U.S. Patent and Trademark Office: Assessment of the Covered Business Method Patent Review Program

Patents can promote innovation by giving inventors exclusive rights to their inventions, and patent owners can bring infringement lawsuits against anyone who uses, makes, sells, offers to sell, or imports a patented invention without authorization. As GAO previously reported, such lawsuits can take years and cost several million dollars. USPTO's CBM program provides a trial proceeding to challenge a patent's validity at USPTO's board for, according to stakeholders, a fraction of the time and money that would be spent in the federal courts. The CBM program began in September 2012 and is slated to sunset in September 2020.

GAO was asked to examine the CBM program. This report (1) describes the extent to which the program has been used to challenge patents, and the results of those challenges; (2) examines the extent to which USPTO ensures timeliness of trial decisions, reviews decisions for consistency, and engages with stakeholders to improve proceedings for the program; and (3) discusses stakeholder views on the effects of the program and whether it should be extended past its sunset date. GAO analyzed CBM trial data from September 2012 through September 2017, reviewed USPTO documents, and interviewed 38 stakeholders, such as legal and academic commentators, selected for their knowledge of or direct involvement in such trials.

From September 2012 through September 2017, entities facing patent infringement lawsuits filed 524 petitions challenging the validity of 359 patents under the U.S. Patent and Trademark Office's (USPTO) covered business method (CBM) program, resulting in decisions against about one-third of these patents. The CBM program provides entities facing infringement lawsuits an opportunity to challenge the validity of a business method patent by demonstrating that it did not meet requirements for patentability. Business method patents focus on ways of doing business in areas such as banking or e-commerce. The rate of filing petitions over this period has fluctuated but has generally declined since 2015, and none were filed in August or September 2017.

USPTO has taken several steps to ensure the timeliness of trial decisions, review past decisions, and engage with stakeholders to improve proceedings under the program:

Timeliness: USPTO regularly informs relevant parties about paperwork requirements and due dates throughout trials. According to program data, as of September 2017, all 181 completed trials were completed within statutorily required time frames.

Decision review: USPTO has taken several steps to review its decisions and has monitored the rate at which the Court of Appeals for the Federal Circuit affirms or reverses them. However, USPTO does not have guidance, such as documented procedures, for reviewing trial decisions, or the processes leading to decisions, for consistency. Without guidance, such as documented procedures, USPTO cannot fully ensure that it is meeting its objective of ensuring consistency of decisions.

Stakeholder engagement: USPTO judges have engaged with stakeholders by participating in public roundtables and webinars, and attending judicial conferences, among other things.

Stakeholders GAO interviewed generally agreed that the CBM program has reduced lawsuits involving business method patents in the federal courts. While many stakeholders favored maintaining aspects of the program, there was not strong consensus among stakeholders for how future trials should be designed.

GAO recommends that USPTO develop guidance, such as documented procedures, for reviewing trial decisions for consistency. USPTO agreed with GAO's recommendation.

To promote the progress of science and useful arts, the Constitution  grants Congress the power to provide inventors with exclusive rights to  their inventions—in the form of patents—for a limited time. Congress has  done so by enacting statutes governing the issuance of patents, which  generally allow patent owners to exclude others from making, using,  selling, or importing the patented invention for up to 20 years from the  date on which the application for the patent was filed at the U.S. Patent  and Trademark Office (USPTO). By restricting competition, patents allow  their owners to earn greater profits on inventions than if the inventions  could be freely imitated. USPTO receives hundreds of thousands of  applications each year from inventors seeking patents. By law, before  granting a patent, USPTO must determine whether a patent application  meets patentability requirements for subject matter; novelty; non- obviousness; and clarity and specificity.

Business methods—which are ways of doing business in areas such as  e-commerce, insurance, banking, or stock trading—were generally  thought to be unpatentable until a 1998 court ruling (State Street Bank).  USPTO officials told us they saw a swift increase in the number of  applications for business method patents after that ruling. In part because  USPTO examiners were less trained in business methods, examiners  issued some patents for business methods that did not meet the clarity  and specificity requirements because they were insufficiently detailed to  enable someone to make and use the inventions. Examiners also issued  some patents for technologies that were well known to people in the field,  rather than for novel inventions. For example, the technologies for  imaging, storage, and transmittal of financial data were in widespread use  before two patents for these technologies were issued in June 1999 and  February 2000 following the State Street Bank ruling. The owner of these  two patents, DataTreasury, sued some of the nation’s largest banks for  patent infringement. Many banks settled the lawsuits for undisclosed  amounts and paid licensing fees to keep using these technologies rather  than engage in what might have been a costly court battle. In one case, a  federal judge ordered a bank to pay DataTreasury more than $53 million  for willful infringement. In April 2015, one of the DataTreasury patents  was ultimately ruled unpatentable by USPTO; the second was ruled  unpatentable in September of that year. Those invalidity rulings were  affirmed by the U.S. Court of Appeals for the Federal Circuit in October  2016.

