IP Law Daily, PATENT NEWS: Amended PTAB reform legislation advances in Senate Judiciary Committee by 11-10 vote, (Nov 22, 2024)

By Thomas Long, J.D.

Several committee members—including some who voted to favorably report the bill—expressed lingering concerns about the measure’s potential negative effects on generic drug prices.

Legislation that would make changes to the Patent Trial and Appeal Board and the standards for proceedings before that body narrowly advanced in the Senate Judiciary Committee on November 21. The Promoting and Respecting Economically Vital American Innovation Leadership (PREVAIL) Act was approved by the committee at an executive business meeting by a vote of 11 to 10. The bill (S. 2220) was ordered favorably reported with a manager’s amendment in the nature of a substitute. Changes to PTAB proceedings, if the legislation is enacted, would include the imposition of tightened standing requirements, the elimination of duplicative patent challenges, and the addition of transparency requirements regarding “real parties in interest.”

According to the measure’s co-sponsors, Intellectual Property Subcommittee Chair Chris Coons (D-Del.) and Subcommittee Ranking Member Thom Tillis (R-N.C.), the bill is intended to reform the PTAB to make its proceedings fairer for inventors. The bill’s sponsors assert that the PTAB has been used too frequently to invalidate patent claims through proceedings that are duplicative of district court litigation—for which the PTAB was designed to serve as an alternative forum. Senator Coons pointed out to the committee that “all the top users of the PTAB are big tech companies. Just five companies—Samsung, Apple, Google, Intel, and Microsoft—accounted for 80 percent of all petitions a few years ago.” He also said that “85 percent of defendants [in patent infringement lawsuits] have used [the PTAB] as a duplicative rather than alternative path [for challenging patent claims].” Parallel proceedings in the PTAB and district court can sometimes reach opposite conclusions, eliminating any gains in speed and efficiency from the administrative process.

Review petitioner standing. A key provisions of the introduced version of the bill was a requirement for Board challengers to have standing—specifically having been sued or threatened with a patent infringement lawsuit before filing a Board challenge. Some committee members expressed concern with this provision because it would prevent makers of generic drugs and patient advocacy groups from challenging patents for brand-name drugs and from addressing so-called “patent thickets” that purportedly lead to price increases.

Senator Coons put forth a manager’s amendment, which was adopted by voice vote, in an effort to allay these concerns. Under the amendment, certain nonprofit organizations would have standing to petition for inter partes review “for the sole purpose of ascertaining the patentability of the challenged claims of the patent and not to profit from or fund the operations of the petitioner.” Senator Coons said that the bill as amended will “ensure generic companies and patient advocacy groups explicitly continue to have access to PTAB to challenge drug patents.”

Other limits on review proceedings. Other provisions of the measure including limiting multiple petitions against the same patent; eliminating joinder for time-barred parties; applying estoppel at the time the challenge is filed; instituting a “clear and convincing evidence” standard for patent invalidity; and mandating the use of the “plain and ordinary meaning” standard for claim interpretation.

With respect to multiple petitions, the bill provides that a person that, directly or through an affiliate, subsidiary, or proxy, makes a financial contribution to the preparation for, or conduct during, an inter partes review or post-grant on behalf of a petitioner shall be considered a real party in interest of that petitioner. These parties then would not be permitted to request or maintain another proceeding before the PTAB with respect to that patent on any ground that the petitioner raised or reasonably could have raised previously.

Code of conduct for administrative patent judges. The bill also would establish a code of conduct for Board judges, enhancing transparency of the USPTO Director’s involvement in Board decisions, requiring parties to choose between the Board and district court for their action, ending the practice of filing reexaminations following failed Board petitions, and ensuring that judges deciding post-grant proceedings are not the same judges deciding the outcome.

Elimination of fee diversion. The PREVAIL Act additionally would eliminate the diversion away from the USPTO of fees paid to the agency for its services. If the bill becomes law, fees collected for patent services could only be used for expenses of the USPTO relating to the processing of patent applications and for related activities and administrative costs. Fees collected for trademark services likewise could only be used by the agency for the processing of trademark registrations and related trademark activities and services.

Remarks by co-sponsors. Senator Coons said in a press release, “Commonsense reforms to the PTAB like those in my PREVAIL Act will get our innovators out of the courtroom and back to the lab or field, so they can get back to making the technological breakthroughs that push our nation forward.” Senator Tillis added, “The PREVAIL Act makes commonsense changes to our patent approval system that will increase transparency, safeguard patents, eliminate duplicative legal proceedings, and encourage American inventors to design and create.”

