank you, Mr. Kappos.
Mr. Pushparaj, you may now begin.
STATEMENT OF KIRUPA PUSHPARAJ
Mr. Pushparaj. Thank you, Members of the Subcommittee, for
having me over and for allowing me an opportunity to talk about
PTAB and what I consider positive impacts of PTAB, especially
for small businesses. I'm the general counsel at Step which is
a small business, a startup based in California which builds
critical tools, financial tools to empower the next generation,
a banking platform, a credit card that allows teams to build
credit history even before they turn 18, investment tools, and
many more to allow them to build a strong financial future.
We're a small team of 100 people, including about 10 or 12
engineers who built all this and are still hurting from the
economy and trying to raise funds and offer a product that
makes a difference.
Prior to here, I was at Square, currently called Block,
where I saw the company go from a small startup to the global
leader, it is now in financial payments--in the payments
industry. There as the head of patents and patent litigation, I
saw the company's patents grow from a few patents to hundreds
of patents, and also defended of the company--helped defend the
company in many, many patent litigation trials and led over 30
IPRs and CBMs trials, oversaw them. From that perspective, I'm
here to talk about how PTAB have, in fact, been impactful to
small businesses.
When as a small business you are faced with patent
litigation, on one hand, we build patents. Patents are
important for our innovation. They help showcase our
innovation. They help us raise funds. They establish credence
in the technical field and help us attract talent and also
deter abuse of litigation.
It is important. It is important to build quality patents
that are indeed valid patents. Just as much as I respect our
patents, I respect quality valid patents of third party rights
as well.
Even as a startup, we face many threats for patent
litigation coming in from various sources, a predominant source
of which is nonpracticing entities. So, if you were in District
Court, as you all know, there are two avenues to defend
yourself. Show the patent is invalid or show that you don't
infringe the patent.
Often situations, you're doing both simultaneously in a
lawsuit in a District Court which is enormously expensive and
burdensome to a company like ours. It costs in the millions of
dollars to have to go through the discovery burdens and to
pursue both avenues simultaneously. It's equally expensive for
patent owner.
They also have to prove infringement and defend against
validity. Take an example from our situation. I received a
letter a couple months ago about this entity that claimed to
have a patent which literally went on sending a receipt over
internet, the advancement and innovation being ability to send
a receipt over the internet.
We immediately knew that patent was invalid, and there were
countless amounts of prior art to show that patent was invalid.
We could've end up being in court to defend those over years,
the ten engineers we have through discovery burdens and
technical analysis. The majority of the company drain our
resources and spend millions of dollars literally which could
be a death knell for small startups in defending these claims.
Or it is not expensive but go over to the PTAB and go over
the threshold matter of whether there was validity in the
patent to start with and spend a couple hundred thousand
dollars which gives us leverage. Instead of going and
immediately settling with a known invalid patent, just to avoid
the threat of litigation, we have an avenue through that we
don't infringe and that there is a path for a solution here.
That is where the PTAB is the best forum to address validity
issues.
The PTAB is not taking on an avenue of defense that was not
available. You have to prove invalidity or validity of the
patent, either side. The PTAB is a much more efficient forum to
deal with.
As you all know, you need to get it done within a certain
time frame. The PTAB is a body of expert bodies, people who
have experience in the very technical field that you are
working on. Ability to take this on, I feel that especially--
I'm coming up on time--especially the notion that--I want to
counter the notion that the PTAB is a death squad and want to
look into how decisions from the PTAB had, in fact, been
balanced on both sides.
I'd love to talk more on this, and I am here to answering
any questions this Committee may have. I yield the rest of my
time. Thank you.
[The statement of Mr. Pushparaj follows:]
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Mr. Johnson of Georgia. Thank you, Mr. Pushparaj.
We will now here from Mr. Rogers. Mr. Rogers, you may
begin.
STATEMENT OF JONATHAN ROGERS
Mr. Rogers. Chair Johnson, Ranking Member Issa, and Members
of the Subcommittee, it is an honor to testify before you
today. My name is Jonathan Rogers, and I'm the COO and a Co-
Founder of Centripetal. Prior to starting the company with my
father in his basement in Vienna, Virginia, I served as a Navy
cryptologist at the NSA and as a technical intelligence officer
at the CIA.
Similarly, my father was an Air Force cryptologist who was
responsible for communication security of critical systems like
the National Military Command Center and Air Force One. Our
other founders have also spent their entire careers in
communication security. We started Centripetal to solve one of
the enduring failures of traditional network security, and we
developed each of Centripetal's patented innovations to deliver
a new paradigm of predictive intelligence-based security.
They are implemented in our solutions today. To do this, we
invested nearly 200 million dollars in research and
development, and we now hold approximately 50 U.S. patents. We
have nearly 100 employees located in Virginia and New
Hampshire, and our customers come from every segment, including
major U.S. hospital systems, banks, insurance firms, power
plants, retailers, universities federal and local government
agencies, and others.
With our breakthrough technology and backed by
exceptionally strong patents, our intent was to usher in a new
paradigm for network security. However, we quickly ran headlong
into the power of a dominant incumbent who has mastered the use
of a patent system filled with loopholes and stacked against
innovators. Between 2015 and 2017, Centripetal has numerous
meetings with network giant Cisco Systems.
We're under a nondisclosure agreement. We discussed our
business, our products, our algorithms, and our patented
technology. We had months of meetings and demonstrations. Cisco
then walked away only to launch new versions of its core
products that incorporated our patented technologies, call them
the, quote, ``network of the future'' and having, quote,
``solved the unsolvable.''
Centripetal had no choice but to sue Cisco for patent
infringement. I've included a more detailed description of the
trial in my written statement, but here are the facts. First,
Cisco filed 14 inter parte review petitions before the Patent
Trial and Appeal Board to challenge the validity of our
patents. Most of Centripetal's patent claims were found to be
valid.
However, this delayed the District Court litigation for
nearly a year, during which time Centripetal was forced to
compete in the market against our own patented technology but
sold by Cisco's massive global sales force. The District Court
trial finally started in April of 2020 during the COVID-19
pandemic. After eight weeks of testimony from dozens of experts
and numerous employees of both parties and a review of hundreds
of trial exhibits, Centripetal prevailed and defended the
validity of our patents yet again.
In October of 2020, the court found that Cisco had
willfully infringed four of the five asserted Centripetal
patents and awarded damages of 2.6-3.2 billion dollars for
Cisco's egregious infringement. As of this morning when I
walked into this room, this case was vacated for a late
discovered 4,500-dollar interest in Cisco stock held by the
judge's wife and purchased independently by a stockbroker. We
will have to do it all again.
Our one opportunity to prove infringement, we did so
overwhelmingly. You might things this is a true David and
Goliath story. Unfortunately, the battle over the Cisco
judgment is still raging, and serial attacks on Centripetal's
patents continue even now.
When we do finally conclude the Cisco litigation, we will
have defended the validity of each patent at least three times
after its issuance and likely more. The odds become impossible
where David has to slay Goliath over and over again. Companies
like Cisco know this, and it is why predatory patent
infringement has become an institutionalized business model.
Unfortunately, the current State of the patent system is
helping them do it. As I understand it, Congress intended the
PTAB process to lower costs and to provide an alternative.
However, the opposite has happened.
The PTAB has become an extra tool for abuse which
multiplies the cost and opens repeated validity challenges at
the PTAB, District Court, and the Federal Circuit at a minimum.
We have faced over 30 IPRs from very large competitors. Our
patents are targeted not because they are bad but because they
are valuable, and defending each IPR can cost a million
dollars.
Centripetal has learned many hard lessons from our
experience, and we welcome the opportunity to suggest changes
that can support the next generation of great American
startups. The playing field should be leveled. There should be
one bite at the apple.
The rules and standards should be consistent, and Congress
should legislate what the goal of quiet title that will support
technology investment. Thank you for the opportunity to appear
before you today, and I look forward to your questions.
[The statement of Mr. Rogers follows:]
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Mr. Johnson of Georgia. Thank you, sir.
We will now hear from Mr. Matal. Mr. Matal, five minutes.
STATEMENT OF JOSEPH MATAL
Mr. Matal. Chair Johnson, Mr. Issa, if there's one point I
would hope to impress on the subcommittee, it's that Patent
Trial and Appeal Board proceedings are the most technically
accurate and reliable system that we have in the United States
for assessing patent validity. By law, PTAB judges are required
to be person of, quote, ``competent legal knowledge and
technical ability.'' The agency requires that each PTAB judge
have at least an undergraduate education in a technical field.
Indeed, many PTAB judges have master's degrees and even
doctorates in science and engineering. In addition, all the
PTAB judges have substantial legal experience before they're
appointed to the board. Many of them have previously served as
patent examiners.
On balance, every PTAB judge has substantially more
qualifications to decide patentability issues than does a
typical District Judge or a lay jury. So, you might ask, are we
getting our money's worth for all these qualifications? Is it
working?
There's actually no data on this issue. There's a recent
study which I site in my written testimony that analyze the
results of all patent appeals that were docketed at the U.S.
Court of Appeals for the Federal Circuit during a two-year
period. This study compared the results of patentability
determinations that were made by the PTAB versus those that are
made by a District Court and what happened on appeal.
What the study found is that the PTAB's patent validity
determinations affirmed notably more often than those of
District Courts when they're reviewed on appeal. In fact,
District Courts are about two and a half times more likely to
be reversed on appeal than is the board when they're making
patentability determinations. The study states, and I quote,
``the most straightforward conclusion'' is that PTAB judges'
technical knowledge has, quote, ``aided decision-making on the
thorny scientific questions endemic to patent law.''
It turns out to make the basic patentability determination
to decide whether the claimed invention would've been obvious
to those skilled in the art, it helps to actually be a person
of skill in the art to have that background technical
knowledge. The focus of this hearing, however, is small
businesses. Even if PTAB proceedings are more technically
accurate with sound results, a question still arises. Are these
proceedings fair to small businesses?
In assessing that question, I'd urge the Committee to
consider to two facts. First, small businesses are sometimes
the party asserting a patent. On the other hand, just as often,
if not more so, a small business will be the party that's being
accused of infringement of an invalid patent.