In the late 2000s, legal commentators, technology companies, and others  began raising questions about whether the patent system was working  well to promote innovation. In particular, questions were raised about an  increase in the number of low-quality patents—those that should not have  been granted because they do not meet the patentability requirements.  Questions were also raised about the increase in patent infringement  litigation, especially in the software and technology sectors. A common  theme of such questions was whether this type of patent litigation was  driven by patent owners asserting low-quality software and business  method patents solely to force costly monetary settlements, which could  pull resources away from research and development and other activities  more closely aligned with innovation. In June 2016, we reported that the  majority of defendants in patent infringement lawsuits between 2009 and  2015 were accused of infringing software and business method patents.  That report recommended USPTO take a number of steps aimed at  improving patent quality, especially relative to software and business  method patents. USPTO agreed with our recommendations and is  working to address them.

In 2011, Congress passed the Leahy-Smith America Invents Act (AIA),  which authorized three administrative proceedings for challenging an  issued patent’s validity, including the Transitional Program for Covered  Business Method Patents (CBM program). A “covered” business  method patent is a patent that claims a method or corresponding  apparatus for performing data processing or other operations used in the  practice, administration, or management of a financial product or service.  All three of the new administrative proceedings took effect in September  2012, allowing entities facing patent infringement lawsuits an opportunity  to demonstrate that the patents should not have been granted because  they did not meet the requirements for patentability. The proceedings are  held before administrative patent judges at USPTO’s Patent Trial and  Appeal Board and, as reported by the House of Representatives  Committee on the Judiciary, were intended to provide a more efficient and  less costly alternative to district court for deciding patent validity. The  CBM program is slated to sunset in September 2020.

You asked us to examine the CBM program. This report (1) describes the  extent to which the CBM program has been used to challenge patents,  and the results of those challenges; (2) examines the extent to which  USPTO ensures timeliness of trial decisions, reviews decisions for  consistency, and engages with stakeholders to improve its administrative  proceedings for the program; and (3) discusses stakeholder views on the  effects of the CBM program and whether it should be extended past its  scheduled September 2020 sunset date.

To describe the extent to which the CBM program has been used to  challenge patents, and the results of those challenges, we obtained data  on board proceedings from RPX Corporation and Unified Patents. These  data included information on all proceedings from September 2012  through September 2017. We tested the quality of the data, interviewed  relevant officials, and reviewed relevant documentation for the data. We  found the data to be sufficiently reliable to describe board petitions and  their outcomes. To provide context for our findings, we compared the data  for the CBM program with data for inter partes review, another type of  administrative proceeding for challenging patent validity.

To examine the extent to which USPTO ensures timeliness of trial  decisions, reviews decisions for consistency, and engages with  stakeholders to improve its administrative proceedings for the program,  we reviewed the AIA and USPTO documents and interviewed USPTO  officials and stakeholders. We assessed USPTO’s efforts to review  decisions for consistency against federal standards for internal control  and USPTO’s current strategic plan.

To obtain stakeholder views on the effects of the CBM program and  whether it should be extended, we conducted semistructured interviews  with 38 stakeholders knowledgeable about the CBM program. To identify  these stakeholders, we first identified the following sets of stakeholder  groups: board petitioners and patent owners, attorneys in board  proceedings, technology trade groups, public interest groups, legal and  academic commentators, and venture capitalists. We then selected  knowledgeable stakeholders based on a set of criteria we developed for  each group. For example, we selected petitioners who challenged  multiple patent owners using the CBM program, petitioners who had used  other review programs heard by the board, and petitioners from a range  of industries such as banks, other financial institutions, and technology  companies. We selected patent owners who had experience defending  more than one patent using the CBM program or who had defended a  patent in more than one challenge, and patent owners of different types:  individual inventors, operating companies, and non-practicing entities.  The selected stakeholders did not form a random, statistically  representative sample of all relevant stakeholders, so we cannot  generalize the results of the interviews to the relevant total population, but  the stakeholders did provide a broad spectrum of opinions on the CBM  program. We identified key themes and sub-themes from the stakeholder  interviews by using qualitative analysis software to group the responses.  We then analyzed and categorized the themes to draw inferences about  the CBM program by examining the amount and nature of agreement and  disagreement between stakeholder responses and by assessing the  strength of the arguments supporting each response. We also considered  the way in which stakeholders’ interests could influence their responses.  In addition, we analyzed data from RPX Corporation on patent  infringement lawsuits filed in all 94 federal district courts from January  2007 through June 2017. To assess the reliability of these data, we  electronically and manually tested these data for reasonableness and  interviewed knowledgeable officials, and we found these data to be  sufficiently reliable to allow us to identify trends in patent litigation over a  period from 5 years before the Patent Trial and Appeal Board  proceedings began to 5 years after their implementation. Appendix I  provides more detail on our scope and methodology.

We conducted this performance audit from November 2016 to February  2018 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient and appropriate evidence to provide a reasonable basis  for our findings and conclusions based on our audit objectives. We  believe that the evidence obtained provides a reasonable basis for our  findings and conclusions based on our audit objectives.

