[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
THE PATENT TRIAL AND APPEAL BOARD AND
THE APPOINTMENTS CLAUSE: IMPLICATIONS OF
RECENT COURT DECISIONS
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON COURTS,
INTELLECTUAL PROPERTY, AND THE
INTERNET
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
FIRST SESSION
__________
NOVEMBER 19, 2019
__________
Serial No. 116-66
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Printed for the use of the Committee on the Judiciary
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available on the World Wide Web: http://judiciary.house.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
42-423 PDF WASHINGTON : 2022
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COMMITTEE ON THE JUDICIARY
JERROLD NADLER, New York, Chair
MARY GAY SCANLON, Pennsylvania, Vice-Chair
ZOE LOFGREN, California DOUG COLLINS, Georgia, Ranking
SHEILA JACKSON LEE, Texas Member
STEVE COHEN, Tennessee F. JAMES SENSENBRENNER, Jr.,
HENRY C. ``HANK'' JOHNSON, Jr., Wisconsin
Georgia STEVE CHABOT, Ohio
THEODORE E. DEUTCH, Florida LOUIE GOHMERT, Texas
KAREN BASS, California JIM JORDAN, Ohio
CEDRIC L. RICHMOND, Louisiana KEN BUCK, Colorado
HAKEEM S. JEFFRIES, New York JOHN RATCLIFFE, Texas
DAVID N. CICILLINE, Rhode Island MARTHA ROBY, Alabama
ERIC SWALWELL, California MATT GAETZ, Florida
TED LIEU, California MIKE JOHNSON, Louisiana
JAMIE RASKIN, Maryland ANDY BIGGS, Arizona
PRAMILA JAYAPAL, Washington TOM McCLINTOCK, California
VAL BUTLER DEMINGS, Florida DEBBIE LESKO, Arizona
J. LUIS CORREA, California GUY RESCHENTHALER, Pennsylvania
SYLVIA R. GARCIA, Texas BEN CLINE, Virginia
JOE NEGUSE, Colorado KELLY ARMSTRONG, North Dakota
LUCY McBATH, Georgia W. GREGORY STEUBE, Florida
GREG STANTON, Arizona
MADELEINE DEAN, Pennsylvania
DEBBIE MUCARSEL-POWELL, Florida
VERONICA ESCOBAR, Texas
Perry Apelbaum, Majority Staff Director & Chief Counsel
Brendan Belair, Minority Staff Director
SUBCOMMITTEE ON COURTS, INTELLECTUAL PROPERTY,
AND THE INTERNET
HENRY C. ``HANK'' JOHNSON, Jr., Georgia, Chair
LOU CORREA, California, Vice-Chair
THEODORE E. DEUTCH, Florida MARTHA ROBY, Alabama, Ranking
CEDRIC RICHMOND, Louisiana Member
HAKEEM JEFFRIES, New York STEVE CHABOT, Ohio
TED LIEU, California JIM JORDAN, Ohio
GREG STANTON, Arizona JOHN RADCLIFF, Texas
ZOE LOFGREN, California MATT GAETZ, Florida
STEVE COHEN, Tennessee MIKE JOHNSON, Louisiana
KAREN BASS, California ANDY BIGGS, Arizona
ERIC SWALWELL, California GUY RESCHENTHALER, Pennsylvania
BEN CLINE, Virginia
Jamie Simpson, Chief Counsel
Thomas Stoll, Minority Chief Counsel
C O N T E N T S
----------
NOVEMBER 19, 2019
OPENING STATEMENTS
Page
The Honorable Henry C. ``Hank'' Johnson, Jr., a Representative in
the Congress from the State of Georgia, and Chairman,
Subcommittee on Courts, Intellectual Property, and the Internet 1
The Honorable Martha Roby, a Representative in the Congress from
the State of Alabama, and Ranking Member, Subcommittee on
Courts, Intellectual Property, and the Internet................ 2
The Honorable Jerrold Nadler, a Representative in the Congress
from the State of New York, and Chairman, Committee on the
Judiciary...................................................... 3
WITNESSES
John F. Duffy, Samuel H. McCoy II Professor of Law, University of
Virginia School of Law
Oral Testimony................................................. 6
Prepared Statement............................................. 8
Robert A. Armitage, Consultant, IP Strategy & Policy
Oral Testimony................................................. 38
Prepared Statement............................................. 40
John M. Whealan, Intellectual Property Advisory Board Associate
Dean for Intellectual Property Law Studies, George Washington
University Law School
Oral Testimony................................................. 74
Prepared Statement............................................. 76
Arti K. Rai, Elvin R. Latty Professor of Law and Faculty
Director, The Center for Innovation Policy, Duke University
School of Law
Oral Testimony................................................. 112
Prepared Statement............................................. 114
APPENDIX
A statement for the record from the Honorable Greg Stanton, a
Representative in the Congress, from the State of Arizona, and
Member, Subcommittee on Courts, Intellectual Property, and the
Internet....................................................... 132
A letter for the record from Randy Landreneau, President, US
Inventor....................................................... 135
QUESTIONS AND ANSWERS FOR THE RECORD
Questions to witnesses for the record from the Honorable Jerrold
Nadler, a Representative in the Congress from the State of New
York, and Chairman, Committee on the Judiciary................. 140
Questions to witnesses for the record from the Honorable Doug
Collins, a Representative in the Congress from the State of
Georgia, and Ranking Member, Committee on the Judiciary........ 142
A response to questions for the record from Arti K. Rai, Elvin R.
Latty Professor of Law and Faculty Director, The Center for
Innovation Policy, Duke University School of Law............... 143
A response to questions for the record from Robert A. Armitage,
Consultant, IP Strategy & Policy............................... 149
QUESTIONS AND ANSWERS FOR THE RECORD
A response to questions for the record from John M. Whealan,
Intellectual Property Advisory Board Associate Dean for
Intellectual Property Law School............................... 159
THE PATENT TRIAL AND APPEAL BOARD AND
THE APPOINTMENTS CLAUSE: IMPLICATIONS OF RECENT COURT DECISIONS
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TUESDAY, NOVEMBER 19, 2019
House of Representatives
Subcommittee on Courts, Intellectual Property,
and the Internet
Committee on the Judiciary
Washington, DC.
The subcommittee met, pursuant to call, at 2:11 p.m., in
Room 2141, Rayburn Office Building, Hon. Henry C. ``Hank''
Johnson, Jr. [chairman of the subcommittee] presiding.
Present: Representatives Johnson of Georgia, Nadler,
Stanton, Bass, Correa, Roby, Johnson of Louisiana, and Cline.
Staff present: David Greengrass, Senior Counsel; Madeline
Strasser, Chief Clerk; Jamie Simpson, Chief Counsel
Subcommittee on Courts, Intellectual Property, and the
Internet; Matt Robinson, Counsel; MaryBeth Walker, Detailee
Counsel; Rosalind Jackson, Professional Staff Member; Tom
Stoll, Minority Counsel; Andrea Woodard, Minority Professional
Staff.
Mr. Johnson of Georgia. The subcommittee will come to
order, and without objection, the Chair is authorized to
declare recesses of the subcommittee at any time.
Welcome to this afternoon's hearing on the Patent Trial and
Appeals Board and the Appointments Clause: Implications of
Recent Court Decisions. I will now recognize myself for an
opening statement.
The Leahy-Smith America Invents Act of 2011 was a sea
change in patent law. One of the biggest changes was the
creation of a new way for the Patent and Trademark Office to
reconsider whether it had properly issued a patent, called
inter partes reviews, or IPRs, before the Patent Trial and
Appeal Board, or PTAB. Such IPR challenges have become central
to the adjudication of patent disputes. There have been almost
10,000 challenges brought since the PTAB was created in 2012,
with between 100 and 150 new filings each month.
