Proposed USPTO Rules and Legislation Would Increase Government Costs

Recently proposed rulemaking and legislation would increase discretionary denial of institution of inter partes review (IPR) matters based on the criteria set forth in the Apple, Inc. v Fintiv, Inc. (Fintiv) matter and similar provisions. The Fintiv guidelines and related restrictions can make it difficult for claims to be fully considered even in cases where there is a substantial probability of success for the petitioner. If the proposed guidelines were implemented, the result would be a reduction in IPR proceedings even for cases that are otherwise meritorious. As a consequence, the economic efficiency benefits associated with the IPR process would be substantially diminished.

An additional issue with reducing IPR is that it will lead to higher costs of procurement for the US government. The Perryman Group estimates that the direct increased costs to the federal government associated with federal spending over the 2023-32 period would be -$106.4 million.

When summed with the estimated tax effects previously described, the total cost to the federal government was found to be almost -$202.9 million.

For more details please refer to the full report.

Nearly $500 million in Economic Benefit From Fewer NHK-Fintiv Denials at the PTAB: Report

The Perryman Group, in a recent economic study commissioned by Unified Edge, has found that over the next 10 years, the total economic benefit of reducing discretionary denials of inter partes review proceedings under criteria such as the NHK-Fintiv rules will lead to an increase in US business activity of $482.1 million, $230.4 million in personal income, and approximately 2,000 job-years of employment.

Source: The Perryman Group

Conversely, any activity that would reinforce or ensconce those rules or other forms of discretionary denial edicts—i.e., a continuation of current practice—could cost the U.S. economy almost $500 million. 

The report, The Potential Economic Benefits of Recent Reductions in Discretionary Denial of Inter Partes Review Based on Criteria such as the NHK-Fintiv Rules (March 2023), was commissioned by Unified Edge in part to explore the as-yet unstudied economic impact the NHK-Fintiv criteria. It researches, organizes, and provides data-backed studies and evidence to further regulatory and policy goals, and works to keep the policymakers up to date and informed on ongoing policies, data, and the regulatory landscape to move the law forward in a just, reasoned, and evidence-based way.

Read the entire report HERE.

With Uncertainty Brings Change: A Q3 Look at Fintiv Denials

The recent introduction of the Restoring the America Invents Act by Senate IP Subcommittee Chair Senator Patrick Leahy and Senator John Cornyn aims, in part, to remove the uncertainty that the precedential Fintiv orders have caused. Looking at the actual number of denials and frequency of the Board’s use of their discretionary line of cases, though, the consistent takeaway is that Fintiv continues to be used in unpredictable, ever-changing ways to deny otherwise-meritorious, timely challenges.

Despite the slight dip in overall filings (and decisions from last year’s also-down filings) so far in 2021, procedural denials are now used nearly 16% of the time, as compared to just 5% in 2016, before Fintiv and related cases were designated precedential. That is a 220% increase. Even with the uncertainty of Arthex over the first half of the year and the overall dip in filing decisions, the USPTO was still not shy about using procedural denials.

Section 314(a) is still being used 73% of the time for procedural denials.

Interestingly, the use of §§ 314(a) and 325(d) has jumped 6% versus last year. This year has seen these two denials 94.5% of the time in terms of overall procedural denials.

Section 314(a) denials are now 12.4% of denials, a very slight increase from last quarter.

Meanwhile, § 325(d) denials are being used 5.7% of the time, slight increase from last quarter.

The NHK Spring/Fintiv framework continues to be the dominant framework for § 314(a) denials with 77 already, 8 shy of the total last used last year.

Fintiv denials continue to be predominantly used in cases with parallel proceedings in the Eastern District of Texas.

That nearly 63% of all Fintiv-cited denials lead to a settlement begs the question of whether the PTAB might have been more effective at resolving unnecessary litigations; it would appear that, by and large, courts are being used to force settlements rather than address the merits of a patent claim.

Even despite the strategy of a given plaintiff, cases in Fintiv-cited denials are averaging almost two years (700 days) for a case to be terminated, no matter the outcome.

Relevantly, comparing the caseload of the PTAB judges versus the Western District of Texas and Judge Albright’s court docket—inarguably the single biggest patent docket for a U.S. district court judge—it becomes apparent that PTAB dockets are far less crowded and the Board has the necessary resources to hear cases efficiently while giving each cases its due attention; for instance, the highest-docketed PTAB judges have around 100-200 cases on their docket currently (with many having just a handful of PTAB cases balanced with ex parte appeals), whereas Albright has had roughly 700 patent and 1,250 total civil cases on his docket—and growing. See Ryan Davis, Albright Says He’ll Very Rarely Put Cases on Hold for PTAB, Law360, May 11, 2021 (6:50 PM EDT) https://www.law360.com/articles/1381597/albright-says-he-ll-very-rarely-put-cases-on-hold-for-ptab (Judge Albright, noting as of may that he has his civil docket has 1,250 cases, roughly 60% of which were patent cases).

