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.

DOJ's 2015 Business Review Letter for IEEE and 2020 Supplemental Response

By: John Pierce — Legal Intern, Unified Patents

Standard Essential Patents (SEP’s) consist of patents covering technologies that are unavoidable (thus “essential”) in the implementation of new technologies under a standard. Said differently, an SEP is a fundamental piece of an advancing technology that all innovators must use to further develop the technology in accordance with a standard set by the industry. Standard Development Organizations (SDO’s) identify which pieces of an advancing technology will become a SEP. Each owner of a SEP is asked to provide assurance to license the technology under F/RAND (Fair, Reasonable, and Non-Discriminatory) terms. This assurance commits the owner to provide access to their fundamental technologies so that the advancing technology can be further innovated by other members of its tech sector. This method of standardized licensing contracting hopefully provides an increase in continuity and a decrease in patent infringement litigation.

In 2013, the Department of Justice and the U.S. Patent & Trademark Office issued a policy statement on the remedies available for SEP’s that are encumbered by a F/RAND licensing commitment. The policy statement focuses on “patent hold-up” by patent holders. Patent hold-up can occur when an owner of a technology included in a standard gains market power. This increased market power can cause delays in licensing negotiations because the patent owner can potentially gouge the licensee for a higher price because alternative technologies are difficult to implement due to the standard. In summary, this policy statement does not specifically attempt to limit or increase the remedies available to patent owners with SEP’s subject to F/RAND licensing commitments, instead, the policy statement attempts to offer guidance on what important public policy considerations govern when an injunction or exclusion order should be granted. The Department of Justice does however give examples of hypothetical situations where injunctions should or should not be given. However, The Department of Justice seems to stray from this sentiment in the future and specifically attempts to limit the remedies available to patent owners involved in SEP’s with F/RAND licensing commitments.

IEEE is an example of an SDO and the development of IEEE standards and the use of patents is overseen by the IEEE-SA Standards Board. In 2007 the IEEE-SA updated its policy in an attempt to clarify the IEEE RAND Commitment. This update gave technology owners an option to disclose their most restrictive licensing terms. In 2013, the patent committee chair of the IEEE-SA formed an ad hoc committee to address the wide discrepancy held by industry leaders in the meaning of “reasonable rates” for SEP’s as well as other important issues that had come up since the policy’s rollout. IEEE subsequently asked the Department of Justice for a Business Review Letter, analyzing their recent change in policy concerning SEP’s. The Department of Justice determined that IEEE’s changes did not warrant antitrust enforcement.  One of the important policy changes made by IEEE’s policy update was to limit prohibitive orders that could be sought from patent owners. The Department of Justice agreed that limiting prohibitive orders from patent owners could help add clarity and allow parties to reach agreement more quickly. Over the next five years, the Department’s Business Review Letter was cited and applied continually by industry members. Concurrently, the Department of Justice became more involved in pending litigations on the subject. The Department, however, did not endorse the stance it seemingly took in the 2015 Business Review Letter. Specifically, when the Department of Justice became involved in litigations from 2017-2020, it continually stood by the patent owner and did not limit the prohibitive orders that a patent owner could seek. The Department of Justice attempted to clear up this seemingly contradictory behavior in 2020 with a “Supplemental Response” on its Business Review Letter from 2015.

The 2020 response essentially vacated the stance the Department of Justice held in its 2015 Business Review Letter. This stance was consistent with the way the Department of Justice had conducted itself since the Business Review Letter. However, seven months later, the Department of Justice reclassified the Supplemental Response as “advocacy” rather than “formal guidance.” This action effectively recertifies IEEE’s Business Review Letter as good policy. The motion to re-adopt the 2015 Business Review Letter coincides with the Biden administrations tougher antitrust stance.

What does this history mean for us now?