This section provides an overview of patenting in the United States,  patent infringement litigation, and administrative proceedings for patent  validity challenges. It also includes a brief history of court decisions that  clarified eligibility requirements for the Patent Trial and Appeal Board’s  CBM program. See “Related GAO Products” at the end of this report for a  list of our prior work related to patents and intellectual property.

In the United States, patents may be granted by USPTO for any new and  useful process or machine, or any new and useful improvement on an  existing process or machine, but there are some exceptions. Laws of  nature, physical phenomena, and abstract ideas are not patentable.  The U.S. Supreme Court and the U.S. Court of Appeals for the Federal  Circuit have refined the boundaries of these exceptions over time,  allowing some subject matter that was previously not patentable to  become so. For example, U.S. Supreme Court decisions in the 1970s  found mathematical formulas used by computers (i.e., software) were like  laws of nature and therefore not patentable subject matter. However, a  1981 Supreme Court decision overturned USPTO’s denial of a patent  application for a mathematical formula and a programmed digital  computer because, as a process, the claimed invention was patentable  subject matter. Similarly, business methods were widely considered  unpatentable subject matter until 1998, when the U.S. Court of Appeals  for the Federal Circuit ruled in the State Street Bank decision that they  were patentable. In 2014, however, the Supreme Court effectively  limited the patentability of some business methods by ruling in Alice Corp.

Pty. Ltd. v. CLS Bank Int’l that using a generic computer to implement an  abstract idea is not patentable.

Traditionally, economic theory has held that intellectual property rights,  such as those conferred by patents, can help encourage innovation and  stimulate economic growth. Exclusive rights provided by patents, for  example, can help patent owners recoup investments in technology and  earn greater profits than if their patented technologies could be freely  imitated. Moreover, to the extent that intellectual property rights  encourage specialization, innovators may be more productive than they  would be in the absence of patent laws. Because of complex trade-offs,  however, some economists hold a more nuanced view of the potential for  patents to promote innovation and increase productivity. By increasing  the cost of using technologies, for example, patents may discourage not  only diffusion of these technologies but also cumulative innovation that  uses such technologies to develop new technologies. In addition,  attempts to quantify the effect of patents on economic growth often fail to  account for the creation of useful knowledge outside the patent system.  Furthermore, to the extent that innovation occurs in the absence of patent  laws, the need for patents can vary across industries or over time. Some  researchers have suggested that some patents are currently limiting  innovation, especially in areas such as software and computer  technologies that overlap with business methods.

USPTO receives hundreds of thousands of applications each year from  inventors seeking patents to protect their work. According to USPTO  data, applications for patents have increased in recent years, and the  share of patents granted for business methods has significantly increased  over the past 2 decades (see fig. 1). In calendar year 2014, patents  related to business methods accounted for more than 28 percent of all  issued patents.

A patent’s claims define the legal boundaries of the invention, often in  complex technical language. A patent application can be written to define  an invention broadly or narrowly. Patent applicants often prefer broader  claims because their competitors are less able to avoid infringement by  making only small changes to their patented invention, as we reported in  June 2016.

Before issuing a patent, USPTO patent examiners determine whether  claimed inventions in the application meet requirements for patentable  subject matter, novelty, non-obviousness, and clarity—the four  patentability grounds that are established by statute. Patent examiners  assess whether the claimed invention consists of patentable subject  matter and also ensure that the claims are described clearly enough to  enable a person skilled in the art to make the claimed invention. In  addition, examiners determine whether a patent application’s claimed  invention is novel and non-obvious by comparing the application’s content  to “prior art”— existing patents and patent applications both in the United  States and abroad, as well as non-patent literature such as scientific  articles.

In February 2015, USPTO launched an Enhanced Patent Quality  Initiative, which included several proposals designed to improve the  quality of patent examination and issued patents. However, we found in  June 2016 that USPTO faced challenges in issuing patents in accordance  with standards. For example, we found that a majority of examiners (67  percent) said they have somewhat or much less time than needed to  complete an examination, given a typical workload, and many examiners  felt a time pressure that reduced their ability to conduct thorough  searches. Examiners also said that it was difficult to issue patents that  met the statutory requirements because of the limited availability of and  access to non-patent prior art such as offers for sale and public use.  Examiners said another limitation is their being responsible for  examinations in subject areas in which they do not have adequate  technical knowledge. We made seven recommendations to USPTO  aimed at improving patent quality, clarity, and prior art search. USPTO  agreed with the recommendations and is working to address them.

Patent owners can bring infringement lawsuits against anyone who uses,  makes, sells, offers to sell, or imports the patented invention without  authorization. Only a small percentage of patents in force are ever  litigated, but some scholars believe that low-quality patents can make  such litigation not only more complex and expensive but also more  frequent. During an infringement case, the accused infringer may seek to  have the lawsuit dismissed by showing the patent is invalid. When the  courts rule on validity, they generally invalidate almost half of the patents,  according to academic research.

