    [Senate Hearing 118-664]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 118-664

                         REFORMING THE PATENT TRIAL AND
                          APPEAL BOARD_THE PREVAIL ACT
                            AND PROPOSALS TO PROMOTE
                           U.S. INNOVATION LEADERSHIP

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

                                    HEARING

                                   before the

                     SUBCOMMITTEE ON INTELLECTUAL PROPERTY

                                     of the

                           COMMITTEE ON THE JUDICIARY
                              UNITED STATES SENATE

                        ONE HUNDRED EIGHTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                NOVEMBER 8, 2023

                                   __________

                              Serial No. J-118-43

                                   __________

             Printed for the use of the Committee on the Judiciary

                     [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                            www.judiciary.senate.gov
                                www.govinfo.gov

                                   ______

                     U.S. GOVERNMENT PUBLISHING OFFICE

    60-433                    WASHINGTON : 2026

                           COMMITTEE ON THE JUDICIARY

                       RICHARD J. DURBIN, Illinois, Chair

    SHELDON WHITEHOUSE, Rhode Island     LINDSEY O. GRAHAM, South Carolina,
    AMY KLOBUCHAR, Minnesota                     Ranking Member
    CHRISTOPHER A. COONS, Delaware       CHARLES E. GRASSLEY, Iowa
    RICHARD BLUMENTHAL, Connecticut      JOHN CORNYN, Texas
    MAZIE K. HIRONO, Hawaii              MICHAEL S. LEE, Utah
    CORY A. BOOKER, New Jersey           TED CRUZ, Texas
    ALEX PADILLA, California             JOSH HAWLEY, Missouri
    JON OSSOFF, Georgia                  TOM COTTON, Arkansas
    PETER WELCH, Vermont                 JOHN KENNEDY, Louisiana
    LAPHONZA BUTLER, California          THOM TILLIS, North Carolina
                                         MARSHA BLACKBURN, Tennessee

                 Joseph Zogby, Chief Counsel and Staff Director
          Katherine Nikas, Republican Chief Counsel and Staff Director

                     Subcommittee on Intellectual Property

                     CHRISTOPHER A. COONS, Delaware, Chair

    MAZIE K. HIRONO, Hawaii              THOM TILLIS, North Carolina,
    ALEX PADILLA, California                 Ranking Member
    JON OSSOFF, Georgia                  JOHN CORNYN, Texas
    PETER WELCH, Vermont                 TOM COTTON, Arkansas
                                         MARSHA BLACKBURN, Tennessee
                 Rajiv Venkataramanan, Democratic Chief Counsel
                      Brad Watts, Republican Chief Counsel

                                C O N T E N T S

                                  ----------

                               OPENING STATEMENTS

                                                                       Page

    Coons, Hon. Christopher A........................................     1
    Tillis, Hon. Thom................................................     3

                                   WITNESSES

    Armond, Michelle E...............................................    10
        Prepared statement...........................................    28
        Responses to written questions...............................    40

    Kiani, Joe.......................................................     8
        Prepared statement...........................................    46
        Responses to written questions...............................    52

    Matal, Joseph....................................................     6
        Prepared statement...........................................    59
        Responses to written questions...............................    78

    Smith, Hon. Lamar................................................     5
        Prepared statement...........................................    91
        Responses to written questions...............................    94

                                    APPENDIX

    Items submitted for the record...................................    27

                         REFORMING THE PATENT TRIAL AND
                          APPEAL BOARD_THE PREVAIL ACT
                            AND PROPOSALS TO PROMOTE
                           U.S. INNOVATION LEADERSHIP

                                  ----------

                          WEDNESDAY, NOVEMBER 8, 2023

                          United States Senate,
                 Subcommittee on Intellectual Property,
                                    Committee on the Judiciary,
                                                        Washington, DC.
        The Subcommittee met, pursuant to notice, at 2:39 p.m., in
    Room 226, Dirksen Senate Office Building, Hon. Christopher A.
    Coons, Chair of the Subcommittee, presiding.
        Present: Senators Coons [presiding], Hirono, Welch, Tillis,
    and Blackburn.

            OPENING STATEMENT OF HON. CHRISTOPHER A. COONS,
               A U.S. SENATOR FROM THE STATE OF DELAWARE

        Chair Coons. This hearing will come to order. Thank you to
    all of our witnesses for participating today. And I'd like to
    especially thank Ranking Member Senator Thom Tillis and his
    staff for working together on a consensus basis to put together
    this sixth hearing this year of this IP Subcommittee. As usual
    Thom, you and your team have been great partners.
        Let me just lay a framework for my views on this
    legislation hearing today with a quick story.
        Imagine this, a talented inventor develops and perfects a
    technology to solve a problem. A solution that works better
    than anything currently available on the market and at a lower
    cost. And she applies for a patent to protect her innovation.
    And after tens of thousands of dollars in attorney's fees, and
    a lengthy examination process, she is awarded a U.S. patent.
        She then brings her technology to market. Her invention
    becomes a commercial success, improving the lives of American
    consumers and growing her business.
        But that invention catches the eye of highly resourced
    corporations, who copy it without her permission and
    incorporate it into their products. With the help of attorneys,
    the inventor then files an infringement suit in Federal
    district court against these corporations.
        And in response, the corporations each challenge her patent
    in separate venues--the Patent Trial and Appeal Board, or PTAB,
    as well as the district court.
        And working together, they weaponize their resources and
    file multiple challenges at the PTAB, knowing they only have to
    succeed once to invalidate her patent, no matter what the
    district court might separately decide.
        After years of time, expense, and effort, the inventor is
    ultimately stripped of her legal rights. Corporations are free
    to use her technology and put her out of business. This not-
    hypothetical example is representative of what too many
    individual inventors in the U.S. patent system are currently
    facing.
        A decade ago, the America Invents Act established inter
    partes review and post-grant review proceedings at the PTAB
    with the goal to be cheaper, more efficient alternatives to
    district court litigation for weeding out improvidently granted
    patents. And unfortunately, across a decade of experience, all
    too often just the opposite is true.
        Today, more often than not, very large, very well-resourced
    corporations, use the PTAB as a tool to wear down patent
    holders. More than 85 percent of defendants in patent
    litigation have used the PTAB as a duplicative rather than an
    alternative form to challenge a patent, often making the very
    same invalidity arguments in both district court and the PTAB.
        The issues with these dual track challenges are made worse
    by the lower standard of proof used in PTAB, where a patent
    challenger needs only show by preponderance of the evidence in
    validity rather than the clear and convincing standard in
    district courts.
        This not only runs contrary to the cost and efficiency
    goals of the AIA, but it has led to inconsistent results across
    these tribunals. In other words, over a decade of experience,
    patent challenges at the PTAB have not delivered on being
    faster, cheaper alternatives to district court validity
    litigation.
        Abuses of this system are also well-documented. As recently
    as June, a Fortune 500 company was able to invalidate two
    patents at the PTAB after a Federal district court jury had
    awarded $2 billion in patent infringement damages against that
    company.
        Statutory loopholes, like that challenge, are allowed to
    take place even though the company in that case had already
    been denied PTAB review during the litigation, and was
    currently time barred from bringing such a challenge.
        These kinds of outcomes weaken our patent system by making
    it less predictable, less reliable, less effective, which is
    why I was proud to introduce the bipartisan PREVAIL Act in June
    with Senator Tillis. We were joined with two other Members of
    this Committee, Durbin and Hirono.
        If inventors and innovators don't have confidence in the
    ability to protect their inventions, they will stop investing
    in U.S. innovation and take their money elsewhere, take their
    skills and their innovative capabilities elsewhere, and we will
    risk the loss of our competitive edge.
        This bill makes five, I think, simple reforms to realign
    how post-issuance reviews work, and I think it aligns them more
    closely with Congress' original intent.
        PREVAIL imposes a standing requirement to challenge a
    patent in an IPR, but not a PGR, to encourage early challenges
    at the PTAB. The bill requires the same showing for invalidity
    in the PTAB as required in district court: clear and convincing
    evidence.
        It requires patent challengers to bring their validity
    challenges in either PTAB or the district court, but not both.
    It limits repeated challenges to the same patent within the
    PTAB in the USPTO.
        And last, it adds some transparency and other safeguards to
    the PTAB while including provisions I've long championed to end
    PTO fee diversion, and ensure the PTO has the resources it
    needs to ensure strong examination and a strong patent system.
        I look forward to continuing to work with my colleagues and
    stakeholders as we move this bill forward this year.
        With Senator Tillis' cooperation, we've assembled a great,
    talented, and experienced panel with diverse views, and I
    encourage our witnesses to tell us what they like and what they
    dislike. What they'd like to see changed or improved. I'll
    introduce our four witnesses in a moment, but for now, I'll
    turn it over to Senator Tillis.