The IPR process, in its current form, has its critics and
its defenders, but that is not why we are here today. Rather,
we are here today because of a more fundamental issue, whether
the PTAB, as currently configured, is constitutional. A recent
court decision, Arthrex v. Smith & Nephew, found that it is not
that the administrative patent judges, or APJs, who comprise
the PTAB, were appointed to their positions in violation of the
Constitution's Appointments Clause. The court further concluded
that the constitutional violation could be remedied by removing
the civil service protections offered to the APJs. According to
the court, this makes the APJs clearly inferior officers in
line with the way that they are currently appointment. The
court stated that it believed Congress would have preferred
this approach had it known about the Appointments Clause issue
when it passed the America Invents Act.
Speaking for myself, I find it inconsistent with the idea
of creating an adjudicatory body to have judges who have no job
security. It goes against the idea of providing independent,
impartial justice if a judge is thinking about his or her
livelihood while also weighing the facts of a case. Many
Article I judges have fixed-year terms, and Article III judges
have life tenure, for this reason. I recognize, however, that
the Arthrex court was in a difficult position with limited
options after identifying a constitutional defect, but that is
why I felt that it is crucial that we have a hearing on this
topic immediately, so Congress can be in a position and in
possession of the facts and ready to act.
We need to learn more about the impact of this decision on
existing cases and the likelihood of the decision being upheld
or modified by either the en banc Federal circuit or the
Supreme Court, and most importantly, we need to begin to
consider whether Congress must get involved to provide a
sensible solution.
Frankly, I worry that we cannot trust the courts to fix
this. We are living through an era where the Supreme Court is
taking increasingly extreme positions about the
constitutionality of the administrative structures that have
existed since the New Deal. These decisions second-guess the
legislative process and the solutions Congress has worked hard
to pass in order to handle the realities and complexities of a
modern society.
Notwithstanding that trend, I believe it is our
responsibility to consider a legislative fix to the
Appointments Clause problem that preserves both due process and
the careful balances struck by the American Invents Act.
I am pleased that we have a panel of legal scholars and
distinguished practitioners. Thank you for being here today,
and I look forward to your testimony.
It is now my pleasure to recognize the Ranking Member of
this Subcommittee, the gentlelady from Alabama, Mrs. Roby, for
her opening statement.
Mrs. Roby. Thank you, Chairman Johnson, and thank you to
our panel of distinguished witnesses for being here today, and
I apologize for running in. I always like to introduce myself
to you prior to the hearing, but I do appreciate your
willingness to come here to discuss these really important
issues.
In reaction to concerns about patent litigation abuse,
Congress, of course, passed the America Invents Act in 2011.
This legislation created new proceedings within the Patent
Office to allow companies threatened with infringement to
challenge the validity of patents. These proceedings are, of
course, overseen by the Patent Trial and Appeals Board, or the
PTAB. The intent behind creating the PTAB is to have a quick
and inexpensive alternative to district court litigation. The
PTAB has been very effective in validating patents and saving
companies accused of patent infringement from expense and
burdens of a lengthy district court case.
With that success, detractors have argued that PTAB rules
strongly favor challengers. Some argue that the--because the
PTAB applies lower court standards, the PTAB can be manipulated
into invalidating valid patents it should not. Because patents
are so important to inventors and to companies, it is important
that the PTAB properly balance competing interests to fairly
and properly determine a patent's validity.
The Federal circuit's recent decision in Arthrex, Inc.
veteran Smith & Nephew, Inc. concludes that the PTAB
administrative patent judges, known as APJs, were not
constitutionally appointed and that the current structure of
the PTAB violates the Appointments Clause. The court reasoned
that because APJs exercise significant authority, they are
considered principle officers and should be nominated by the
President and confirmed by the Senate. The court concluded that
the appointment of APJs could be constitutionally remedied by
severing provisions within the American Invents Act that
provides APJs with Title 5 protections, making them subject to
removal at will of the director.
The subsequent decision of the Federal circuit suggests
that the constitutionality of the PTAB is no longer in doubt.
However, there are concerns with whether the Federal circuit
fix is constitutionally adequate. Unlike many other agency
boards, there is no review of PTAB final decisions within the
Patent Office. The only review of these decisions is conducted
by Article III courts. Because these decisions are so
impactful, sometimes meaning tens or hundreds of millions of
dollars, or the viability of a small business, it raises doubts
that agency officials who are not Senate confirmed should have
so much independent authority.
So I really look forward to hearing from you, our expert
witnesses, to hear whether the court correctly concluded that
PTAB appointments were unconstitutional, that the defect was
corrected by making their service at all, and what, if any,
steps Congress should take here.
So with that, Mr. Chairman, I yield back the balance of my
time.
Mr. Johnson of Georgia. I thank the gentlelady and I am now
pleased to recognize the Chairman of the Full Committee, the
gentleman from New York, Mr. Nadler, for his opening statement.
Chairman Nadler. Thank you, Mr. Chairman, and thank you for
holding this important hearing today. I find it remarkable,
after the years spent working on the 2011 America Invents Act,
which created the Patent Trial and Appeal Board, or PTAB, that
the many cases that have gone before the PTAB and then to
Federal court, and an earlier constitutional challenge to the
PTAB that the Supreme Court rejected, that we should now find
ourselves here today with the constitutionality of the PTAB
structure in question once again.
This length of time has allowed PTAB proceedings to become
the established part of the patent enforcement landscape. That
makes the Arthrex decision, which found that administrative
patent judges, or APJs, performed the duties of a principal
office who were appointed in a manner suitable only for
inferior offices, particularly disruptive.
While the Arthrex court tried to limit the disruption by
providing its own court-ordered fix of removing the civil
service protections for APJs, and by articulating which open
cases should be entitled still to raise the issue, it is clear
that both of these points will be further litigated. In fact,
they already have been. The appellant, in a case heard after
Arthrex, also raising an Appointments Clause challenge,
contended that the Arthrex court's remedy of removing civil
service protections was not sufficient, and that the PTAB is
currently configured to be declared unconstitutional in its
entirety.
While I take no position on a suitable remedy, I do have
concerns with the current so-called remedy of removing APJs'
civil service protections. The apparent thinking behind this
solution, so-called, to the Appointments Clause problem was
that such a change would make APJs clearly subordinate to and
incentivized to be aligned with the policy guidance of the only
official of the Patent Office who is presidentially appointed
and Senate confirmed, and is therefore principal officer, the
director.
While this may be true, I question whether this is the
right way to achieve the apparent objective behind the
Appointments Clause jurisprudence, namely to ensure that there
is an official sufficiently accountable to the President who
signs off on important Executive branch decisions.
I say this because it makes the director's influence on
administrative patent judges indirect. The judges are likely to
try to discern what the director wants, particularly if a novel
question arises and there is no guidance, and litigants will be
left wondering if the decisions they received truly represents
the impartial wing of facts and evidence under the law.
The extent to which the director's views are incorporated
into any decision will not be transparent, and that is
generally not consistent with the way that adjudicatory
tribunals are structured. It may be that under the
Constitution, the director must be entitled to have a level of
reviewer influence over any case finally decided by PTAB, but
it is not clear that this is the best way of allowing that sort
of review to happen.
That is why I am grateful that we have with us today
experts in patent and administrative law, as well as
individuals familiar with the complexities of the PTAB and
patent litigation more generally. If the court's ability to fix
this constitutional defect turns out to this constrained, I
believe it is wise for Congress to begin to think about what we
might do in response.
I look forward to hearing from our witnesses, and I yield
back the balance of my time.
Mr. Johnson of Georgia. I thank the gentleman, and I will
now introduce the witnesses for the first panel.