In fact, some patents' litigation entities when they mount
their campaigns will start out by suing small businesses
because they know that they're more likely to settle and they
can provide funds for the more difficult levels of the
campaign. The other fact about Patent Trial and Appeal Board
proceedings is that they're substantially less expensive than
District Court litigation. On average, a PTAB proceeding costs
about one-ninth as much as a District Court lawsuit.
The costs are typically measures, the legal fees, in
hundreds of thousands of dollars rather than millions of
dollars. So, what would happen if Congress enacted legislation
that cut off access to these proceedings? What would be the
impact on small businesses?
Well, for a small business that's asserting a patent, there
would be a modest benefit that business would no longer need to
defend itself in these proceedings. On the other hand, for a
small business that's being accused of the infringement of an
invalid patent, such a result would be deeply unfair. In many
cases, that small business defendant won't even be able to
defend itself.
It simply won't have the millions of dollars that it cost
to go through a District Court trial and obtain a patentability
determination there. Then there's also the issue of litigation
risk. Even if that small business defendant can present a
strong case that the patent is invalid, at least one that would
be clear to a person of skill in the art, there's no guarantee
that a jury would recognize that or will even engage in an
obviousness analysis.
Because of that litigation risk, a small business will
often be forced to settle. When I reviewed the testimony of my
co-panelists last night, I was gratified to see that many of us
actually basically agree on these issues. Everyone basically
agrees that the board is actually reaching more technically
sound results, and no one disputes that these proceedings are
cheaper than District Court litigation.
Nevertheless, you're hearing all kinds of proposals, here
and from others, for ways we should restrict these proceedings.
People pain scenarios where they allege it would actually be
efficient. We'd all benefit if Congress cut off access to a
PTAB validity determination in that circumstance.
In assessing these scenarios, I'd simply urge the Committee
to keep the public interest in mind. The businesses that are
before you all are pursuing their private interest which is the
way the system works. It's this Committee and the USPTO that
are charged with protecting the public interest with ensuring
that the patent system strikes the right balance between
incentivizing innovation and avoiding undo costs on consumers.
I would submit that whether the enforcement of a patent is
consistent with the public interest will always depend on the
patent's validity on whether it creates a new innovation or
whether that patent claims technology that was already in the
public domain and that should be freely available to everyone.
As this Committee and as the USPTO pursue the public interest,
I would simply urge them to preserve and maintain access to
Patent Trial and Appeal Board proceedings, the most technically
reliable and accurate system that we have in the United States
for assessing questions of patent validity.
[The statement of Mr. Matal follows:]
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Mr. Johnson of Georgia. All right, sir. Thank you for your
testimony.
Ms. Ellison, you are now recognized for five minutes.
STATEMENT OF ELDORA L. ELLISON
Ms. Ellison. Chair Johnson, Ranking Member Issa, and
Members of the Subcommittee, thank you for the opportunity
appear here today. Thank you for the kind introduction earlier.
I'll simply add that Sterne, Kessler, Goldstein & Fox, the firm
at which I work, has been one of the most active firms at the
PTAB for the last 10 years.
I have practiced before the PTAB regularly since its
inception, both on behalf of patent owners and petitioners,
both large and small entities, and on behalf of parties engaged
in parallel District Court litigation. Today, however, I am
testifying in my personal capacity to offer the perspectives of
a PTAB practitioner. When I reflect on the last 10 years, I
view it as a time of great opportunity for petitioners but also
a time of significant uncertainty for both petitioners and
patent owners.
In my view, post-grant proceedings have improved patent
quality primarily because applicants have been incentivized to
devote more resources to preparing and prosecuting quality
patents in the first place. We need to continue to invest in
quality patent prosecution on the front end, including
providing better training in patent law for examiners and
providing better guidance and assistance for small entities.
I'd like to briefly touch on various additional areas where
further advancements can be made to the existing system.
First, I urge you to consider whether the PTAB has
sufficient resources to do its job well. From a practitioner's
perspective, it frequently seems that judges are burdened with
very busy dockets, making me question whether all three members
of a PTAB panel are given adequate time to fully consider the
issues raised in a case. Ensuring that the PTAB has adequate
resources is fundamental to achieving just results and
instilling confidence in the system.
Second, it is important to increase predictability. While
the PTAB has made much progress in issuing precedential
decisions, it remains difficult to predict how a given panel
will apply that precedent in a given proceeding. While I am
pleased that Director Vidal has just announced interim
procedures for discretionary denials, uncertainty will remain
if there is not consistent application of those procedures or
if those procedures are not followed by future directors.
Third, stakeholders would benefit from codification of the
claim construction standard used in IPRs and PGRs. This
standard should be the same as the standard used in District
Court. It is important to clarify how the PTAB should account
for any claim construction order that has been issued by a
court.
Next, I encourage you to consider whether the PTAB could be
better equipped to make credibility determinations of
witnesses. It seems as though witnesses too often shade truth.
It appears that APJs sometimes struggle to make credibility
determinations because there's virtually no live testimony at
the PTAB.
It would be helpful if the PTAB promulgated guidelines and
procedures for considering live testimony on key issues in
cases. Regarding standing, while some stakeholders have
suggested requiring that petitioners have Article III standing
to file petitions, I do not favor such an approach. The current
system serves an important function in allowing stakeholders of
all sizes to resolve patent issues before expending large sums
of money and effort on research, development, and
commercialization.
Next, I submit that the PTAB's treatment of requests for
rehearings warrants further consideration and potentially
revision. Requesting rehearing of PTAB decisions often appears
to be an exercise in futility without fresh consideration of
the issues. To increase confidence in the system, consider
promulgating a process to allow more regular use of expanded
panels or even alternate panels at the request of a party.
I also submit that the current system for motions to amend
does not appear to work well for patent owners given its
adversarial nature, low usage rate, and fairly low rate of
success. Many patent owners instead opt to pursue additional
claims in ex parte proceedings. Reevaluation of motion to amend
practice would be welcomed.
Finally, I'd like to applaud the PTAB for recognizing the
importance of diversity, equity, and inclusion, both within the
PTAB and within the patent bar. I encourage the Office to
continue to develop innovative programs to address this
important issue. In closing, ongoing efforts are needed to
improve confidence in the PTAB for entities of all sizes and to
provide a balanced system that fosters innovation. Thank you
for your consideration of these views.
[The statement of Mr. Ellison follows:]
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Mr. Johnson of Georgia. Thank you for your testimony.
Mr. Bright, you are now recognized for five minutes.
STATEMENT OF EARL BRIGHT
Mr. Bright. Thank you. Chair Johnson, Ranking Member Issa,
and Members of the Subcommittee, it's an honor to be here. I
perspective I want to bring today is one that is focused on
public policy and one that is a more holistic view that looks
beyond just disputes at the PTAB and what is going on in the
courts. There is a tremendous impact that occurs in the
business environment outside of what goes on at the PTAB just
because of observing the activities of the PTAB. That's the
perspective that I want to bring today.
So, my name is Eb Bright. I've spent over 20 years working
as an innovator in the medical device field. I currently lead a
venture-backed medical device incubator called ExploraMed which
was started by our Executive Chair, Dr. Josh Makower.
We have successfully launched six companies, and I'm also
an inventor on 26 U.S. patents. Patent protection directs and
shapes the potential solutions developed in incubators like
ours that nurture fragile and risky innovations. It has also
influenced the investment decisions that venture capitalists
make who provide the funding for our companies and many like
ours.
Changes to the patent system in recent years, particularly
the IPR process with its high invalidity rates, duplicative
serial challenges, and overreaching basis for obviousness
challenges and the ability to challenge patents that have
already been found valid puts many startups at constant risk
and makes venture capital harder to attract. This has led to
outcomes that shouldn't be surprising. There's been a decrease
in capital invested in patent-intensive industries and less
capital available to put at risk in the earliest stage
companies.
This is a matter of great strategic importance to our
nation. Most critical technology such as IT hardware,
cybersecurity, medical devices, biopharmaceuticals, clean
energy, quantum computing just to name a few require patents to
justify long-term investments in risky new technologies. I can
assure you that potential investors in these areas look at
every conceivable risk factor facing a young company or a young
entrepreneur who has an idea for a new technology.
They make their investment decisions, particularly those
that involve tens or hundreds of millions of dollars and a
decade or more to potentially provide a return on that
investment. In recent years, we've seen a continued migration
of venture capital away from critical patent-intensive sectors
into much less patent intensive pursuits. Consider that in
2021, over 300 billion dollars in venture capital was invested
in software, consumer products, and crypto.
Meanwhile, biotech, cybersecurity, semiconductors, and
medical devices only attracted 64 billion. I raised many of
these points at a hearing held in the Senate Judiciary
Committee in 2019. I'm pleased to note that several
improvements have been made since that time that address some
of the most egregious PTAB abuses, particularly serial and
duplicative IPRs.
These improvements came in the General Plastics, Sotera,
and Fintiv precedential decisions made by the USPTO in 2019 and
2020. Not surprisingly, these reforms have been strongly
opposed by the heaviest users of the PTAB. Several of them have
even been challenged--several large companies have challenged
these rules all the way to the Supreme Court losing every time.
Casting aside the reforms made by General Plastics and
Fintiv and Sotera would again make innovative venture-backed
startups vulnerable to extensive campaigns by large companies
to invalidate their best patents. In addition to maintaining
these improvements, there are several other legislative changes
that Congress should consider to restore PTAB to its original
intent as a cost effective alternative to litigation. It seems
very clear now that there should be a standing requirement for
challenging patents at the PTAB.
Simply allowing any party to challenge a valid U.S. patent
has led to a number of almost unbelievable abuses that the
authors of the AIA did not intend. We have seen the rise of
well-funded and sophisticated proxies such as unified patents
which literally offer bounties for information that could be
used to attack patents held by companies that compete with
their members. More recently, PTAB abusers like OpenSky and
Patent Quality Assurance have been formed for the sole purpose
of filing IPRs on small companies whose patents have already
been upheld in court.
