[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
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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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