John F. Duffy is the Samuel H. McCoy Professor of Law at
the University of Virginia School of Law, where he teaches
administrative law and patent law, among other subjects. He was
previously a professor at several other law schools, including
George Washington University Law School and the New York
University School of Law.
Mr. Duffy clerked for the Honorable Justice Antonin Scalia
and the Honorable Judge Stephen F. Williams of the D.C. Circuit
Court of Appeals, and has a BA in physics from Harvard
University and a JD from the University of Chicago School of
Law. Welcome, sir.
Mr. Robert A. Armitage is a consultant on IP Strategy and
Policy. Previously, he had a long career in the intellectual
property departments of two leading life science companies. Mr.
Armitage was the past president of the American Intellectual
Property Law Association and several other prominent
intellectual property organizations. He was a founding member
of the Coalition for 21st Century Patent Reform, which was
actively involved in the legislative process leading to the
passage of the America Invents Act.
Mr. Armitage has a BA in Physics and Mathematics from
Albion College, a Master's in Physics from the University of
Michigan, and a JD from the University of Michigan Law School.
Welcome today, sir.
John M. Whealan is the Intellectual Property Advisory Board
Associate Dean for Intellectual Property Law Studies, George
Washington Law School, where he oversees and coordinates all
aspects of the law school's intellectual property program. He
was the Deputy General Counsel for Intellectual Property Law
and Solicitor at the U.S. Patent and Trademark Office,
responsible for all IP litigation involving the agency.
Mr. Whealan clerked for the Honorable Randall R. Rader, of
the Federal Circuit and the Honorable James T. Turner of the
Court of Federal Claims, and has a Bachelor's Degree in
Electrical Engineering from Villanova University, a Master's
Degree in Electrical Engineering from Drexel University, and a
JD from Harvard Law School. Welcome, sir.
And last but certainly not least, Arti K. Rai, is the Elvin
R. Latty Professor of Law and Faculty Director at the Center
for Innovation Policy at Duke University School of Law, and is
the recipient of numerous grants to study innovation and
technology transfer. She served as the head of the Office of
External Affairs at the USPTO. Ms. Rai has taught at several
other law schools, including Yale Law School and the University
of Pennsylvania School of Law. She clerked for the Honorable
Judge Marilyn Hall Patel of the Northern District of
California, and has a BA in biochemistry and history from
Harvard College and a JD from Harvard Law School. Welcome
today.
Before proceeding with testimony I hereby remind the
witnesses that all of our written and oral statements made to
the Subcommittee in connection with this hearing are subject to
penalties of perjury, pursuant to 18 U.S.C. Section 1001, which
may result in the imposition of a fine or imprisonment of up to
five years, or both, if should one fall victim to conviction.
Please note that your written statements will be entered
into the record in its entirety. Accordingly, I ask that you
summarize your testimony in five minutes. To help you stay
within that time, there is a timing light on your table. When
the light switches from green to yellow you have one minute to
conclude your testimony, and, of course, when the light turns
to red it signals that your time has expired.
Mr. Duffy, you may begin.
STATEMENTS OF JOHN F. DUFFY, SAMUEL H. McCOY II PROFESSOR OF
LAW, UNIVERSITY OF VIRGINIA SCHOOL OF LAW; ROBERT A. ARMITAGE,
CONSULTANT, IP STRATEGY AND POLICY; JOHN M. WHEALAN,
INTELLECTUAL PROPERTY ADVISORY BOARD ASSOCIATE DEAN FOR
INTELLECTUAL PROPERTY LAW STUDIES, GEORGE WASHINGTON LAW
SCHOOL; ARTI K. RAI, ELVIN R. LATTY PROFESSOR OF LAW AND
FACULTY DIRECTOR, THE CENTER FOR INNOVATIVE POLICY, DUKE
UNIVERSITY SCHOOL OF LAW
STATEMENT OF JOHN F. DUFFY
Mr. Duffy. Thank you, Chairman Johnson, and Ranking Member
Roby, and distinguished Members of the Subcommittee. I
appreciate you inviting me here to appear before you, and I
really appreciate you spending time on this important
constitutional issue, especially because in light of recent
decisions I think it is fairly clear that the constitutional
structure is under a cloud of doubt right now. And I think one
of the main goals, as referenced in the opening statements we
just heard, is to try to find some sort of clear solution that
might cut down on litigation.
As things currently stand, I think the Judicial branch
would be unable to come up with a final resolution until many
months, possibly until 2021 or even beyond, given the pace of
litigation in the appellate courts. Given that, I think one of
the goals here today, as I understand it, should be to try to
understand the problem and perhaps look at legislation that
could remedy the problem.
With that basic introduction, I will just give a quick
summary of the Appointments Clause. The Appointments Clause is
something I have written about before. In fact, I wrote an
article about 12 years ago called ``Are Administrative Patent
Judges Unconstitutional?'' and the answer then was yes, and the
Congress responded to that constitutional problem. I think the
hearing today could be entitled ``Are They Unconstitutional
Again?'' And I think the answer might very well be yes.
The Appointments Clause itself, though, is very, very
simple. The first basic principle of the Appointments Clause is
that all officers who are not elected officials, as you are,
have to go through the Appointments Clause if they are
exercising any significant authority under the laws of the
United States. The Supreme Court established this nearly a half
century ago, and I think it is a fundamental cornerstone of the
jurisprudence in the area.
The second principle that we have to understand is there is
four, and only four, ways to appoint people to offices in the
United States. It is an open set of large number of different
appointment mechanisms. There are only four. And the final
principle is that if we use--if the Congress wants to use three
of those appointment mechanisms--and those three are the
President acting alone without the advice and consent of the
Senate, or the courts of law, or head of department--then that
officer has to be what the Constitution calls an inferior
officer. And that is what we are focused on today.
And there is one small point I would have to say, is that
both scholarship and judicial statements often counterpoise
inferior officer to principal officer, and I have even done
that as a shorthand in my own scholarship. I think that we
should stick to inferior officer because that is the only word
that is used in the Appointments Clause.
The word ``principal officer'' is used in another place in
the Constitution, but I think it has a different meaning there
than what the shorthand that it is used in Appointments Clause
scholarship and jurisprudence. So I am going to try my best not
to use the word ``principal officer.'' I am just going to talk
about whether these judges are inferior officers.
There is a long history to this, which is summarized in my
written testimony, but to summarize that very quickly is that
this did not spring unexpected. There were prior decisions,
prior constitutional problems with administrative patent
judges, and also prior D.C. circuit court rulings on another
set of judges who worked in the copyright area, that also
declared--who were appointed in a similar way, and were
declared unconstitutional some years ago, and their tenure
protections were severed as a remedy.
By the way, that litigation that led to that was actually--
or the D.C. circuit's ruling was based on an earlier concurring
opinion by then Judge Kavanaugh. So he laid out the
constitutional problem in a concurring opinion and then the
D.C. circuit, a unanimous panel of the D.C. circuit later
adopted that analysis. I mention that just because I think it
gives us one insight into whether any justice might think there
is a constitutional problem, and I think the answer is probably
yes, given now Justice Kavanaugh's early concurring opinion.
That is an introduction to the basic constitutional issues.
What I think the main goal of this hearing is to try to find
solutions, and I have set forth three possible solutions.
One solution is to simply have Senate confirmation for all
the APJs, all 200-and-so APJs. I think that is possible. In the
past, many officers in the Executive branch, hundreds, were
confirmed by the Senate in one fell swoop, but I think that
might be considered administratively difficult these days.
The two other remedies which I think are more in play is to
establish a small number of additional officers in the Patent
Office who are confirmed by the Senate, and have those few
officers review decisions, or simply to give a clear path of
review to the director of the PTO. Those are the solutions that
I think are the most obvious ones and that we would spend time
on today.
