By Alex Shank – Edited by Michael Hoven
The Leahy-Smith America Invents Act (“AIA”) introduced substantial changes to the U.S. patent system, among them the transition to the first-inventor-to-file priority system. Parties whose patent applications have been rejected by a PTO examiner and the newly formed Patent Trial and Appeals Board (“PTAB”) also have a new venue in which to appeal their rejections—the District Court of the Eastern District of Virginia (“EDVA”). Patent litigators, enticed by the “Rocket Docket” EDVA and its recently relaxed evidentiary standards, may spur a spike in granted patents, compounding the defects of already over-patented system. However, other AIA reforms, including expanded post-grant review and the opening of PTO satellite offices, as well as PTO appeals of EDVA decisions, will likely temper the spike. Ultimately, opening the EDVA may figure most prominently in heightening the scrutiny of potentially cursory PTO examiner decisions.
As described by Damon W. D. Wright and Matthew R. Farley at IPFrontline, the availability of the EDVA may inspire prospective patentees to refrain from bringing appeals directly to the Court of Appeals for the Federal Circuit (“CAFC”) and instead to seek review in the EDVA. Prior to the enactment of the AIA, parties seeking review of patents rejected by the PTO could bring a civil suit to obtain a patent—commonly called a “Section 145 action”—but only in the District Court of the District of Columbia. Most applicants avoided the relatively sluggish DC District Court and appealed directly to the CAFC. The “Rocket Docket” EDVA’s reputation for efficiently processing suits may reverse this practice. As Wright and Farley note, the Supreme Court’s 2012 ruling in Kappos v. Hyatt, 132 S.Ct. 1690 (2012), further enhances the appeal of a Section 145 action. In Kappos, the Supreme Court held that district courts hearing patent appeals can admit new evidence, bound only by the standards published in the Federal Rules of Evidence and Civil Procedure, and, if new evidence is admitted, the court must apply a de novo standard of review to both new and previously admitted evidence. In contrast, the CAFC examines only the evidence contained in the PTO record and does so with a deferential standard of review.
For appellants, the EDVA offers both a chance to hear a case quickly and an opportunity to present evidence to supplement the PTO record—potentially including “show-and-tell” demonstrations of a prototype and market data to establish commercial success. Although it is too early to assess the effect of Kappos or to sense any EDVA attitude toward patent appellants, one would predict that the broader scope of admissible evidence would lead to an increase in reversal rates in favor of appellants in the EDVA relative to the CAFC; Wright and Farley claim that the combined effect of Kappos and the EDVA give Section 145 actions new appeal to patent applicants. Coupled with the EDVA’s speedy processing, the US may witness accelerated growth in patent litigation and patents granted as inventors and their lawyers take advantage of the new venue.
Although attractive to inventors and patent law practitioners, the opening of the EDVA may exacerbate the over-patenting that many view as a flaw in the U.S. patent system. Judge Posner argues in The Atlantic that the patent system should distinguish industries like pharmaceuticals—in which invention and approval costs are high, but production costs are low—from industries with lower pre-production costs that can be recouped adequately by arriving in the market first. The social cost of granting limited monopoly rights to industries in the second category may outweigh the benefit of increased innovation, since the patent system only minimally increases the incentive to invent in those industries.
One should be wary, however, of overestimating the impact of opening the EDVA to patent appeals. The PTO will likely appeal reversals by the EDVA, and prospective patentees will likely appeal affirmations by the EDVA, both to the CAFC. Depending on the relative rates of appeals from patentees and the PTO, the net rate of patents approved may not differ substantially from the rate prior to AIA enactment. Even if the EDVA tends to favor patentees in individual cases, it may, within the same opinions, chill patent litigation and patent approvals by prescribing more stringent rules for obtaining patents going forward.
Moreover, other changes ushered in by the AIA may balance any increases in the rate of patenting stimulated by the opening of the EDVA. For example, the expanded scope of post-grant review under the AIA allows greater opportunities for third parties to invalidate granted patents. More equivocal is the AIA requirement that the PTO open nationwide satellite offices. Those advocating a trimming of patent system may criticize Congress’ intent to reduce the backlog of patent applications by opening these satellites. Ironically, one such advocate argues that the United States currently has too few patent examiners. Understaffing at the PTO may compel examiners to review and approve applications perfunctorily, resulting in lower-quality patents. Thus, a growth in the examiner corps, coupled with more consistently thorough review, could actually increase the quality of patents without increasing their approval rate.
Whether the rate of patenting increases or not, the upshot of opening the EDVA should be higher-quality patents by providing for increased review of PTO examiner decisions. As a front-end check on rejected applications, the EDVA should also help to balance the expanded post-grant review of approved patents on the back end. At most “halfway where we need to go” in improving the patent system, to use President Obama’s words, the AIA leaves ample room for further reform. If not a large step forward in patent reform, opening the EDVA to patent appeals appears not to be a step back.
Alex Shank is a 1L at Harvard Law School.