“[A]nything under the sun that is made by man . . .”
Thirty years after patent law’s recodification in 1952,
the judicial gloss of the accompanying legislative history suggested these words encapsulate an expansive view of the types of inventions the Patent Act was designed to protect.
But this interpretation belied a hidden truth—not every invention is patent eligible.
The question thus becomes: Where exactly does patent law draw the line for eligibility?
Courts had earlier determined that patent protection does not extend to laws of nature, natural phenomena, or abstract ideas—the so-called “judicial exceptions” to patent protection.
Under this theory,
such seminal discoveries as Einstein’s theory of relativity and Newton’s law of gravity are not patent eligible.
What precisely qualifies under the judicial exceptions, however, is ill-defined.
In particular, biotechnology, business methods, and computer software have recently been mired in subject-matter eligibility controversy, with questions concerning the validity of patents within these fields reaching the Supreme Court four times since 2010.
While the judiciary engaged in delineating the boundaries of patent-eligible subject matter, the legislature undertook broad revision of patent law more generally. In 2011, Congress passed the Leahy-Smith America Invents Act (AIA)
—perhaps the most meaningful patent reform in fifty years.
The reform provision that appears to have garnered the most attention
transformed the American patent system from one that generally rewards the first to make an invention (“first-to-invent”) to one that gives priority to the first inventor to file (“first-to-file”).
Not only did the AIA significantly affect the patent application process,
but it also created new mechanisms for third parties to challenge the validity of a patent through the United States Patent and Trademark Office (PTO)
after it has been granted.
Known as “post-grant proceedings,” these administrative measures are: post-grant review (PGR), inter partes review (IPR), and covered business method review (CBMR).
Congress also created the Patent Trial and Appeal Board (PTAB) as a new administrative body of the PTO and assigned it responsibility for determining disputes in connection with the new post-grant procedures.
In creating PGR and CBMR, Congress opened the door for subject-matter eligibility challenges—claims that a patent is invalid for failing to encompass patentable subject matter—before the PTO.
IPR, on the other hand, excludes consideration of statutory subject-matter questions.
Although others have noted the existence of this dichotomy
in the scope of review of the various post-grant proceedings,
this Note aims to fill a gap in the scholarship by examining its implications. Part I explores the history of subject-matter eligibility, from the creation of the judicial exceptions to recent Supreme Court attempts to define the parameters of this doctrine. Part II then surveys the time limit on administrative subject-matter eligibility challenges and grapples with its consequences. Finally, Part III proposes potential solutions to the more adverse consequences that the dichotomy triggers.
I. The History of Subject-Matter Eligibility Claims
Although the Patent Act defines four types of inventions and discoveries that qualify as patentable, courts have explicitly created three judicial exceptions. This Part surveys the evolution of the judicial exceptions, with particular focus on the effect of recent Supreme Court jurisprudence. Section I.A walks through the origins of the judicial exceptions. Section I.B then examines four recent Supreme Court decisions concerning subject-matter eligibility and considers whether they have clarified the boundaries of the judicial exceptions. Finally, section I.C addresses Congress’s response to these issues when enacting the AIA.
A. The Origins of the Judicial Exceptions
A basic tenet of patent law is that inventions must be useful, novel, and nonobvious in order to obtain protection.
Prior to even reaching these considerations, however, an invention must pass the first obstacle of patent eligibility—that is, it must encompass patentable subject matter.
Section 101 of the Patent Act governs this requirement by providing, “Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor . . . .”
As earlier noted, courts have long read into § 101 “an important implicit exception. ‘[L]aws of nature, natural phenomena, and abstract ideas’ are not patentable.”
1. Policy Underpinnings of the Judicial Exceptions. — Patent protection is authorized by the Constitution, which empowers Congress “[t]o promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.”
Patent laws seek to accomplish this laudable progress by granting patent holders the right to exclude others from access to protected inventions, thus providing an incentive to inventive activity.
However, that right must be balanced with recognition that exclusionary rights impede competition.
After all, “imitation and refinement through imitation are both necessary to invention itself and are the very lifeblood of a competitive economy.”
Each of the judicial exceptions grows out of, and reflects, the concern that overly broad rewards may unduly preempt the vital work of others. Thus, the Supreme Court asserted that allowing patents on “‘basic tools of scientific and technological work’ . . . might tend to impede innovation more than it would tend to promote it.”
As a result, no matter how revolutionary discoveries may appear—or how much exertion one expends in the process—the foundations of the American patent system dictate that laws of nature, natural phenomena, and abstract ideas should be left to the public domain for the benefit of scientific progress.
But this limitation must also be well defined. As the Court noted, “too broad an interpretation of this exclusionary principle could eviscerate patent law. For all inventions at some level embody, use, reflect, rest upon, or apply laws of nature, natural phenomena, or abstract ideas.”
Examining the precedent establishing and defining the judicial exceptions is thereby a useful exercise in understanding their scope.
2. Establishing the Judicial Exceptions: Early Jurisprudence. — The genesis of the judicial exceptions is evident throughout early patent cases, which determined that principles, abstract ideas, scientific truths, and mathematical formulae are not eligible for patent protection.
In 1948, the Supreme Court stated: “He who discovers a hitherto unknown phenomenon of nature has no claim to a monopoly of it which the law recognizes. If there is to be invention from such a discovery, it must come from the application of the law of nature to a new and useful end.”
In the 1970s, the Supreme Court began wrestling with the patentability of computer programs using mathematical formulae and whether such programs fell within the abstract ideas exception.
It tackled the issue three times from 1972–1981.
Through this trilogy of cases, the Court determined that a mathematical algorithm itself was an unpatentable abstract idea.
If, however, a mathematical formula is used as part of an industrial process to “transform or reduc[e] an article to a different state or thing,” then it is patent eligible.
Over time, the “machine-or-transformation test” secured the notion that an abstract idea or law of nature is eligible for patent protection when used in a process if it is either sufficiently linked to a machine or transforms an object.