                 OPENING STATEMENT OF HON. THOM TILLIS,
            A U.S. SENATOR FROM THE STATE OF NORTH CAROLINA

        Senator Tillis. Thank you, Chairman, and thanks to the
    witnesses for being here. I had an opportunity to greet them
    before you got here.
        But, you know, we've got--people ask me, what are my
    priorities on Intellectual Property Subcommittee? The one thing
    I stipulate quickly is I'm not an expert.
        Senator Coons has learned more about the law than I will
    ever know. But we have business problems here and we have
    impediments to innovation, we have impediments to creation that
    if we don't get this right, the United States is going to lose
    its advantage, its competitive advantage, and we have a serious
    pacing threat against China.
        We have a business challenge, we need to resolve it. And I
    do believe that PTAB reform and patent eligibility reform are
    two key components that we have to look at.
        The America Invents Act created PTAB, which serves as a
    necessary backstop, to invalidate truly low-quality patents
    that do not represent true innovation and never should have
    been issued.
        The intent of the PTAB was to provide a faster and more
    efficient process in determining patent validity to be in an
    alternative Federal district court. Properly constructed and
    administered, PTAB can play a vital role in maintaining strong,
    reliable, and predictable IP rights.
        However, we have found that much of this intent has been
    lost since its inception. I think things have changed, and the
    PTAB has ventured well beyond the original intent of the AIA,
    and the PTAB has become a progressively greater and greater
    forum for abuse and gamesmanship.
        For inventors, large and small, innovating is a very costly
    endeavor, both in terms of time and money. Innovators should be
    able to have confidence in our IP system and the ability to
    predict, at least to some extent, how their invention will
    endure the patent examination process and potential challenge
    once a patent's issued.
        That's why Chairman Coons and I introduced the PREVAIL Act
    earlier this year, and this legislation should restore, I
    think, faith and confidence in the PTAB and in turn, further
    bolster the innovation engine that is the United States.
        Now my hope for the hearing today, I'll just reflect--I'll
    deviate from some of my prepared comments and reflect on the
    conversation I had earlier today, or earlier this week with an
    IP forum.
        Number one, I tend to say it in all the hearings: Get at
    the table, don't be on the table. If you want to negotiate and
    you've got concerns with the current language in the PREVAIL
    Act, come to the table. Identify use cases where we have to
    address a potential unintended consequence or a vulnerability,
    while we fix one thing, we break another.
        But people need to be open and honest about it. To say that
    the status quo is acceptable and fair is probably the only
    statement you could make to me to shut me down and probably not
    spend much more time talking about it.
        There needs to be change, but I want it to be balanced. I
    want it to be instructed by people on both sides of the issue.
    And I think this hearing can go a long way to that end.
        But nothing substitutes for the discussions we have in
    between hearings. It's been about a year and a half since we've
    had a hearing on this subject matter. We've had a lot of
    discussions in the intervening time, and I hope all of those on
    either side of the issue, understand that my office is ready.
    We have a great working relationship with Senator Coons' staff
    to get this right, and we are committed to getting it right,
    but we're also committed to moving ahead. Thank you, Mr. Chair.
        Chair Coons. Thank you, Senator Tillis. Welcome, Senator
    Hirono.
        I'd now like to turn to introducing our witness panel.
    Today we welcome four witnesses to testify about the PREVAIL
    Act.
        Our first witness is Lamar Smith, senior consultant at Akin
    Gump, and a former Member of Congress. Representative Smith was
    the lead Sponsor in the House of Representatives of the 2011
    America Invents Act that created PTAB post-issuance reviews.
    Thank you, Congressman.
        Next we have Joseph Matal--Matal? Thank you. Who is
    principal at Clear IP. Mr. Matal was a former acting director
    and acting solicitor at the USPTO and was Senate Judiciary
    counsel during the negotiations and debate that led up to the
    passage of the AIA. Thank you, Mr. Matal.
        Next we have Joe Kiani, a founder, chairman, and CEO of
    Masimo Corp, a global medical technology company that has
    invented, developed, and produced innovative, wearable, and
    patient-monitoring technologies. Welcome Joe.
        Finally, we will hear from Michelle Armond, founding
    partner of Armond Wilson. Ms. Armond is an IP trial attorney
    with 20 years of litigation experience who's been litigating
    post-issuance reviews at the PTAB since the AIA was enacted.
    Thank you, Michelle.
        The mechanics for today's hearing are simple. After
    swearing in the witnesses, each will have 5 minutes to provide
    your opening statement. We'll proceed to questioning. Each
    Senator will have 5 minutes. We will likely do a second round
    of questioning, timing and attendance permitting.
        So would all the witnesses please stand to be sworn in?
        [Witnesses are sworn in.]
        Chair Coons. Thank you. Representative Smith, you may now
    proceed with your opening statement.

       STATEMENT OF HON. LAMAR SMITH, FORMER CHAIR OF THE HOUSE
       COMMITTEE ON THE JUDICIARY, CO-SPONSOR OF THE LEAHY-SMITH
     AMERICA INVENTS ACT, AND SENIOR CONSULTANT, AKIN GUMP STRAUSS
                    HAUER & FELD LLP, WASHINGTON, DC

        Representative Smith. Chairman Coons, Ranking Member
    Tillis, and Senator Hirono, it's good to be with you this
    afternoon. I've sat where you are a hundred times, and this is
    my first time behind the witness table on this side. I have to
    confess to you, I prefer to be the one asking questions.
    Nevertheless, I'll try to answer yours today.
        I'm tempted to say I'll give it the old college try. That
    time was long ago and far away, though it reminds me of my
    freshman year. I planned to major in physics and so took the
    course taught by the chairman of the physics department. After
    the first semester, I realized I was sitting next to the future
    Einsteins of the world, and I was not one of them.
        Today I readily acknowledge I'm in the company of real
    experts on patent law, and I don't pretend to be in their
    league.
        Twelve years ago, I was in the good company of Senator Pat
    Leahy of Vermont when our joint effort, the Leahy-Smith America
    Invents Act became law. We had been working on the patent bill
    for 6 years, but had not been able to get it out of Committee.
        Then we both became Chairs of our respective Judiciary
    Committees in the same Congress and prospects for the bill
    markedly improved. One of the centerpiece reforms of the AIA
    was the creation of the inter partes review system and the
    Patent Trial and Appeal Board to administer it.
        Our intention was to provide a quicker, more cost-effective
    alternative to litigation. Inter partes review at the PTAB was
    never intended to operate as an addition to litigation, or as a
    tool for those challenging patents to raise the cost of
    inventors seeking to enforce their patents against infringers.
        There are numerous statements to that effect at the time,
    including in the House and Senate Judiciary Committee reports
    on the AIA and during the markup of the bill in Committee. I
    won't repeat those statements here, but I've included some of
    them in my other written testimony.
        Like all major pieces of legislation, the AIA has evolved
    since its passage as it has been subject to the test of
    practical application.
        In particular, the inter partes review system has received
    numerous criticisms that has not operated as the quicker, less
    expensive alternative to litigation we intended.
        Many critics claim, in fact, that it has been a vehicle for
    the very abuse that concerned us in 2011. I'm told that
    something close to 80 percent of PTAB challenges are brought in
    addition to district court litigation, that large companies
    routinely use PTAB challenges as a litigation tactic, and that
    almost one fourth of all PTAB challenges come from just 10 very
    large petitioners.
        That is not how we wanted or expected the program to
    operate. If the goal of the PREVAIL Act is to respond to these
    criticisms, bring the inter partes review system more in line
    with our original intent, and prevent it from being used as a
    tool for litigation gamesmanship, I'm fully in support.
        This would help ensure that startups and small businesses
    get a fair opportunity to enforce their patents, and don't get
    beaten down by their powerful competitors.
        Also, I think there has been too much focus since the AIA
    on reducing the burden on patent defendants and nowhere near
    enough on what more we can do to support America's innovators.
        Forgive me, but like the Texas Rangers and their World
    Series win, we should not take our eye off the ball. I believe
    strongly that our patent system is the key to our economy and
    that it will help us compete with China and other countries.
        Any human system has inefficiencies, but if we lose sight
    of creating a system that truly rewards investment in
    innovation, we are really hurting ourselves in the long run.
        Chairman Coons and Ranking Member Tillis, you have
    definitely never taken your eye off the ball. Thank you for
    your well-intentioned efforts on so many fronts to make the
    patent system more responsible and more predictable.
        I hope Congress will support efforts like yours to make
    sure our patent system continues to encourage and protect
    inventors. They are the ones who help drive the economic growth
    of our Nation. I appreciate your inviting me to testify and
    look forward to your questions.
        [The prepared statement of Representative Smith appears as
    a submission for the record.]
        Chair Coons. Thank you very much, Congressman Smith. Mr.
    Matal.