Exactly what a patent covers and whether another product infringes the  patent’s claims are rarely easy questions to resolve in litigation, and  defending a patent infringement lawsuit in district court can take years  and cost millions of dollars, not including damages if infringement is  found. Whatever the outcome, costly litigation can leave defendants  with fewer resources for innovation. Consequently, patent infringement  defendants often find it in their best interest to settle lawsuits quickly, as  we reported in August 2013.

Administrative Proceedings for Challenging Patent Validity before the Patent Trial and Appeal Board

The AIA in 2011 created the Patent Trial and Appeal Board and stated  any references in federal law to USPTO’s then-existing Board of Patent  Appeals and Interferences be deemed to refer to the new board. By  statute, the Patent Trial and Appeal Board consists of the USPTO  Director, Deputy Director, Commissioner for Patents, Commissioner for  Trademarks, and administrative patent judges. In practice, to issue  decisions in the matters that come before it, the board involves more than  300 people serving in many positions, according to the board. The board  is led by the Chief Judge and Deputy Chief Judge, who, along with other  members of senior management, meet regularly to discuss operational  and procedural matters of importance to the board’s overall mission,  according to the board.

The AIA created three new administrative proceedings for the board to  administer, each with different statutory rules (see table 1). Two  proceedings were made permanent:

Post-grant review provides a 9-month opportunity following the  issuance of a patent during which a third party can file a petition to  challenge a patent’s validity on any of the four statutory grounds:  subject matter eligibility, novelty, non-obviousness, and clarity.

Inter partes review is available to third parties for the life of the patent,  but on a limited set of grounds (non-novelty or obviousness), and on a  limited set of acceptable prior art (previously issued patents and  printed publications).

The third proceeding—the CBM program—was included in the act as a  temporary proceeding that can be used to challenge a patent at any point  in its life, as allowable under the inter partes review program. However,  under the CBM program, only a party (e.g., a company or an individual)  that is sued or charged in an infringement suit can petition. Such  petitioners can challenge a patent’s validity on any of the four statutory  grounds without the limits on prior art in inter partes review. Additionally,  rules about which arguments parties are officially barred from being  raised again in later legal actions (called estoppel provisions) are less  restrictive under the CBM program than for the other two board  proceedings. However, the body of patents that qualify for review under  the CBM program is limited to those that claim a non-technological  method involved in the practice, administration, or management of a  financial service or product. A patent is “technological” if it claims a  technological feature that solves a technical problem using a technical  solution. Many software and business method patents issued in the  wake of State Street Bank describe implementing an abstract idea on a  generic computer. Since the Supreme Court’s 2014 decision in Alice,  which closely aligns with the CBM program’s “non-technological”  designation, these types of ideas are no longer thought to be patentable.

Inter partes review is the most-used of the proceedings created by the  AIA and the one stakeholders we interviewed were most familiar with  when they discussed the Patent Trial and Appeal Board. The other  proceedings have been used less frequently, likely because of the short  window for filing a challenge, in the case of post-grant review, and  because of additional restrictions on what patents may be challenged, in  the case of CBM.

Under statute and regulation, the full review process at the Patent Trial  and Appeal Board for any of the three proceedings generally takes up to  18 months and comprises two phases: (1) the petition phase, which lasts  up to 6 months, and (2) the trial phase, which generally lasts up to 12  months. During the petition phase, the petitioner—typically a party  accused of patent infringement, in the CBM program— files a petition  challenging the validity of one or more of the patent’s claims and pays  fees for each challenged claim. In some cases, a petitioner will file more  than one petition challenging a patent. This might occur when a petitioner  is constrained by the maximum number of pages allowed in a petition.  Multiple petitions can also be filed against a single patent if the patent  owner has sued more than one party for infringement, and each files a  separate petition challenging the patent’s validity. Petitioners might also  file a petition under more than one proceeding, either concurrently or  sequentially.

When a petition is received and the fees paid, administrative personnel of  the board, under direction of the Chief Judge, assign three technically  trained administrative patent judges to the case. According to agency  documents, these three-judge panels are put together taking into account  many factors, including technical experience, experience at the board,  potential conflicts of interest, and availability. The patent owner may then,  within 3 months of the petition date, file a preliminary response to the  petitioner’s arguments. Within 3 months of submission of any preliminary  response, or the last date on which such response may be filed, the panel  of judges determines whether to allow the petition to move to the trial  phase for review. This determination is called the “institution decision.”  According to statute and regulations, in the case of the CBM program and  post-grant review, a panel of judges may not institute a review unless the  information presented in the petition, if not rebutted, would demonstrate  that it is “more likely than not” that at least one of the claims challenged in  the petition is unpatentable, or in the case of inter partes review, if the  petitioner has a “reasonable likelihood” of prevailing.