This trilogy of cases, however, did not represent the end of Supreme Court jurisprudence on the issue of subject-matter eligibility.
B. Supreme Court Activism: The Effect of Recent Judicial Exception Jurisprudence
For a time after the 1970s trilogy, the Supreme Court seemed content to leave defining the boundaries of the judicial exceptions to the Federal Circuit.
Then, “[a]fter almost thirty years of silence on the topic,”
the Supreme Court again focused its attention on § 101—and has yet to stop. But despite the existence of this new precedent, ambiguity continues to surround the judicial exceptions.
1. Four Cases in Five Years: The Supreme Court Reconsiders Subject-Matter Eligibility. — The Supreme Court first reexamined subject-matter eligibility in Bilski v. Kappos, when it considered an application for a business method patent describing a process for “protect[ing] against the risk of price fluctuations” in the energy market.
Here, the Court addressed two separate issues: (1) whether business method patents, as a general matter, are patent eligible under § 101 and (2) whether the invention at issue was a patentable process.
The Court answered the first question in the affirmative, declining to create a categorical exception for business methods.
Then, rather than make a broad pronouncement on the limits of § 101’s scope, the Court reached and decided the second question on narrower grounds, holding the specific invention at issue invalid for covering the abstract concept of hedging—a long-standing financial practice of protecting against risk.
Two years later, in Mayo Collaborative Services v. Prometheus Laboratories, Inc., the Supreme Court examined the validity of a patent on a method for determining the correct dose of a potentially toxic drug used to treat autoimmune diseases.
The method linked the desired dose to the presence and amount of the drug’s metabolites, the natural result of the body’s breaking down the drug in the patient’s blood.
The Court therefore deemed these relationships a “natural law.”
Moreover, the patent failed to apply an “‘inventive concept’ sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the natural law itself.”
Shortly thereafter, in Ass’n for Molecular Pathology v. Myriad Genetics, Inc., the Supreme Court scrutinized a patent on genes that, if mutated, can heighten the risk of breast and ovarian cancer.
Unlike the earlier cases, all of which involved claims to processes, this claim was to composition of matter. Also, unlike Bilski, where the validity of the issue was decided narrowly, here the Court handed down a potentially far-reaching decision regarding the subject-matter eligibility of genes generally.
According to the opinion, these patents simply recite a genetic sequence whose “location and order . . . existed in nature” before their discovery; consequently, naturally occurring genes do not qualify for patent protection under the judicial exceptions.
Finally, in Alice Corp. Pty. v. CLS Bank International, the Supreme Court held that a method of using a computer to mitigate settlement risk failed to claim patentable subject matter.
The Court determined that the patents at issue attempted to claim the unpatentable abstract idea of intermediated settlement and that the application of a computer was insufficiently “transformative” to make it patent eligible under the machine-or-transformation test.
With Alice, the Court invalidated the patent at issue in each of the four subject-matter eligibility cases it considered post-2010. At minimum, this suggests what qualified under the judicial exceptions five years ago was unclear. Whether such doubt persists today is another question.
2. Ambiguity and Scholarship in the Wake of Bilski, Mayo, Myriad, and Alice. — Although the Supreme Court rekindled an interest in subject-matter eligibility questions, the extent of § 101’s reach remains uncertain. Commentators have continued to note ambiguities surrounding the precise boundaries of the judicial exceptions.
And the Justices of the Supreme Court have as well.
Moreover, the debate does not end with determining precisely what qualifies under the judicial exceptions. The lack of a definitive test to determine when an invention incorporating a law of nature, a natural phenomenon, or an abstract idea is nonetheless eligible for patent protection continues to be problematic. Though the Federal Circuit attempted to impose the machine-or-transformation test as the categorical analysis,
the Supreme Court shied away from such a bright-line rule.
But the Court then failed to clarify the appropriate test to apply.
In apparent recognition of the ambiguity surrounding when a law of nature merits exclusionary rights, the PTO released memoranda after each case to aid examiners considering subject-matter eligibility issues.
Scholars have suggested that the judicial exceptions are a moot point, as those patents falling outside § 101’s purview would also be invalid for lack of novelty or for being obvious.
But this approach does not take into account the efficiency benefits of using subject-matter eligibility as a “threshold test,” including: “reduced costs of administration, reduced overall burdens on the patent system, and clearer signals that direct investment and innovation to activities that most need patent-system incentives while better protecting the public domain of science, nature, and ideas from encroachment.”
Further, this approach would make the judicial exceptions a “dead letter,” and is “therefore not consistent with prior law.”
For better or worse, the judicial exceptions have garnered significant weight in challenging a patent’s validity and must therefore receive due attention in the patent-litigation context.
C. Subject-Matter Eligibility Challenges Under the AIA
As evidenced by recent Supreme Court cases, challenging a patent on the basis of a lack of patentable subject matter can be an effective means of invalidating a patent.
Of course, courts will not strike down every patent facing § 101 scrutiny.
But in the wake of the recent Supreme Court challenges, subject-matter eligibility challenges may become an increasing trend.
Whether or not the drafters of AIA anticipated this development, the statute’s changes implicate subject-matter eligibility challenges.
1. Pre-AIA Subject-Matter Eligibility Challenges. — In creating the AIA, legislators sought to revamp mechanisms of resolving post-grant patent validity questions, especially where the crux of the invalidity claim concerns subject-matter eligibility.
Even before the enactment of the AIA, however, third parties wishing to contest a patent’s legitimacy were not necessarily confined to the courtroom. Specifically, there were two—albeit limited—means of proceeding through the PTO rather than the courts: ex parte and inter partes reexamination.
Ex parte reexamination was first enacted in 1980,
while inter partes reexamination came into effect nearly two decades later.
Though both processes allowed challenges on the same limited substantive grounds, they differed procedurally. Under ex parte reexamination, patent owners, as well as third parties,
were allowed to request that the PTO initiate proceedings.