                 STATEMENT OF JOSEPH MATAL, PRINCIPAL,
                     CLEAR IP, LLC, WASHINGTON, DC

        Mr. Matal. Chairman Coons, Ranking Member Tillis, Senator
    Hirono, it's been a dozen years since the America Invents Act
    was enacted. We now have a wealth of evidence with which to
    evaluate these proceedings. Over 15,000 PTAB petitions have
    been filed resulting in nearly 5,000 written decisions and over
    a thousand appeals to the Federal Circuit.
        One thing that the data reveal is PTAB proceedings are
    working well. PTAB proceedings are producing reliable and
    technically accurate reviews of patent validity. You don't have
    to take my word for it.
        A recent academic study that I cite in my written statement
    reviewed the results of 2 years' worth of appeals from PTAB
    decisions to the Federal Circuit, and compared them to the
    results of district court decisions.
        The study found that the PTAB is affirmed notably more
    often than district courts when it reviews questions of patent
    validity. In fact, district courts are about two and a half
    times more likely to be reversed when they've decided a
    patentability issue. The study's ultimate finding was that,
    quote, ``The most straightforward conclusion is that PTAB
    judges' technical expertise has aided decision-making on the
    thorny scientific questions that are endemic to patent law.''
        None of this should come as a surprise. In fact, it would
    be astounding if the results were otherwise--if having a
    technical education and a grounding in patent law were not an
    aid in making patentability decisions. The recent decade's
    experience thus confirms the judgment of successive
    Congresses--that having a trier of fact with a technical
    background will aid--will produce higher quality patentability
    decisions.
        Of course, even a good proceeding can be abused. It's
    important to have limits on PTAB proceedings to ensure that
    they're not used for harassment or some other improper purpose.
        Unfortunately, many of the provisions in the PREVAIL Act go
    far beyond what's necessary to prevent harassment or abuse.
    Some of these provisions would cut off what are necessary and
    legitimate patent challenges.
        One provision in PREVAIL that I view as problematic is
    proposed Section 315(f). This provision would bar a party from,
    quote, ``instituting or maintaining a PTAB proceeding if
    another review has been instituted.'' PTAB petitions are
    limited to 14,000 words. A single petition is generally good
    enough to challenge about 20 to 25 patent claims.
        There's no limit, however, on how many claims an applicant
    can obtain in a patent. Although most patents have fewer than
    20 claims, some will have a hundred claims, some patents have
    hundreds of claims. In addition, some patents have unusually
    complex claims or disputed priority dates, which also requires
    further analysis and more petition space. PREVAIL's
    restrictions on petitions in this particular provision would
    make it impossible to effectively challenge some of these
    patents.
        Another proposal in PREVAIL that I would counsel against is
    its adoption of a clear and convincing evidence standard.
    During the development of the America Invents Act, the interest
    that argued the most strenuously against using clear and
    convincing evidence was the USPTO itself.
        As the agency pointed out, during a post-issuance review,
    it's the same expert agency that it was during the initial
    review of the patent. There's no reason to require the agency
    to defer to an earlier decision. That's the product of less
    deliberation and analysis, and that often did not consider the
    most relevant prior art.
        Another proposal in PREVAIL that could lead to mischief is
    the proposal to bar the PTAB's consideration of any evidence
    that was, quote, ``presented during examination.'' This would
    allow an applicant to cite potentially thousands of references
    in an information disclosure statement during prosecution.
        Given the time limits on examination, it's unlikely the
    examiner would be able to meaningfully consider those
    references. Yet all those references would then be immunized
    against any consideration in PTAB review. The law shouldn't
    encourage that kind of applicant behavior.
        Another proposal in PREVAIL that I would counsel against is
    the proposed standing requirement. The standing requirement
    would cut off many beneficial patent challenges. It would
    prevent a manufacturer from challenging a patent when its
    customers have been sued for using the manufacturer's own
    product.
        It would bar parties from responding to vaguely worded
    demand letters that don't go as far as threatening suit. It
    would also cut off so-called clearance petitions in which a
    manufacturer wants to test a patent to see if it's allowed to
    develop a new product in that space.
        PREVAIL's standing requirement, combined with its expansion
    of real parties and interest, would also cut off the operations
    of the petitioning organizations such as unified patents. These
    organizations play a valuable role in the patent system. Often,
    they're the only organizations that challenge a patent that's
    repeatedly abusively asserted for nuisance value.
        In my written testimony, I described the litigation of
    activity of SportBrain Holdings. SportBrain filed 148
    individual patent infringement lawsuits before all of its
    claims were canceled in a challenge that was brought by Unified
    Patents. If we had this kind of a standing and RPI restriction
    in the law at the time, it's likely that SportBrain would still
    be filing nuisance lawsuits against American businesses today.
        I see that I'm nearing the end of my time. I'll conclude my
    statement here, and I look forward to answering the Committee's
    questions.
        [The prepared statement of Mr. Matal appears as a
    submission for the record.]
        Chair Coons. Thank you very much. Mr. Kiani.

    STATEMENT OF JOE KIANI, FOUNDER, CHAIRMAN, AND CHIEF EXECUTIVE
          OFFICER, THE MASIMO CORPORATION, IRVINE, CALIFORNIA

        Mr. Kiani. Thank you. Thank you, Chairman Coons. The story,
    Senator Coons, you told about an inventor--I don't know if you
    meant the lady sitting behind me here, Molly Metz, but she's
    one inventor and entrepreneur that lost her patent at PTAB and
    lost her company to a much larger competitor. Unfortunately, it
    happens way too often.
        Strong property rights lead to strong economies. And
    unfortunately, patents that have less than 20 years' life at
    best to them, are under attack. The PTAB, as designed, kills
    over 80 percent of the patents they review. And I personally
    know of U.S. inventors and entrepreneurs that have lost during
    PTAB and have lost their companies as a result.
        When I first heard about their stories, I thought, well,
    maybe their patents were weak. Maybe they should have lost
    those patents. After all, I had been in two major litigations
    that lasted each about 7 years, and none of our patents got
    invalidated.
        Well, it went to the jury, it went to the judge, it went to
    Federal Court of Appeals. They even challenged it in the older
    ways of challenging our patents at the Patent Office, where we
    had the chance to make changes to our claims to still keep our
    patents, but none of them were invalidated.
        Then we sued Apple. Apple filed 33 IPRs against our
    patents, and we spent $13 million defending them. They were
    able to kill 80 percent of my claims in one instance--that just
    shocked me.
        Apple's attorneys stitched together five or six patents and
    they still didn't show the inventive portion of our patent that
    a 30-year veteran patent examiner had used to give us the
    claims.
        And how did they invalidate it? Apple's expert said, ``I
    would've thought of that.''
        That's all it took for this panel to invalidate our
    patents. So preponderance of evidence, that's the problem.
        I learned later that PTAB--its biggest customer is Apple.
    Number one client is Apple.
        And I had high confidence in Federal Court of Appeals
    because I'd been in front of them twice before. So I was
    hopeful that the Federal Court of Appeals would overturn the
    PTAB because how could they rely on an Apple expert to say, ``I
    would've thought of that.''
        I was shocked that they didn't. They unfortunately, I
    learned, had no choice but to accept PTAB's decision because of
    preponderance of evidence.
        This study that Mr. Matal has mentioned I think it missed
    the point. The Federal Circuit Court of Appeals is not
    rejecting PTAB's decision because of their low standards that
    the PTAB has, which is preponderance of evidence. Not because
    of their expert technologists.
        The expert technologist was our patent examiner who'd been
    doing pulse oximetry patents for 30 years.
        So the law really sets the whole system up, unfortunately,
    for Federal circuit to agree with PTAB. And unfortunately, I
    know many inventors they wish we could go back to the days
    where I started Masimo, where patents did have teeth, they were
    strong. I was able to raise money with it. I was able to employ
    eventually 10,000 people--monitor over 200 million patients a
    year.
        But at minimum, the changes you are asking for will
    hopefully make some changes where the defenders aren't venue
    shopping. Right now, they're venue shopping with the PTAB. I
    know venue shopping is not allowed by plaintiffs, but defenders
    get to venue shop by going to PTAB, where they know they're
    going to get the result they're looking for.
        So without strong property rights, the United States is
    simply going to lose its economic power to other nations
    because property rights are key to it. And I hope the PREVAIL
    Act is a first step we can take to fix this problem. I more
    than anything have benefited from our intellectual property,
    and I've given back by innovating further and further.
        But unfortunately, this new system is changing it for so
    many people--that could be the people that will save ourselves
    from the problems that we have today. These entrepreneurs,
    these inventors do not have the same opportunity I had 35 years
    ago. Thank you for your time.
        [The prepared statement of Mr. Kiani appears as a
    submission for the record.]
        Chair Coons. Thank you, Mr. Kiani. Last, Ms. Armond.