The first step in the trial phase is discovery (a step that exists in all federal  civil litigation), during which the parties produce documents or testimony  relevant to the challenged claims. Each party has 3 months to file  discovery documents for the panel of judges’ review. If a petitioner and  patent owner do not settle a case or it does not otherwise terminate, the  case will proceed to the oral hearing. The hearing is an opportunity for the  parties to make their strongest arguments and to answer judges’  questions, according to a board official, and after the hearing, the panel of  judges will deliberate over the course of a few weeks or months and then  issue its final written decision. The final written decision must be issued  within 1 year of the institution decision, with limited exceptions. The  patent owner may, for example, cancel one or more claims in the patent  in an attempt to avoid institution of the trial.

Figure 2, shows the progression of a case from the petitioner’s filing  to the panel of judges issuing a final written decision.

Under its Standard Operating Procedures, every Patent Trial and Appeal  Board decision is, by default, a routine opinion until it is designated as  “representative,” “informative,” or “precedential.”

Representative decisions typically provide a representative sample of outcomes on a particular matter; they are not binding authority.

Informative decisions provide norms on recurring issues, guidance on issues of first impression, and guidance on the board’s rules and practices; they are not binding authority.

Precedential decisions are binding authority and emphasize decisions that resolve conflicts or address novel questions.

Nominations for these designations can be made by a Patent Trial and  Appeal Board judge, the Chief Judge, the Director of USPTO, the Deputy  Director of USPTO, the Commissioner for Patents, or the Commissioner  for Trademarks. Also, a member of the public may nominate a decision  for a precedential designation within 60 days of its issuance. The Chief  Judge can designate a nominated decision as representative or  informative, but under Standard Operating Procedures, a precedential  designation requires a majority agreement among all voting members of  the board, including administrative patent judges and statutory members,  as well as concurrence by the Director of the USPTO.

Court Decisions on Eligibility for Review under the CBM Program

Petitioners and patent owners may appeal the final written decisions of  the Patent Trial and Appeal Board to the U.S. Court of Appeals for the  Federal Circuit, just as unsatisfied plaintiffs or defendants may appeal a  federal district court decision, and decisions may ultimately be appealed  to the U.S. Supreme Court. The following decisions have significantly  influenced the eligibility rules for CBM review, for different reasons:  In Cuozzo Speed Technologies, LLC v. Lee (June 2016), the U.S. Supreme Court affirmed the board’s use of the “broadest reasonable construction” standard—meaning the ordinary meaning that someone skilled in the art would reach—to define the language of the claims during post-grant review as a reasonable exercise of the board’s rulemaking authority. Defining claim language using the broadest reasonable interpretation meant that the number of business method patents that could be determined as financial in nature is larger than it would otherwise be, so more patents are potentially eligible for review under the CBM program.

In Unwired Planet, LLC v. Google Inc. (November 2016), the U.S. Court of Appeals for the Federal Circuit ruled that the USPTO’s policy of assessing whether a claim’s activities were “incidental” or “complementary” to a financial activity was too broad a standard to apply when determining whether a patent claim was eligible for a CBM review. The court stated that, to be CBM-eligible, a patent must claim a method used in the practice, administration, or management of a financial product or service. Applying this narrower standard effectively reduced the number of patents accepted for review under the CBM program.

In Secure Axcess, LLC v. PNC Bank Nat’l Assoc. (February 2017), the U.S. Court of Appeals for the Federal Circuit clarified that a CBM patent must specifically have a claim that contains an element of financial activity in order for a patent to qualify for review under the CBM program. Like the Unwired Planet decision, the narrower standard expressed by the court has led to fewer patents being  eligible for review under the CBM program.

More Than 350 Patents Have Been Challenged under the CBM Program, and About One-Third of These Patents Were Ruled Unpatentable

From September 2012 through September 2017, parties accused of  patent infringement filed 524 petitions challenging the validity of 359  distinct patents under the CBM program, resulting in rulings against about  one-third of these patents. The average monthly number of CBM petitions  fluctuated during this period, but use of the program has declined since  about 2015. Some stakeholders have expressed concern about multiple  petitions being filed against the same patent, but our analysis of petition  data showed that the vast majority of patents challenged under the CBM  program were challenged once or twice. Overall, through September  2017, the Patent Trial and Appeal Board completed reviews of 329 of the  359 patents challenged under the program, and the board ruled at least  some challenged patent claims unpatentable in about one-third of these  patents.

Petitioners Have Challenged the Validity of 359 Patents under the CBM Program, but Use of the Program Has Declined Overall

Parties accused of patent infringement filed 524 petitions for patent  review under the CBM program from September 2012 through September  2017, with the number of petitions per month fluctuating but tapering off  over time (see fig. 3). During this 5-year period, an average of more than  9 petitions per month were filed under the CBM program, but this average  rate has declined since 2015 to fewer than 5 per month in the last fiscal  year, with no petitions filed in August or September 2017. As a point of  comparison, the number of petitions for inter partes review has generally  increased over the 5-year period.