But once reexamination began, only patent owners were entitled to communicate with the PTO; this essentially left third parties out of the process.
By contrast, in inter partes reexamination, only third parties were allowed to solicit the PTO,
and they “enjoy[ed] more ongoing participation”—including the right to respond to decisions from the PTO.
Both procedures were vehicles for the PTO to reconsider—that is, reexamine—a patent’s validity. For a reexamination request to be approved, however, a “substantial new question of patentability” had to be raised by a particular kind of prior art, namely patents and printed publications.
Consequently, reexamination procedures were restricted to questions of novelty and nonobviousness.
This restriction forced those who wished to bring a challenge based on a patent’s lack of patentable subject matter to litigate their disputes—an aspect of patent law Congress sought to change when enacting the AIA.
2. Subject-Eligibility Challenges in the Wake of the AIA. — Though ex parte and inter partes reexamination resolved some patent-validity claims, many critics believed these proceedings were not being utilized to their full potential.
In response, Congress sought to develop post-grant procedures that would truly be efficient and cost-effective substitutes for litigation.
Over the course of several years, Congress proposed various iterations, some of which extended the scope of administrative review to permit comprehensive administrative challenges throughout the life of the patent.
However, support for this approach waned, and Congress eventually embraced substantially more limited post-grant proceedings.
The AIA ultimately instituted three new PTO-administered post-grant proceedings: post-grant review, inter partes review, and covered business method patent review.
Third parties can bring a PGR petition only for patents first issued on applications filed after the AIA’s effective date
and must do so within a nine-month window after the patent is granted.
After this nine-month period expires, third parties may challenge a patent through IPR.
While PGR is fairly narrow in scope, at IPR all patents can be challenged—including those filed before the institution of the AIA.
The final type of post-grant practice, CBMR, is a transitional program that present legislation will sunset in 2020.
CMBR was enacted in response to the Supreme Court’s decision in Bilski, which made clear the dubious validity of the “flood of business method patent filings at the PTO” and established a faster and cheaper path to resolving issues concerning them.
CBMR is only available to third parties who have been “sued” or “charged with” infringing a business method patent, defined as one related to financial services.
In creating these mechanisms, Congress rejected an “examination-based model of reexamination” in favor of a more “adjudicative model . . . , where the third-party requester has the burden of proof.”
Post-grant proceedings are now conducted in a trial-like setting before a three-member panel of the Patent Trial and Appeal Board.
The PTAB then issues a written decision no later than one year after the review procedures are initiated.
Importantly, these decisions, if unfavorable to petitioners, subsequently estop them and their privies from later asserting invalidity “on any ground that the petitioner raised or reasonably could have raised” during review.
Although PGR, IPR, and CBMR either overlap or diverge in a number of other procedural and substantive respects, most of these interactions are beyond the scope of this Note.
Indeed, this Note focuses on the fact that PGR and CBMR allow subject-matter eligibility challenges as grounds for review,
while a party may only initiate IPR to hear challenges based on novelty and nonobviousness.
In practical effect, for the first nine months following patent issuance, third-party challengers are free to bring nearly any challenge based on patent validity.
Upon passage of this nine-month barrier, however, third parties are limited with respect to what challenges they can bring before the PTO.
As a result, if a third party wishes to challenge a patent’s validity solely on statutory subject-matter grounds, it must proceed through the court system. Part II will explore this dichotomy further by considering the purposes and practical effects of this barrier.
II. Post-Grant Review to Inter Partes Review: Implications of a Nine-Month Barrier
For parties wishing to challenge a patent’s validity solely on the grounds of statutory subject matter, nine months post-issuance represents a barrier; this is the point at which parties can no longer raise the judicial exceptions before the PTO; instead, they must proceed through the courts.
Part II aims to further understand the dichotomy that exists between IPR and PGR for subject-matter eligibility challenges. Section II.A contextualizes the barrier by analyzing the practical timeline of the nine-month limit, comparing and contrasting it to other time restrictions, and examining Congress’s decision to include the additional first-to-file restriction. Section II.B then examines the IPR–PGR dichotomy on a more practical level, considering its effect on various parties to patent litigation. Finally, section II.C ponders institutional competence concerns of administrative subject-matter eligibility challenges and questions the effect of the nine-month barrier on patent litigation as a whole.
A. Contextualizing the Nine-Month Barrier
A thorough understanding of the implications of the nine-month barrier begins by appropriately framing the IPR–PGR dichotomy. Such an analysis involves comparing and contrasting the nine-month barrier to similar procedural restrictions and then moving beyond the temporal restriction to examine why Congress imposed an additional limitation to the nine-month barrier—limiting it to first-to-file patents. First, however, this Note considers whether subject-matter eligibility challenges before the PTO are as strictly limited as they initially appear.
1. The Practical Timeline of the Nine-Month Barrier. — This Note labels the time limit for a third party’s subject-matter eligibility challenge before the PTO a “nine-month barrier,”
but the terminology is somewhat misleading if meant to measure the time available to consider a challenge. To be sure, a third-party challenger has only nine months after a patent has issued to file a PGR petition,
after which subject-matter eligibility claims are foreclosed.
But this nine-month barrier does not realistically represent the amount of time a party has to consider challenging a patent’s validity based on subject-matter eligibility. Third parties may only request the PTO institute PGR on a patent that has been granted.
But this does not prevent an attentive third party,
aware that a patent application is in the pipeline, from preparing in advance to challenge a patent’s validity through PGR.
The statute mandates the PTO maintain patent applications in secret for eighteen months.
Most are then disclosed, and curious patent aficionados can freely access both the application and its ongoing prosecution online.
As a result, in practical terms, attentive third parties are not limited to a nine-month window when deciding whether to bring a petition for PGR; the period between application publication and patent issuance is also available. Consequently, the amount of time open to third parties varies depending on the length of time the patent takes to issue.