The USPTO director has statutory discretion to address
these situations. A standing requirement would also help stamp
out this abuse. Congress should also require PTAB to assume the
validity of patents it is issued and require PTAB petitions to
meet the same invalidity requirements as District Court, namely
clear and convincing evidence of invalidity.
Lastly, I would suggest that Congress insist that PTAB
strictly enforce the very clear statutory limits that Congress
put into the statute that said that obviousness is to be
established only based on patents or printed publications. I
greatly appreciate the opportunity to participate today as an
entrepreneur, inventor, and patent attorney. I believe that you
are taking the exact right approach in assessing the impact of
PTAB from the perspective of small business and U.S.
innovation, and I look forward to your questions.
[The statement of Mr. Bright follows:]
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Mr. Johnson of Georgia. Thank you. We will now proceed
under the five-minute rule with questions. I will begin by
recognizing myself for five-minutes. Mr. Bright, as I said in
my opening statement, studies show that small businesses are
more likely to develop emerging technologies than large
business firms.
I understand from your testimony that venture capitalists
are not investing as much in these small businesses as they did
years ago. Can you explain the long-term consequences of the
shift in venture capitalist funding? Specifically, is there a
risk that the United States will lose its competitive edge to
other countries if our patent policies do not support the
funding and growth of small innovative companies?
Mr. Bright. Yes, thank you for your question. Yes, there is
a risk that we're going to lose our technology advantage. One
of the things that is important to take into consideration is
that there are a number of different technologies that in the
earliest days are very uncertain.
So, it's important to seed as many of those different ideas
and technologies as possible to have continuous improvement in
an industry. One of the best ways to do that is by making it an
incentive that venture capitalists and other investors will put
their money into their seed stage investments. That will
establish a number of large opportunities, any of which will
emerge as being the best business opportunity and also the best
technology for our nation.
There is no shortage of venture capital dollars. There is
no shortage of investment dollars. There's not an either/or
situation that exists. As long as the incentives are there to
protect investment that's made in early stage, there's plenty
of dollars to go around. Those dollars can go anywhere in the
world.
So, any intellectual property system around the world that
incentivizes and protects those earliest investments is going
to attract the businesses and is going to attract the
investments. It is not necessarily going to stay here in the
U.S. So, we should be doing everything we can to make our
system the system that investors have the most confidence in,
that inventors and entrepreneurs have the most confidence in so
that we are maintaining investment in the brightest and best
ideas here in this country.
Mr. Johnson of Georgia. Thank you. Mr. Kappos, I understand
that you were the director of the Patent Office when the AIA
was enacted and the PTAB came into being. Looking back over the
last 10 years at the PTAB, what were the biggest surprises or
unintended consequences of creating IPRs and PRGs--excuse me,
PGRs in your opinion?
Mr. Kappos. Yes, thank you for the question, Chair Johnson.
So, I would say a couple of surprises, first, the usage rate of
the PTAB. When we conducted the congressionally mandated
studies regarding anticipated usage, what we came up with at
the PTO turned out to be about one-third of how much the PTAB
has actually been used. So, that has been a huge surprise. You
might say a good surprise, but in any event a huge one.
The second thing that I think has been unexpected is the
rate of, in some cases, the serial challenges and the
difficulty of managing them. You've heard about that from some
of the other Witnesses. We built in and negotiated, if you
will, from the PTO with Congress to give the agency flexibility
to frankly beg-off challenges where there was significant
District Court activity, maybe even Federal Circuit activity.
What we didn't expect was the rate of serial challenges in
the PTO around the same time between unaffiliated or loosely
affiliated parties. So, those have been a couple of challenges.
I hope Congress is able to deal particularly with the second
one in this legislative effort.
Mr. Johnson of Georgia. Thank you. Ms. Ellison, I
understand that out of the thousands of trials the PTAB has
conducted, only a handful have allowed for live testimony. In
your view, do you think live testimony should be more common?
If so, why?
Ms. Ellison. Thank you for the question. I do think it
should be available more frequently. I think it would be
helpful for judges in assessing the credibility of witnesses.
As the system currently stands, judges are presented with
briefs, and the briefs cite to deposition testimony that is
provided as exhibits and a brief cite to direct testimony
that's provided as exhibits. The judges never get the
opportunity or very, very rarely have the opportunity or take
the opportunity to actually see a witness, to actually make a
determinate as to whether that witness is credible. Moreover,
from the practitioner's perspective, it's not even clear that
the judges even read all the testimony.
There are lengthy documents that have to be submitted here.
I think if there's limited testimony that's provided directly
to judges. They'll be better equipped to judge the character of
the witnesses and judge the strength of the witnesses'
testimony.
Mr. Johnson of Georgia. Thank you. My time has expired, and
I will now--
Mr. Issa. Mr. Chair, would you please go to Mr. Massie as
the other holder of patents and one-time holder of the solar
vehicle land speed record?
Mr. Johnson of Georgia. I will. I'll recognize the
gentleman, Mr. Massie, for five minutes.
Mr. Massie. My speeds are greatly exaggerated. Let me ask
this first question. We've heard here today that there were
intentions for PTAB, what it was set up for 10 years ago. I'd
like to know who--I'll ask you, Mr. Kappos, first. Who are the
most frequent filers at PTAB?
Mr. Kappos. So, I think some other Witnesses have put
statistics in the records. My understanding is that there are a
number of very large tech companies that are the biggest filers
by far.
Mr. Massie. Mr. Matal, who are the biggest filers--the most
frequent filers, sorry.
Mr. Matal. Basically, the people who get sued the most
often. It does tend to be the larger companies. In fact, larger
companies use the proceedings more than the proportion that
they are of the litigation. Part of that is the fault of
lawyers like me. When you have a client that's a smaller
business or only a secondary liability or using something or
selling it, you often go to them and say, this is who really
made product.
Mr. Massie. Ostensibly, what are these companies that are
getting sued for?
Mr. Matal. For patent infringement.
Mr. Massie. Okay. Thank you. Mr. Bright, who are the
biggest filers at PTAB.
Mr. Bright. So, the top--
Mr. Massie. Most frequent, sorry.
Mr. Bright. Yeah, the top petitioners include Apple, 673
petitions; Samsung, 549 petitions; Google, 354 petitions; and
Microsoft, 227 petitions. Eighty-two percent of 14,000 PTAB
cases are large corporations. Forty percent of the 14,000 PTAB
cases are large corporations against small competitors. Only
two percent of the 14,000 PTAB cases are small businesses
versus NPEs. So, that's kind of the top stats.
Mr. Massie. Can companies from China file in PTAB and
invalidate American patents?
Mr. Bright. Yes.
Mr. Massie. How frequently does that happen?
Mr. Bright. I would have to double check the stats on that
and get back to you with that.
Mr. Massie. Okay. Thank you very much. So, forgive me if
I'm a little leery of this theory that the PTAB was set up and
established and has succeeded in helping small companies and
small inventors. Mr. Rogers, can you tell us how much does it
cost if you're an inventor? You had to go against Cisco and are
still trying. How much does a PTAB case cost for your company?
Mr. Rogers. It cost an enormous amount. Part of that is
driven by the standards. There's no presumption of validity on
the patent. If a trial gets instituted, the statistics are that
you have overwhelming odds of having the patent revoked.
So, there's a huge amount of expense that is incurred right
up front to try to not be instituted. This isn't a case of a
single bad patent. As you saw in the case with Cisco, it's a
salvo of 14 multiple overlaps, different theories on the exact
same patent. So, it can be quite extensive.
Mr. Massie. The Witness, Pushparaj, mentioned a patent that
on its face sounds ridiculous and maybe never should've been
issued. He said that it was for sending a receipt over the
internet. I would suggest that his beef is with the patent
office, with the patent examiners.
I appreciate, Ms. Ellison, your comment on the need for
more resources. The PTAB, it seems to me like it was
established with the assumption that the patent examiners screw
up so frequently that there needs to be a brand-new court
established to deal with the number of screw ups at the patent
office. Then we're going to put this within the patent office.
Now, this comes from a small inventor. By the way, all the
people who complained to me about PTAB are small inventors. The
big tech folks aren't the ones complaining.
An inventor asked me, well, if the PTAB is the final say,
why can't I put my patent through the PTAB after it's examined?
Like, give me that extra guarantee that I've got a valid
patent. Why can't they just go through something like that the
PTAB and validate their patent before they invest millions of
dollars, Ms. Ellison?
Ms. Ellison. Well, I think the recent use of discretionary
denials, particularly under section 325(d), has shown that--and
with cases like Advanced Bionics have shown that the PTAB is
giving more deference to the original examination. As I said
earlier, I think more resources need to be invested in quality
prosecution on the front end, including training examiners to
make sure that the examiners are not making errors as they
examine patents.
Mr. Massie. It seems to me if the expertise exists within
PTAB to really find out if you got a real patent, why don't we
apply that expertise before we issue the patent? I yield back.
Mr. Johnson of Georgia. The gentleman yields back. We will
now recognize the gentlelady from California, Ms. Lofgren, for
five minutes.
Ms. Lofgren. Thank you, Mr. Johnson. Listening today, it
has been a decade. It was a bipartisan, bicameral effort that
was made to do the improvements to the patent system.
It was really in response to this very abusive sort of
patent troll shakedowns that were occurring across the economy,
not just between actual patent holders, but coffee shops that
were using
Wi-Fi, for instance. I think that's what motivated the Congress
to act, and it wasn't easy. I realize that my friend from
Kentucky didn't agree at the time and still does not agree.
It was a response to something that was a real problem and
a growing problem. That doesn't mean that what we did 10 years
ago was perfect. I think if there is an opportunity to make
improvements.
Obviously, we should all be open to looking at it and
taking that opportunity. Along those lines, I saw that the
USPTO issued new guidelines on Fintiv earlier this week. I'm
particularly interested since they served in the office,
although Mr. Matall as acting, what Mr. Kappos and Mr. Matal
might think if they've had a chance to look at the new
guidance, what they think of it.