Thank you very much.
[The statement of Mr. Duffy follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Johnson of Georgia. Thank you, and next we will hear
from Mr. Armitage, for five minutes.
STATEMENT OF ROBERT A. ARMITAGE
Mr. Armitage. Yes. Chairman Johnson, Chairman Nadler,
Ranking Member Roby, Vice Chairman Correa, and other members of
the subcommittee, thank you for the opportunity to testify
today on issues arising from the recent court decisions as they
relate to the constitutionality of the PTAB under the
Appointments Clause. The Arthrex decision addressing this
issue, if nothing else, creates an opportunity to look back at
how the PTAB was initially conceived, and perhaps spur some new
thinking on a key issue, specifically whether one
administrative board charged with handling both patent and
trials and patent appeals should remain in the Patent and
Trademark Office.
When the PTAB statute was enacted, Congress, in large
measure, accommodated views of the United States Patent and
Trademark Office that the PTAB simply continue with a new name,
the same statutory provisions that the PTAB's predecessor, the
Board of Patent Appeals and Interferences, had had. Otherwise,
this new PTAB statute was largely unchanged except expanding
its jurisdiction to include these trials arising from the
party's review, which we discussed earlier, and also post-grant
review.
With the benefit of both hindsight and the Arthrex
decision, I believe there is a different and better way in
which Congress could have written the PTAB statute, and one
that would have assured better Appointments Clause compliance.
First, the old Board of Patent Appeals and Interferences,
in spite of its name, was mostly a patent appeals board, one
that rarely conducted trials under its jurisdiction over patent
interferences.
Second, the scope of the new jurisdiction of the Patent
Office under the AIA, over the validity of issued patents,
especially through this second procedure, the post-grant
review, was entirely unprecedented in the more than 200-year
history of the office. As a result, this new jurisdiction
required the office to create an entirely new capability to
conduct potentially large numbers of patent validity trials,
including in the case of post-grant reviews, trials on any
patent validity issue that a district court judge might hear in
a patent infringement action.
For these reasons, the AIA might better have created, in
the Patent Office, a patent trial board, specifically charged
with conducting these new validity trials and distinct from the
old Board of Patent Appeals and Interferences. This would have
allowed the Board of Patent Appeals and Interferences to return
to being just a patent appeal board. Until 1984, such an
appeals-only board existed and heard only ex parte patent
appeals from inventors whose claims had been rejected by patent
examiners.
Moreover, historically, the Patent Office Director could
exercise plenary control over the decisions on appeals decided
by this pre-1984 Board of Patent Appeals. The AIA might have
specifically reaffirmed that the Director could continue to
have plenary supervision and review authority over patent
appeals, specifically all appeals where a decision was rendered
that would allow a patent to issue.
Doing so would have assured that the Director's supervision
and review of decisions to issue a patent was so complete as to
preclude any possibility of a violation of the Appointments
Clause if the members of a patent-only board continued to be
appointed by the Secretary of Commerce without Senate
confirmation.
As far a new patent trial board, it would be adjudicating
patent validity claims as between private litigants, where the
Patent Office Director need not have any role given the public
interest in these proceedings is, at best, of a secondary
nature.
For this reason, a new patent trial board under the AIA
could have excluded the need for any Director oversight of
these invalidity trials, instead investing that supervision and
review authority in a new presidentially appointed and Senate-
confirmed chief administrative trial judge who would lead the
new board. Such a structure would have permitted the members of
the patent trial board, other than the Senate-confirmed chief
judge, to be appointed by the Secretary of Commerce, again
without offense to the Appointments Clause.
In sum, I believe that there may be policy-driven
organizational changes to the current PTAB structure that could
represent optimal policy choices for any new legislation that
would all but assure Appointments Clause compliance.
[The statement of Mr. Armitage follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Johnson of Georgia. Thank you. Now, Mr. Whealan, you
may begin.
STATEMENT OF JOHN M. WHEALAN
Mr. Whealan. Chairman Johnson, Ranking Member Roby,
Chairman Nadler, and Members of the Subcommittee, thank you for
inviting me here today to discuss the Arthrex decision, the
PTAB, and IPRs. I served as a solicitor, as was noted, of the
PTO, and I also served as counselor to the Senate Judiciary
Committee while the AIA was pending.
The Appointments Clause governs the appointment of officers
of the United States. Principal officers must be appointed by
the President and confirmed by the Senate. Inferior officers
may be appointed by the heads of departments.
Three weeks ago, the Federal circuit held that APJs were
unconstitutionally appointed since they are principal officers
who must be appointed by the President. To remedy this problem,
the court invalidated, therein, civil service protection and
made them fireable at will. They demoted them to inferior
officers who the secretary could then appoint.
Many questions have arisen. First, does the Appointments
Clause problem still exist, given APJs still issue final
decisions on behalf of the USPTO? Second, did Arthrex adopt the
correct remedy? I question whether Congress would have chosen
this remedy, especially given the other remedies available,
including second levels of review at places like the ITC and
the SEC.
The courts could take a year to resolve these issues, and
in the end ultimately may not even have the power to do so.
Uncertainty abounds. Prompt legislative action may be
necessary.
At the time, Congress may also wish to consider whether the
IPR system is functioning as Congress had originally intended.
Eight years have passed, over 10,000 IPRs have been filed, so
this may be a good time for Congress to take a second look, as
it often does after it has created a new administrative regime.
IPRs have had a profound effect on the patent system.
However, they received little debate during the AIA, as
compared to the highly controversial post-grant review second
window, that ultimately had to be stripped from the bill in
order to obtain passage. Yet IPRs share many of the attributes
as were feared of PGR's second window, including inability to
quiet title and multiple and serial petitions.
IPRs have devalued every single U.S. patent. Patents are
supposed to be presumed valid. They are not before the PTAB.
Invalidity must be proven by clear and convincing evidence. Not
at the PTAB. The numbers confirm this. There are over 1,400
IPRs filed each year. That is 3.5 times as many as the USPTO
estimated to Congress.
IPR petitioners fare much better than patentees, given IPRs
are instituted over 60 percent of the time, and in final
decisions some claims are invalidated 80 percent of the time.
To my knowledge, no one, or almost no one thought, that
there would be 1,400 IPRs per year, that there would be 260
APJs, so many claims would be invalidated, and that the
estoppel provision would be so weak. And no one thought that
APJs were unconstitutional. But laws can have unexpected and
unintended consequences.
I want to applaud Director Iancu for several changes he has
recently made. However, he alone can only do so much. For the
last eight years, many interested parties have said repeatedly
that the system was working just fine. It wasn't and it still
is not.
A critical voice seems to have been missing from the
discussion, that of the patent owner. Patentees must pay
thousands of dollars and wait years to get a patent, and then
they must sometimes have to pay hundreds of thousands of
dollars and wait years to see if it is valid. I know of no
other Federal agency where one party may thousands of dollars
to get a patent, or get a grant, and then another party pays
the institution to invalidated that grant, but that is what we
have today.
Something odd is happening at the PTO. Every business day,
1,000 patents are issued. But when the PTO re-evaluates some of
those patents and writes a final decision, it invalidates some
claims 80 percent of the time. It is also amazing to me that
the only institution in the United States that does not give
PTO credit for its work is the PTO. It can't. Patents are not
presume valid at the PTAB.
So as Congress thinks about this, some issues it may wish
to consider--presumption of validity, standing, estoppel, and
realizing that IPRs are often not a substitute for but are in
addition to litigation. And most of all, consider IPRs from the
perspective of the patentee. After all, without them we
wouldn't be here.
It has been an honor and a privilege to appear here today,
and I am at your service. Thank you.
[The statement of Mr. Whealan follows:]
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Mr. Johnson of Georgia. Thank you, and Ms. Rai, you may now
begin.