From 2010 to 2014, the average length of time it took to receive a first office action—an initial determination from the examiner either rejecting the patent application or allowing the patent to issue
—ranged from 18.2 to 28 months.
Moreover, across the same period, the average time from filing until issuance or abandonment of the patent application spanned from 29.1 to 35.3 months.
As a result, a patent application will generally be published shortly before the applicant receives her first office action and more than ten months before the application obtains an ultimate resolution. Instead of a nine-month window, therefore, an attentive third party may have over two years
to consider the patentability of a potentially problematic patent and to prepare a PGR petition on the basis of a judicial exception.
Accordingly, although a statutorily mandated rule, the barrier’s timeline is more flexible in practice.
2. Subject-Matter Eligibility Challenges and Lessons from Statutes of Limitations. — Despite the flexibility it affords in practice, the nine-month barrier bears hallmarks of the similarly procedurally restrictive statutes of limitations. Statutes of limitations are designed to establish a specific point in time “at which a party can no longer bring an action or suit in law or equity.”
By confining subject-matter eligibility challenges before the PTO to nine months post-issuance, Congress denied parties access to § 101 invalidity claims in a manner that, at least procedurally, mimics statutes of limitations and emphasizes the importance of bringing subject-matter eligibility challenges early.
The policy rationale underlying statutes of limitations is that “it is unjust not to put the adversary on notice to defend within the period of limitation and that the right to be free of stale claims in time comes to prevail over the right to prosecute them.”
Encouraging plaintiffs to bring their claims early also promotes judicial efficiency, summarily granting courts leave to avoid confronting “old or stale litigation.”
Moreover, such a bright-line rule conveys “stability and consistency” to the parties of a transaction.
If they are too strict, however, statutes of limitations prevent “fair, meritorious claims the chance of even being heard.”
Thus, mechanisms have developed to soften their effect. As an example, the discovery rule ensures the clock only begins to run if the claim at issue “has been or should have been discovered with reasonable diligence.”
Each individual event can also give rise to a new cause of action, thus tolling a statute of limitations.
In the intellectual property context, only copyright-infringement
and trade-secret-misappropriation claims
have statutorily mandated time restrictions. Neither trademark-
infringement claims are similarly expressly limited. Instead, to prevent patent owners from “sleeping on their rights,” the doctrine of laches is available as an equitable defense for alleged infringers.
Instead of a bright-line rule, laches “invokes the discretionary power of the district court to limit the defendant’s liability for infringement . . . .”
Beyond the procedural mimicry of the nine-month barrier to statutes of limitations, the IPR–PGR dichotomy serves some of the same policy purposes.
First, the nine-month barrier aims to prevent third parties from sleeping on their right to bring a subject-matter eligibility challenge. Evidence suggests third parties are reticent to challenge even bad patents.
The nine-month barrier alleviates this problem, encouraging “preemptive strikes.”
While a claim of invalidity is a common response to an infringement charge,
a third party may be more apt to proactively bring such an action before the PTO while subject-matter eligibility challenges are available. Second, after nine months, third parties can still raise § 101 issues for the first time before a court once administrative remedies are no longer at their disposal. This tempers the harshness of the nine-month barrier and ensures meritorious claims are resolved, drawing similarities to the discovery rule and other means of tolling statutes of limitations.
Finally, restricting administrative subject-matter eligibility challenges may bring much-needed clarity to the judicial exceptions.
Because of the limited timeframe of PGR, third parties are likely to bring only easily resolvable claims to the PTO. As a result, only more complex subject-matter eligibility questions will reach the dockets of Article III judges.
The IPR–PGR dichotomy may therefore increase judicial efficiency, allowing resolution of more nuanced aspects of the judicial exceptions.
But the nine-month barrier does not perfectly mirror statutes of limitations. Subject-matter eligibility claims are not “stale” after the passage of nine months.
Third-party challengers are still able to bring these actions before the courts. And alternative claims of invalidity, predicated on novelty or nonobviousness, can still freely be heard by the PTAB;
these challenges may even significantly overlap with those invoking the judicial exceptions.
Moreover, subject-matter eligibility claims are a matter of law,
within the courts’ exclusive purview and independent of reliance upon witnesses or evidence whose authenticity becomes questionable over time. These questions are therefore more immune from the time-sensitive nature of evidence—a driving force behind strict statutes of limitations in other areas of law.
Analogizing to laches is similarly somewhat unsatisfactory. As an equitable remedy, laches, unlike the nine-month barrier, is discretionary, not mandatory. Moreover, both statutes of limitations and laches protect the infringer,
whereas the nine-month barrier operates to the benefit of the patentee. A more comparable cause of action to an administrative subject-matter eligibility challenge is one seeking a declaratory judgment of invalidity.
Notably, such motions are not subject to time limitations under the Declaratory Judgment Act.
Despite the lack of perfect comparison, the parallels between the nine-month barrier and other temporal restrictions highlight the importance of the IPR–PGR dichotomy in encouraging third parties to bring their subject-matter eligibility challenges early.
3. Further Restricting the Nine-Month Barrier: Limiting to First-to-File Patents. — The nine-month barrier is also not the only major limitation Congress has imposed on PGR petitions. As explained, PGR is only available as an administrative option if the patent at issue was first filed after the AIA came into effect.
Imposing such an anti-retroactive measure helps ensure the constitutionality of allowing the PTO to hear subject-matter eligibility challenges. The Takings Clause protects private property, such that it cannot “be taken for public use, without just compensation.”
The doctrine of takings has led to a rich body of case law with respect to real property.
Its application to intellectual property, however, is unclear and has merited substantial scholarly debate.
Adam Mossoff describes the principal argument against applying takings to an inventor’s patent: “The government’s unauthorized use of a patented invention . . . lacks the physical dispossession that triggers a compensable taking of land . . . . [It] does not interfere with a patentee’s own use of the invention, and, more importantly, the patentee can continue to exclude others from using it.”
But the Supreme Court has yet to explicitly address whether takings operates more generally in the realm of patent law.