       STATEMENT OF MICHELLE E. ARMOND, FOUNDING PARTNER, ARMOND
                 WILSON, LLP, NEWPORT BEACH, CALIFORNIA

        Ms. Armond. Chairman Coons, Ranking Member Tillis, Senator
    Hirono, and Members of the Committee, thank you so much for the
    invitation to speak today.
        I am an intellectual property trial attorney, and I have a
    unique perspective because my law firm, we actually represent
    both sides at the PTAB, both patent owners and patent
    challengers. So we have seen kind of the whole system from a
    lot of different views.
        So I thought the introduction you gave Senator Coons was
    really helpful. So let's talk a little bit about how we got
    here. So, as Mr. Kiani mentioned, about 20 years ago all patent
    validity challenges, for the most part, were decided in the
    district courts with infringement claims.
        So when I left law school, I had the honor of clerking for
    the Honorable Richard Linn at the U.S. Court of Appeals for the
    Federal Circuit.
        And when I left as a newly minted lawyer, that's where I
    went. I was in the district court litigating for plaintiffs and
    defendants.
        So after I'd been in practice for about a decade, the AIA
    came into effect and the PTAB was created, and that
    dramatically changed my practice. So in addition to being now
    at the district court, now we're at the PTAB and we're at the
    PTAB all the time.
        So the AIA has made the PTAB the busiest patent court in
    the Nation. And what happens at the PTAB does not stay at the
    PTAB--unlike Las Vegas.
        Most patent disputes are either decided at the PTAB or they
    are fundamentally altered by the PTAB's decisions. So we've
    heard a lot about how things are going. Well, this is how I
    think it's going.
        So I think--I think overall the PTAB is doing a pretty good
    job. They have teams and panels of specialist judges who are
    not only technically trained, but also trained in the law. So
    these are people that also clerked at the Federal Circuit or
    their pedigreed attorneys, and they are working hard to try to
    get the right result based on the system that we have.
        But, you know, these are extremely complicated decisions.
    They're much more complicated than district court, because you
    have the technology and the judges understand the technology,
    and you also have the added layer of patent law put on top. So
    it's, you know, not for the faint of heart.
        So when the PTAB first started and we were at the PTAB,
    they had a reputation for killing patents and there were lots
    of names. So, you know, it's been a decade. Things have kind of
    settled down. And so if you look at the statistics now, for
    patents that are actually litigated and defended by the patent
    owners, there's about a 59 percent chance as a patent owner
    that you're either going to achieve a denial of institution,
    which means the PTAB is not even going to take a second look,
    or one or more of your claims will survive the PTAB.
        And of course, if you can get one claim through or more,
    that's a win for a patent owner. So, you know, more than half
    the time patent owners are winning if they fight.
        So now that we're a decade in, I think it's a good time to
    do exactly what you're doing here on this Committee, which is,
    ``Let's take a look and see what's working and what's not
    working.''
        You know, to be consistent with the AIA's purposes of
    having a faster, more efficient system, there are a few areas
    where I think you can make some tweaks and get a lot of value.
    And so I'll bring up a couple here in my comments today.
        So one issue that I think everyone will agree on is the
    duplicative litigation. So when there is litigation in district
    court, there is usually an IPR or a PGR running in parallel. So
    what you effectively have are the same parties litigating the
    same issues at the same time in two different courts. And
    that's wonderful for the lawyers, but it's not really wonderful
    for everybody else.
        So there's two thoughts right now. So what the district
    courts sometimes are doing, is they're staying the case to
    prevent that duplication.
        And the PTAB has also adopted policies where they will
    discretionarily deny if they feel that the district court is
    going to hear the issue first, and a jury will decide validity.
        But both of these approaches are not implemented
    systematically, and they've been very controversial. I mean,
    nobody's really happy with any of this.
        So the proposed amendment in the bill to Section 315, which
    provides that if the IPR is instituted, a party can't maintain
    the same challenge in another proceeding, that would absolutely
    reduce that duplicative litigation cost.
        And the second amendment, which I'll highlight, which we've
    already discussed, is the burden of proof. So right now, at the
    PTAB, which is an administrative agency, the burden of proof is
    clear and--or, a preponderance of the evidence, and the bill
    would change that to clear and convincing evidence, which is
    the standard that the jury is supposed to apply in the district
    court.
        And this will solve the problem that the Supreme Court
    recognized in Cuozzo, which is that in this system, under the
    AIA, you have these two different standards. So you can have
    that PTAB and the district court, and they can reach different
    results on the same patent.
        So I'd like to thank the Committee for carefully
    considering patent reform at this junction and I welcome any
    questions you may have.
        [The prepared statement of Ms. Armond appears as a
    submission for the record.]
        Chair Coons. Thank you so much to all of our four witnesses
    for your testimony. I appreciate the diverse perspectives you
    shared on how AIA reviews at the PTAB have, in some ways,
    fallen short of the AIA's intent, and how Congress might
    address those shortfalls.
        I'll start my questioning by exploring expectations and
    goals of the AIA when enacted more than a decade ago, and how
    the PTAB was envisioned and then a second round to explore
    provisions of PREVAIL and solicit your continued feedback.
        Congressman Smith, as you testified earlier today, the AIA
    established post-issuance reviews at the PTAB with the intent
    that those reviews would be an alternative path--quick, cost-
    effective alternatives to litigation. Have the reviews under
    the AIA at the PTAB lived up to this intent? If not, why not?
        Representative Smith. Mr. Chairman, thank you for the
    question. You're exactly right. The original intent of PTAB was
    to be an alternative to litigation, not an add-on to litigation
    as it has become.
        Going back to the intent, it was very simple. We aimed to
    make sure that valid patents could be approved more quickly.
    And we wanted to achieve a balance, if we could, between the
    lone inventor, the small business, the startup, and the large
    companies--and between the patent holder and the patent
    challenger.
        And over the years that balance, I am afraid, has not
    always been achieved. And part of the reason, as you just said,
    has been PTAB.
        And it has been used in ways we did not envision. And
    that's why I'm encouraged by your willingness to take a look to
    see how we might tweak the AIA to make sure that we can return
    to the original intent, and we can achieve that balance.
        Oftentimes the PTAB and the multiple challenges that are
    filed are, to me it seems, to be almost in order to harass a
    company, rather than to achieve some good.
        And I don't associate my--or, like to be associated with
    comments by Mr. Kiani. I read his testimony I heard what he
    said today. The situation he described is exactly the situation
    we wanted to avoid.
        He, in my judgment, and I'm sure in his, was clearly
    harassed. He felt like he was being beaten down by a large
    company. They filed multiple petitions, cost him, I think I
    just heard, $13 million or thereabouts. That was not what the
    original purpose of AIA was.
        And to the extent that PREVAIL Act can correct that and can
    make sure that we get back to the original intent, I think it
    is a good piece of legislation, and I wish you well.
        Chair Coons. Thank you, Congressman. In fact, if I
    understand correctly, one of the things you said during the
    effort to pass the AIA with our friend, Senator Leahy, was that
    the reviews were not to be used as tools for harassment.
        Representative Smith. Right.
        Chair Coons. Something from that----
        Representative Smith. Right.
        Chair Coons. What do you think of the fact that the most of
    the--the most frequent users of the PTAB are 10, large, well-
    established----
        Representative Smith. Yes.
        Chair Coons [continuing]. Tech companies using it in
    addition to litigation?
        Representative Smith. That apparently, as I mentioned, the
    largest 10 petitioners account for something like 80 percent of
    the challenges that are filed.
        And if I may, you started to quote from what we had as a
    statement or in--we put it in the record back in the days when
    we considered the AIA.
        This is the Committee--House Committee Judiciary report:
    ``That the PTAB was not to be used as a tool for harassment or
    means to prevent market entry through repeated litigation and
    administrative attacks on the validity of a patent. Doing so
    would frustrate the purpose of providing quick and cost-
    effective alternatives to litigation. Further, such activity
    would divert resources from the research and development of
    invention.''
        I can get into that a little bit more later on, but that's
    simply to concur with what you said. And I think the PREVAIL
    Act will take us a long way to restoring the original intent
    and finding the balance that we aim for.
        Chair Coons. Thank you, Congressman.
        Ms. Armond, as you just testified, you have extensive