STATEMENT OF ARTI K. RAI
Ms. Rai. Thank you very much, Chairman Johnson, Chairman
Nadler, Vice Chairman Correa, and Ranking Member Roby for
inviting me. I am honored to be here and I also thank the other
distinguished Members of the Committee.
There are few issues about which I am more passionate than
the PTAB. In that regard, I will have to limit myself to five
minutes, but I do want to make one introductory point and then
two other points.
My written testimony lists the empirical and analytical
work I have done on the PTAB. I have done a number of empirical
and analytical studies. Based on this work, I do believe the
PTAB is largely functioning as Congress envisioned in the
America Invents Act. It is an expert, efficient, and fair
alternative to expensive Article III litigation of the validity
of issued patents.
Second, the Federal Circuit's opinion in Arthrex, though in
my view unduly formalist, may represent the views of the
current Supreme Court.
Third, from the standpoint of sound administrative
procedure, the Arthrex remedy is not optimal as a policy
matter. I believe it does make the PTAB constitutional, even
under the current Supreme Court's jurisprudence, but it is not
optimal as a policy matter. As a consequence, Congress could
and should cure the problem by enacting a surgical alteration
to the patent statute that gives the Director a unilateral
right of review of PTAB decisions.
So let me unpack each of those three points.
I will start very quickly with my introductory point. I
believe that the data showed that not only is PTAB serving the
purpose that Congress intended, but this data has been used by
the USPTO Director to take a number of important steps to make
the PTAB function better.
For example, the USPTO Director used data that my AUTHORS
and I generated on the substitution effects that the PTAB is
having to have the PTAB serve as an even more effective
substitute for Article III. The Director has aligned PTAB's
claimed construction procedures based upon that data with those
used in the Article III so that substitution can occur even
more efficiently.
In addition, the Director has implemented procedures to
curb serial petitioning and other potentially abusive
practices. And then finally, and most relevant to the panel
today, the Director has implemented procedures through which
he, working with other senior USPTO personnel, creates
presidential opinions that ensure policy consistency across the
PTAB. Policy consistency, as we all know, is a very important
feature of the administrative state.
More specifically, under the procedure the director has
created, the Director can determine that a particular PTAB
opinion may warrant rehearing and convene a Precedential
Opinion Panel to determine whether to grant rehearing. By
default, this panel consists of the director, the commissioner
of patents, and the PTAB chief.
Now this last change leads directly to the Arthrex opinion.
In that opinion, the Federal circuit panel determined that the
creation of this Precedential Opinion Panel was insufficient
because the director is only one member of a three-member
panel. In my view, this is probably an unduly formalist reading
of what is required for purposes of giving PTAB judges, quote,
``adequate direction and supervision,'' unquote, under the
Supreme Court's Edmond case. But as Professor Duffy has noted,
it may be consistent with what a majority of the current
Supreme Court would find.
So now to my third point on the issue of remedy. On the
positive side, the Arthrex panel's decisions to sever removable
protections, I think, is a mechanism for curing the
constitutional infirmity. Not only did the intercollegiate
decision that Professor Duffy mentioned from the D.C. circuit
use the same remedy but it is also consistent with the Supreme
Court's decision in Free Enterprise Fund v. PCAOB, which also
used severance to deal with an Appointments Clause challenge.
So I think that the remedy is constitutional. But I do
think as a policy matter it is a bad idea. Why is it a bad
idea? I think, as Chairman Johnson has mentioned, it puts
considerable pressure on the policy principle that political
review of adjudicators should be transparent. The
administrative state generally has such transparent review,
whether the administrative adjudication is covered by the APA
or whether it is a so-called Type B hearing, as the
Administrative Conference of the United States has called these
other types of hearings.
So if the Congress were so inclined, it could just imitate
the other parts of the administrative adjudicatory state that
give a politically appointed official a clear right of review,
and it would largely replicate the review that is already
occurring in the POP panel but that the current Federal circuit
and maybe the current Supreme Court would think is not
sufficiently unilateral.
Thank you, and I look forward to your questions.
[The statement of Ms. Rai follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Johnson of Georgia. Thank you. Votes have been called.
We have one or perhaps two votes, and the time for voting has
expired, but there are still 255 people who have not voted. So
we are going to scamper over, do this one vote, perhaps there
will be another vote which would be five minutes after that.
And so I look forward to us being back here in about 15
minutes.
So with that I will recess.
[Recess.]
Mr. Johnson of Georgia. We are back in session, and I will
now proceed under the five-minute rule with questions, and I
will begin by recognizing myself for five minutes.
Ms. Rai, should we assume that the ruling that the PTAB
violates the Appointments Clause will stand up on appeal, and
isn't it possible that the courts will work this out
themselves?
Ms. Rai. So it is a very good question, and when you say
appeal I assume you mean not en banc but appealed to the
Supreme Court, or perhaps you mean both.
Mr. Johnson of Georgia. Both.
Ms. Rai. I think en banc it may not stand up, but that is a
question that I haven't thought through, you know, with great
rigor. But I think on appeal to the Supreme Court it may well
stand up, given Justices Gorsuch, Kavanaugh, and Roberts. I not
sure about Thomas and Alito, but those three, I--I think are
fairly formal when it comes to these questions.
Mr. Johnson of Georgia. Thank you. I would like to get the
panel's reaction to some potential legislative ideas to address
the Appointments Clause problem. Should all PTAB judges be
appointed by the President and confirmed by the Senate? Should
PTAB decisions be subject to discretionary review by the
director of the PTO, or should PTAB decision be reviewable by a
special panel of Senate-confirmed PTAB judges, or should PTAB
decisions be reviewable by the PTAB chief judge, which would be
made into a Senate-confirmed position, or should the PTAB be
divided into two entities, one to hear ex parte proceedings and
the other to hear inter parte proceedings?
And I will start with you, Professor Duffy.
Mr. Duffy. I think that all--the first four of your
suggestions all make the final decisions of the PTAB, in one
way or another, reviewable by a Senate-confirmed person. And so
I think that all four of those are constitutional. Three of
them are expressly suggestions in my written statement. The
fourth one is making the Senate--pardon me, making the chief
judge of the PTAB the person who gets to review, but you would
have to change that person into a Senate-confirmed person.
The fifth option, I think, about dividing the court into
two parts, I think that is a matter that is sort of sideways to
the constitutional issue. The constitutional issue is just
making sure that all the decisions are reviewable by somebody
who is Senate-confirmed. And I think actually in the opening
statements, all the panelists seem to agree that that was the
clearest solution, but then there are different examples of
that.
Mr. Johnson of Georgia. Let me ask you. Whose alternative
do you prefer?
Mr. Duffy. So, from a lawyer's standpoint I think they are
all constitutional, so then I think it is just a matter of
policy. I think probably the Director review is the easiest one
to do, that would not require changing the appointment of any
existing officers and just reinstalling a sufficient lever of
control. In my written statement--so I would suggest that one.
Mr. Johnson of Georgia. Thank you.
Mr. Armitage. I agree with Professor Duffy. I would say two
things. One, I think it is important to do something quickly,
so whatever provides the soonest, best political consensus
should be given a priority.
Second, I think there is merit to thinking about whether
there should be a separate trial-only function in the Patent
Office, headed by a presidential appointee, because these are
private litigants, basically, asking the PTO to adjudicate a
private litigation.
Mr. Johnson of Georgia. Thank you. Mr. Whealan.
Mr. Whealan. Thank you, Mr. Chairman. I agree with at least
some of the people on the panel that Director review, simply
making that change, would be the quickest and most efficient
way to probably make it constitutional. And in some ways, to be
fair, I think the director has already been trying to do that,
although not by himself, through the precedential panel
proceedings that he as recently instituted.