Hypothetically, a party challenging the PTO decision to invalidate a patent on the basis of § 101 would argue that the government is appropriating an individual’s intellectual property for public use—an action requiring “just compensation.”
Takings case law, however, does not support this argument. The PTO’s invalidation of a patent on the basis of the judicial exceptions does not deprive an owner of all economically beneficial use and is therefore inappropriately framed as a per se taking.
The inventor is still able to profit off the use or sale of the invention and can continue to make personal use of it.
Further, the new administrative challenges do not infringe upon a patent owner’s “reasonable investment-backed expectations.”
Through ex parte and inter partes reexamination, the PTO has been able to invalidate patents on the basis of novelty or nonobviousness for over fifteen years.
Thus, current patent owners have advance notice that the PTO could invalidate their patents on the grounds available at IPR.
By limiting subject-matter eligibility challenges to patents granted after the institution of the AIA, Congress similarly provided that advance notice for grounds available at PGR—such as subject-matter eligibility.
B. Practical Effects: Benefits and Detriments of the Nine-Month Barrier for Third Parties
The statutory limitations and restrictions discussed above have important implications for the IPR–PGR dichotomy. In particular, the nine-month barrier results in differences between the compositions of parties fighting invalidity before the courts and those before the PTO. As of June 18, 2015, only nine PGR requests have been filed, in sharp contrast with 3,083 petitions filed for IPR.
The limited timeframe of PGR is unlikely solely responsible for the present disparity in filing statistics. As just explained, PGR is limited to first-to-file patents while IPR is available for all patents—automatically reducing the number of patents for which PGR is an option, especially for the years immediately following PGR’s availability.
But even in the event that PGR does become more heavily utilized in the next few years,
discrepancies in filing statistics would continue because the limited timeframe still necessarily constricts the number of PGR petitions that can be filed. The result would not only be a gap in the number of petitions but also a distinction in the makeup of third parties bringing an IPR versus PGR petition.
When Congress passed the post-grant provisions of the AIA, it intended to make challenging a patent’s validity more cost effective.
Patent litigation is “the true sport of kings,” with litigation expenditures costing millions of dollars.
As a result, larger companies benefit from having the resources to more easily manage such extensive bills and see litigation through to trial.
Post-grant proceedings are intended to “level the playing field.”
Costs are estimated in the hundreds of thousands of dollars range—a figure ostensibly more manageable for individuals or smaller companies.
Whether “the little guy”
is accorded any competitive advantage in bringing subject-matter eligibility challenges before the PTO, however, is less certain. To explore this question, this section first examines which third parties can bring subject-matter eligibility challenges in post-grant proceedings. It does so by looking at defensive challenges in reaction to an adversarial infringement suit as well as invalidity challenges that are used offensively as a means of proactively invalidating a competitor’s patent. This section then ends by pondering the effect of the nine-month barrier on suits involving non-practicing entities (NPEs).
1. On the Defensive: Post-Grant Proceedings as a Response to an Infringement Suit. — With respect to defensive invalidity challenges, the IPR–PGR dichotomy does not disparately advantage any particular third party, whether they are a large conglomerate or an individual inventor. The nine-month barrier does, however, affect patent owner behavior. Post-grant proceedings are already being used as a response to infringement actions; “in 80 percent of IPRs, the challenged patent was also asserted in litigation between the petitioner and respondent.”
The prevalence of this defensive use of post-grant proceedings is unsurprising given that counterclaims of invalidity frequently accompany assertions of infringement
and the cost-saving nature of the administrative route. But though IPR and PGR are similarly cost effective,
they are not equivalently useful as a response to an infringement suit. For IPR, any defendant has a year following notice of an infringement action to institute proceedings.
The benefits of this course of action are not without limitation; defendants must still convince the court to stay the infringement claim until the IPR is resolved by the PTAB. Fortunately for defendants, such motions to stay are generally successful.
By contrast, the advantages to PGR’s use as a defensive technique are somewhat stymied by restrictions in the ability to halt simultaneous litigation proceedings.
Corporations, often parties to patent litigation,
will be especially attuned to cheaper alternatives to costly trials when sued for infringement. This particular use of post-grant proceedings, however, does not overtly advantage large corporations over smaller ones. Where a patentee is sufficiently motivated to file an infringement claim immediately upon patent issuance, defendants are unable to halt a court’s consideration of an adversarial preliminary injunction.
Because of this inability to stall parallel infringement litigation, any defendant—corporation or not—might be reticent to respond by filing a PGR petition. By contrast, in cases where a suit is not filed immediately upon patent issuance, alleged infringers can pause a costly trial while they pursue an IPR proceeding; thus all defendants are well served by making use of the cheaper alternative to immediately pursuing a counterclaim of invalidity.
The defensive use of post-grant proceedings affects not only the behavior of defendants but also that of patent owners. Specifically, the nine-month barrier incentivizes patent owners to wait nine months to assert their patent.
In doing so, the patentee can make the defensive use of post-grant proceedings a moot point for parties who wish to predicate their challenge to the patent’s validity on subject-matter eligibility.
This leaves third parties to choose among less attractive options: fight the infringement claim through the courts and prolong costly litigation, or settle the suit. Thus, Congress not only limited subject-matter eligibility challenges before the PTO to nine months; it may have for all intents and purposes foreclosed it completely—at least for some third parties. The IPR–PGR dichotomy effectively puts that power into the hands of knowledgeable patentees. Canny patent owners can wait nine months, leaving administrative subject-matter eligibility challenges open only to those who are apt to monitor patents and can therefore bring a petition for PGR offensively. As the next section suggests, such a strategic use of PGR overwhelmingly benefits large, established corporations—creating tension with the original purposes of the AIA.
