‘Death Squad’ That Tossed 2,000 Patents Challenged at High Court

(Bloomberg) -- The U.S. Supreme Court will consider whether to declare unconstitutional a system that technology companies, including Apple Inc. and Google Inc., have used to invalidate hundreds of patents and head off litigation.

In an argument at the intersection of intellectual property and the separation of powers, the justices on Monday will consider a challenge to a congressionally-created board that critics have dubbed a “death squad” because of its tendency to toss out patents.

The Patent Trial and Appeal Board has invalidated more than 2,000 patents since it began work in 2012. Apple says it alone has used the board to successfully attack almost 200 patents, many held by entities interested only in filing lawsuits and extracting royalties. Congress set up the board, known as PTAB, in 2011 as a faster and cheaper alternative to litigation.

But some smaller inventors see a chance to undercut the board, saying it’s become an anticompetitive tool for large companies.

The case “has the potential to shut down the PTAB, if only for a moment until Congress can do something to get it back on course,” said Jim Carmichael, a former PTAB judge and now managing director of Carmichael IP. “For many inventors and patent owners, that’s a very exciting prospect.”

At issue is whether more than 250 PTAB judges are serving in violation of the Constitution. The federal appeals court that handles most patent disputes said the judges have important enough powers that they need to be appointed directly by the president.

Should the Supreme Court agree, it could go as far as barring the board from continuing to review and invalidate patents. The justices could also issue a more limited ruling that would strip the judges of their job protections but leave the board’s powers intact. Either way, a decision against the board could mean that hundreds of cases would have to be reconsidered.

Constitutional Fight

The U.S. Court of Appeals for the Federal Circuit said the judges are “principal officers,” a constitutional category that requires presidential appointment and Senate confirmation. The court said it reached that conclusion in part because patent judges’ decisions, typically issued by three-person panels, aren’t subject to review by a presidentially appointed official at the agency.

The Justice Department is urging the Supreme Court to leave the system in place, saying patent judges are “inferior officers,” who the Constitution says don’t have be presidential appointees. In a brief filed before leaving office, President Donald Trump’s administration said the Patent & Trademark Office director and the Commerce secretary together have broad control over the work of the judges. Among other tools, the patent office director can decide which judges sit on a review panel.

The Supreme Court said in a 1997 case involving Coast Guard judges that inferior officers are people “whose work is directed and supervised at some level by others who were appointed by presidential nomination with the advice and consent of the Senate.”

The case before the justices involves an Arthrex Inc. surgical device patent invalidated by PTAB after a challenge by Smith & Nephew Plc. The court has deferred action in dozens of other cases likely to be affected by its ruling.

Technology Companies

Apple, the single biggest user of the review boards, filed a brief backing Arthrex. The iPhone maker said it relies “on Congress’s promise of a fair and efficient forum to challenge what often prove to be woefully weak patents that should not have issued in the first instance.”

Other companies backing PTAB include Intel Corp. and an alliance whose members include Alphabet Inc.’s Google, Cisco Systems Inc., Microsoft Corp., Oracle Corp. and Samsung Electronics Co.

A group describing itself as “39 aggrieved inventors” said intellectual property rights are “under attack by large corporations that are motivated to devalue patents and quell competition.”

“There is no place for overlooking constitutional violations and contrived, convoluted administrative shortcuts when the future of small businesses and their owners’ livelihoods hang in the balance,” the group said.

The drug industry is largely staying out of the fight, though a trade group for the generic-drug industry urged the court to preserve the PTAB.

So many patents have been invalidated that it’s been called a “death squad,” a term coined by Randall Rader, the former chief judge of the Federal Circuit, which oversees all patent disputes in the country. The patent office has since altered its rules, giving patent owners a better shot at surviving the challenges.

PTAB already survived one challenge at the Supreme Court. In 2018, justices found the panel wasn’t unconstitutionally wielding powers that belong to the courts.

The court is scheduled to rule by late June. The lead case is U.S. v. Arthrex, 19-1434.

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