The Consequences Of Killing USPTO Patent Reviews

Does the US Constitution prohibit the USPTO from striking down issued patents? That question will be decided by the US Supreme Court later this term. Should the Court rule against the USPTO, it would dramatically alter the US patent system in favor of patentees, give a big boost to patent trolls, and damage innovation in the US. The ruling also would make the US an outlier among major industrialized countries – turning it into the only such nation where patents could not be challenged in administrative proceedings.

The stakes are high in Oil States Energy Services v. Greene’s Energy Group. If the high court rules in favor of Oil States and holds inter partes review (IPR) unconstitutional, that would dramatically strengthen the position of patent owners. “IPR has become popular and has invalidated a large number of patents. It has had an impact addressing problems in patent examination and overbroad patents. Getting rid of IPR would tilt the playing field back in favor of patentees,” said Prof. Greg Reilly of Chicago-Kent College of Law.

If IPR were held unconstitutional, other USPTO patent proceedings would be fatally wounded. “All other USPTO adjudications of patents would fall as well – covered business method review, post-grant review, and likely ex parte reexamation,” said Prof. Melissa F. Wasserman of University of Texas Law School.

Congress could not remedy the situation by creating new procedures for USPTO patent review. A decision in favor of Oil States would be “a huge sledge hammer making it impossible for Congress to do anything to allow post-issuance review,” said Prof. Arti Rai of Duke Law School.

Such a ruling could tie Congress’ hands in other ways. “It would question Congress’ power to make alterations in the structure and scope of the patent system,” said Reilly.

Tougher Challenges

Without any available USPTO proceedings, it will become far harder to challenge patents. Challengers will have to go to court, where patents are presumed valid, unlike in USPTO proceedings. Courts read patents more narrowly than does the USPTO, making it harder to strike down a patent as non-obvious based on prior art. Most importantly, litigation requires significantly more time and money than a USPTO proceeding. “It is very expensive to challenge patents in federal court,” said Wasserman.

The result will be fewer challenges to wrongly-issued patents. “The USPTO spends an average of 19 hours on a patent review, and inevitably the agency will make some mistakes,” said Wasserman. He added that Congress created administrative review so the USPTO could fix its mistakes relatively quickly and cheaply.

Patent trolls would benefit significantly from the end of USPTO reviews. They would have more patents to assert, because many of the patents struck down by the USPTO were owned by trolls. And more alleged infringers would purchase licenses from trolls, because challenging patents in court is so risky and expensive. “It is cheaper to pay them off than go to court,” said Wasserman. He added, “Smaller companies and individual inventors often can’t afford to challenge patents in federal courts.”

Large, high-tech businesses would suffer. They are frequently accused of patent infringement, because they create complex products that involve hundreds, sometimes thousands of patents. Without USPTO proceedings, it will be harder for these businesses to fight accusations of infringement.

Bad for Innovation?

If the Supreme Court prohibits USPTO patent reviews, that will boost costs for consumers of pharmaceutical products, “because a fair percentage of the USPTO proceedings are used to challenge evergreening-type patents,” said Rai. Evergreening occurs when the patent on a drug will soon expire, so the drug company patents a minor variation of the drug (e.g., a capsule instead of a tablet). The drug maker shifts customers to the slightly modified drug and continues its monopoly via the new, evergreen patent. Evergreening thus forestalls generic competition and keeps drug prices high.

Obversely, many biotech and brand-name drug makers would benefit from the demise of USPTO proceedings. These companies would face “fewer challenges that they would characterize as spurious,” said Rai.

Loss of USPTO proceedings would harm US business and innovation overall, some experts warn. Patent trolls would impose larger, unnecessary costs on companies doing business in the country. And the existence of more wrongly-issued patents would discourage innovative businesses from offering new products or services that might run afoul of those patents. “Companies won’t enter new areas because of those patents,” said Wasserman.

But others assert that preventing the USPTO from striking down patents will, in fact, promote innovation. Because companies will make large R&D investments only if they know the results will receive strong patent protection.

“Our patent system can promote investment in research and development, and facilitate licensing of inventions, only if issued patents are accorded the respect accorded other forms of private property,” wrote the Pharmaceutical Research and Manufacturers of America (PhRMA) in their amicus brief supporting Oil States. PhRMA, an organization representing America’s large brand-name drug makers, noted, “It requires on average $2.6 billion in research and development to bring a single, new drug to market. … Such huge investments are justified only because, in the end, inventors can obtain a property interest—a patent.”

There is, however, some dispute over whether patents promote or hinder innovation. Research [pdf] has indicated that patents promote innovation in pharmaceuticals, but do relatively little to promote innovation in other areas. And sometimes, as in the high tech sector, patents have been found to stifle innovation.

The USPTO’s methods for reviewing patents can be improved, but these administrative reviews should not be jettisoned, most expert believe. “Litigation is expense, lengthy, and done before non-experts.  There’s a lot to be said for having decisions made faster, cheaper, and before experts,” said Reilly. “Having IPR is good public policy.”

Should the Supreme Court side with Oil States, the US will become the only major industrialized country where patents can be challenged only in a court of law. Japan and the EPO both allow post-grant administrative reviews. “The current USPTO procedures were in part modeled on those in Europe,” said Wasserman.

The Supreme Court will hear oral argument in this case later this term. A decision is expected before June.

 

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