Mr. Kappos. Yes. Well, thanks, Congresswoman Lofgren. Great
to see you again. Relative to the Fintiv guidance issued by the
PTO earlier this week, I haven't had an opportunity to look at
it. I would briefly say I think it's constructive. I think it
is appropriately taking account of facts that are evident to
the office. I think it is retaining some flexibility which is
good.
One thing I might've done a little bit differently was the
part about the ITC because while the ITC certainly does use
different standards and has different processes, in many cases,
its processes can be the source of a decision on the part of
the PTO to beg-off or decline to take up a matter. Those are a
bit on the fringes. Short answer is I think the new guidance
out of the PTO is a constructive move.
Mr. Matal. I'll just add I agree largely with Mr. Kappos.
It's definitely a step in the right direction. One of the
things the new guidance does is it no longer allows ITC
proceedings to be a basis for a Fintiv denial.
The PTAB shouldn't be deferring to the ITC which is a
proceeding that lacks the authority to actually cancel the
claims, even if it finds them invalid. It also looks like
they're not going to be quite as reliant on these arbitrary
schedule trial dates to cut off proceedings. We're a little
confused about the new standard about plainly, clearly,
preponderance, et cetera.
We'll have to see how that works out. Overall, it's a
positive step, especially if the next step is to repeal Fintiv
entirely. I've always thought Fintiv as a legal--it's something
that Congress already addressed when it enacted the America
Invents Act.
Congress had a debate about this issue. The original bill
actually set a six-month deadline for filing a proceeding after
you're sued. It was actually originated in the House that they
said, ``look, these proceedings, it's going to be a burden to
file them.''
You're hit with a heavy estoppel. It often takes a while
for the litigation to mature. Congress consciously chose a one-
year deadline.
When that balance is struck by Congress and it's in the
statute, the agency doesn't have authority to readjust that.
Again, a good step today. Let's hope the next step is just to
follow the law as it's written.
Ms. Lofgren. Thank you for saying that. I'll just be frank
that I did express some frustration to the PTO during the last
administration that they took a statute that we had worked on
in the Congress for a number of years. It was not easy to
actually reach consensus and to enact this law. It was done.
I remember Chair Goodlatte at the time was very active and
Mr. Conyers as well and the Senate as well. Then they acted as
if it was a suggestion instead of a law. I'm glad to see it.
I don't think the guidance has got us exactly where we need
to be yet. I do think it is moving back in the right direction.
I thank the Witnesses for their testimony today. Mr. Chair, I
yield back.
Mr. Johnson of Georgia. Thank you, Representative Lofgren.
I will now recognize the gentleman from North Carolina, Mr.
Bishop, for five minutes.
Mr. Bishop. Thank you, Mr. Chair. Mr. Bright, it almost
sounded like you were saying that without some reforms, the
PTAB mechanism has created sort of a reverse patent troll
phenomenon. Is that an accurate understanding?
Mr. Bright. Yes, that's correct.
Mr. Bishop. If the reforms are made that you recommended or
perhaps some others if you think there are others that are
needed, can it be rendered a balanced mechanism? Or are we
stuck either choosing in favor of the patent trolls on the one
hand--and that is a phenomenon that's real or was. On the other
hand, this reverse patent troll phenomenon where big companies
seems to get the advantages?
Mr. Bright. No, I think that there is a possibility of
striking a balance. The question is, is in terms of balance,
where does the focus end up being? My view is the focus should
be on making sure that we create an environment in which we're
creating robust new company formation, entrepreneurs, inventors
to feel like that they're inspired and are going to generate
new technologies and new ideas and new companies. So, sometimes
that means that the most wealthy corporations of the world are
going to bear what's perceived to be a heavier burden in favor
of that greater good. So, I would just say that's my general
belief as to what's good for the country in the long term.
Mr. Bishop. How about taking for a moment seriously or
giving a serious response to what Mr. Massie maybe rhetorically
asked about would it be possible--is there some reason you
could not have some sort of precedent-setting PTAB examination
as an optional part of the patent issuance process? It goes
through the regular process and then an inventor and applicant
can say, I also want to go through the second phase. Therefore,
it, yeah, eliminate the possibility of a PTAB review later on
in lieu District Court. Would that work?
Mr. Bright. Yeah, that is something that could be done and
created. I think several years ago one of the suggestions we
made to Director Kappos at the time was the opportunity to have
essentially a gold-plated patent in some way. That definitely
would probably involve all of Congress getting involved in how
to create that system.
I'll also just make a comment about the issue of the
sending a receipt across the internet type of issue. There was
already before the PTAB a preexisting mechanism for taking care
of that kind of issue. There was a reexamination process that
existed. It's not anywhere near as expensive as the PTAB is in
terms of doing it or anywhere near as expensive as the District
Court to invalidate that.
Mr. Bishop. Interesting. I'm going to yield to Mr. Massie.
I would've got from the other gentleman, but I want to give Mr.
Massie an opportunity.
Mr. Massie. Mr. Bright, you said something that kind of
caught my ear. You said that people without standing can bring
cases in front of the PTAB. Is that correct?
Mr. Bright. Yeah, anybody can bring a patent case to the
PTAB.
Mr. Massie. I'm not a lawyer, but that seems to run afoul
of some of the principles of the real court system that exists.
Mr. Kappos, was that the intent of PTAB to allow people who
have no standing to basically bring forth a patent and try to
invalidate it?
Mr. Kappos. Yes, that was the original intent. The thinking
was that the estoppel that came with--the consequence of
estoppel that came with bringing an IPR or a PGR would create
accountability for parties. This is why I mentioned before that
degrading estoppel actually moves away from the original intent
of the IPR system and it creates more problems for the issue
that Mr. Bright is raising.
Mr. Massie. Mr. Bright, is it an appropriate analogy here
to patents was the closest thing, one that I used but is it
appropriate to say that they're like deeds to property?
Mr. Bright. Yeah, one of the really fundamental important
aspects of a patent is that it's an opportunity to facilitate
transactions. So, when you have certainty of patent rights, it
allows parties to know what's being transferred from one party
to the next. It allows investors to know with certainty what
exactly they're investing in.
So, it's really fundamentally important that it be a solid
determined right. Then just really quickly for the record on
your question about the Chinese companies. So, Huawei filed 114
petitions, HTC, 115, ZTE, 127.
Mr. Massie. Thank you very much. I would like to submit to
the record if it's possible the dissenting decision from
Justice Gorsuch on a recent case. He says, after much hard work
and no little investment, you devise something you think truly
novel, then you endure further costs and effort for applying
for a patent, devoting maybe 30,000 dollars to the process,
affords you exclusive rights to the fruits of your labor for
two decades.
What happens if someone later emerges from the woodwork
arguing that it was all a mistake and your patent should be
cancelled? Can a political appointee and his administrative
agents instead of an independent judge resolve the dispute?
That's the basis of PTAB is to say that we're not going to give
you a real court, that you're going to get a political
appointee who's going to decide whether you get to keep that
right or not that was guaranteed frankly and very clearly in
the constitution. I yield back.
Mr. Johnson of Georgia. Without objection, the document
will be entered into the record. With that, I will now
recognize the gentlewoman from North Carolina, Ms. Ross for
five minutes.
Ms. Ross. Thank you, Mr. Chair. Thank you to the Chair and
the Ranking Member for holding this important hearing. I
represent a lot of larger tech and biotech companies. I
represent so many more entrepreneurs in the Research Triangle
area of North Carolina.
This issue is important to both of those groups. As we all
know, supporting a robust patent filing and litigation system
is paramount to ensuring American innovation. The American
Innovation Act that it established PTAB is efficient, low cost,
and sometimes can avoid lengthy litigation. The administrative
tribunal has been instrumental in fast tracking patent claims
and appeals and delivering results.
Despite these advantages, there are legitimate questions
about fairness and the structure of PTAB, many of which we've
discussed today. While I share concerns about potential for
powerful actors to out-litigate small businesses and inventors
who have strong claims, I also know that small businesses save
money when their claims are heard quickly. For PTAB to properly
serve its intended purpose, we must ensure that it gives a fair
and equal opportunity for parties of all sizes and backgrounds
to make their cases and receive decisions informed by
impartiality.
My first question is for Mr. Matal. I've actually asked
this question of some of the larger companies in my district.
I'd like to hear from you. How do large companies respond when
the other party has a strong claim to a particular patent?
Mr. Matal. Well, it's a strong patent, you have to pay a
licensing fee for it. That's the way these rules work. I'd also
note that if you do have a strong patent, whether you're small
or large, there's not much to fear from PTAB proceedings.
You're going to get an accurate result.
I'd also like to highlight one of the innovations that was
built into the AIA. Unlike a District Court litigation which
anyone can start, you actually have to make a strong up-front
showing to even institute a PTAB proceeding. You have to
present a complete invalidity case that shows a reasonable
likelihood of invalidity.
One-third of all petitions are turned away at this initial
stage. So, if you have a strong patent, you have a good chance
of getting it turned away at institution. The whole proceeding
is over within a few months.
Ms. Ross. Thank you very much for that answer. It actually
dovetails nicely into my next question. This issue was raised
by Mr. Bright. So, to the other Witnesses, because, Mr. Bright,
we know your position, with surveys showing it around 80
percent of PTAB proceedings have parallel District Court
litigation, it seems like PTAB is used obviously as an
alternative to District Court litigation.
We have a different standard of proof. PTAB employees a
lower standard of proof than District Court litigation. Do
other Witnesses agree with Mr. Bright that we should have more
of a parallel standard of proof?
Mr. Kappos. Well, this is Dave Kappos. Thanks for the
question. I would say I do agree. We have definitely learned
with the PTAB taking on such a dominant role in being the forum
in the U.S. that decides patent validity that its standard of
proof needs to be aligned with that of the District Courts
which is the clear and convincing evidence standard.
Ms. Ross. Would that help with your estoppel situation?
Mr. Kappos. Well, it's a different issue from estoppel. It
would likely result in petitioners being more circumspect about
bringing PTAB challenges in the first place, though.
Ms. Ross. Do other Witnesses have anything to say about
aligning the standards of proof?