2. Strategic Subject-Matter Eligibility Challenges: Only for Large Companies. — A significant corporate advantage presented by post-grant proceedings is the ability to invalidate another business’s patent through the PTO. It is a multipurpose tool within a corporation’s arsenal. A company can not only seek a competitive edge by waging a calculated attack on a rival’s patent portfolio but can also attempt to strike exorbitant licensing fees from their balance sheets if those licenses are predicated on weak patents. The offensive use of IPR or PGR also demonstrates a tangible benefit of post-grant proceedings beyond mere cost savings. Asserting patent invalidity purposefully, rather than in response to the threat of litigation, is unlikely to present a case or controversy sufficient to provide the plaintiff-company standing to bring a declaratory action of patent invalidity.
As a tactical matter, the administrative route is therefore the more attractive—and perhaps only—option for the company. Evidence suggests corporations recognize this and are already making strategic use of IPR.
Large conglomerates are best poised to employ post-grant proceedings as a strategic maneuver, bringing a petition for IPR or PGR without a looming threat of litigation. Companies are financially dependent upon their intellectual property.
Clever, deliberate patent strategy is therefore correlated with company success.
As such, large corporations tend to be more sophisticated with respect to patent law than their smaller counterparts. In addition, big businesses have the infrastructure to monitor what patents are being filed.
These resources and requisite knowledge of the patent system ensure large corporations are potentially able to use not only the nine-month period PGR is available but also the time between an application being published and ultimately issued.
As a result, larger companies can take full advantage of the availability of administrative subject-matter eligibility challenges.
By contrast, smaller companies may not be as readily able to make strategic use of PGR. Perhaps there are those among the little guys who will have an incentive to monitor;
however, start-up companies and individual inventors will be less likely to have the resources to do so as a matter of course.
If the third party is also a latecomer, established long after a potentially problematic patent has issued, the matter is exacerbated.
At that point, no third party can use the judicial exceptions as a tactical maneuver; highlighted, the true issue of the IPR–PGR dichotomy.
Moreover, smaller corporations may be at the mercy of larger corporations that can make full use of the tactical benefits of post-grant proceedings.
If big businesses are filing strategic lawsuits against small companies, they may similarly use post-grant proceedings. Whether benefitting larger companies at the expense of the little guy is economically detrimental, and therefore worthy of concern, admittedly remains unclear.
But the institution of the nine-month barrier will seemingly create a disparate impact on these smaller entities. Such an effect is, at least, at cross-purposes with the original intent of the AIA to modulate corporate advantages.
But it is not the only manner in which PGR potentially falls short of promoting the objectives of the AIA.
3. What About Non-Practicing Entities? — In foreclosing administrative subject-matter eligibility challenges after nine months, third parties are also potentially less able to mount a response before the PTO to certain types of patents asserted by non-practicing entities.
In crafting the AIA, Congress attempted to address the growing power NPEs were having in patent litigation. Congressman Lamar Smith, an author of the AIA, expressed as much when he said: “[O]ur outdated patent system has become a barrier to innovation and invites lawsuits from holders of questionable patents seeking to extort millions of dollars from companies . . . . We need reforms that discourage frivolous suits, enhance patent quality and streamline international principles.”
The new post-grant proceedings, in particular, were hailed as a cost-effective means of defending against infringement suits, particularly those filed by NPEs.
But it is uncertain that defendants subject to NPE-initiated litigation will be able to bring an administrative subject-matter eligibility challenge to bear. Unless the NPE acquired the patent at issue immediately upon issuance—an unlikely scenario
—the nine-month timeline will be lost. As a result, use of post-grant proceedings (either defensively or offensively) against NPEs will be limited to novelty and nonobviousness.
A recent study into the distribution of NPE litigation across technology classes notes the patents at issue are concentrated in “software and related technologies,” with “drugs and medical” also accounting for one percent of suits.
Similar classes of patents were the focus of the latest Supreme Court patentable-subject-matter jurisprudence. Recall in Mayo, Myriad, and Alice, the patentability of pharmaceutical/medical, genetic, and software patents were all questioned, and rejected, on judicial-exception grounds.
Subject-matter eligibility challenges are therefore a potentially useful tool against NPEs—one which the IPR–PGR dichotomy precludes defendants from bringing before the PTO. In the end, though the nine-month barrier overtly benefits large corporations to the detriment of smaller companies, neither will be able to make use of subject-matter eligibility challenges against NPEs.
C. Other Potential Consequences of the Nine-Month Barrier
Beyond influencing the type of defendant likely to file PGR petitions, other considerations of having time-limited administrative subject-matter eligibility challenges include the effect of having two separate institutions consider post-grant § 101 issues and the nine-month barrier’s potential influence on patent litigation as a whole.
1. Institutional Competence: Who Best Determines What a Law of Nature Is? — The bifurcation of subject-matter eligibility questions runs the risk that two distinct conceptions of § 101 will develop—the courts’ and the PTO’s. While ostensibly both are governed by the same case law,
narrow or broad readings of the relevant precedents can lead to different interpretations of the boundaries of the judicial exceptions
—and consequently determine which patents are valid. In practice, however, controversial subject-matter eligibility questions—whether initiated before the courts or before the PTO—will nevertheless be appealed and be decided by the judiciary. In the end, rather than create institutional competence problems, the IPR–PGR dichotomy may in fact serve to promote judicial efficiency.
Any institutional competence concern presupposes that third parties actually make use of the ability to bring subject-matter eligibility challenges before the PTO. The limited number of PGR petitions that have been filed thus far
is not sufficiently helpful data. But CBMR, the transitional administrative program for business methods that is also open to subject-matter eligibility challenges,
is already in heavy use.
And since the AIA-created post-grant proceedings were made available in March 2013, three of the first eleven final CBMR decisions handed down were decided on patentable-subject-matter grounds.
Moreover, post-grant proceedings disproportionality mine the following three fields:
Given that the validity of business method, pharmaceutical, genetic, and software patents have all recently been before the Supreme Court,
those seeking to challenge a patent’s validity through the PTO will likely look to bring § 101 challenges. This is particularly true given not only the cost-saving nature of these proceedings but also the fact that thus far third parties have been extraordinarily successful at invaliding patents at issue through both IPR
Third-party challengers could use PGR to similar effect for subject-matter eligibility questions.