Mr. Johnson of Georgia. All right. Thank you. And Ms. Rai?
Ms. Rai. Yes. I agree that unilateral Director review,
really just one sentence, maybe in the patent statute, the
Director shall have a right of review, would be the best
option. It would be surgical. It would be quick, and hopefully
not too controversial. And, I think it could actually work in
tandem with the Precedential Opinion Panel system that has
already been set up, and so there wouldn't even be a need to
change that system. It would just be on top of that system.
Mr. Johnson of Georgia. Thank you. Mr. Duffy, do you
believe the Arthrex court remedy of removing civil service
protection for PTAB judges could lead to situations where there
are due process concerns, and if yes, can you elaborate?
Mr. Duffy. I think it is not a great remedy, because it
says the Director can maybe be displeased with a decision and
fire this person. So the judge is gone--the judges or judge is
gone, but their judgment still is very hard to unwind in a
particular case. So it is kind of like the Cheshire Cat. The
cat is gone but the smile is still there, and I think that is
not a great remedy.
Then you also have to say, well, to what extent can people
get some sort of process before the Director, and say this was
an incorrect decision. There is no mechanism to try to
influence the director's exercise of discretion.
I think many of the members mentioned due process. I think
that is in play here and it does create a sort of difficulty
for controlling these judges under the current structure.
I can say one last thing, which is the Chief Justice of the
United States, in the Oil States case actually brought up due
process with respect to what is called panel stacking, which is
one way that a director might be able to control the judges
under the current mechanism. And you can read that portion of
the oral argument transcript. I think the Chief Justice was
extremely frosty about whether this was constitutional or not.
He thought that was probably not, I think, from his remarks.
And so that shows the awkwardness of the current system.
Mr. Johnson of Georgia. Thank you. I now recognize the
Ranking Member for five minutes. Mrs. Roby.
Mrs. Roby. Thank you, Chairman. So beyond constitutional
deficiencies, which I think you all have weighed in very
clearly on what your suggestions may be, are there amendments
to AIA that Congress should consider to ensure PTAB proceedings
are fair for both parties? Anybody.
Mr. Whealan. So my written testimony talks about this, but
I think the two things that Congress should do is it should go
back and look at the debate that was going on between the IPR
system, as I laid out. There was almost no debate. There was a
lot of debate about the PGR second window that was taken out of
the bill. And if you see some of the same problems, you could
compare and contrast, are there things that you did not intend
to occur that are basically occurring now.
But the second--to answer your direct question, the
simplest fix, if what we have now is basically a validity
challenge, not a re-exam, a straight-up validity challenge,
then make the playing field fair. Presumption of validity,
clear and convincing evidence, Phillips, and just make the
standards what are in district court, make them the same at the
PTAB.
Mrs. Roby. That was my second question, so anybody else
want to jump in? Do you think--and others can weigh in--do you
think that it makes better sense, as was just suggested, to
have PTAB apply the same standards district courts apply to
claims invalid in those related proceedings?
Mr. Armitage. Yes, absolutely. We now know from experience
that 80 percent or so of IPR proceedings are actually part of
the district court validity challenge to the patent, and it
simply makes no sense to give the appearance of unfairness to
the patent owner. Whether it is unfair or not, if these
procedures are actually going to be sustainable and sustained
they need to not only be fair but have the appearance of
fairness, and they won't do that without the clear and
convincing evidence standard.
Mrs. Roby. I would say, Professor, you look like you want
to say something.
Ms. Rai. Yes, I agree, as a policy matter, with the
argument that claim construction should be the same as between
Article III and the PTAB, and, in fact, submitted comments to
the PTO and was very pleased that Director Iancu decided to go
in that direction.
As an administrative law professor, it is not--I don't have
a huge love of Congress necessarily coming in and micromanaging
administrative adjudication. It seems to me that that this is
the sort of thing that is appropriately delegated to the
agency, which can adapt its adjudicatory practices within the
limits of the Constitution to the needs before it. I think
having Congress put that into statute would unduly box in the
agency.
Mrs. Roby. Should companies be allowed to bring multiple
challenges to the same patent, either directly or through a
follow-on attack by a surrogate, like the organizations that
exist to invalidate patents and who clearly represent the
interests of the companies who fund them?
Mr. Whealan. Two responses to Ms. Rai's point, just a quick
response. Congress put preponderance in the statute. Congress
has to take it out if they want to change it.
As to your second point, estoppel is meant to be real. It
was meant to be a pick-one forum. Don't let some member or
organization do it for you. And so I think Congress wanted you
to pick, and, you know, clearly when you have laws people
figure out ways around them. You should investigate how they
are going around them and put tighter estoppel in, because I
think, as Arti Rai said, then you have a fair shot. You pick
your shot, and that, to me, would be more balanced.
Mrs. Roby. Anybody else?
Well, Mr. Chairman, I would just ask, I mean, there is
clearly--you all have provided, both in your written testimony
and here today, lots of suggestions, and I would just ask that
we continue this conversation as we look to solutions. So I
really do appreciate each of you coming here today and offering
us very candid testimony from each of you. So thank you so
much, and I yield back.
Mr. Johnson of Georgia. Thank you, and I now recognize the
gentleman from Louisiana, Mr. Johnson, for five minutes.
Mr. Johnson of Louisiana. Thank you, Mr. Chairman, and
thank you all again. We are all saying it but we appreciate
your expertise. It is a crazy day on Capitol Hill, as you know,
so do not interpret the empty seats as a lack of interest. It
is just everyone is scattered to the four winds today.
The record of these proceedings, as you know, is really
important to us, because this is what we go back and study, the
staff and all the members, so I don't want you to think your
testimony is in vain. We appreciate you being here.
I am really grateful for the level of attention that is
being paid to the Appointments Clause here in the Intellectual
Property Subcommittee, and we all recognize, we feel that this
Subcommittee plays a key role in ensuring the U.S. remains the
global leader in innovation, and we all know how important that
is.
Our country is an exceptional beacon for innovation because
our founders took the bold step to enshrine both property
rights and a guarantee that enforcement of our laws be done in
a manner that is consistent with the underlying principles that
govern our republic.
I just had two pretty simple questions for you, but I am
trying to summarize this for people who are not deep in the
weeds on all the details. How is the background and the
appointment of PTAB APJs different from the selection of ALJs
appointed throughout the government? And if you have already
answered this, forgive me. I have been in and out, like
everybody else. But anyone, I guess. Mr. Duffy.
Mr. Duffy. Well, from a constitutional standpoint, I think
they are currently now, after the Supreme Court's decision in
Lucia from last term, they are now quite similar
constitutionally, in the sense that administrative law judges
generally now must have the appointment from a head of
department. Now that could be a multi-member commission like
the SEC, and the Supreme Court precedent has made that clear,
but it has to be an appointment from the head of department.
The administrative patent judges have had that since 2008,
because I had an article and sort of pointed out that they were
not being appointed by a head of department, and the Congress
changed that rather quickly to be appointment by the Secretary
of Commerce. So in that sense they are similar.
The way they are different is their duties. Their duties
are different because the administrative law judges are subject
to plenary review, discretionary plenary review in many
agencies, but plenary review at the agency head level. So there
are Senate-confirmed full officers, non-inferior officers who
have the final say, whereas the administrative patent judges
and the PTAB that they staff really is not. And there are
various ways that people can say, well, the Director could
influence it this way or that way, but ultimately there is no
firm control by any Senate-confirmed officer.
So that is the major difference, and that is what is
causing a constitutional problem in this case.
Mr. Johnson of Louisiana. Thanks for that.