According to Senate Majority Leader and Judiciary Committee Chair Dick Durbin (D-Ill.)—who also had signed on as a co-sponsor—“The PREVAIL Act would align the patent review process with the goals of Congress when it passed the American Invents Act in 2011. We must ensure a level playing field when adjudicating patent validity, which is in the best interest of our inventors and our economy. American innovation must remain at the global forefront, and I’m proud to have partnered with Senators Coons and Tillis to advance this bill to the full Senate.”

Remaining roadblocks. The narrow vote to advance the legislation could indicate that securing passage of the bill on the Senate floor won’t be easy. Prior to the November 21 meeting, Senators Peter Welch (D-Vt.), Amy Klobuchar (D-Minn.), and Richard Blumenthal (D-Conn.) objected to the tight standing provision in the original version of the bill, contending that it unduly hindered generic pharmaceutical manufacturers and patient advocacy groups from challenging drug patents with the goal of increasing the availability of and reducing prices for generic drugs. Although Senator Coons’ manager’s amendment was enough to convince these senators to vote to advance the measure, they said they would continue to seek further changes to the bill before committing to vote for it on the Senate floor.

Senator Klobuchar said that while she supports making improvements to the patent review processes, “My major focus when it comes to cost has been pharmaceutical prices.” She noted other bills she has worked on that are aimed at preventing large drug makers from “using patents to shield their drugs from generic competition.” She expressed support for the bill’s transparency provisions and said she appreciated Sen. Coons’ efforts to address these concerns in the manager’s amendment, but “before I support the final bill on the floor, I think it’s critical that this bill and whatever changes are made [do] not create additional patent barriers to affordable drugs.” She added, “I also hope we could ensure that [the PTAB] remains an efficient alternative to litigation to clear away patents that should never have been issued in the first place.” Senator Blumenthal echoed Sen. Klobuchar’s sentiments, stating, “I want to make sure that prices of pharmaceutical drugs do not increase.”

Later in the meeting, just before the vote to favorably report the bill, Sen. Klobuchar clarified her earlier remarks, stating that “I continue to believe there may well need to be other changes before I commit to vote for the bill on the floor.”

The amendment was not enough to secure a favorable vote from Sen. Josh Hawley (R-Mo.). “I can’t support something that’s going to increase the cost of prescription drugs for millions of Americans, and I’m deeply concerned that that’s going to be the effect of this bill,” he said.

Another amendment to the bill was proposed by Sen. Ted Cruz (R-Tex.). This amendment would have allowed small inventors—that is, those with fewer than 500 employees and gross revenues of less than $24 million a year—to opt out of participation in PTAB proceedings. This amendment was rejected, with Sen. Coons opining that the $24 million revenue limit was too high. Senator Chuck Grassley (R-Iowa) reportedly had been working on additional amendments, but he did not bring them to the committee. He briefly explained that his changes would have limited a party with complex claims to a single petition, bar the introduction of prior art and arguments that had already been presented to the USPTO but not considered, and additional limits on prior art that could be considered in parallel court litigation. Both Sen. Cruz and Sen. Grassley voted against advancing the legislation.

Practitioner commentary. “The close vote on the PREVAIL Act in the Senate Judiciary Committee likely heralds a difficult battle before the full Senate,” said Scott W. Hejny, Principal at McKool Smith. “While compromises can likely be reached with Senator Hawley’s concern about the impact of the PREVAIL Act on drug prices and Senator Cruz’s desire to further protect individual inventors, the bill will face stiff opposition from big tech companies that will strongly oppose changes that will make it more difficult to invalidate patents at the PTAB.”

Hejny added, “What’s clear is that passage of the PREVAIL Act would be a significant win for patent owners.” However, the bill is likely to face resistance, he told Wolters Kluwer. “As the bill moves to the Senate floor, large commercial entities, including big tech, will almost certainly oppose PREVAIL Act provisions that will tilt the playing field in patent owners’ favor.” These provisions include the bill’s “clear and convincing” evidentiary standard, which is much heavier than the current “preponderance of the evidence” burden of proof in PTAB proceedings. “Similarly, these same entities will likely push back on the bill’s requirement that patents being weighed by the PTAB are entitled to the statutory ‘presumption of validity’ that each patent carries once examined and issued by the Patent Office because petitioners prefer that challenged patents be subject to essentially de novo review by PTAB judges.”

According to Hejny, “The provisions of the PREVAIL Act seek to return the PTAB process to an ‘alternative’ to district court or ITC [International Trade Commission] litigation, as originally envisioned in the America Invents Act (AIA), rather than allowing PTAB proceedings to continue in parallel with every district court or ITC proceeding—requiring patent owners to fight for validity of challenged patents simultaneously in multiple venues.”

Attorneys: Scott W. Hejny (McKool Smith, P.C.).

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