Concerns that the PTO will develop its own conception of § 101, however, may be irrelevant: Final written IPR and PGR decisions are appealable to the Federal Circuit.
If that appeal is predicated on subject-matter eligibility, a question of law, the Federal Circuit is under no obligation to accord any deference to the PTO.
Nor is the Supreme Court, which has a newfound interest in issues of patent law—especially those involving the judicial exceptions.
Ultimately, if the patentable-subject-matter question merits careful consideration and debate, and is sufficiently significant, it will be appealed to a court able to render a decision de novo. As a result, the same outcome will be reached regardless of whether the claim originated in the district court or before the PTO.
Moreover, parties will be unlikely to appeal the PTO decisions that concern more straightforward subject-matter eligibility questions. Keeping those cases from Article III judges’ dockets could therefore serve to increase judicial efficiency. It may also, as the next section suggests, result in a spike of patent litigation.
2. Increasing Litigation Under the Subject-Matter Eligibility Challenge. — While overall patent suits may be in decline,
there is potential for the nine-month barrier to substantially impact the volume of litigation. If third parties choose to see an IPR through to final written decision, they are barred from subsequently bringing an invalidity action before the courts on grounds that “reasonably could have [been] raised” before the PTO.
Congress adopted the estoppel provision of IPR as a means of preventing serial suits.
The IPR–PGR dichotomy, however, allows a third party to “game the system,” skirting the impediment to bringing a subsequent suit. Third parties can first challenge a patent on novelty or nonobviousness grounds through IPR
at a substantially reduced cost.
And, should petitioners lose, they can then proceed to bring a subject-matter eligibility challenge on the same patent before the courts—because it is impossible that they “reasonably [could] have raised” § 101 claims at IPR. Leaving this loophole for third parties to bring a new claim, one that may overlap substantially with novelty and nonobviousness claims,
may often lead to litigation after IPR is completed. Whether the IPR–PGR dichotomy will increase judicial efficiency and whether serial challenges will become commonplace is still uncertain given the limited number of PGR petitions thus far.
As Part III addresses, however, Congress could avoid many of the foreseeable negative effects of the IPR–PGR dichotomy through reform of the AIA.
III. Mitigating Negative Consequences of the IPR–PGR Dichotomy
Five years of modification has improved the PGR structure,
but the IPR–PGR dichotomy still risks negative consequences for the field of patent law. Fortunately, Congress may be able to address these consequences while retaining the many positive attributes of PGR. Simply allowing subject-matter eligibility claims before the PTO opens a door previously closed to third parties: a cost-effective defensive and offensive use of the judicial exceptions.
And seemingly, limiting subject-matter eligibility challenges to a discrete window is necessary as it incentivizes parties to bring claims in a contentious area of law early.
But despite these attributes, two-and-a-half years after taking effect, only nine petitions for PGR have been filed.
Neither IPR (at 3,083 petitions) nor CMBR (at 356 petitions) are similarly underutilized,
a particularly telling statistic given CMBR also permits subject-matter eligibility challenges to business method patents.
Even if PGR petitions become more commonplace as more patents filed post-AIA are issued, the limited nine-month timeframe will still necessarily curtail the number of PGR petitions filed. Allowing subject-matter eligibility challenges in the fields of biotechnology and computer software, which cannot be addressed by CMBR, has the potential to streamline and even clarify many areas of the judicial exceptions.
Though the Supreme Court has addressed the boundaries of the judicial exceptions four times since 2010,
these issues are far from resolved.
Given the enormity of the reforms to patent law recently instituted by the AIA,
radical changes to the structure of PGR to increase its use may prove ill-advised and unwelcome.
This Part therefore first suggests a moderate approach before advocating for more significant reform: section III.A proposes expanding availability of PGR to three years while section III.B recommends enacting a provision that would, for the life of a patent, give a party accused of infringement nine months to bring a PGR petition.
A. Expanding the Timeline: More than a Nine-Month Barrier
Designing the structure of the post-grant proceedings adopted by the AIA proved difficult. Early bills, backed by the PTO, “proposed an all-issues post-grant review that could be invoked throughout the life of a patent.”
The impetus behind such broad-sweeping reform was testimony from insiders of the high-technology field; they argued that confining post-grant review to nine months would deprive administrative proceedings of all utility.
But backing for these provisions was short-lived: “[L]ife-of-the-patent post-grant review . . . drew a sharply negative reaction from many businesses, universities, and patent-law professional organizations.”
Even the PTO pulled its initial support.
As a result, PGR was strictly limited in subsequent proposals: first to twelve months and then eventually to the enacted nine-month period.
This legislative history suggests administrative proceedings unrestricted by time and challenge type is an untenable congressional solution.
As a result, subject-matter eligibility challenges before the PTO will not be granted the same freedom accorded motions for declaratory judgment of invalidity.
At nine months, PGR is the most severe of the time restrictions that exist in intellectual property law.
For example, the statutes of limitations in copyright
and trade secret
law are set at three years. And patent law presumes that a six-year delay in filing an infringement claim requires application of the equitable doctrine of laches.
Though imperfectly symmetrical to the nine-month barrier,
these statutes of limitations perhaps represent a suitable benchmark for how long PGR should be available; they at least suggest PGR is inappropriately short.
A three-year PGR process would continue to encourage the early filing of subject-matter eligibility challenges. Because initial motions may be denied on technicalities, “it is wise to commence actions, if at all possible, with at least six or eight months to spare” when faced with any time restriction.
Thus, with an extended three-year timeframe, third parties would still be motivated to bring PGR petitions within two-and-a-half years. Further, the number of PGR petitions—and consequently, subject-matter eligibility challenges—would likely rise simply by virtue of the additional time to learn of a patent’s existence. Though large corporations are better suited to making offensive use of PGR,
even they may have difficulties learning of the patent in time to meet a short, nine-month timeline.