Ms. Rai. Can I just make one additional point? The statute
does provide that the administrative patent judges have to be
persons of competent scientific ability and patent ability,
which is a requirement that is not there in the organic statute
for many other agencies. And so to the extent we are concerned
about expertise, I think it is fair to say that the statute
provides for a basic level of expertise.
Mr. Johnson of Louisiana. Well, that actually kind of leads
to my next question, and that would be, should Congress amend
the statute further, define minimum qualifications to require
more than just a technical degree and experience as a patent
attorney? And if so, what would that criteria be? What is the
ideal?
Mr. Duffy. So I think that the Congress could do that if
they found that there was a problem already with the hiring
practices of the PTO. But I think that if you did want to make
that change you might want to first investigate what the
Administration is doing in terms of its hiring practices.
Usually this body doesn't legislate unless they think that
there is a problem. I think that the administrative patent
judges, I think most of them are attorneys. I would be
surprised to find that they are not, or that a large number of
them are not. And I think they do try to hire people who have
some degree of technical expertise too.
Mr. Johnson of Louisiana. So if it is working well in
practice we don't need to--I mean, I am not suggesting we
should get into the middle of that, but I just wanted to know
what you all thought, as experts in the field.
Mr. Armitage. There actually appears to be very little
criticism of the quality of the work because they don't have
the legal expertise or the technical expertise to understand
what they are doing. So I think this is not a problem in the
real world.
Mr. Johnson of Louisiana. Good. Thanks for clarifying that.
I will yield back, Mr. Chairman. Thank you for being here.
Mr. Johnson of Georgia. Thank you. Next we will hear from
the gentleman from Virginia, Mr. Cline, 5 minutes.
Mr. Cline. Thank you, Mr. Chairman. I thank our witnesses
for being here.
I want to take issue with the last statement that it seems
to be working so well. Isn't it absurd for a Federal district
court, or the Federal circuit to issue a decision upholding the
validity of a patent only to have the PTAB invalidate the same
patent on the grounds similar to those rejected by the courts?
Mr. Whealan. I think that goes to the both the purpose and
how is it working, and I would say, but you can get different
outcomes, unfortunately, if you have different standards. And
so this might be a reason, again, another reason, to align the
two standards and not have different outcomes, and essentially
make whichever is the first standard--whichever is the first
decision, be binding on the second decision.
Mr. Cline. Well, does the fact that the PTAB invalidated
patents upheld by Article II courts demonstrate a lack of
oversight authority within the Executive branch?
Mr. Whealan. No, not necessarily. I mean, it is a different
standard. So if you need to prove clear and convincing evidence
and there is a presumption of validity in district court and
you can't win, and all you need to do is prove by preponderance
of the evidence, which is a lower standard, in theory they
could prove it by 51 percent, and prove invalidity at the PTAB
but not in district court. Whether that makes sense to have
that system is a different question.
Mr. Cline. Okay.
Ms. Rai. And I wanted to add that in addition to the
difference in burden, clear and convincing versus
preponderance, in the district courts, when validity is
challenged, a district court can only determine that the patent
is not invalid. The patent adjudication in district court does
not determine that the patent is valid. So if another party
comes along and challenges the patent in, for example, the
PTAB, again, whatever one thinks of whether it is good as a
policy matter, there is nothing illegitimate about another
party challenging that patent because it has only been declared
not invalid.
Mr. Duffy. So I think that the history here is a little
complicated, and you first have to go back to talking about the
presumption of validity, because you talk about a lack of
judicial supervision. What the Congress did in 1952 is codify a
presumption of validity that had been built up by case law, but
that was a massive shift in power away from the courts to the
administrative agency.
So my colleagues on the panel have said there is a
different standard and the court is only saying that the patent
is not clearly invalid. That actually is a change that occurred
in the mid 20th century that shifted power, that aggrandized
the power of the administrative agency.
So if your concern is a lack of judicial supervision, you
might go back and look at why an agency gets to issue a patent,
oftentimes by just a single examiner, and that that actually
gets an extraordinary amount of deference from the Judiciary so
that they review it under this very deferential standard, and
on top of that, from an administrative law standpoint, there
is, under current lower court case law, though, not Supreme
Court case law, there is no judicial review of the
administrative action issuing the patent.
The Federal circuit has held there is simply no way to
review that. It is outside the Administrative Procedure Act,
which is an extraordinary ruling. But nonetheless, that is an
enormous amount of administrative power on the front end, that
you can't forget about if you are trying to get back to first
principles and separation of power.
Mr. Cline. Thank you. Yes.
Mr. Whealan. We talk as if once you are done with the PTAB
the patentee has a valid patent. He doesn't. He just can't have
it challenged again under 102 and 103, based on basically the
same priority of something that would have been available. When
you go to district court, they could still challenge the
validity of that same patent, based on 101 or 112. So it is
only a subset that the patentee is now free from challenge in
the district court.
Mr. Cline. Thank you. Mr. Chairman, I yield back.
Mr. Johnson of Georgia. Thank you. At this time I would
like to commence a second round of questions. My first will be
to the panel, and anyone who wants to respond may.
There are a number of competing theories about whether the
PTAB is constitutional right now. The government has suggested
that the Arthrex decision was effective immediately. Another
set of judges suggested that Arthrex should apply retroactively
to curing constitutional defects. Yet the mandate in the
Arthrex case has not issued.
What is your view on this issue, and how disruptive could
the Arthrex decision actually be?
Mr. Duffy. So I have thought a lot about this, and I want
to begin this statement by saying it is extraordinarily
complex, and that is why my written statement and my oral
statement talked about uncertainty and about the years that are
going to--where the courts are going to have to unwind these
things.
In terms of the decision, one theoretical objection to what
the Arthrex panel did, which was made by a separate opinion by
Judge Dyk, framed in terms of retroactivity, but it can be
framed more clearly, I think, by simply saying that if you go
back to Marbury v. Madison, all the court does, courts don't
actually strike down statutes. They simply say what the law is.
And if the judges cannot constitutionally have tenure, if that
actually is the correct view of the Constitution and the laws
and the statute, then the judges never did have tenure, because
the law never was that way. Even before a court says it is the
law, it still was the law. That is the sort of basic, sort of
very formalistic view that judges don't make law. They simply
announce what the law is and has always been. That is something
Justice Scalia was a very big fan of.
Now that would mean that the judges never had tenure and,
therefore, if the removal of their tenure protection solves the
constitutional defect, then they never had tenure in the first
place.
Now in my written statement I said that it is not clear
that that is a sufficient remedy, and I think that the panel
here suggested that the only sufficient remedy that is clear is
having some sort of Senate-confirmed officer or officers review
the decision.
But the Arthrex decision has many sub-issues, many sub-
issues underneath of it, and we will eventually, in a couple of
years, get a final decision on at least some of them. But I
don't know if we can wait that long.
Mr. Johnson of Georgia. Yes.
Mr. Whealan. I would just add, somebody said to me
recently, ``It is interesting, how could the APJs previously
had thought they could have been fired at will when they didn't
know they could be fired at will, and then would have acted
differently.'' So we are acting in an imaginary universe.
But I do agree with John, that the uncertainty--many people
think these decisions are not correct, but talking to
constitutional lawyers, administrative colleague who never talk
about patent law, they are talking to me about patent law and
they don't even know all the answers and everybody disagrees.
So this is going to take at least a year en banc. It could be
another year at the Supreme Court. And the courts could decide
the judges, the APJs still have too much authority, still have
too much decision-making authority, the Director is still not
reviewing their work, and it is still unconstitutional unless
Congress acts.
Mr. Johnson of Georgia. Thank you.
Mr. Armitage. One of the last thing I do before I go to bed
each night is hope that Judge Dyk is correct, because if we get
an en banc ruling that he is correct, if nothing bad happens
until the Supreme Court does something different, and that
gives you all time to have a permanent fix along the lines I
think we have been discussing, about review and authority.