Stakeholders we interviewed suggested several possible reasons for the  decline in CBM petitions. Specifically, some stakeholders told us that  recent Federal Circuit and Supreme Court decisions that have changed  what is patentable subject matter and the eligibility criteria for CBM review  may have reduced the set of business method patents eligible for CBM  review. Some stakeholders also suggested CBM petitioners  successfully targeted the lowest-quality business method patents in the  early years of the program, and now that those patents have been  challenged, there are fewer patents that do not meet patentability  requirements. Another possibility, according to stakeholders, is that  owners of business method patents are wary of asserting their intellectual  property and risking its invalidation, especially in light of the Alice  decision, which effectively limited the patentability of some business  methods. As a result, according to these stakeholders, fewer such  patents end up in litigation and subsequently before the Patent Trial and  Appeal Board. Some stakeholders also told us the CBM program has  reduced patent infringement lawsuits, including some filed by non- practicing entities. In addition, a few stakeholders told us some patent  owners may be waiting until after the CBM program sunsets to assert  their patents.

Patents Are Infrequently Challenged More Than Once or Twice

Some stakeholders we interviewed were concerned about multiple  petitions being filed against the same patents; however, our analysis  showed that the vast majority of the 359 distinct patents challenged under  the CBM program were challenged only once or twice under that  program. Stakeholders have suggested that petitioners are, in some  cases, using the CBM program and the inter partes review program as  tools to increase costs borne by patent owners, and in the case of the  CBM program, as a tool to delay district court proceedings. Some  stakeholders have stated that the use of the AIA trials in this manner  amounts to harassment, and at least one stakeholder has written letters  to USPTO requesting the Director to intervene.

However, our analysis of petition data showed that among the 359  patents challenged under the CBM program, 73.3 percent were  challenged once and 18.4 percent were challenged twice during the 5- year period we reviewed. Another thirty patents, or 8.4 percent, were  challenged more than twice under the CBM program during this period  (see fig. 4). Of these 30 patents, in many cases multiple parties  challenged a single patent; in others, a single petitioner or set of  petitioners challenged a patent multiple times.

In addition, of the 359 patents challenged under the CBM program during  the 5-year period we reviewed, 92 were also challenged at least once in  inter partes review. In some instances, petitioners filed concurrent  petitions for CBM and inter partes review if, for example, they were  unsure if the claims were eligible for a CBM review. In other instances,  petitioners first sought CBM review and, when that was unsuccessful,  filed an inter partes review. In these cases, petitioners may initially be  seeking CBM review because of the additional grounds available for  challenging the patents, and then turning to the inter partes review  program if the CBM challenge proves unsuccessful. In other instances,  petitioners first had success under the inter partes review program and  then filed another petition under the CBM or inter partes review programs,  according to our analysis of petition data.

When including patent challenges under both the CBM and inter partes  review programs, 52.1 percent of the 359 patents challenged under the  CBM program were challenged once and 29.3 percent were challenged  twice (see fig. 4). More than half of the patents challenged under both  programs (50 of 92 patents) did not have any challenged patent claims  instituted for trial under the CBM program, meaning that those patents, in  many cases, did not meet the CBM program’s eligibility requirements and  may have been more appropriately challenged with an inter partes  review.

There are several other reasons why petitioners may file more than one  petition against a single patent, according to stakeholders we interviewed.  First, the board limits the number of pages that a petitioner may use to  submit prior art and arguments for invalidity. Some petitioners might file  more than one petition so they have room to present all of their art and  arguments at once. Data we analyzed on CBM petitions show that many  follow-on petitions are filed on or near the same day as the first petition,  supporting this argument. Second, in some cases the patent owner may  not identify all the asserted patent claims in the district court right away or  may change the set of asserted claims later in the proceedings,  necessitating an additional CBM or inter partes review petition to cover  the new claims. Third, in order to get the expensive district court  proceedings stayed—that is, halted pending the board’s decision on the  patent’s validity—a petitioner may file a CBM petition on patentability or  clarity grounds soon after the district court trial commences, because  these arguments require limited time to formulate. Later, once the  petitioner takes the time to investigate the prior art, the petitioner might  file a second petition challenging the patent for non-novelty or  obviousness. In our analysis of petition data, we found some examples  that were consistent with this approach. Fourth, if a patent owner charges  multiple entities with patent infringement, each of the alleged infringers  has an individual right to file a petition challenging the patent’s validity.  The defendants in the infringement suits who become petitioners at the  board may collaborate with one another and join their cases, but they  may also choose to file petitions individually. In our analysis of petition  data, we found examples of both. Petitioners might choose to join their  cases in order to share the cost of counsel, while others may choose not  to join their cases, perhaps because they use substantially different art  and arguments in their petitions.

Our analysis of the petition data found some examples of multiple  petitions against a single patent that may raise questions about the  legitimacy of the follow-on petitions. In some instances, a second, follow- on petition challenging the patent’s validity on the same statutory grounds  as it did in the first petition was filed by the same petitioner after the first  petition was denied institution. This type of multiple petitioning may occur  when, for instance, a procedural termination resulted from a technical  error in the first petition. Board officials said it may also occur because a  petitioner is using the first denial of institution to alter the arguments and  guide the second petition, a strategy that the board has labeled “road- mapping.” In other instances, a single petitioner filed a second, follow-on  petition challenging the patent on different statutory grounds after the first  petition was denied institution. These follow-on petitions may be  legitimate attempts to correct simple errors in the first petitions, or they  may reflect practices that might raise questions about whether the  program is being used as intended.

