By Joseph Matal October 6, 2021, 4:52 PM EDT
Law360 (October 6, 2021, 4:52 PM EDT) —
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| Joseph Matal |
With Congress back in session, the newly introduced Restoring the American Invents Act, sponsored by Sen. Patrick Leahy, D-Vt., and Sen. John Cornyn, R-Texas, or Leahy-Cornyn Act, deserves prompt attention.
The bill would restore reliable access to expert patent validity review at the U.S. Patent and Trademark Office‘s Patent Trial and Appeal Board, protect the integrity of PTAB proceedings against political interference, and compel coordination between PTAB reviews and infringement trials.
In doing so, the bill would protect American manufacturers against the depredations of hedge funds and other unscrupulous actors that have been exploiting recent opportunities to leverage invalid patents against America’s industrial base. The Leahy-Cornyn Act deserves Congress’ support.
One lesson that we have learned during the last few years’ economic tumult is the importance of maintaining advanced manufacturing capacity in the U.S. Domestic manufacturing not only provides good jobs, it also ensures that our economy is not dependent on foreign nations and international events when a crisis arises. When critical components such as microchips or telecommunications equipment are available only from overseas, supply chains and entire industries can be disrupted.
Just this year, for example, American automobile manufacturers are expected to lose almost $300 billion in revenue because of a lack of access to the semiconductors that control so many of the functions on a modern car.[1]
While America has taken some steps to secure its industrial base, in one area it has gone backward: Recent policies have immunized asserted patents against review in PTAB proceedings. The USPTO has refused to consider hundreds of patent validity challenges brought by American businesses, even though they were filed within statutory deadlines. The USPTO has taken the view that it has discretion to decide that it would be more efficient not to review these patents on their merits.
The Leahy-Cornyn Act would correct this administrative aberration and require the USPTO to consider the merits of challenges that are filed within statutory deadlines.
Arbitrary restrictions on validity review are undermining critical U.S. industries.
The last year has shown us what happens when access to high-quality patent validity review is cut off: Some of America’s most important manufacturers have been hit with judgment for millions or even billions of dollars for patents that never should have issued.
Consider last year’s suit by the hedge fund Fortress Investment Group LLCagainst Intel Corp., VLSI Technology LLC v. Intel Corp. in the U.S. District Court for the Western District of Texas. Fortress’ patent claimed simple insights into the voltage needs of integrated circuits.[2] Intel responded with a PTAB petition that showed that these things had been understood by electrical engineers years before the patent was filed.[3]
But the USPTO refused to consider this challenge on its merits. The result: Fortress went on to secure a $2.2 billion judgment against Intel — the second largest infringement verdict in U.S. history.
Approximately two billion dollars is a substantial portion of the cost of building a new microchip fabrication plant. Before we transfer that amount from the nation’s premier chip manufacturer to a hedge fund, shouldn’t we at least want an accurate and technically reliable assessment of whether the patent is valid?
Another beneficiary of these policies has been Huawei Technologies Co. Ltd. After it was excluded from the U.S. market, Huawei began suing on some of its thousands of U.S. patents. Huawei’s first set of lawsuits, brought against Samsung, was stopped by PTAB reviews — Samsung Electronics Co. Ltd. successfully showed that Huawei’s claimed telecommunication protocols were previously disclosed in the technical specifications of standard setting organizations.[4]
When Huawei later asserted similar patents against Verizon Business Network Services, demanding a billion dollars in licensing fees, that company also filed PTAB challenges making the case that Huawei’s patents are invalid. Verizon, however, received a total of six discretionary denials from the USPTO[5] — the agency refused to consider Verizon’s challenges on their merits. Last July, Verizon was forced into a settlement with Huawei.[6]
Allowing Huawei to leverage invalid patents against American technology companies is not a path to winning the race to 5G cellular communications. It is a path to making America and other countries dependent on Huawei for telecommunications equipment.
Regardless of who is asserting a patent, the public interest demands that we only award infringement damages for valid patents — those that claim a technological advance. Allowing invalid patents to be monetized does not reward innovation — it simply corrupts the system and encourages more investment in this type of litigation. A hedge fund’s decision-making matrix is fairly straightforward. If Fortress can obtain $2 billion by suing on an invalid patent, it will bring more such lawsuits.
The Leahy-Cornyn Act also protects due process in patent cases.
The Leahy-Cornyn Act would give businesses a reasonable opportunity to use PTAB proceedings, protecting the manufacturers that are the backbone of the American economy. The bill would also safeguard patent judges’ independence by prohibiting political interference in pending PTAB cases — abuses that are currently the subject of a bipartisan Government Accountability Office investigation.[7]
In addition, the act would create a uniform national standard for staying infringement cases when PTAB review is instituted, ending the wasteful practice in some courts of forcing PTAB and district court trials to take place simultaneously. When the USPTO finds that it is reasonably likely that a patent is invalid and initiates a PTAB review, that threshold question of the patent’s validity ought to be resolved before a district court assesses infringement and damages.
Americans are a highly inventive people. There is no shortage of strong patents that are being issued and enforced in the U.S. Providing access to accurate and technically proficient validity review ensures that the patent system’s rewards flow to the true innovators rather than to legal opportunists and ultimately preserves the integrity and credibility of the U.S. patent system.
PTAB review also gives manufacturers the assurance that they need to invest in plants and heavy equipment in the U.S. The Leahy-Cornyn Act’s reforms are a much-needed course correction that will help secure America’s economic future.
Joseph Matal is a partner at Haynes and Boone LLP. He previously served as the U.S. Patent and Trademark Office’s acting director and acting solicitor.
Disclosure: Matal was counsel for the USPTO in the two Huawei Technologies Co. Ltd. v. Iancu matters cited in this article.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
[1] “Auto industry set to lose $290 billion in revenue this year amidst shortage of computer chips,” Just the News, Sep. 28, 20201.
[2] See U.S. Patent No. 7,523,373. The patent — which was filed in 2006, 45 years after integrated circuits were first developed — purports to apply the “discovery” that the memory in a microprocessor sometimes needs a higher minimum voltage than the processor. See id. at 2:4-9.
[3] See Intel v. VLSI Tech. , IPR2020-00158, Paper 3 at 7-8 (Nov. 20, 2019).
[4] See, e.g., Huawei Techs. Co., Ltd. v. Iancu , No. 19-1493 (Fed. Cir. 2020); Huawei Techs. Co., Ltd. v. Iancu
, No. 19-1497 (Fed. Cir. 2020).
[5] See Verizon Bus. Network Servs. v. Huawei Techs. Co. , IPR2020-01290 (Jan. 25, 2021); Verizon Bus. Network Servs. v. Huawei Techs. Co.
, IPR2020-01291 (Jan. 25, 2021); Verizon Bus. Network Servs. v. Huawei Techs. Co.
, IPR2020-01292 (Jan. 25, 2021); Verizon Bus. Network Servs. v. Huawei Techs. Co.
, IPR2020-01278 (Jan. 26, 2021); Cellco Partnership d/b/a Verizon Wireless v. Huawei Techs. Co. Ltd.
, IPR2020-01352 (Mar. 2, 2021); Cellco Partnership d/b/a Verizon Wireless v. Huawei Techs. Co. Ltd., IPR2020-01356 (Mar. 5, 2021).
[6] See “Huawei, Verizon Strike Patent Deal Mid-Trial in Texas,” Law360, Jul. 12, 2021.
[7] See “Lawmakers Seek Probe of USPTO Director’s Sway Over PTAB,” Law360, Jun. 3, 2021.
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