Mr. Matal. This is Joe. I hate to disagree with anything
about anything with Mr. Kappos. I do have to disagree on this
issue.
This issue was actually discussed when the AIA was
developed. It was actually the USPTO itself, the agency during
the Bush Administration, that most strongly argued against a
clear and convincing standard. The rationale for that standard
is the District Court applies it because it's deferring to the
agency's expertise.
When you go before the PTAB, it's the same expert agency
that it was before. In fact, when the PTAB is making its
decision, it has much more time to analyze the decision. In
virtually every case, it has prior art that wasn't before the
examiner.
So, when you're making a decision twice and the first time
you only had limited information and less analysis, the second
time you have more. When you have more information, why would
you defer to what you decided the first time? You're the same
person. The decision that's made by the same expert agency that
has more information in front of it at that time should be the
final decision.
Mr. Rogers. Congresswoman, if I may add to Mr. Matal's
point, I disagree completely because the Federal rules of
evidence are not in place, and you don't actually have more
information. You've not gone through discovery. You don't have
access to source code. All of that may be highly operative to
whether or not the technology is novel.
Ms. Ross. Thank you all, and I yield back, Mr. Chair.
Mr. Johnson of Georgia. Thank you. We will now recognize
the distinguished gentleman from Ohio, the Ranking Member of
the Full Committee, Mr. Jordan for five minutes.
Mr. Jordan. Thank you, Mr. Chair. I yield to the gentleman
from Kentucky, Mr. Massie.
Mr. Massie. I thank the gentleman from Ohio. Mr. Kappos,
how many IPRs are permitted against a single patent to be
filed?
Mr. Kappos. No limit could be infinite.
Mr. Massie. There's no limit? Like, what's the most you've
heard of?
Mr. Kappos. I don't have specific data. I know of cases in
which multiple IPRs have been filed against the same patent.
Mr. Massie. Has there been as many as 26?
Mr. Kappos. Sounds like you've got data better than mine on
that. That's a large number. Mr. Massie, I would say we did
not--
[Simultaneous speaking.]
Mr. Massie. Let me get to the point of it. Yeah, I think
you understand. The point of the question is, was that an
intent to allow serial filings at PTAB from people who were
trying to invalidate patents?
Mr. Kappos. No, not to that level or anywhere near it.
Mr. Massie. Okay. So, unintended consequence. Mr. Rogers,
does the PTAB shorten the during of litigation or does it
lengthen it?
Mr. Rogers. Absolutely not. It lengthens it and quite
considerably.
Mr. Massie. So, in your case, can you assign a number of
months to how much longer you think it's put you in the market
watching your competitor use your patented technology against
you? How much longer have you had to endure that because of
going through PTAB?
Mr. Rogers. Well, the tactics now are to foul the docket at
the District Court, telling the District Court that you're
going to assemble IPRs and putting the process in jeopardy and
to try to get a say. Then upon institution, maybe if some or
not, then there will be the actual stay. There's the year that
the PTAB process has to go to conclude. Then after that, you
have to go back to the court and try to get rescheduled to pick
back up again. So, it's very easy to have 1-3 years of added
delay.
Mr. Massie. What was the amount in your case?
Mr. Rogers. In our case, it was at least a year.
Mr. Massie. At least a year. Mr. Bright, if the PTAB is
faster, cheaper, and accurate at resolving disputes, why are
inventors opposed to it?
Mr. Bright. Well, because I think they would--I disagree
with that characterization.
Mr. Massie. Which one? Is it--
Mr. Bright. All three of those, yes.
Mr. Massie. It's been said here today that it's more
accurate. Can you say why you disagree with that?
Mr. Bright. I think that it's looking at it through a
filtered lens. So, if you lower the standard in terms of what
is the standard of review and you allow there to be multiple
sets of arguments made over and over again, then just a mere
probability, you're increasing the opportunity of hindsight
bias. So, the vast majority of patents that get thrown out
don't get thrown out on anticipation which is a single
reference that already described that invention. Most of the
time, it's built on a combination of references of what's known
as obviousness. That hindsight bias is something the Supreme
Court has warned against for years because the more you look at
something that feels like it's normal, everyday, that you get
used to, the more likely that you're going to assume that it
was an obvious invention.
Mr. Massie. Mr. Rogers, can it be more accurate if it
doesn't allow discovery? You've been through PTAB and a court
case. Is that correct?
Mr. Rogers. We have.
Mr. Massie. How did discovery--the ability to have
discovery change the decision or influence the decision of the
judge or the jury?
Mr. Rogers. Well, a telling example is Cisco made certain
arguments that our patents were obvious. We went through the
PTAB. Then when we ultimately got discovery, we got access to
emails that said, we need to go and study Centripetal's patent
claims. That was pretty telling. Source code tells a very
different story about when technology was implemented and why
than just looking at some reference.
Mr. Massie. Do judges take that into consideration when
they make a determination of obviousness, for instance?
Mr. Rogers. At the PTAB, they do not.
Mr. Massie. In the courtroom, they do?
Mr. Rogers. In the District Court, you have the full
benefit of that.
Mr. Massie. So, it's been said that after PTAB, you can
still get your day in court. A lot of inventors talked to me
about section 36. Anybody here who feels they should opine on
that or can opine on that; can you tell me what section 36 is?
Like, the courts, they try to get an appeal and the court says,
well, we're going to agree with the PTAB but we're not going to
review it. Mr. Bright?
Mr. Bright. I think what you're referring to is just a
summary affirmance at the Federal Circuit. So, they don't issue
a written record or an opinion about why they agree or disagree
with the lower court, the PTAB's ruling. They just give it a
Rule 36 affirmance and say, affirmed.
Mr. Massie. Maybe one of the fixes we need is to say you
can't do that, that you've actually got to get a day in court.
The court can't rubberstamp the decision. I don't know, but--
Mr. Johnson of Georgia. The gentleman's time has expired.
I'll now recognize the gentleman from California, Mr. Lieu, for
five minutes.
Mr. Lieu. Thank you, Mr. Chair. I'm going to yield time to
you.
Mr. Johnson of Georgia. Thank you, Mr. Lieu. Ms. Ellison,
you stated earlier in response to my question that you believe
that live testimony should be more fostered or there should be
more live testimony before the PTAB tribunal because it would
give the tribunal a better opportunity to hear from the
Witnesses because they are not necessarily reading or you fear
that they may not be reading all the materials and that live
testimony would assist them in their ruling on the merits.
Demeanor of the witnesses was something I think that you
mentioned also. What is your response to PTAB's position that
the credibility of experts does not turn on demeanor but
instead on the plausibility of their theories?
Ms. Ellison. I think to instill confidence in this system,
it's important to stakeholders that they understand that the
judges have given fair consideration to witness testimony,
including making fair determinations as to whether a witness
has been testifying credibly. It's not always clear again, from
a practitioner's perspective it's not always clear that the
judges have had the opportunity and the time to fully read and
digest the record.
Even on top of that, I think many practitioners will tell
you that there's a real difference between reading dry
testimony on paper versus seeing someone directly answer your
questions. We're here today live to answer your questions. I
think you get an opportunity to assess our credibility in doing
that. I think that's quite different than just reading the
words on paper.
Mr. Johnson of Georgia. Thank you. Mr. Rogers, thank you
for sharing your story with us today. In your view, what are
some changes that should be made to PTAB proceedings to make
them fairer to small business owners like yourself?
Mr. Rogers. Thank you, Chair Johnson. Thank you for your
question. To make the proceedings fairer, I think we have to
consider the interests of the legitimate patent owner.
It's been mentioned a couple times here, the issue of
standing. You should not be able to come with no interest and
randomly challenge a patent, as has been done to us. You should
also have only one opportunity to challenge the validity of a
patent in this way.
In the case with Cisco, we had a first petition at the
PTAB. The PTAB said it's valid. We went to District Court. The
District Court said it's valid.
They came back and did a post-grant proceeding. The post-
grant proceeding said it was valid. Then we had a third party
come in and try to petition it again, and the PTAB again said
it's valid.
So, when you have six or seven serial opportunities that
you have to defend, that's just far too many. So, the
procedures need to be harmonized such that if there's going to
be a challenge, there's one. Then it's quiet title and then you
move on.
Mr. Johnson of Georgia. Thank you. Any other Witness want
to respond to that question who has not shared their formula
for changes to the PTAB?
Mr. Matal. Mr. Johnson, I would suggest something that's
actually I understand is going to be a topic of one of your
upcoming hearings. About a year ago, this Committee asked GAO
to investigation allegations of political interference in post-
issuance proceedings at the board. I understand report is
coming forward shortly.
It's likely that report will raise troubling questions
about the independent of the board. These cases are very
valuable to the parties. You really want an independent
decision maker making these decisions. The board used to have
structural independence.
This came up in the briefing on Arthrex (phonetic). Before
1975, all PTAB judges, they were then called examiners-in-
chief, were appointed by the President and confirmed by the
Senate as all military officers still are today above the level
of captain. The Committee may want to think about returning to
that structure or something else that guarantees independent
decision making by the judges without anything going on behind
the scenes. You really want that expert judge exercising their
own judgment about the facts and the law before them.
Mr. Johnson of Georgia. Thank you. We will next turn to the
gentleman from Texas, Mr. Gohmert, for five minutes.
Mr. Gohmert. Thank you, Mr. Chair. I sure appreciate having
this hearing. I appreciate your comment, Mr. Matal. In fact, it
sounds like you're advocating for a District Judge to make
these decisions which is where we were before 2012.
Of course, I was accused of being concerned about the bill
back then simply because I had a lot of litigation in my
district in East Texas that this was the patent troll capital
area when actually the reason a case got filed in the first
place, it was not an individual inventor or patent troll. It
was something called Texas Instruments. They were desperate to
find a place where they could get a trial less than five years
and get some conclusion.
They did that. Then as people found out, there was not only
a brilliant lawyer judge there, but also, he was an engineer.
More and more people began to file there. It seemed to me that
an 18-month-2-year average was not bad for a District Court.
I understood we had a problem with patent trolls, and it
was a real problem. I could see from reviewing the legislation
back then, wait, this isn't going to fix the patent troll
situation. It got passed.