Patent Trial and Appeal Board officials are aware of concerns over  multiple petitions and recently concluded a study about the prevalence of  such practices in relation to all three types of proceedings created by the  AIA. The board found that almost two-thirds (63.4 percent) of follow-on  petitions were filed on or near the same day as the first petition. Nearly  three in four (72.4 percent) follow-on petitions were filed before the  institution decision on the first petition. These findings suggest that most  petitioners are not waiting to use the board’s decision of non-institution as  a guide for developing a second petition. Moreover, the board officials we  interviewed told us they are empowered to deny a petition if they  determine the petition presents the same or substantially the same prior  art or arguments previously presented in another petition. Board officials  told us they had denied several recent petitions on this basis. In addition,  in a recent precedential opinion, the board clarified the characteristics it  looks for to determine whether it should deny an inter partes review when  a petitioner submits a follow-on petition. These characteristics include  whether the petitioner previously filed a petition against the same patent  claims; whether the petitioner provides adequate explanation for the time  elapsed between filing two or more petitions against the same patent  claims; and whether the petitioner knew, or should have known, about the  prior art presented in the second petition at the time of the first petition.

Claims Have Been Ruled Unpatentable in More Than One-Third of Patents Challenged under the CBM Program

The Patent Trial and Appeal Board has ruled unpatentable some or all of  the patent claims instituted for trial in about one-third of challenged  patents and about one-third of petitions under the CBM program. Data on  petition outcomes, however, are open to different interpretations  depending on how they are presented. For example, board judges ruled  some or all of the patent claims considered at trial unpatentable in 96.7  percent of petitions (175 of 181) under the CBM program for which they  issued a final written decision from September 2012 through September  2017. On the basis of this statistic, the board could seem to invalidate  the majority of the patents it reviews, as noted by some stakeholders.  However, this outcome is predictable given the criteria for institution of a  CBM trial—a judge panel will institute a petition to the trial phase if it is  “more likely than not” that at least one of the claims challenged in a  petition is unpatentable—which tips outcomes for instituted petitions  toward rulings of unpatentability. In addition, board judges did not issue  final written decisions for all petitions that enter the trial phase because  the parties often reach a settlement before the final written decision.  When taking into account all of the CBM petitions that had an outcome as  of Sept 30, 2017, board judges ruled some or all of the claims considered  at trial unpatentable in 35.6 percent of the cases (175 of 492).

The results are similar when considered by patent rather than by petition.  Specifically, for patents challenged between September 2012 and  September 2017 and for which a final written decision was issued in at  least one petition, 95.2 percent of patents (120 of 126) had some or all  the patent claims that were instituted for trial ruled unpatentable.  However, because not all challenged patent claims are instituted for trial  and because final written decisions are not issued for all petitions that  enter the trial phase, it is also accurate to say the board judges ruled  some or all of the patent claims unpatentable for 36.5 percent of  challenged patents (120 of the 329) that had an outcome as of  September 30, 2017 (see fig. 5).

Changes in petition outcomes over time also challenge the idea that the  board invalidates most patents it reviews. In particular, the percentage of  CBM petitions instituted for trial has decreased over time (see fig. 6). In  2012, about 80.0 percent of CBM petitions had some or all challenged  claims instituted. In comparison, in 2016 about 53.5 percent of CBM  petitions had some or all claims instituted. Preliminary data for 2017  suggests that this trend might continue: through September 2017, about  38.5 percent of CBM petitions had some or all claims instituted. Similar to  the decline in number of petitions filed, this trend might have a few  explanations, according to stakeholders. Specifically, board panels might  be less likely to institute a petition for trial based on conclusions of the  U.S. Court of Appeals for the Federal Circuit in Unwired Planet and  Secure Axcess. Another possibility is that the patents in earlier cases  represented the easiest targets for validity challenges, and thus the more  recent challenges are based on shakier legal grounds and less likely to  meet the CBM program’s institution threshold.

In addition to declining institution rates, there has been an increase in the  percentage of CBM petitions that settle before reaching an outcome.  Specifically, the percentage of cases where the parties settled their  dispute either before or after the institution decision increased from about  6.7 percent in 2012 to about 28.9 percent in 2016. When a case before  the board is settled, it generally concludes any concurrent district court  infringement case. The patent owner’s intellectual property remains in  place, and the patent owner is free to assert the patent against other  alleged infringers later.