Currently, it is not clear how exactly the current administration will handle antitrust issues with SEP’s. The way the Department of Justice has handled the 2015 Business Review Letter for IEEE is an indication of how uncertain the future is for this area of regulation. Not only substantively but also procedurally, giving many a reason to call into question the BRL process. Specifically, the 2015 BRT prohibits the holding up of the licensing process by patent owners by limiting the prohibitive orders they can receive while the 2020 supplement turned its gaze towards the holding up of the licensing process by licensees. For now, it seems the Department of Justice is taking a tougher stance on antitrust issues involving SEPs, but until there is a new exclamation of the current state of the law, the question remains: Will the Department of Justice intervene and act according to the 2020 supplement or sit on the side line and stand by the 2015 BRT? In this connection, on July 9, 2021, White House issued an executive order, asking the Attorney General and the Secretary of Commerce to “consider whether to revise their position on the intersection of the intellectual property and antitrust laws.”  July 9, 2021 Executive Order on Promoting Competition in American Economy, Section 5(d).  In particular, the executive order asked them to consider “whether to revise the Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments issued jointly by the Department of Justice, the United States Patent and Trademark Office, and the National Institute of Standards and Technology on December 19, 2019.”  Id.  Despite uncertainty, interesting developments are anticipated in this area. 

The Impact of Arthrex on Discretionary Denial of IPR Petitions

By: Tova Werblowsky — Legal Intern, Unified Patents

The institution of the inter-partes review (IPR) process established in 2012 by the passing of the Leahy-Smith America Invents Act (AIA) created tremendous opportunities for post-grant challenges of weak and unused patents.[1] The frequent use of these patents as powerful legal weapons wielded by non-practicing entities in costly infringement lawsuits has resulted in clogging of the Federal court system, huge litigation costs for large and small companies, and disincentivization of technological innovation and development. The passage of the AIA eased the way for third party challenges of patents through an adversarial procedure at the USPTO’s Patent Trial and Appeals Board (PTAB), based on defects in novelty (§102) and obviousness (§103) features.[2] To initiate an IPR procedure, a third party challenger is required to show a reasonable likelihood of ability to prevail with respect to at least one claim of the patent, and is subject to denial of the challenge based on merit if this bar is not met.[3] In addition to merit-based denials, the Board can also deny requests based on purely procedural issues.[4] Congress has given the Director of the USPTO complete discretion with respect to institution or denial of an IPR petition,[5] but by  regulation, the  Director  has  delegated  this authority to the Board itself to which he appoints administrative patent judges (APJs).[6]  The Board then determines whether institution or denial of the petition would promote efficiency and fairness in each case, in light of its substantive merits. A recent set of precedential decisions based on the presence of parallel concurrent litigation of the same patents in the Federal District Court system NHK Spring Co. v. Intri-Plex Techs., Inc.[7] and Apple Inc. v. Fintiv, Inc. [8] discussed both the relative timing of the Federal court and PTAB case filings in addition to issue/party overlap and prior investment of the parallel court and parties among other factors. In Fintiv, a procedural hurdle was created for IPR challenges by subjecting petitioners to respond in detail to a 6-factor test upon a request by the patent owner for discretionary denial, which would allow the PTAB to determine whether pending parallel district court litigation of the patent should disqualify the challenger from a concurrent IPR.[9]

The decision by the Board is the last word with respect to the Patent Office decision- the Director has no control over the final outcome. The only recourse for a party who is dissatisfied with a final PTAB decision is to seek judicial review in the Court of Appeals for the Federal Circuit, at which point the Director is able to intervene before the court to defend or disavow the Board’s decision.[10]

The statistics since Fintiv have already shown that discretionary procedural denials of IPR review are increasing and will likely continue to do so as a result of the subjectivity of the requirements introduced by this precedent case.[11] This outcome seems to run counter to the goal of post grant review, which is to prevent the proliferation of bad patents, and thereby to discourage excessive litigation and encourage innovation.