    experience as a patent litigator, both district court and PTAB.
        You've got about a decade in when the AIA was enacted, and
    you've had the decade since.
        What were your expectations, as the legislation was being
    debated and developed--and as it was passed, about how the
    reviews in front of the PTAB would work? And what aspects of
    those reviews have worked well, and what aspects have fallen
    short in your opinion?
        Ms. Armond. So in terms of making litigation more
    efficient, the PTAB is very good for what it does, which is
    it's supposed to be a very limited proceeding. They're only
    looking at invalidity based on patents and printed publications
    for anticipation and obviousness, which were generally kind of
    the defenses you wouldn't want to try to a jury anyway, because
    it's really technical and kind of boring.
        So they do well, and they're very quick, you have an answer
    in 18 months, a lot of our clients really, really like it.
        I think the one thing that is bothersome is a lot of
    clients on both sides are frustrated that they're spending
    money in district court and on--at the PTAB at the same time,
    on the same defenses, because people need to press forward on
    both until they know which court is going to take control of
    the football on these defenses. So clarity would be helpful.
        Chair Coons. So in your view, there's a burden of
    duplicative litigation and having some clarity, not just
    discretionary stays, but a mandatory stay, would help?
        Ms. Armond. Well, yes, and if you remember, in the original
    AIA, there was that covered business method review, which has
    now been sunsetted. There was an automatic stay that actually
    came with that.
        So I think there's different ways the Committee can
    consider addressing that. One is, you know, the current
    amendment, the other is potentially a stay. But I think
    everybody can agree that having lawyers doing the same thing
    twice in two places is not a great use of resources.
        Chair Coons. Thank you. Senator Tillis.
        Senator Tillis. Thank you, Mr. Chairman. Thanks again, for
    all of you being here.
        I don't know if you all know there's a Presidential debate
    tonight, so I'm kind of in a debate mood.
        [Laughter.]
        Senator Tillis. And so, Mr. Matal, in particular, if you
    happen to want to take a counter view to any opinions
    expressed, if you'll just raise your pencil or a piece of
    paper, we'll give you equal time.
        But I want to start with Mr. Kiani. The PREVAIL Act
    requires accused infringers to choose one form to pursue
    their--invalidate their challenges, PTAB or district court. Can
    you explain why it's so difficult when you have to fight on
    both fronts?
        Mr. Matal. Senator Tillis, yes. First of all--sorry.
        Senator Tillis. Red means on.
        [Laughter.]
        Mr. Matal. Thank you, I apologize.
        Yes, it's very challenging to be in both courts. However,
    I'm a big fan of the jury because it gets rid of bias. And the
    jury does a great job handling sophisticated patent cases, with
    the judge overseeing through Markman hearing the claim
    construction parts.
        So yes, the problem we have is, I kind of alluded to it,
    Eastern District of Texas was a place that people that wanted
    to harass companies would go to file patents against them. And
    that--we have laws now against that. But unfortunately, PTAB,
    with an 80 percent kill rate, is kind of like the Eastern
    District of Texas for defenders.
        So they always choose that. And then they ask a court to
    stay the trial till they get what they expect--which is kill
    your patents.
        And if I may, since you're in debate mood, I take--I'd take
    a different stand where Ms. Armond said, you know, it's a good
    thing when we get one claim.
        No, it's not. It depends what claim you get. One claim is
    not good for inventors. In fact, it's most of the time doing
    weaker stuff that, by the way, the defender is not worried
    about.
        Senator Tillis. Congressman, I hope I have an opportunity
    to ask you a question. But I love the fact that we have someone
    here so we can actually understand congressional intent. It's
    amazing how even with bills that are passed in the last
    Congress how people think I intended something different--I
    say, ``Why don't you just call me up? '' So I'm glad we were
    able to call you up, get clearer on what you had in mind when
    you were working with Senator Leahy.
        Ms. Armond and Mr. Matal, I think this is probably one
    where you'd want to go, and we're talking about changing the
    standard from preponderance to clear and convincing. I think in
    your opening statement, you said you had a problem with that
    and you gave some history. So I'm going to give you a chance to
    repeat that.
        But let's start with you, Ms. Armond. Why is that a good or
    a bad idea?
        Ms. Armond. I think the question is, do we want
    consistency? So the administrative proceedings--the reason we
    had that originally is because it was an administrative
    proceeding. And that is the standard that the Patent Office
    applied. We have seen over time the Patent Office has
    harmonized more with district courts because these PTAB
    proceedings are like mini litigations.
        So if we want both trials to be similar, having the same
    standard of proof, I think would be helpful. But also at the
    same time, you know, it's not going to matter necessarily, in
    every case. A lot of the patents that go up, they're either
    clearly invalid, or they're clearly not invalid. And so it's
    probably going to only make a difference at the margins.
        But that consistency, it exists. The Supreme Court has
    recognized, and the question for the Committee is, you know, do
    we want to be the same or do we want to treat the PTAB more
    like an administrative agency?
        Senator Tillis. Mr. Matal.
        Mr. Matal. The reason courts apply a clear and convincing
    standard in district court is out of deference to the agency's
    expertise out of recognition that a generalist court just
    doesn't understand the technology. Well, if the Patent Office
    granted the patent, you know, you should trust the Patent
    Office, to an extent.
        Again, when you're back at the agency, it's the same expert
    agency. In fact, they've had a lot more analysis of the same
    claims, and they're usually considering prior art that wasn't
    considered the first time.
        An additional thing I'd note is that, when you're in the
    PTAB, you do get a measure of deference for the examiner's
    earlier findings for the prior art that was actually considered
    during prosecution.
        There's a policy under section called--Section 325d, where,
    if it's clear that a reference was considered and the applicant
    overcame it, the PTAB won't institute on that proceeding,
    unless it's a very strong case. And I've frankly never seen
    that happen. This is a good thing. This policy encourages
    people to be more forthcoming during prosecution.
        Frankly, if we really want to fix the quality of issued
    patents, we need to return to a system where it's more routine
    for people to conduct a search and a patentability analysis as
    part of prosecution. The current 325d policies encourage you to
    do that. You can bring the prior art, get it considered, and
    then it won't--it would be very hard for someone to use it in
    the PTAB proceeding.
        If we give people clear and convincing deference
    automatically, even for prior art that was never considered,
    that whole incentive goes away. But again, most importantly,
    the clear and convincing standard is supposed to be about
    deferring to expertise. And the agency is frankly more expert
    when it's reviewing these claims for a second time.
        Senator Tillis. Thank you.
        Chair Coons. Senator Hirono.
        Senator Hirono. Thank you, Mr. Chairman. So patent law is a
    very--it's a specialty area. And it can be very confusing, I'd
    say.
        Ms. Armond, so I can understand what the various standards
    are, you talked about consistency. So at PTAB, the standard
    is--to overturn a patent is, you just need to show by a
    preponderance of the evidence. That's a pretty low standard.
        And so you have a lot of patents that are being overturned.
    And yet, when that there is an appeal, then the district court
    will apply a clear and convincing standard to whether or not
    the patent should have been overturned?
        Ms. Armond. So at the Federal Circuit, they review legal
    issues and claim construction, which is the scope of the patent
    under a de novo standard. So they have very broad discretion,
    but the actual factual findings that the agency makes, the PTAB
    makes, those are reviewed for substantial evidence. So that is
    a very--a very deferential standard for the--to the PTAB.
        Senator Hirono. So if PTAB applies a really low standard
    for overturning a patent, then that's going to be given
    deference?
        Ms. Armond. So the way I think this will play out on appeal
    if the standard is changed--so right now, the Federal Circuit
    is looking for substantial evidence under that preponderance
    standard, that lower standard. So if you change it, it's still,
    I'm sure, going to be substantial evidence, but they're going
    to be looking for more evidence, more to support under that
    standard. They kind of review it through the lens of the
    appropriate, like, you know, evidentiary standard.
        Senator Hirono. The PREVAIL Act that we're talking about,
    that's going to change the standard for PTAB to go to a
    preponderance--I'm sorry, to a clear and convincing standard,
    before it will overturn a--toss out a patent?
        Ms. Armond. Yes. So that--as I read the bill, the bill
    would change the standard of the PTAB, it would not affect the
    appellate review.
        Senator Hirono. So, I think, Mr.--I'm sorry--you spent 13
