IP Law Daily, PATENT NEWS: FTC submits comments on proposed patent settlement agreement rule, (Jun 20, 2024)

By Jody Coultas, J.D.

The USPTO has proposed a rule requiring parties to file all pre-institution patent settlement agreements, including collateral agreements.

The FTC has submitted a comment supporting a proposed U.S. Patent and Trademark Office (USPTO) rule involving the disclosure of patent settlement agreements. Abuse of the patent system can block rivals, impede new business formation and growth, inflate costs, and harm the public. The FTC stated that the inclusion of a provision in the PTAB rules of practice that would require the filing of all settlement agreements will benefit consumers and prevents harm to competition.

In 2011, Congress enacted the America Invents Act, which created the Patent Trial and Appeal Board (PTAB) and granted it authority to hear several types of administrative challenges to the validity of granted patents. This April, the USPTO proposed changes to the PTAB proceedings, including a proposal specifically intended to support the FTC’s and the Department of Justice’s enforcement work regarding anticompetitive conduct related to patent settlements.

The FTC has often expressed concerns around the impact of patents that are likely invalid or contain claims that are overly broad—including how such patents serve to block competition and impede innovation. Such patents may lead a competitor to forgo research and development in the areas that the patents improperly claim. If the competitor instead chooses to pursue research and development in areas improperly covered by the patents without a patent license, it may face expensive and time-consuming litigation with the patent holder. If the competitor instead chooses to negotiate a license to the questionable patents, the costs of follow-on innovation and commercial development increase due to unjustified royalties. The FTC also has a long history of pursuing enforcement actions at the intersection of antitrust and intellectual property, to address the misuse and abuse of patents in ways that undermine fair competition.

Currently, the PTAB requires all parties that settle their case after an AIA proceeding has been instituted to file the settlement agreement and any collateral agreements with the PTAB before the proceeding will be terminated. The statute provides for filed settlement agreements to be made available to federal government agencies on written request. Since FY2020, pre-institution settlements have made up over half of all settlements in AIA proceedings.

The proposed rule would require parties to file with the USPTO all pre-institution patent settlement agreements, including collateral agreements. Extension of disclosure requirements to any settlement regardless of timing or effective date would support the FTC’s ability to identify and investigate potentially unlawful settlements in the pharmaceutical context and more broadly. While the FTC receives certain patent settlement agreements pursuant to the MMA, the USPTO’s proposed rule applies to a broader set of patent settlement agreements related to pharmaceuticals as well as those in other industries.

The FTC believes the proposed changes would enhance the government’s ability to monitor and curb potentially harmful and unlawful pre-institution settlement agreements, including through potential antitrust enforcement actions. Given the significant percentage of settlements that are currently not required to be disclosed but nonetheless may carry the same antitrust risks, the Commission believes the proposed rule will support efforts to detect and investigate potentially anticompetitive conduct related to settlement agreements. Moreover, the Commission supports the proposed rule because it closes a loophole that may otherwise allow parties to circumvent disclosure requirements. Parties are currently able to avoid disclosure of settlements by filing a motion to dismiss or withdraw their petition before institution of proceedings. The institution of proceedings is solely within the discretion of the parties, and the current scheme encourages settlements prior to the institution of proceedings for those looking to avoid the consequences of disclosure. Extending the disclosure requirement to settlements regardless of when they are signed is consistent with the intent of Congress to require disclosure of settlements that arise out of proceedings before the USPTO.

News: Patent USPTO