The recent landmark Supreme Court decision, U.S. v. Arthrex, offers a new potential avenue for solution of this problem by forcing a rebalancing of power within the USPTO itself. The Arthrex case questioned the fundamental validity of the IPR process by challenging the authority of the APJs to make final decisions regarding patent validity on behalf of the Executive Branch of the government. The argument by the patent owner in Arthrex was that any Board decision is ultimately delegated directly by the President and therefore can only be made by “superior officers” of the Executive branch, who are appointed directly by the President and confirmed by the Senate, as Constitutionally required by the Appointments Clause. While the Director of the PTAB is appointed by the President with Senate approval, the APJ’s are appointed by the Secretary of Commerce, placing them in the role of “inferior officers” of the Executive Branch who therefore should not be allowed to make final, incontestable decisions. The patent owner in Arthrex argued that since APJs are inferior officers the entire structure of the IPR process is therefore inherently unconstitutional.[12] The Supreme Court majority in Arthrex held that the remedy for this status discrepancy would be to give back the power of review of all Board decisions to the Director of the USPTO, and this way “the President remains responsible for the exercise of executive power—and through him, the exercise of executive power remains accountable to the people.”[13]

The implications of the Arthrex decision for Fintiv-like procedural denials are tremendous: removing sole discretion for denial of an IPR petition from the Board and placing review power back into the hands of an appointed official means that the public­—and therefore patent owners and corporations—can once again have a say in the institution of patent review through the democratic process. The subjectivity of the 6-factor Fintev test for individual cases can be mitigated by placing ultimate control back in the hands of the Director, who is not necessarily the technical expert but who can assess the overall ramifications of IPR denials in the broader political and technological landscape. By doing so, the goals of the AIA and IPR process can be better achieved, while at the same time conforming to the Constitutional aims of democratic process.

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[1] https://www.uspto.gov/sites/default/files/aia_implementation/20110916-pub-l112-29.pdf

[2] https://www.uspto.gov/patents/ptab/trials/inter-partes-review.

[3] 35 U. S. C. §314(a).

[4] Id.

[5] Id.

[6] 35 U.S.C. §143.

[7] IPR2018-00752 (Paper 8) at 20 (P.T.A.B. Sept. 12, 2018)

[8] IPR2020-00019, Paper 11 (P.T.A.B. Mar. 20, 2020)

[9] Id. at 6.

[10] 35 U.S.C. § 143

[11] https://www.unifiedpatents.com/insights?offset=1625698876172

[12] U.S. v. Arthrex 594 U.S. 594 (2021

[13] United States v. Arthrex 594 U.S. 617 (2021)

Non-Compliance with §112(b) is More Than a Gamble for Claiming Computer-Implemented Inventions

By: Alexander Cullen — Legal Intern, Unified Patents

For those seeking to file applications for computer-implemented inventions, it pays to be aware of some lesser known requirements for such inventions before casting the die. In July of 2000, the United States Patent Office (USPTO) issued a patent for an electronic slot machine designed to appeal to players by allowing the conditions for payout to be selected by the players. Patent 6,093,102 (`102 Patent), assigned to Aristocrat Technologies Inc., comprised of the conventional slot machine set up plus a display screen whereby players can select their own winning combinations. The intended result is a perception of increased winning opportunities incentivizing slot players into preferring to play the machine. However, after filing suit for patent infringement against International Game Technology of `102 Patent in 2006, Aristocrat would find themselves in the position of those who use their alleged invention; the odds not being in their favor.

On summary judgment the United States District Court for the District of Nevada found the `102 patent invalid for indefiniteness under 35 U.S.C. §112(b). Aristocrat Techs. Austl. Pty v. Int'l Game Tech., No. 2:05-CV-00820-BES (LRL), 2007 U.S. Dist. LEXIS 98916 (D. Nev. Apr. 20, 2007). The house would later go bust as the United States Federal Court of Appeals for the Federal Circuit affirmed the `102 Patent’s invalidity. Aristocrat Techs. Austl. Pty. Ltd. v. Int’l Game Tech., 521 F.3d 1328, 1338 (Fed. Cir. 2008). Had the specification’s disclosure contained an algorithm, it may have been sufficient, and appeal would have been a gamble Aristocrat never had to make.   

