Event Recap: Morgan Reed Calls for Strong Patent Quality

On September 2, Morgan Reed, president of the Association for Competitive Technology (ACT), testified before Congress regarding the U.S. Patent and Trademark Office (USPTO). This hearing, held by the U.S. House Judiciary Committee’s Subcommittee on Courts, Intellectual Property, Artificial Intelligence, and the Internet and titled Renewal of USPTO Fee Setting Authority: Giving Full Effect to the America Invents Act, examined USPTO’s expiring fee-setting authority and weighed the merits of extending it. Members of the Subcommittee could not help but discuss the lengths to which the USPTO’s Director has gone in recent months to avoid following current law governing post-grant patent reviews under the America Invents Act (AIA). The discussion highlighted that Congress will likely need to put additional guardrails in place to accompany any meaningful extension of fee-setting authority that further clarify the statutory constraints on the Director’s discretion.

Morgan pointed out key changes to USPTO’s treatment of patents, including increased use of discretionary denial and creation of a mythical “settled expectations” defense. These and other changes have, in aggregate, limited small business access to the Patent Trial and Appeal Board (PTAB) and inter partes review (IPR) of patents. Even though PTAB is often out of reach for small businesses, they still benefit from its availability as a viable means of challenging patents that should not have issued.

ACT is especially concerned because small businesses are a favorite target of aggressive patent assertion campaigns also known as “sue and settle”. Patent trolls buy up a portfolio of overbroad patents and then send assertion letters to innovators. Small businesses facing hundreds of thousands of dollars in litigation costs end up paying unnecessary settlement and other costs associated with defending themselves that patent laws were never meant to enable. Ultimately, patents are made weaker when overbroad claims are allowed to persist because they are improperly shielded from challenge. In addition, the congressionally created Patent Public Advisory Committee (PPAC) does not have a full complement of members, impeding its ability to advise the Director and further increasing the Director’s discretionary power.

Morgan elaborated on his points through a lengthy exchange with Representative Zoe Lofgren (D-CA-18). She noted the marked drop in IPR institution rates over the last year, as well as significant reductions in new IPR filings. She also noted that the Director has adopted a wide range of grounds for denying review, including the mythical “settled expectations” defense discussed above and others that have nothing to do with the validity of a patent. Rep. Lofgren and Morgan agreed that petitioners who demonstrate a reasonable likelihood of succeeding on at least one of the challenged claims should receive a review, rather than having their petitions denied for completely unrelated, discretionary, and, in many cases, unknown reasons.

Rep. Lofgren also suggested that Congress clarify that the Director shall institute when the merits of a petition meet the relevant thresholds. This would further reinforce that the Director should not have the discretion he currently cites in denying petitions on non-merits grounds, a practice that, on net, defeats the purpose of the AIA. At the very least, Rep. Lofgren suggested, any denials the Director issues must include detailed reasoning and reference the merits of the petitions. According to Morgan, that change would improve transparency at the USPTO, allow petitioners to understand why their petitions were granted or denied, and tether institution decisions to the merits of a petition where warranted, in addition to any procedural considerations.

The Director’s refusal to even cite a regulation, policy, or a reason for denying petitions creates an unfortunate lack of transparency. If the Director believes a patent is truly strong enough to stand up to PTAB review, that reasoning should be published so that the market can understand when patents are strong and when they are weak. Intentionally declining to indicate which category patents fall into creates uncertainty as to whether any patent was erroneously or properly granted. In turn, startups leveraging old, patented innovations are forced to build new innovations on a more uncertain, less stable foundation. Here again, the Director is defeating the purpose of the patent system, and small businesses are least able to bear the costs.

This hearing drove home the importance of clear review, transparency, and a functioning PTAB for the strength of the U.S. patent system. Morgan’s expert testimony reinforced these points and brought the voice of small businesses to Congress, highlighting what is at stake for them.