This accounts for both having a certain rate of settlement and new filings, and shows a snapshot in time of the total docket of active patent cases. This suggests that even the most favorable comparisons of dockets indicate the PTAB three-APJ panels can devote much more time and many more resources to each individual ground—an observation only magnified by the myriad other issues attendant on a Federal District court judge’s docket in any particular case.

Expansion of AIA would have added $1.5 billion to GDP

In a new economic study, the Perryman Group has determined that enhancements to the America Invents Act’s post-grant review proceedings and increased use of district court stays would have saved the U.S. economy almost $1.5 billion dollars in gross domestic product (GDP), $712.7 million in personal income, and would have generated upwards of +6,792 job-years of employment between 2014 and 2019. That would have been in addition to the substantial savings realized of almost $3 billion already reported based on the current AIA regime. In other words, it could have been upwards of $4.5 billion of GDP savings, combined. This demonstrates that while the AIA has had a strong positive impact on the U.S. economy, it has fallen short of the benefits it could have accomplished with broader use of stays and a more comprehensive mandate. 

The study found that U.S. manufacturing would have experienced the greatest gains. It analyzed three scenarios: 1) If all court proceedings on a patent were automatically stayed after IPR was instituted, 2) if all invalidity defenses could be asserted in IPR proceedings, and 3) if both expansions had been in place. 

For 1), automatic district court stays, the Report estimates those changes would have led to an increase in U.S. business activity of an additional $543.1 million in GDP, $259.6 million in personal income, and +2,474 job-years of employment.

For 2), adding all defenses to the process, it estimates that adding those defenses would have led to an estimated $731.3 million additional increase in gross product, $349.5 million in personal income, and +3,331 job-years of employment.

And for 3) both, including multiplier effects, it estimates additional savings of $1.49 billion in gross product, $712.7 million in personal income, and +6,792 job-years of employment, noting that the benefits associated with Scenario Three are greater than the sum of the prior two if implemented separately, as the additional proceedings allowed if all invalidity defenses could be asserted would also benefit from being universally stayed while the IPR process is ongoing. 

Unified Patent’s Patent Quality Initiative (PQI) previously commissioned a study that demonstrated the substantial financial impact passage of the America Invents Act, and in particular, challenges like inter partes review (IPR), have had on the U.S. economy. That study demonstrated that U.S. businesses and the economy as a whole saved upwards of $2.95 billion dollars in gross domestic product, $1.41 billion in personal income, and generated upwards of +13,500 job-years of employment between 2014 and 2019.  

That study relied on the current AIA regime of post-grant review, where district court stays are inconsistently applied, limited grounds of challenge are available, and in practice—given recalcitrance to stay, confusion in caselaw and regulatory requirements like discretionary denials, and some resulting duplication of efforts between fora—the Congressional goals of providing a true cost-effective alternative to inefficient district court litigation have fallen short. Further study was needed to determine how much could have been saved over the same time period had district courts automatically stayed cases or had more grounds of invalidity been available in IPR.

Indeed, innovation has long been recognized as the key factor supporting U.S. economic growth and competitiveness. A critical element of the infrastructure facilitating product development and commercialization is the system that protects intellectual property and encourages its widespread adoption and implementation. The current framework that facilitates this process includes the Leahy-Smith America Invents Act (AIA) and the Patent Trial and Appeal Board (PTAB). The AIA and PTAB reduce the need for patent litigation, reducing costs and generating substantial economic benefits. Potential expansions of the AIA would lead to additional gains in business activity.

Economic performance in the United States over the long term is tied to innovation. The AIA and PTAB not only support innovation, but also generate substantial economic benefits. These benefits could be even greater with expansion of the AIA. 

The report is part of Unified Patents’ ongoing Patent Quality Initiative (PQI), an effort to gather and provide objective data and research demonstrating how lowering patent quality will inevitably lead to even higher cost and risk for U.S. SMEs, inventors, and manufacturers, and can lead to less innovation, fewer U.S. jobs, and a drain on the U.S. economy. Our PQI aims to provide data, studies, and testimonials to give policymakers and practitioners a clear picture of the state of the patent system. More information about our PQI efforts can be found here.

For far greater detail, read the entire report HERE.