    million trying to defend your patent, Mr. Kiani?
        Mr. Kiani. Yes, Senator Hirono.
        Senator Hirono. So you prefer the provisions in the bill
    that creates a clear and convincing evidence--by clear and
    convincing----
        Mr. Kiani. Absolutely.
        Senator Hirono [continuing]. For PTAB?
        Mr. Kiani. Because that also then allows the Federal Court
    of Appeals to then take a harder look at the evidence that the
    lower PTAB court used.
        Senator Hirono. Ms. Armond, you mentioned a couple of
    suggestions that you had in your testimony. You didn't mention
    whether you thought a standing requirement would be also an
    improvement. Do you have any thoughts?
        Ms. Armond. Yes, so I address that in my written testimony.
    So for that particular provision, what the interests are is you
    have some--so when there's litigation, there's often an IPR.
    But under the statute, anyone can file an IPR, even if you
    haven't been sued.
        Senator Hirono. Mm-hmm.
        So there's a public interest in making sure that only
    quality patents issued from the Patent Office, and then you're
    balancing that against an interest in patent owners who don't
    want to have just anybody be able to challenge their patents,
    or they end up in litigation, and suddenly a lot more patents
    are getting challenged than the ones that are actually in the
    case.
        Senator Hirono. I have a chart that showed that the
    litigation without standing is really a lot of very Big Tech
    companies that are bringing all these suits. So if they were
    required to have standing, then that would maybe limit the
    number of these kinds of claims brought by Big Tech companies?
        Ms. Armond. I actually don't think standing is going to fix
    that. The reason that you see the Big Tech companies filing so
    many, is because they are the biggest target for patent suits
    in our country. So those large companies are getting hit with
    lawsuits all the time--like daily.
        And so the reason they're at the PTAB is because they're
    trying to defend all these cases. So I don't know that
    standing----
        Senator Hirono. Who's bringing all these lawsuits against
    the Big Tech companies?
        Ms. Armond. Any--lots of people. Some are other
    competitors. Some are individual inventors. There are some
    people that are looking for nuisance settlements, like there's
    a lot of different players in the space.
        Senator Hirono. So a standing requirement is only going to
    have limited impact?
        Ms. Armond. I think in some areas, it could have a big
    impact. But in terms of changing who's filing at the PTAB, I
    don't think so. Because if someone goes and sues a BIG TECH
    company for patent infringement, which does happen every day,
    sometimes many times a day, then they have standing, and
    they're just going to show up at the PTAB again. So standing
    isn't going to change that.
        Senator Hirono. So regardless of that, though, it seems to
    me that in every other court case, standing is a pretty
    fundamental issue to go to overcome. So it makes sense to me
    that we require that in this context. And Mr. Kiani, would you
    agree with that?
        Mr. Kiani. Yes. Yes, Senator, I would. And the big
    companies, unlike mine, when we're about to launch a product,
    we look to see if we might infringe someone's patents. And if
    we do, we all launch the product. The big companies, I know one
    of them at least, doesn't do that. So that's why they get sued,
    because they just take----
        Senator Hirono. Mm-hmm.
        Mr. Kiani [continuing]. People's IP.
        Senator Hirono. Thank you. Thank you, Mr. Chairman.
        Chair Coons. Thank you, Senator Hirono. We'll start a
    second round of questions.
        Mr. Kiani, I----
        Senator Tillis. [Voice off microphone.]
        Chair Coons. Oh, I'm sorry.
        [Laughter.]
        Chair Coons. Sorry, Senator Blackburn.
        Senator Blackburn. Well, thank you, Mr. Chairman. I
    appreciate that, before you go to your second round.
        [Laughter.]
        Senator Blackburn. You know, I'm just invisible up here
    so----
        [Laughter.]
        Senator Blackburn. Congressman Smith, always good to see
    you. And I know your long history on these issues. I loved
    working with you in the House as we addressed many of these--
    and our innovators and songwriters and entertainers in
    Nashville, you were always so good to them. And I appreciate
    that.
        I want to ask you, I want to start with you, looking at
    PERA and looking at PREVAIL. When you look at PERA and you see
    the four categories that would be deleted. And then we look at
    the advent and the utilization of algorithms, and especially in
    some of our healthcare technologies in those fields.
        With PERA, what changes would you make on that? And then
    with PREVAIL, when you look at the requirement of challengers
    having to have been sued or threatened with a suit before they
    can move forward with PTAB? I want to get your take on these
    two bills and these two provisions----
        Representative Smith. Okay, Senator. Let me try--but let me
    first concur with your comments.
        I enjoyed our overlap in the House for 10 years and we did
    work on copyright issues frequently----
        Senator Blackburn. Yes.
        Representative Smith [continuing]. Particularly in regard
    to music. I wish we had collaborated more on IP issues, I'm
    sure we would have agreed on those too.
        Let me start with, I think the legitimate aim of the AIA
    and the PREVAIL Act is to make sure that the small-time
    inventor, maybe the single innovator, the small business, the
    entrepreneur, the startup company, gets cleared title to their
    patents.
        Now, that helps the case that you were talking about. If
    they get clear title, they can use that patent in ways that,
    whether it be healthcare or other types of patents, in ways
    that benefit the American people.
        But so often PTAB is abused in ways that were not intended
    by, oftentimes, large companies, and the small----
        Senator Blackburn. The patent trolls.
        Representative Smith. The patent trolls--and I'll get to
    that, you're right. And the result of that is because the
    process is abused, the small-time, small patent holder
    oftentimes is disadvantaged, and can't produce the patents,
    can't produce the technology that they should be able to. And
    you're right about patent trolls, and I'll make a confession
    here.
        When we were writing and passing the AIA, I was really
    consumed with patent trolls. I was seeing a lot of stories and
    reading a lot about patent trolls. And I won't say we over
    focused on patent trolls, but I'll say we may be under focused
    on that small-time innovator, and how the PTAB might be abused.
    We never intended for that abuse to occur.
        And I think that's one reason--or one thing that the
    PREVAIL Act can do to--is to correct that situation, bring more
    of a balance back----
        Senator Blackburn. Got it.
        Representative Smith [continuing]. To the equation.
        So yes, patent trolls are still a problem, but we need to
    make sure that we're trying to give as much advantage to the
    small patent holder as we do anyone else. And if we do that, we
    will have succeeded.
        Senator Blackburn. Okay. Thank you for that.
        Mr. Kiani, I want to come to you. I have had some concerns,
    as I looked at your background, and I note that you are a very
    prolific Biden donor.
        Mr. Kiani. Yes.
        Senator Blackburn. Giving money in the millions to the
    Inaugural Committee, a Super PAC--and that you've received
    about $3 million in Government contracts after he went in. I
    know you also received some contracts previously, going back
    into the Obama administration.
        But can you guarantee this Committee that those donations
    didn't play any role in the Government contracts you've
    received since January of 2021?
        Mr. Kiani. I'm actually glad you asked me----
        Senator Blackburn. Yes.
        Mr. Kiani [continuing]. Because no one asked me when they
    published those false things.
        Senator Blackburn. Okay.
        Mr. Kiani. We sell medical----
        Senator Blackburn. Well, that's why we do our research----
        Mr. Kiani. Thank you.
        Senator Blackburn [continuing]. We ask these questions.
    It's always good to get the input.
        Mr. Kiani. Yes. So let me first of all, we sell medical
    products to hospitals, including VA hospital, and military
    hospitals.
        Senator Blackburn. Okay.
        Mr. Kiani. We've been doing it since 1998. And it happens
    that during Trump's time, we got more business from the VA and
    military hospitals than we have during Biden's period--or even
    Obama's period.
        So that's just stuff that's just totally false. It has
    nothing to do with it. We don't go for Government contract, we
    just sell pulse oximeters to hospitals. That's all.
        Senator Blackburn. All right. I've got a couple of other
    questions on that issue, but my time is expired. So I will
    submit those for the record.
        And thank you, all, for being here with us. Thank you, Mr.
    Chairman.
        Chair Coons. Thank you, Senator Blackburn.
        Mr. Kiani, if I might, I welcome your perspective as a
    patent holder, as an inventor--you've had an extensive legal
    battle with Apple. I think we can agree that no independent
    inventor could afford that cost at a startup stage of their
    company. What would it mean for inventors if they only had to
    defend their patents in a single forum, either the district
    court or the PTAB?
        Mr. Kiani. Well, frankly, if they had to do with PTAB, it
    would be horrible. I think, really, the forum should be the
    court. And if we're going to have PTAB continue, they should
    use the same standards as courts. And they should also allow
    you--like Patent Offices used to, to change your claim so that
    it still can be a valid patent, instead of just taking the