Then years later, we were provided more legislation. We're
going to have to fix this because we have a problem with patent
trolls. You know what? It turns out that legislation didn't fix
the problem.
We've had that a couple times actually. Gee, we got to fix
the problem, patent trolls. That bill in 2012 didn't really fix
it. Now, we're dealing.
I really do appreciate this hearing because we're getting
to the crux of concerns that some of us had 10 years ago. Since
then, having heard from so many individual inventors about the
very thing, Mr. Rogers, you just outlined, this hasn't made
things faster. It hasn't made things quicker.
In fact, instead of having a more independent decision
made, we seem to have more political effects being made. For
heaven's sake, to be able to have foreigners come in to PTAB
and question the validity of patents when at least on the
surface they don't have any standing. They would've been
allowed to come in our Federal court because as far as we know,
they don't have standing.
Now, if they want to come in and say, we're getting paid a
bunch of money by our country to come in and create chaos in
the U.S. patent system, that would be nice. That's why I say on
the surface we don't know that they had any standing. So, these
are things that need to be addressed.
I appreciate the comments, Mr. Kappos, that we need to
move--and others have made it. Let's get away from
preponderance. When you're talking about ripping out a patent
that took so much to get established, let's move to clear and
convincing evidence. That really should be one of the first
things we do.
We're not always accused of being prudent in our decisions
which is why parenthetically there's a rush to have a gun bill
even though the U.S. Supreme Court has just ruled a New York
law unconstitutional. Prudence would say let's hold up and make
sure that what we're about to do is constitutional under the
law right now. Like I say, prudence is not normally a real
attribute here in Congress.
Mr. Massie. Would the gentleman--
Mr. Gohmert. I would yield to my friend Mr. Massie.
Mr. Massie. Thank you. I have just a quick question for Mr.
Bright.
Would private capital, angel investors, venture
capitalists, would they be more likely to invest in new
technologies and ideas if PTAB did not exist?
Mr. Bright. Yes.
Mr. Massie. Oh, interesting. That kind of runs counter to
some of the narratives here that have been circulating for 10
years.
Mr. Rogers, would you have been better off if PTAB didn't
exist? Would you be more likely to prevail in court?
Mr. Rogers. Absolutely. The case today of the disqualifying
financial interest that eventually, coincidentally, snuck into
the situation, we were delayed for years.
That happened days before the decision was entered. So, the
PTAB is a very effective--
Mr. Johnson of Georgia. The gentleman's time has expired.
You may continue with your response though, sir. I didn't mean
to interrupt you.
Mr. Rogers. Thank you, Chair. The PTAB is a very effective
dilatory tool.
Mr. Massie. I yield back to the gentleman from Texas.
Mr. Johnson of Georgia. Thank you. At this time, we will
now hear from the distinguished Ranking Member of the
Subcommittee, Mr. Issa, for five minutes.
Mr. Issa. Well, I maybe the only dissenting voice on this
side. So, let's see if I can get the most out of five minutes.
Mr. Rogers, have you ever had a PTAB proceeding in which
one or more of your claims were invalidated?
Mr. Rogers. Yes, Congressman.
Mr. Issa. Were they affirmed by the--on appeal by the Fed
circuit to be invalid?
Mr. Rogers. Yes, Congressman.
Mr. Issa. So, the system has at time found that you asked
for claims that on further reconsideration were invalid.
Mr. Rogers. Congressman, yes. In many of those cases, one
example, we've talked here about a--
Mr. Issa. Well, no, no, no. I apologize. I have a very
limited time. The Fed circuit is, unless the Supreme Court
takes it up, is the final adjudicator of it, and they found it.
So, the system, you mentioned when it was abused, and we
want to hear that. Also, failed to mention that sometimes
inventors ask for that which, on further reflection, they're
not entitled to.
For Mr. Kappos and Mr. Matal, I'm going to ask you a series
of questions. Try to be as brief as possible in your answers.
Ex parte reexaminations, which have been around for many,
many decades, do they use the standard of clear and convincing?
Mr. Kappos. No. They use the--
Mr. Issa. Preponderance of the evidence.
Mr. Kappos. Preponderance standard, yes.
Mr. Issa. Okay. They continue to be available?
Mr. Kappos. Yes.
Mr. Issa. That standard and those.
Mr. Kappos. Yes.
Mr. Issa. Isn't it true that every inventor has the ability
to take any piece of information given to him, even by, even in
litigation, and send it into an ex parte reexamination for
further consideration?
Mr. Kappos. Sure.
Mr. Issa. So, isn't it possible for any inventor to utilize
that to strengthen their patent, because once reexamined, the
courts show deference to that reexamination, correct?
Mr. Kappos. I would say that is true, yes.
Mr. Issa. So, those tools are available, perhaps not as
available once you're in PTAB, but certainly they're available.
Isn't the ex parte reexamination process, which still
exists, one in which if you're the owner of the patent, and you
send the information into them, let's say that you got from a
defendant, you're there alone able to argue for the best
interest of sustaining your patent?
Isn't that true?
Mr. Kappos. In ex parte we can, yes.
Mr. Issa. Okay. So, those tools are available and will
continue to be available but are extremely inexpensive. Isn't
that true?
Mr. Kappos. Yes. That is.
Mr. Issa. Okay. Now, there's about 250 judges, and Mr.
Matal, you had said that there was good science study now that
these judges are reversed less often.
Now, oddly enough as the author of the Patent Pilot Bill, I
made every effort to try to get judges to do a better job.
Haven't judges improved as far as their reversal rate at the
Fed circuit?
Mr. Matal. District judges are good at many things. The
system is improving. There's less forum shopping then there
used to be.
You still run into the problem a lot of these patents claim
very complex technology. It's just invaluable to have a
background guiding in that technology, when evaluating whether
it's obvious.
Mr. Issa. As Mr. Massie said, don't we still suffer from
the fact that the rocket docket is an oxymoron in many places
when you get before a judge. Even if there's no PTAB
proceeding, you get delayed for years.
Mr. Matal. That is correct.
Mr. Issa. Okay. So, if 250 judges were laid off today, and
PTAB went away, what would be the impact to Article III
caseloads as far as time?
Because my point here, of course is, if we end it, are we
better off than if we mend it?
Mr. Matal. Well, it would certainly be a burden on the
judiciary. It would be an even bigger burden on American
manufacturers who would, in many cases, find it impossible to
get what is obviously an invalid patent to someone who's
skilled in the art, invalidated.
Juries simply are not a reliable check on patent validity.
Mr. Issa. Now, there's a lot made, talked about as far as
expert witnesses giving live testimony. As a litigator, let's
sort of see if I can get the ultimate in honesty.
In these cases, most of the time, we both bring in paid
experts who give completely different testimony and ask a jury
to believe one of them?
Mr. Matal. I have heard of things like that happening, yes.
Mr. Issa. Okay. So, perhaps with an expert who's looking at
the facts and the data, that may not be as constructive. It may
be one of the reasons that you don't see them in PTAB
proceedings.
Isn't the cost also driven up by live testimony?
Mr. Matal. This controversy came up when I was still at the
agency. The conclusion was at the board that people very rarely
ask for live testimony.
These are paper-based cases based on patents and printed
publications. The prior art either reads on the claim
limitation or not.
It doesn't matter if someone looks you in the eye and seems
very confident that it's one way or another. It ultimately
depends on what the references and disclosures show.
Mr. Issa. Thank you. Thank you for your indulgence, Mr.
Chair. I yield back.
Mr. Johnson of Georgia. Thank you, Mr. Issa. We will next
turn to the gentleman from Wisconsin, Mr. Tiffany for five
minutes.
Mr. Tiffany. Thank you, Mr. Chair. I yield to the gentleman
from Kentucky.
Mr. Massie. I want to thank the gentleman from Wisconsin. I
want to follow up on that live testimony request.
Ms. Ellison, do you think that's something the judges would
like? Or the petitioners or the defenders?
Ms. Ellison. I think some of the parties would like to see
that happen more often.
Mr. Massie. That's what I've heard. I have one inventor who
said that the judges, like there was a dog barking in the
background when her case was being heard in front of these PTAB
judges.
She thought it was extremely disrespectful and didn't
convey the weight and the gravity of what was happening. That
she was possibly losing her livelihood.
Mr. Bright, you've talked about how when there's no good
presumption of validity to a patent, there's less deal flow,
there's less investment into those technologies.
I'd like to ask you, and I'll ask you also, Mr. Rogers, the
U.S. military relies on secure communications, technology
equipment, satellites, networks, and do you think that it's
possible that PTAB has contributed to the lack of development
of that here domestically?
Or that possibly China's taking advantage of the fact that
we have a weakening patent system due to PTAB? That we don't
have enough investment in things that could provide more
national security?
Mr. Bright. Yeah, I'll defer to the experts about the
actual security in technology, and what is involved in that.
What I'll say is, is the overall trends that when we look
at the venture capital data and where they're making
investments, over the last several years they have not been
investing as much in those technologies as they have been in
other shorter term technologies and things that are not in that
cyber security area, or in that security, national defense
security area.
Mr. Massie. Let me ask you that question, Mr. Rogers. You
worked in this field for the government, is that correct?
Mr. Rogers. Yes, I have.
Mr. Massie. So, do you think there could be a problem here
in the fact that we don't have the presumption, the validity
that we should have in our patent system?
Mr. Rogers. Absolutely. I know from my experience that's
the case, because when you are going to disrupt a big legacy
technology industry, like ours for example, there's embedded
software, there's next generation hardware, there's application
software.
There's all the support infrastructure around that. We
build and manufacture all that in the United States. It's a
massive investment. Unless you have that quiet title to be able
to protect that investment, investment isn't going to be made.
We've seen over the past decade venture capitalists fly
exceptionally fast to what is the app that we can back, and
flip, and sell as quickly as possible?
That isn't the strategic technology that is needed for
national security.
Mr. Massie. So, China clearly has a national security
policy of trying to develop those things domestically in their
country.
Do you think they are advanced enough or smart enough to
take advantage of our patent system using PTAB to tilt the
table?