Ms. Rai. And in terms of the permanent fix, I do think that
a retroactive permanent fix would be useful as well, because I
think in creating the certainty we need, we need to make sure
that not simply prospectively, but retroactively the director
was deemed to have the right of review.
Mr. Johnson of Georgia. Thank you. Professor Rai, would it
raise due process concerns if the director uses his new power
to remove PTAB judges without restriction, firing a judge in
the middle of a case for the way the judge was inclined to
handle the case?
Ms. Rai. Yes, it would. I think certainly in the middle of
the case, yes, I think that would be a serious due process
issue.
Now the Alappat case was a little bit different, and I am
not sure if the Alappat case, which we haven't really talked
about, but was a decision from the Federal Circuit, an en banc
decision, from 1994, where--well, I supposed we have talked
about it in that Professor Duffy talked about so-called panel
stacking--I would be reluctant to call it panel stacking. There
was a new panel created to rehear the case. I don't think that
that is a due process problem but I do think firing somebody in
the middle of his or her deciding a case is a due process
problem, yes.
Mr. Johnson of Georgia. Anyone else?
Mr. Whealan. Could APJs currently argue that they had
something taken away from them, by their civil service
protection taken away from them, and now they can be fired at
will. You know, can they argue that if they are fired for
another reason? I mean, and I can't believe, you know, although
I don't think that Director Iancu is going to start firing
people, as a practical matter, I can't believe it is a warm and
fuzzy feeling to find out one way you were protected by the
Civil Service like everybody else, like I was as a government
employee, and then to find out the next day you are not.
Mr. Duffy. I think that there is a constitutional question
about the due process, but it is very complex, because it would
depend on how the--the director, I think, under the current
Federal circuit ruling, could do that and could fire somebody.
As long as the hearing continues and, I think, the
constitutional due process hearing right would be the basic
right from Morgan v. United States, where the court said that
he who decides has to be the one who hears, in other words,
reads all the documents and has the briefs and everything
submitted, has the oral argument, if it is statutorily
available. That is the person who has to be the decider. That
is a crucial feature of administrative due process, and that
was established in the first half of the 20th century.
So the Director could fire somebody. Now, frankly, I don't
know the Director would know somebody is going to rule--
questions at oral argument, or something like that? It would be
very hard to figure out how the Director would figure that out.
But if the Director did do that and just substitute in a new
person, it probably would be constitutional but it may raise
policy concerns, which I think are certainly within the
prerogative of the Congress to decide that it is not good
policy.
Mr. Johnson of Georgia. All right.
Mr. Armitage. I think that there are really two relevant
hypotheticals here. The Patent Office was created largely to
decide if a patent should issue. So if a patent examiner,
having a patent application in front of him or her, was going
to allow a patent to issue, that the Director did not want to
issue, it actually wouldn't offend me if the Director took that
patent application away and explained to the applicant why the
patent should issue. That is fundamentally the Director's job
to set policy and understand which patents should and shouldn't
issue.
On the other hand, if a litigant is in a private litigation
in a Federal district court, and a Federal District Court Judge
is about to rule in favor of one party relative to a patent,
the director of the Patent and Trademark Office should not have
the ability to have that Article III Judge change because of
the way that judge might rule on the patent.
So why would it appear fair if instead of having that
litigation take place, as it always did before the IPR statute
in the Federal District court, we now have the Patent Office
conducting that before an Administrative Patent Judge, and the
Director can say, ``I don't like the way this private
litigation issue may come out. I'm going to put someone else
in.'' I think that is highly offensive, whether it is due
process or not, as a technical matter, and does suggest that
what the Patent Office does ex parte, in deciding if patents
should issue, should not be the relevant framework for deciding
the director's authority in these what otherwise would have
been private litigation matters.
Mr. Johnson of Georgia. Thank you. Mrs. Roby.
Mrs. Roby. Well, I just want to talk to you in terms of,
you know, the matter at hand really is how this affects
companies, so businesses. If it is determined that the fix is
not enough then what happens to the decision? I mean, can a
company rely on the decision? I think this is really the heart
of the matter in terms of urgency and the need to take this up,
and why today's discussion is so important, but not just ending
here today but moving forward on actually putting these
solutions into practice. So feel free to comment on that, but I
do think it is an important question to ask. I mean, both of
you can--I have got four minutes.
Mr. Whealan. Just quickly, the two things companies that I
talk to complain about are uncertainty, and the only thing
worse than uncertainty is delayed uncertainty. They need to
make decisions. You tell them what the answer is, they can make
a decision. If they don't know what the answer is, they can't
act. A lot of money and time is being spent right now trying to
figure this out, and as we have all talked about, the final
answer may not be until the Supreme Court, which would take two
years, and if they don't have the power to solve it, it may not
even be done then.
Mr. Duffy. And so I agree with that, and I think that my
colleague, Bob Armitage, said that like that Judge Dyk's
solution would work, because at least it wouldn't be a problem
for another two years, until the Supreme Court said something
differently.
But, since a lot of people would think that the Supreme
Court might very well say something differently, the problem is
still present today. It is not that it is the sword of
Damocles' fault. It is that it is hanging there that is the
problem. And I think the sword of Damocles is there and the
uncertainty is there, unless there is some sort of legislative
fix. It is not going to come from the courts. It is not going
to come from Judge Dyk. It is not going to come from the
Arthrex en banc panel. It would only come from the Supreme
Court, and for complex reasons they may not even give a final
solution because there are a variety of issues associated with
remedy. They usually grant certiorari on one question and limit
themselves to that question, and then that can create sub-
questions that go back and be litigated for years longer.
Mr. Whealan. And just to complement what John said, or add
to it, although Bob may like Judge Dyk to make that en banc
decision, he is not going to. There are 12 of them, and if you
have looked at their en banc decisions in the last 5 to 10
years, they don't always agree, and sometimes they write lots
of different opinions. So you would have a decision, but it
would only be until the Supreme Court took it up, and there
would be ample, probably, dissenting opinions from the Federal
circuit which essentially are turned into a cert petition to
the Supreme Court.
Mr. Armitage. Let me just clarify, if weren't clear what I
hope I said. I go to bed at night hoping Judge Dyk is right,
because he would do, retroactively, something that during an
interim period of time would cause no harm, and give the
Congress time to act, as Arti Rai says, retroactively to do
some good, one of the good things would be to presumably moot
the issue so the Supreme Court would actually never have to
decide the current issue that we face with the current statute.
So it is really the ability of nothing bad to happen before
Congress acts. And what do I mean by ``bad''? For example, the
PTAB decisions basically being all of questionable
constitutionality, so who knows if decisions invalidating
patents really invalidated those patents? I mean, the
unthinkable things need to be solved before they become
thoughts we all have to live with.
Ms. Rai. And one last thing to add to the chorus that I
think is being generated, that it is up to you to do the right
thing and fix this, and that is that the due process issue, one
component of it, which is procedural due process, is being
litigated right now, and this Arthrex decision makes that
procedural due process problem even more complicated because
the question, if, for example, a litigant wanted to say that
there is a procedural due process problem with the way that
IPRs are working, they could certainly point to the fact that
now judges can be fired at will.
Mrs. Roby. Well again, thank you all for being here. We
really appreciate your time today, and thank you, Mr. Chairman.
I yield back.
Mr. Johnson of Georgia. Thank you. With that we will
conclude today's hearing. I want to thank the panelists for
their attendance today, and without objection all members will
have five legislative days to submit additional written
questions for the witnesses or additional materials for the
record. And with that the hearing is adjourned.
[Whereupon, at 5:25 p.m. the subcommittee was adjourned.]
APPENDIX
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QUESTIONS AND ANSWERS FOR THE RECORD
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