    whole patent away from you.
        Chair Coons. Mr. Matal, you've got extensive experience at
    the Patent and Trademark Office. One of the provisions of the
    PREVAIL Act, I hope we could agree, is a valuable one, would
    eliminate the practice of PTO fee diversion--something that I
    think led to an underfunding of patent examination over many
    years.
        In your view, what challenges did the Office previously
    face as a result of significant fee diversion, and would ending
    fee diversion free up funds to allow the Office to make the
    investments necessary to improve patent examination procedures?
        Mr. Matal. Fee diversion was incredibly damaging to the
    USPTO in the late 90s, early aughts. It stopped technology
    upgrades, it prevented the agency from hiring enough examiners.
        You--at one point you had art units where people were
    regularly getting 8 years of PTAB because there was such a
    delay in even initially examining applications.
        The AIA, when it first passed the Senate, did have a
    revolving fund that would have permanently prohibited all fee
    diversion. That ran into the ancient power of Appropriators in
    the House of Representatives and got stripped out.
        But the Appropriators did make a commitment, at the time,
    that they would no longer divert PTO fees, and they've stuck to
    that commitment since then.
        The only unfortunate incident we've had since then is when
    the sequester was done, in the beginning of the second Obama
    term, it was interpreted by OMB in a way that seemed designed
    to make it as painful as possible. And that took money out of
    PTO's hide and it forced cancellation of contracts to upgrade
    the IT.
        It probably delayed the USPTO's next gen IT upgrade by
    about 2 years. So definitely don't want that to happen again.
        Everyone should be able to agree that we want the PTO to be
    able to keep its money and do as high-quality work as possible.
        Chair Coons. You testified PREVAIL's standing requirements
    unfair because it would prevent business in the public from
    challenging low-quality patents, if I understood you correctly.
        Just to make sure we're on the same page, we understand
    each other, PREVAIL Act, on the standing requirement, would
    apply to IPRs--to inter partes reviews, not post-grant reviews.
        And if AIA reviews are really about the ability to
    challenge low-quality patents, but why is an alternative having
    Congress requiring those challenges to be filed early in a
    patent's lifespan during the 9-month window for PGRs?
        Mr. Matal. You know, the 9-month window--you have to file a
    PGR within 9 months of when the patent is issued. IPRs are
    overwhelmingly used because of patents that are being asserted
    in litigation. And by the time someone even learns about a
    potential patent, the 9-month window is long expired.
        PGRs are great, but, you know, they're often just simply
    unavailable for the cases that actually rise up.
        There's also a problem that in the final drafting of the
    AIA in the House, they provided a really--they changed the
    estoppel, and made it a--they could have raised estoppel, which
    means if you raise any one issue in a PGR, you're estopped from
    all validity issues, some of which, you know, may require
    discovery or other issues. I think that's also deterred people
    from using PGR, something that would be nice if it finally got
    fixed, at some point.
        Chair Coons. Last question. Your testimony states juries
    don't accurately assess patent validity and are not an adequate
    substitute for PTAB review. Just broadly speaking, American
    juries have been deciding very complex civil cases.
        The Sam Bankman-Fried cryptocurrency fraud case is one I'll
    just point to--very technically complicated.
        For hundreds of years, and the jury system is foundational
    to our Constitution--what makes patent validity so different
    from other complex litigation issues decided by juries?
        Mr. Matal. I'd probably also argue that juries don't always
    do the best work in antitrust cases either.
        But juries are really good at certain things. They're good
    at telling when people are lying. You know, they can sniff out
    dishonesty. There are good barometers of what's socially
    reasonable conduct.
        But jurors very rarely have any kind of a technical
    background. And when validity does come up in an infringement
    trial, it's just one of several issues thrown at the jury.
        Juries are often resistant to doing a patents in printed
    publications obviousness analysis. I think I noted in my
    testimony, one of the most dispiriting things you'll see is
    watching very skilled trial lawyers prepare for a jury trial.
    There's tremendous focus on themes and painting one side or the
    other as the little guy or getting damaging internal
    communications.
        The last thing they focus on is the nature of the claims
    and whether they are read on by the prior art. Juries, just
    juries in general as courts, just aren't set up to do a precise
    patent validity determination.
        That's why Congress, you know, starting in 1980, created ex
    parte reexamine--has kept refining that system out of
    recognition that you're going to get a much higher quality
    decision when you have the technical experts at the PTAB
    assessing these questions.
        Chair Coons. Thank you, Mr. Matal. Senator Tillis.
        Senator Tillis. Thanks again, Mr. Chair. Just a couple of
    quick questions. We'll submit some questions for the record as
    well, but I do know that there have been some who say that the
    PREVAIL Act is one sided, that it's primarily benefiting patent
    owners.
        So for any of you, Mr. Matal and Ms. Armond, but for any of
    you--but what, if you could, write into this any provisions
    that you think address some of the concerns of the petitioners,
    what would they be?
        Mr. Matal, I think in advance--I don't think you're going
    to be showing up at a pep rally any anytime soon for the
    PREVAIL winning in its current form.
        So this is an opportunity to talk about other things that
    we should be doing to actually address legitimate concerns,
    which is what I've asked from the stakeholders as late as this
    week. So it's an earnest question, I'm looking for feedstock.
        Mr. Matal. You know, if there's something that I think the
    Congresses that worked on the AIA didn't expect, it's the issue
    of PTAB independence. For a long time, it was just accepted the
    PTAB operates, you know, independently. And actually, when I
    first started at the agency, James Smith was the chief judge
    and had a very firm standard on you can't talk to the judges
    about anything.
        And unfortunately, the recent report from the Government
    Accountability Office has revealed that, that standard has
    fallen to the wayside and that there have been substantial
    efforts at backroom influencing of PTAB decisions.
        Before 1975, PTAB judges they were then called examiners-
    in-chief, were required to be appointed by the President and
    confirmed by the Senate, just like any military officer above
    the level of Captain.
        And that's one change I would recommend going back to.
    These judges, they're deciding important cases where sometimes
    billions of dollars--the parties, both sides have a lot at
    stake. You want a truly independent adjudicator deciding
    whether to institute a review, and to decide the final case.
    And we're going back to the Constitution system of ensuring
    that independence, Presidential appointment, and Senate
    confirmation, I think, recommends it to the role that PTAB now
    plays.
        Senator Tillis. Ms. Armond.
        Ms. Armond. So what I hear a lot from inventors and
    innovators is two things.
        One, is a concern that if I go to the Patent Office and
    spend money to get a patent, what if I lose it in an IPR and I
    suddenly have to deal with that. And so I think the standing
    limitation is--or amendment is aimed at that. But the reality
    is, is IPRs are actually very expensive to file at the Patent
    Office, like more than $50,000 usually, just for filing fees,
    not even legal fees.
        So most of the patents that are being challenged are
    involved or they're kind of periphery to litigation. So the
    independent inventor can take some comfort that someone is not
    probably going to be around saying, ``I'm just going to spend
    lots of money to hit this one individual person's patent.''
    It's really only patents that are being asserted and trying to
    be monetized in the marketplace that are seeing these things.
    So--so I want that message to be clear.
        And the other message is what I brought up in my testimony,
    there's, you know, a perception that the PTAB is just there
    killing patents. And if you actually look at the numbers, it's
    actually a pretty balanced resolution. Because, again, you can
    either get out without a trial, or if you go to trial, it is
    more challenging. Claims do get canceled.
        But if you look at it, there's like a 59 percent win rate
    for patent owners. And I think that's really good news.
        Senator Tillis. Congressman Smith, any words of advice for
    somebody who's been down this road a lot longer than us as we
    proceed with the PREVAIL Act?
        Representative Smith. Gosh, Senator, you have the
    experience and the expertise, and I've been a little bit out of
    touch for the last few years. And so all I can say is that from
    what I know about the PREVAIL Act and what you intend to do
    with it, I think tweaks are necessary for the AIA. I think you
    can improve this system.
        Right now, in my judgment, the PTAB system is being abused.
    It's being used to harass and if I may mention one other
    adverse consequence on the small-time innovator or inventor
    that I haven't mentioned so far.
        This goes back to the op-ed piece that appeared in The Hill
