The America Invents Act of 2011 (AIA) created the Patent Trial and Appeal Board (PTAB)1 in the U.S. Patent and
Trademark Office (USPTO). The PTAB was intended to be an alternative forum to challenge the validity of patents
that is faster and cheaper than federal court.
However, a perverse incentive structure acting on the PTAB caused it did the opposite: the PTAB invalidates 84% of
the patents it fully adjudicates, and it adds years to federal court litigation, and increases litigation costs by millions of
dollars.
The result of perverse PTAB incentives is that investment in early-stage startups decreased in the U.S. and increased to
China. In the ten years since the creation of the PTAB, China overtook the U.S. in 37 of 44 technologies critical to our
national security, and Big Tech monopolized.
Perverse Incentives Drive PTAB Patent Invalidation Rates
Only those seeking to invalidate patents are permitted to petition the PTAB to invalidate a patent; Patent owners are
barred from challenging their own patents. That means the sole PTAB customer is an infringer or its agents.
The PTAB’s only function is to invalidate patents, so the only customer value proposition the PTAB can offer is its
invalidation rate. In other words, to attract petitions, it must invalidate patents at a rate significantly higher than the
federal courts. The PTAB is funded solely by fees paid for petitions, so it cannot sustain operations without a supply
of petitions.
These perverse incentives bias the PTAB to invalidate patents at a rate significantly higher than federal courts.
The USPTO Acts on the PTAB’s Perverse Incentives
cost of conducting petition procedures by as much as 50%. The USPTO has not raised fees to close the gap because it
would reduce the number of petitions filed. The USPTO incentivizes filing petitions by refunding petition fees if the
PTAB does not institute the petition. Administrative patent judges (“APJ”) have no code of conduct so conflicts of
interest are common and accepted. For example, APJ’s handle cases where their former employer is a petitioner.
These conflicts increase the likelihood of invalidating the patent. Any USPTO Director since 2011 could have
established a code of conduct, yet none did. When an original panel of APJs refused to invalidate a patent, USPTO
management stacked the panel with new APJs so it would invalidate the patent. The USPTO then retaliated against the
whistleblower who brought this to light. And, incredibly, APJs actually receive higher bonuses to invalidate patents
than they do to hold them valid.
Clearly, the USPTO acts under these perverse incentives to increase the PTAB’s invalidation rate. It will continue to
do so because the PTAB cannot stay in business unless its invalidation rate is significantly higher than federal courts.
The Balancing Incentive Act
The invalidity rate must be removed from the PTAB’s customer value proposition. This is accomplished by requiring a
patent owner’s consent to file a petition. If the PTAB’s invalidation rate is significantly higher than the courts, the
patent owner will not consent. If it is too low, nobody will petition the PTAB. However, if the PTAB invalidation rate
is reasonably in line with the federal courts, both parties will benefit because the PTAB was set up by Congress to be
faster and cheaper than federal court.
The Balancing Incentives Act is only 20-lines long. It adds 12 words requiring patent owner consent to a petition
before the PTAB can instituted it. This balances the incentives ensuring the PTAB is an unbiased tribunal. The
Balancing Incentives Act enables a patent to be used as collateral to attract early-stage investment in startups, thus
positioning the U.S. to retake the global innovation lead from China and restoring competition in Big Tech markets.
Other Improvements
A couple of other detrimental AIA provisions that would be abolished are first-to-file, returning our patent system to the quite successful first-to-invent, as well as restoring an inventor’s one-year grace period before being compelled to file for a patent, allowing time needed to secure investment and to perform further R&D to ensure product quality for the filed patent.
The Massie bill would eliminate patent applications from being published by the USPTO, reverting to publishing once a patent is actually issued. Another huge AIA-era aspect that has plagued inventors in the legal arena occurs with the RALIA by restoring the presumption of validity of USPTO-issued patents and their claims.
Another positive change in the RALIA would be ensuring substantive patentability criteria of novelty, usefulness, and obviousness are contemplated separately from patent eligibility determinations. This alone would bring greater certainty and reliability to issued patents, particularly for computer-implemented inventions and biotechnological inventions.