In computer-implemented inventions, mean-plus-function claim limitations under 35 U.S.C. §112(f), are effective for claiming a function without limiting it to a particular piece of hardware. Functional claims recite performing a function without reciting structure, materials or acts that perform the function. Claiming a function itself expands the scope of the claim for the invention and prevents potential infringers from navigating around claim limitations by using alternate components. But 112(f) also requires that for means-plus-function limitations, the patent specification disclose corresponding structures to perform all the claimed functions or the claim be found indefinite. To the rue of Aristocrat, for computer-implemented functions the structure disclosed in the specification must be an algorithm.

On appeal, Aristocrat argued that disclosure of a programmable microprocessor ought to have been sufficient to satisfy definiteness related to a “game controls means” claim. Aristocrat Techs. Austl. Pty. Ltd. v. Int’l Game Tech., 521 F.3d at 1336. The control means in the slot machine functioned to present symbols on the display, operate win conditions, and service payouts. Presented in support were the mathematical equations for performing the functions, arrangements describing the operation of the game, and written descriptions. Id. at 1334. In combination, Aristocrat argued that to one of reasonable skill in the art these implicitly disclosed sufficient corresponding structure to satisfy definiteness. Id. at 1336. Aristocrat further claimed a particular algorithm is not necessary to disclose sufficient structure for a mean-plus-function limitation. Id. at 1335.

The Federal Circuit rejected Aristocrat’s arguments. Id. at 1338. It upheld the district court’s finding of indefiniteness because rather than disclose the structure of an algorithm capable of performing the functions, the specification only repeated aspects of the game like betting odds. Id. at 1332. The court agreed with Aristocrat that the disclosures could enable one skilled in the art to devise an algorithm sufficient to support the function claim but, the question of definiteness in this case was whether an algorithm had been disclosed at all. Id. at 1337. The court then subsequently rejected the assertion an algorithm was unnecessary for disclosing structure in computer-implemented inventions. Id. at 1338.

This case provides insight and warning about satisfying definiteness in computer-implemented means-plus-function claims. As per Aristocrat’s own example, for inventors seeking to patent computer-implemented-inventions, understanding why 112(b) specifically requires an algorithm for corresponding structure can be vital. The answer: preventing “pure functional claiming” and promoting patent quality.

As to why, the USPTO’s 2019 examination guidance action on patent examinations of computer-implemented inventions with functional claims elaborates. First, pure functional claims raise an issue of indefiniteness because they claim an abstraction without description of how the result is achieved. Second, without disclosure of the structure performing the claimed function, the scope of the claim is implicitly ANY structure capable of performing the function and the function itself. The result of both is indefiniteness because there is a function without adequate limitation to structure. Thus, requiring an algorithm prohibits overly broad and indefinite claim scoping. 

It should be noted, definiteness for computer-implemented functional claims does not necessarily require disclosing a highly descriptive algorithm, only one sufficient in structure to enable the function. Aristocrat Techs. Austl. Pty. Ltd. v. Int’l Game Tech., 521 F.3d at 1338. Specifications may disclose the algorithm in terms of mathematics, language, flow charts, or any means conveying understanding to those of ordinary skill in the art. Id. at 1337. Aristocrat’s slot machine only disclosed a microprocessor as structure for its game control function, by consequence any algorithm that achieved the results of the game control by microprocessor would be infringing. Said otherwise, it was a purely functional claim citing a goal rather than one reciting with specificity how said goal is achieved.

Necessarily, compliance with section 112(b) definiteness requirement should be of concern for those seeking to patent computer-implemented inventions with functional claims. Disclosure of algorithms providing sufficient structure to accomplish the claimed function is essential to avoid a finding of indefiniteness.