    last month. And the title is, ``Can the U.S. compete with
    China? Not without strong patent rights.''
        Frankly, China is our competitor. Russia used to be a
    distant second, I'm not sure they're a distant second anymore.
    But the article mentions a statistic that I had not seen
    before.
        Let me mention it to you real quickly. It talks about
    weakening of patent rights that ``disincentivizes innovation
    and private sector funding . . . our share of global venture
    capital funding has fallen from 82 percent in 2004 to 49
    percent in 2021.'' That's a third drop.
        And when the inventors don't get quiet title--clear title
    to a patent, they're not going to be able to attract
    investment, they're not going to be able to invest the
    resources, funds that they need to bring that patent to
    fruition if they're just simply beat down all the time.
        So in order for us to compete with China in all areas, but
    particularly in IP, particularly in patents, we're just going
    to have to do a good job of giving quiet title to the small
    patent owners.
        Senator Tillis. Thank you all, again, for coming and the
    time you spent in preparation. I yield back, Mr. Chair.
        Chair Coons. Thank you, Senator Tillis. Senator Welch.
        Senator Welch. Thank you very much. I want to thank the
    Chairman and Ranking Member for working together on this. Also,
    it's wonderful to see Congressman Smith, and I know that you
    and Senator Leahy worked very hard.
        Number one, I just want to say I support your effort to
    promote innovation here.
        Number two, any time we can streamline and make the process
    fair, is a good thing. So I really admire the leadership both
    of you are providing.
        One of the concerns I've always had is about the
    pharmaceutical pricing and the patent system there. So I just
    want to ask a few questions about that.
        I know what we're talking about, by and large, addresses
    the impediments that folks like Mr. Kiani have had to contend
    with in the technology space. And, you know, God bless you for
    working your way through it and accomplishing as much as you
    did.
        But I wanted to just, if it's okay, to ask Mr. Matal, you
    know, one of the things on the standing requirement, and,
    again, this is different in the pharma industry than the
    technology space.
        But patient groups have and on occasion been successful in
    challenging patents that have kept less expensive generics off
    the market. And I'm just wondering if the way the--whether
    there's any potential for unintended consequences with respect
    to a legitimate challenge from an advocacy group whose goal is
    to have access to a cheaper generic that is going to be
    affordable and effective.
        Mr. Matal. There definitely are advocacy groups that bring
    PTAB challenges even though they haven't been sued. And I
    believe some--there are definitely been PTAB proceedings that
    have canceled some pharmaceutical patents. I believe some of
    those may have been brought by advocacy groups.
        The problems with patent quality are actually a lot less
    severe with life sciences patents, for historical reasons.
    Examination's always been more rigorous in that area. But, you
    know, invalid patents do sometimes issue and, you know, you pay
    a lot more money for the same drug when someone has a right to
    a patent exclusivity for it. It does affect consumers.
        Senator Welch. Yes. I mean, it's not the subject of this
    legislation exactly. But the patent thickets has been a
    maneuver that has been used by pharmaceutical companies,
    essentially to stifle innovation in the space of health
    sciences. And is there anything in this proposed legislation
    that would help us deal with that problem on the pharma side?
        Mr. Matal. I mean, not really this--this is a bill about
    kind of reining in PTAB proceedings to the extent that invalid
    patents are improperly blocking competition. This obviously
    wouldn't help that. The problem with thickets deals more with
    kind of the way--the unique way claims and continuations
    practices evolved in the United States.
        That's an issue Congress could address. It's frankly an
    issue that USPTO itself could address.
        The USPTO had an initiative about a year ago to improve
    robustness and reliability of patent rights that started to
    look at some of these issues, should there be, you know, a
    right to bring in and seek an unlimited number of continuation
    patents----
        Senator Welch. Right.
        Mr. Matal [continuing]. From just one patent.
        Senator Welch. Right. Thank you. I know one of the parts of
    this legislation is about the fee diversions. And I guess from
    1990 to 2016, more than a billion in collected user fees were
    diverted out of the Patent Office. And my understanding is the
    authors here would have that--you'd end diversion. Right?
        Chair Coons. Yes, it would.
        Senator Welch. Pretty good idea?
        Mr. Matal. Yes, fantastic.
        Senator Welch. Okay.
        Mr. Matal. I just hope you can talk the Appropriators into
    it.
        Senator Welch. So----
        Chair Coons. I am one. I think I can talk myself into it.
        [Laughter.]
        Senator Welch. Well, I think I would support that. So
    essentially, this has been a catch-all cashbox, for other
    purposes.
        I'll ask you, Mr. Kiani, because it's extraordinary what
    you've accomplished, and it was bone chilling to me to hear
    that you have spent, what is it, $13 million----
        Mr. Kiani. Yes, sir.
        Senator Welch [continuing]. In fighting Apple. And what was
    the beef Apple had with what you did? You were going to be a
    competitor?
        Mr. Kiani. Well, the story is this. In 2013, they called me
    they said, ``You're the platinum of non-invasive monitoring.
    Please come visit. We'll sign your NDA. Tell us everything.''
    And I did.
        Instead of working with me, they hired 25 of my people, my
    engineers and then they released a--released a competing
    product that has my trade secrets and my patented inventions.
        So then when we went to sue them for patent infringement,
    they filed 33 IPRs on my patents--6 on just one of them.
        You know, Chairman Coons, Ranking Member Tillis asked a
    question, ``Are they going too far with this legislation? ''
    And I have inventors here behind me that says they're not going
    far enough.
        Lawyers always say bad facts make bad laws.
        Well, I know the trolls and some issues that was happening
    around the time of AIA created PTAB. PTAB is not good.
        A lot of people wish PTAB would go away. The ex parte
    reexam process worked. And unfortunately, now you have a system
    that is getting rid of our properties. We can't rely on them.
        Senator Welch. Mm-hmm.
        Mr. Kiani. Companies I invested in, an MIT graduate that
    had this incredible idea how to make AR glasses was ahead of
    everybody. Fearful of IPRs against his patents, they had to
    fold shop because they were afraid the big companies were just
    going to run them out. That's how bad it's become, sir.
        Senator Welch. Yes. Well, thank you. That's an amazing
    story. But thanks for hanging in.
        Thank you, all----
        Mr. Kiani. Thank you----
        Senator Welch [continuing]. And thank you, Mr. Chairman.
        Mr. Kiani [continuing]. Thank you, Senator.
        Chair Coons. Thank you, Senator Welch.
        I'd like to thank Senator Tillis, again, for being a great
    partner on this hearing. I think this was overall an important
    hearing to sort of air out concerns about the PTAB and the ways
    in which it's working, not working, working in ways other than
    the Co-Sponsors, the lead Sponsors of the bill intended.
        I also think this reinforced why the PREVAIL Act's needed
    to promote fair treatment for inventors and improve efficiency
    and ensure the PTO has the resources it needs to effectively
    administer a patent system that actually advances innovation in
    the middle of our global competition.
        We've received a number of letters from stakeholders
    including from AIPLA, C4IP, the Alliance of US Startups and
    Inventors for Jobs, Unified Patents, Beyond Inc, Dr. Josh
    Makower, and a coalition of associations including inventors,
    patent owners, large companies, small companies, and academic
    institutions. Without objection, I'll submit all those letters
    to the record.
        [The information appears as submissions for the record.]
        Members of this Committee can submit questions for the
    record for the witnesses, which are due by 5 p.m., 1 week from
    today, November 15th.
        With that, I'd like to thank all of our witnesses today for
    your preparation, your participation, and your contributions.
    And with that, today's hearing is adjourned.
        [Whereupon, at 3:51 p.m., the hearing was adjourned.]
        [Additional material submitted for the record follows.]

                                A P P E N D I X

    Submitted by Chair Coons:

      Alliance of U.S. Startups and Inventors for Jobs (USIJ), letter.   102

      Alliance of U.S. Startups and Inventors for Jobs (USIJ), et al.,
        letter........................................................   110

      American Intellectual Property Law Association (AIPLA), letter..   112

      Beyond Inc., letter.............................................   115

      Council for Innovation Promotion (C4IP), letter.................   117

      Makower, Josh, M.D., letter.....................................   124

      Unified Patents, letter.........................................   126

    Submitted by Ranking Member Tillis :

      American Intellectual Property Law Association (AIPLA), letter..   112

      Beyond Inc., letter.............................................   115

      Council for Innovation Promotion (C4IP), letter.................   117

      Makower, Josh, M.D., letter.....................................   124

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