Mr. Rogers. Absolutely. It's another tool in a very long
strategic effort.
It's no coincidence the former head of software for the Air
Force resigned, and on his way out, he said we have lost the
war on artificial intelligence technology, but we just don't
know it yet.
That's happening rapidly right now.
Mr. Massie. That's troubling. I'd like to ask unanimous
consent to submit for the record an article called, ``China
Hijacks U.S. Patent System to Steal American Inventions.''
Mr. Massie. I don't think they even really have to steal
these American inventions. They just have to take away the
desire, or the ability for people to invest in these inventions
that are critical to national security.
Do you have something to add, Mr. Bright?
Mr. Bright. Yes, if I could, Congressman Massie. Another
issue besides the one you raised is the lack of a presumption
of an injunction against an infringer. So, the fact that this
was taken away 15-16 years ago now, allows a Chinese company to
assume that even if they did appropriate somebody else's
technology, they're going to still be allowed to use it.
Mr. Massie. Isn't an injunction the biggest thing that
deters somebody from infringing?
I mean, if you merely get caught and have to pay the
royalties that you owed before, that's not much of a
disincentive to steal technology.
Isn't it true that most inventors and investors really do
rely on injunctions?
Mr. Bright. Yes. That is correct.
Mr. Massie. That's because if you're a big company, that's
the biggest threat you have, is that you have quit shipping
something that you've already marketed.
I'll just continue my unanimous consent request. I ask
unanimous consent to submit this article that was in U.S.
Inventor.org for the record.
Mr. Johnson of Georgia. Without objection.
[The information follows:]
MR. MASSIE FOR THE RECORD
=======================================================================
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Massie. Mr. Chair, I yield back.
Mr. Johnson of Georgia. Thank you. The gentleman from
Arizona, Mr. Stanton is now recognized.
Mr. Stanton. Thank you very much, Chair Johnson. Thank you
for your leadership. Thank you to our panel of outstanding
Witnesses for taking the time to join us today.
In my home district in Arizona, it's a hub for high tech
manufacturing. Patent issues are always top of mind for many of
my constituents.
More broadly, patent issues are of vital importance to our
nation's economy and our competitiveness in the global market.
So, I'm grateful that Chair Johnson has made it the focus
of today's hearing. You see, we have long understood that our
patent laws stoke the fires of America's innovation.
From the cost of prescription drugs, to our investment in
manufacturing facilities, Americans are affected every day by
the complex and technical issues surrounding our patent system.
In recent decades, as our economy and technologies have
modernized, it has become increasingly clear that Congress must
also Act to ensure that those patent laws, which have
benefitted all Americans, from some small inventor in their
garage, to the cutting-edge researcher in their university lab,
that those laws are modernized as well.
That's why 10 years ago, through the America Invents Act,
Congress has established the Patent Trial and Appeal Board,
commonly known as PTAB, to offer an alternative patent review
process to suspense with District Court litigation.
We all understand that attorney's fees and trial court
costs can be very, very expensive. That court calendars can
change, and legal matters can drag on and on.
By establishing PTAB, Congress has intended to offer
parties a speedier, more technical, and more efficient way to
challenge the validity of patents that has already been issued
by the USPTO.
In the years since the AIA was enacted, issues arising
within the patent system have shown us that it may be time for
Congress to Act again.
Big pharmaceutical companies have too often gamed the
system to delay lower cost generic from hitting the market. So,
called nonpracticing entities have continued buying up patents
and asserting them on behalf of investors against American
manufacturers.
The so-called NHK-Fintiv Rule has allowed PTAB more
discretion to deny petitions for review when there is a
parallel District Court lawsuit already filed.
So, as we examine the patent space for potential
legislative action, I appreciate the input from all our
Witnesses today. My first question is for Mr. Matal.
Mr. Matal, as one of the lead Senate staffers who worked on
AIA, can you give us some insight into the purpose of the
discretion that was baked into the bill?
Was it to provide flexibility as the AIA was being
implemented? Did you see it evolving into what is now the NHK-
Fintiv Rule?
Mr. Matal. Thank you, Congressman. The agency was intended
to have some discretion to manage these proceedings.
There were, under the previous system of inter-parties
reexamine, the agency felt it couldn't even impose a page
limit. The thinking was it should have the same authority to
manage these cases that a District Judge does to manage their
docket.
However, agencies are purely creatures of statute. Agency
discretion is always bounded by law.
I'm not a critic of all these discretionary policies. The
325(d) is statutory. General Plastic, I signed off on myself
when I was Acting Director.
When the statute does things like set a deadline in
relation to District Court proceedings, the agency doesn't have
authority to shorten that deadline. The agency is obligated to
follow the law.
Mr. Johnson of Georgia. Mr. Stanton, you need to unmute.
Mr. Stanton. Thank you very much, Mr. Chair. My next
question is directed to Mr. Pushparaj.
I understand that you work with many startups in the
Silicon Valley. In my home State in Arizona, we are fortunate
to have many small business startups as well.
Even though PTAB proceedings cost less than District Court
litigation, they are still expensive. I imagine it's not where
small startups want to be spending their money.
Can you explain how PTAB helps small businesses, even if
they don't file many IPRs?
Mr. Pushparaj. So, first, I want to dispel this notion. A
patent is not invalid because the PTAB said it's invalid. It's
invalid because it's invalid.
As a start up, I am faced with, and I'll be blunt about it,
nonpracticing entities. There are many nonpracticing entities
knocking on our doors.
There are questions about whether we get basic funding
because we're not able to file patents. There's more an issue
of whether we're in business. PCs want to fund companies that
are in business, whether we make a revenue, whether we are
actually in business.
These threats, multiple threats from nonpracticing entities
over patents that are practically silly, threaten us because
every litigation, spending millions of dollars on every
litigation, is indeed threatening to our existence.
So, PTAB and the ability for us to do this, it's not the
cheapest forum in the world, but it is an option for us to be
able to still manage expectations on cost and time, to be able
to resolve these issues.
When we have a pending litigation that exists for six years
at a time, that also staves out the cost that a PCs going to
put in, because there's pending litigation. The timeliness is
as important as the ability for us to go to a forum and resolve
it.
So, yes, startups, PTAB has indeed had a positive impact on
startups in the manner.
Mr. Stanton. Thank you so much. I yield back, Mr. Chair.
Mr. Johnson of Georgia. Thank you. I will now recognize the
gentleman from Oregon, Mr. Bentz for five minutes.
Mr. Bentz. Thank you, Mr. Chair. Thank you all for your
testimonies. It's extraordinarily interesting. I have a
question for Ms. Ellison.
You referenced the fact that the judges in the PTAB process
are giving more a quote, ``deference,'' end quote, to initial
patent issuance. Do you think that should rise to the level of
a presumption?
Ms. Ellison. I think it effectively has risen to the level
of a presumption. So, under the recent case law, if a reference
has been considered by an examiner during original prosecution,
then the petitioner bears the burden of showing that there's
been some error that's material to patentability.
So, I think that's been an effective way of giving more
deference to the original prosecution and brings us a little
closer to Mr. Massie's proposed gold-plated patent.
Mr. Bentz. Right. Thank you. As I want to hear a little
more on the other side of this issue, I yield the balance of my
time to Ranking Member Issa.
Mr. Issa. Thank you. Thank you very much for yielding.
One question I want to resolve, the reason that we allow
third parties to submit information that may tend to reduce or
invalidate a patent, is one of those reasons from original
legislation to be consumer interest, that every person is
affected by a patent and the cost that it brings on?
Would it be fair to say that most of the claim, or more of
the PTAB proceedings that began with companies in China or
outside the U.S., had to do with having been challenged in
similar court cases or accusation of infringement?
Mr. Matal. Yes. I think according to Schrab Vishnaboch's
(phonetic) study, over 85 percent of these cases are brought by
parties that have been sued for infringement.
Mr. Issa. Wouldn't it be fair to say that if you receive a
threatening letter that you have a choice, you can do a DJ and
go right into Article III, or can do a PTAB if you think you
have prior art?
Someone might argue whether you have standing. Wouldn't it
be fair to say that it's cheaper on everybody if you've got
prior art?
Mr. Matal. Yes. Sometimes when you get that letter, you
can't go to court, you won't have standing.
Other situations that come up where someone hasn't been
threatened, but they see a patent out there that reads on a
product they're planning to develop, and they do a clearance
IPR just to test, am I allowed to develop this product or not.
You also see the proceedings used in customer suit cases,
where someone's customer is sued. If you don't have an
indemnity agreement with that customer, you typically can't get
standing to even challenge the patent.
Finally, just quickly, Unified Patents is a substantial
client of the firm, so take what say with a grain of salt.
If you look at the cases Unified is bringing, they're
bringing it against some of the worst actors in the system.
People who are harassing small business, quickly seeking quick
settlements. I don't think we would want those cases to go
forward.
Mr. Issa. Now, there's been a lot of talk about stays. For
all of you would you say that a single stay in a Federal court,
even if there were multiple PTAB applications, would be
appropriate?
In other words, if there are serial applications, should
that be allowed to further delay an Article III Judge going
forward?
Or should we begin to just tighten up the amount of time
that an Article III Court could stay based on a process in the
PTO?
That's an opinion. It's one that I think we all want to
know, because it certainly for those cases where there have
been repeated ones, should we try to make sure that we
establish some procedure to limit delay?
Mr. Matal. I don't want to consume more than my fair share
of time, but not all serial challenges are created equally.
Sometimes it's the same party challenging. In that case,
these days, they'll probably be cut off by General Plastic.
Sometimes those serial challenges are because the patent owner
has sued multiple people in a staggered series.
Whether to stay a case the District Courts just need
discretion. Sometimes not all the claims are instituted.
Sometimes they are.
It just, it would be nice if the District Courts exercised
that discretion in a more consistent manner.
Mr. Issa. Mr. Kappos?
Mr. Kappos. Yes. Thank you, Congressman Issa. But, to cut
to the question directly, I would say that there does need to
be some limit to staying of District Court cases in your
hypothetical where there are multiple petitions.