Extending PGR to three years reduces that burden, thereby allowing big businesses to more easily bring strategic subject-matter eligibility challenges. Moreover, some smaller businesses and individual inventors may feasibly be able to make tactical use of administrative subject-matter eligibility challenges. In that respect, a three-year PGR timeline may therefore help level the corporate playing field.
A longer timeframe may also mean administrative subject-matter eligibility challenges are more likely to be brought in response to infringement claims.
Product-producing companies prefer to “begin litigating their patents early in the patent term,” possibly as a means “to fend off competitors that are developing or introducing similar products.”
Waiting nine months to assert a patent may be minimally invasive, but patentees actively making use of their invention may be wary waiting three years. Financially speaking, the increased delay might mean an additional two years and three months of lost profits to competitors. Smaller companies especially may be unable to afford continuing losses to an allegedly infringing competitor without receiving licensing fees. As a result, increasing the time allowed to bring a PGR petition may correlate with an increase in defensive subject-matter eligibility challenges.
Whether this increase will be significant, however, is uncertain.
With regard to bringing administrative subject-matter eligibility challenges as a response to NPE-instigated suits, the effect may be especially minimal. NPEs are more reticent than product-producing companies to assert patents early, delaying filing suit, on average, until “less than nine years from expiration.”
As a result, increasing the barrier to three years would make little difference; most NPE-alleged infringers would still be left only with the option of filing a counterclaim of invalidity predicated on subject-matter eligibility through the courts. For some defendants, this may be especially unfortunate as the judicial exceptions could prove an effective tool against NPEs.
At the very least, a three-year PGR process would result in a modest overall increase in administrative subject-matter eligibility challenges. To respond to the above concerns, however, Congress can also enact a more sweeping provision: an “infringement exception” to the PGR time barrier, which would cause a more pronounced surge in defensive use of administrative subject-matter eligibility challenges.
B. An Infringement Exception: Allowing Subject-Matter Eligibility in Response to IPR
When “all issues,” life-of-the-patent post-grant review was initially proposed to Congress, it was not without limitations; early bills restricted these proceedings to “any party that had been accused by the patent owner of infringement or who presented a ‘substantial reason to believe’ that the patent caused him ‘significant economic harm.’”
The former option functioned similarly to a statute of limitations restricted by a discovery rule.
Upon notification of an infringement suit, third parties had six months to file a PGR petition; strategic PGRs were limited to nine months.
Congress ultimately decided against passing such an infringement exception because of opposition to initial proposals and the PTO reversing course on support for early bills.
But the need to increase the utility of PGR may call for the legislature to reconsider.
The cost-saving nature of post-grant proceedings suggests institution of the infringement exception would result in a significant spike in PGR’s use, particularly if the asserted patent is vulnerable to a subject-matter eligibility challenge.
Large and small companies alike will be able to make use of this defense, perhaps even against NPEs. Thus far, NPEs have not been the target of post-grant proceedings they were expected to be.
The infringement exception could remedy this concern, as NPE-owned patents may be particularly susceptible to the judicial exceptions.
Notably, the aforementioned hurdle to a defendant’s use of PGR as a response to an infringement action—the inability to stay parallel litigation
—would not be a setback with the infringement exception. Courts are only barred from staying consideration of the plaintiff patent-owner’s preliminary injunction motion if the infringement action was “filed within 3 months after the date on which the patent is granted.”
Where the infringement exception would increase defensive use of administrative subject-matter eligibility challenges, at nine months post-issuance, the restriction would not apply.
Critics of this approach, particularly the PTO,
worry the infringement exception would create a flood of PGR petitions. But, post-grant proceedings predicated on novelty and nonobviousness are already available for the lifetime of the patent.
Thus, the overall growth of proceedings before the PTO should not be as extensive as critics fear.
The infringement exception’s effect is also limited in scope; the PTO should only see an increase in the number of administrative challenges predicated on claims unavailable through IPR, such as subject-matter eligibility.
Thus, the infringement exception should expand the number of defensive-PGR petitions without overwhelming the agency tasked with resolving these claims.
In drafting an “all-issues” post-grant proceeding, the legislature considered two extremes: life-of-the-patent challenges or an extremely limited post-issuance window.
Ultimately, Congress chose the latter.
The more efficient solution, however, would be the middle ground—a three-year timeline. This would appease critics who argued a nine-month window would render PGR inoperable in practice,
while acknowledging that opening the floodgates of subject-matter eligibility challenges generally may overwhelm the PTO. Additionally, the institution of an infringement exception, though a more drastic measure, will create a more significant surge in PGR use. And though the AIA was passed only four years ago, the legislature has demonstrated willingness to consider further patent reform. While a recent post-AIA bill was unsuccessful in reaching the Executive’s desk,
Congress is already again considering legislative action.
Administrative subject-matter eligibility challenges may yet break through that nine-month barrier.
Since the 2010 Term, the Supreme Court has repeatedly considered patentable-subject-matter questions. Despite these efforts, ambiguity continues to surround the judicial exceptions. With the institution of a post-grant proceeding known as PGR, claims predicated on this inexact area of law can now be heard before the PTO rather than the courts—but only for nine months. The institution of this barrier draws similarities to statutes of limitations, encouraging third parties to bring claims early. Thus far, imposing such a short time limit to administrative subject-matter eligibility challenges has been extremely effective at restricting their use; only nine PGR petitions have been filed since administrative proceedings became available almost two-and-a-half years ago. As a result, the potential benefits of having the PTO address subject-matter eligibility questions are going unrealized. To help, congressional reform is needed. A more restrained approach would see PGR availability extended to three years while a more ambitious legislature may consider enacting an infringement exception for all-issues review. Both are modest when compared to the fundamental changes to patent law imposed by the AIA. But should Congress act, both may serve to bring clarity to a contentious area of law.