Otherwise, the patentee never has an opportunity to get
finality and quiet title.
Mr. Issa. Okay. One for Mr. Pushparaj. I'm sorry to mess up
your name.
In your experience, the question of whether a patent has
been examined or reexamined properly, relative to when a patent
holder begins to assert what they say it means, have you seen a
huge difference in what appears to be prosecuted before the
patent, the PTO, and what later is brought before an Article
III Court case?
Mr. Pushparaj. So, oftentimes the resolution on validity is
dispositive to a party being able to resolve. This is true on
both sides of the plaintiff or the defendant.
Having certainty that a patent is in fact valid has seen in
firsthand experience. Everyone needs for parties to go and say
yes, we will settle your licensing demands.
The reverse is also true. Having disposition that a patent
is in fact invalid, grounds both parties to arrive at a faster
position, be it licensing or a settlement that the parties walk
away from the lawsuit.
So, having this ability, and having a fresh resolution from
the PTAB, which is the cheaper and faster alternative, does, in
fact, make a big difference in the parties having a resolution.
Mr. Issa. Thank you. Thank you, Mr. Chair. I yield back.
Mr. Johnson of Georgia. Thank you. The Chair will now
recognize the gentleman from Louisiana, Representative Johnson
for five minutes.
Mr. Johnson of Louisiana. Thank you, Mr. Chair. It takes on
average 30 months for a District Court patent case to get to
trial. Whereas, every IPR by statute has to be completed within
12 months, as has been discussed.
Additionally, patent litigation typically costs several
million dollars to handle. Whereas, IPR costs several hundred
thousand dollars.
The IRP process only assesses the validity of a patent,
which means that litigants are still required to go to District
Court to bring an infringement action or other claim related to
patents.
So, this means that a single patent could have to go
through both the IPR and the Federal District Court process.
So, my question was for Ms. Ellison, or Mr. Rogers, maybe both
of you.
Do you believe this dual system works well in practice? Or
should we consider maybe expanding the claims that can be
considered via IPR?
Mr. Rogers. Yeah, Congressman, that's an excellent point
that you made. We filed our case against Cisco in 2018. It's
now 2022. There are likely many years ahead.
When the point of a patent for a small company is to be
able to break down the barriers to enter a market, well at what
point can you actually do that?
So, for the patent owner, it becomes an exceptional
existential problem, if you actually intend to participate in
the market.
Mr. Johnson of Louisiana. Ms. Ellison, do you have thoughts
on that?
Ms. Ellison. So, I don't favor expanding the basis on which
IPRs can be brought. We do have PGRs that are available, of
course, within a limited time period.
I think the legislation that led to IPRs and PGRs, struck a
reasonable balance in that regard, between the two proceedings.
Sure, there can be both IPRs and District Court litigation.
I think practitioners and parties have come to accept that.
I don't think that we should get rid of the IPR or PGR
system in its entirety, because it serves an important
function, in particular, for entities that don't currently have
Article III standing to appear in court.
Mr. Johnson of Louisiana. Very good. I know a big complaint
that patent owners have against the IPR process, is that
opponents can file multiple petitions against the same patent.
So, it seems logical to me that once a patent has been
deemed valid by PTAB it shouldn't any longer be subject to
scrutiny by that board.
Let me move to another subject. Mr. Pushparaj and Mr.
Bright, I wonder if you could tell me how PTAB and the IPR
process either benefit or burden small businesses?
I know that there are currently several pieces of
legislation between the House and the Senate that are up for
consideration. I know one of them has been introduced by my
good friend, Mr. Massie.
I wonder about your thoughts on that, the burdens or the
benefits to small business?
Mr. Pushparaj. I've stated this before, not having a forum
to be able to quickly resolve issues, especially with the
numerous patents that are asserted against us by nonpracticing
entities, does heavily burden small businesses.
The very threat of existence to small businesses such as
ourselves, tech startups, whether you have an app, it is out
there in public view, then there's ten patents being asserted
against you.
In firsthand experience again, I've seen the presence of
PTAB have an impact to the number of claims asserted against us
by nonpracticing entities. That is an important effect on small
businesses.
Mr. Johnson of Louisiana. Mr. Bright, your thoughts?
Mr. Bright. Yes. So, I'll just give a perspective from a
medical device company to give a more realistic example.
So, it generally takes us 8-10 years to get a product to
market through the FDA and ready to be sold. It then takes
generally another two to five years after that to even reach
profitability.
So, it takes tens of millions of dollars, sometimes
hundreds of millions of dollars to get through that entire
phase.
Once your patents are out there, if somebody sees them and
knows that you're working towards that goal, and you are
worried about the threat that they will be able to take out
your patents and undermine your further investment in it; it
does create a stress in the operating environment of the
company and in its investors.
So, you do have to be quite mindful and protective of it.
Mr. Johnson of Louisiana. Very good. I've only got 25
seconds left. I just want to thank all the Witnesses for your
expertise.
This is obviously a really important set of issues. I'm
grateful, in particular, for Mr. Issa and Mr. Massie, and their
expertise in helping our side at least, guide through all this.
Mr. Chair, I thank you for your time. I will yield back my
remaining seven seconds.
Mr. Johnson of Georgia. The Chair thanks the gentleman. The
Chair now recognizes the gentleman from Wisconsin, Mr.
Fitzgerald for five minutes.
Mr. Fitzgerald. Thank you, Mr. Chair. I know we're getting
into the area where some of this stuff might be a little
redundant.
I certainly believe in strong property rights. One practice
that has evolved out of PTAB is particularly concerning, which
is this serial petitioning, which has been brought up numerous
times already.
After the filing of multiple petitions against the same
patent owner or even the same patent, given the high
cancellation rates of PTAB, a company with multiple petitions
can suffer, obviously, severe damage to its stock, particularly
if it does not have resources to go against some of these big
tech companies.
At the same time, to be able to make large investments in
plants and equipment, a lot of manufacturers right now need to
be able to obtain accurate and reliable review of the patents
that they are asserted against them.
We're also seeing, obviously, some of the shell companies
that are able to purchase broad, low quality patents, such as a
company MPHJ, that had the quote, ``scam to email technology,''
unquote, technology.
Effectively holds companies hostage for some of these huge
paydays that we're seeing. So, it would be to everyone's
advantage if you dealt with those patents quickly.
At the risk of burning through my entire 3:30, I'd like, is
there anybody that would like to comment on that, I certainly
would welcome that. Just describe any changes that could be
made to the current system to strike a balance, which are
obviously competing goals.
Mr. Kappos, if you wanted to start?
Mr. Kappos. Yes. Thank you for the question, sir. I would
say the clear and convincing evidence standard that a number of
us have mentioned, would be a sure way to hold petitioners
accountable.
Further guidance through Congress, modification of the
Fintiv Rule that's been talked about, would help with the issue
you've raised to avoid serial petitions.
Still leaving some flexibility for the PTO to be able to
beg off or decline to take a challenge where a challenge has
already been taken before. Where a District Court has already
made a judgment. Where the Federal circuit has already made a
judgment.
Mr. Bright. If I can just add a couple more ideas if it's
okay? Yeah?
Mr. Fitzgerald. Sure.
Mr. Bright. So, I think that if the PTAB would prohibit
multiple petitions on overlapping claims, that would help.
Also, I think that the petitioner should be required to
disclose all the entities that are behind the petitioner. All
those petitioners should be made privies to the case.
That once a decision has been made with respect to the
petition, whether it's denial or institution, or whatever it
is, that all those parties are then subject to that ruling.
Mr. Rogers. I think that the points made by Mr. Kappos and
Mr. Bright are excellent. The only additional perspective that
I'd offer is that we've gone very hard over in this balance of
equities to the users of this system who are largely trillion-
dollar firms.
The legal budgets here are likely a small fraction of a
quarterly dividend. To get balance back in the system, we need
to think about patent owners.
Mr. Matal. Yeah, I'll just add, as long as Congress is
considering changes, I might suggest adding the issue of 112(d)
patent indefiniteness to IPRs.
Nowadays, you occasionally get these decisions where the
board is asked to review something as obvious. They say, we
have to decline to institute the petition, because the claim is
indefinite, and I don't know what it reads on.
That doesn't really benefit either party. That's obviously
a Black mark on the patent. The claim is left forward.
If the board is doing that analysis anyway as part of the
institution decision, you might as well let them reach the
final decision. It's a decision on the paper.
So, I'd recommend adding 112(d) to the grounds that can be
raised at an IPR.
Ms. Ellison. I'll just add, I think it's important for the
PTAB to maintain discretion when it comes to instituting
trials.
I think no one wants to see abuse of the patent system. So,
limiting to some degree the number of petitions that can be
filed, makes sense.
On the other hand, having hard and fast rules that say, oh,
only one petition should ever be filed on a patent, arguably
goes too far. Particularly when you could have potential
petitioners who are completely unrelated, and the second person
doesn't get their day to be heard.
Thank you.
Mr. Johnson of Georgia. The gentleman's time has expired.
We are now at the conclusion of this hearing.
The gentleman from Kentucky, Mr. Massie, is recognized for
the purpose of introduction of items into the record. Mr.
Massie?
Mr. Massie. Thank you, Mr. Chair. Thank you to all the
expert Witnesses here. I have two articles to submit.
One is called, ``How Google and Big Tech Killed the U.S.
Patent System,'' by Michael Shore and IP Watchdog. The second
is called, ``Big Tech's Sticky Fingers are Still at Work in
Washington,'' by Adam Mossoff. He's a patent expert at George
Mason University.
Mr. Johnson of Georgia. Without objection, so ordered.
[The information follows:]
MR. MASSIE FOR THE RECORD
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Mr. Johnson of Georgia. We are now at the conclusion of the
hearing today. The Witnesses, I thank you for participating.
Without objection, all Members will have five legislative
days to submit additional written questions for the record, or
additional materials for the record.
Without objection, this hearing is now adjourned.
[Whereupon, at 12:20 p.m., the Subcommittee was adjourned.]
APPENDIX
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QUESTIONS AND RESPONSES FOR THE RECORD
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