The Board Met Timeliness Requirements and Has Taken Steps to Analyze Decisions and Improve Proceedings but Does Not Have Guidance to Ensure Decision Consistency

The Patent Trial and Appeal Board has completed all trials under AIA- authorized proceedings within statutorily directed time frames, according  to board data, and the board has taken steps to review issues that could  affect the consistency of its trial proceedings and decisions and to engage  with stakeholders to improve its proceedings. To ensure timeliness of trial  proceedings, the board provided a checklist of information and time  frames to petitioners and patent owners, among other things. According  to board documents and interviews with officials, the board has also taken  steps to review and assess its trial proceedings and decisions, but it does  not have guidance for reviewing trial decisions, or the processes that lead  to the decisions, for consistency. The board has also taken several steps  to engage with stakeholders regarding various aspects of trial  proceedings.

Patent Trial and Appeal Board Data Indicate Trials Have Been Completed within Statutorily Directed Time Frames

According to data on Patent Trial and Appeal Board proceedings, as of  September 31, 2017, all trials under AIA-authorized proceedings,  including the CBM program, have been completed within statutorily  directed time frames. The board maintains a database of trial proceedings  that includes the date of each petition, decision to institute a trial, and final  written decision. Board officials we interviewed told us the timeliness of  decisions to institute a trial and of final written decisions has not been a  concern in the 5 years that it has operated. According to board officials,  as of November 2017, two AIA trials—one under the inter partes review  program and one under the CBM program—have been extended for good  cause past the typical 1-year time limit between the institution decision  and the final written decision, as allowed by statute.

Board officials told us they have taken several steps to ensure that trials  are completed within required time frames. According to board  documentation, between 2012 and 2017, for example, the board hired  more than 150 additional administrative patent judges, in part to preside  over AIA trials. In addition, the board has taken several proactive  administrative steps to help ensure that stakeholders are aware of  requirements for information filing and dates. For example, when a  petition is filed, the board’s administrative staff creates a checklist of  information required and due dates, and communicates these dates and  requirements to petitioners and patent owners throughout the trial.

Some stakeholders have expressed concern that AIA trial time frames are  too short and deprive patent owners and petitioners of due process rights.  One patent attorney that we spoke with, for example, noted that the short  time frames limit discovery. As directed by the AIA, a final determination  for a review generally must be issued not later than 1 year after the date a  review has been instituted, and the director may extend that period by up  to 6 months for good cause. Board officials we interviewed stated that  they do not believe parties are having trouble completing discovery  activities in the time allotted in view of the limited discovery allowed at the  board. Board officials further stated that they have not found compelling  reasons to extend trial proceedings on the basis of the need for additional  discovery. As reflected in USPTO’s strategic plan, timeliness of the  board’s trial process is a key program goal, and board officials said trials  would be extended only in unusual circumstances. In addition, board  officials stated that the board adheres to the 12-month timeline for final  written decisions because this timeline gives the district courts a definitive  and predictable endpoint for the trials.

The Board Has Taken Several Steps to Review Issues That Affect Trial Proceedings, but It Does Not Have Guidance to Ensure the Consistency of Its Decisions

The Patent Trial and Appeal Board has decision review processes that  help ensure trial decisions are revisited as appropriate, but the board  cannot ensure the consistency of these decisions because it does not  have guidance for reviewing them or the processes that lead to them. For  trials still in progress, board officials told us that there are several ways  that management gets involved in reviews. According to officials, a review  of an ongoing trial is triggered if and when a paneled judge raises any  issue deserving of management attention. Such issues are brought to the  attention of the Chief Judge or other members of the board’s  management team and are acted upon at their discretion. According to  board officials, the usual response is a management meeting with the  three-judge panel, with the goal of ensuring the judges are aware of any  precedent or ongoing trials dealing with similar issues. The officials said  these review meetings are also meant to ensure that board management  is aware of any decisions that may be relevant to the stakeholder  community or the public. According to board officials, issues that may  prompt action include those that are not routine in nature, that involve  novel questions of law, or that may result in decisions that could  contradict previous board decisions. Board officials called these review  meetings the first step for keeping track of key issues. Board officials told  us these reviews raise a fair number of issues, but the process relies on  self-reporting by the judges, and board officials told us the effectiveness  of these reviews is not measured.

Board officials also told us that a separate internal review process has  evolved over time, whereby a small group of board judges, in consultation  with board management, seeks to ensure decision quality and  consistency by reading a large number of draft AIA trial decisions and  giving feedback or suggestions to authoring judges prior to issuance. The  board is currently drafting a formal charter that will outline the group’s  function, reviewer selection, and membership term. According to board  officials, these reviews are meant to help ensure consistency with  applicable board rules, other board decisions, and Federal Circuit and  Supreme Court case law. In addition, such reviews may result in coaching  and training to increase an individual judge’s quality of performance.

Regarding completed trials, board officials told us they review any board  AIA trial decisions that are appealed to the U.S. Court of Appeals for the  Federal Circuit and that the appeals court reverses or remands.  Specifically, the board monitors Federal Circuit decisions and board  management then reviews any reversals or remands for opportunities to  improve processes and stay abreast of emerging issues. According to  board officials, for any reversal or remand, board management and  members of the three-judge panel that decided the case meet to discuss  what steps could have been taken to avoid the Federal Circuit reversal or  remand, and what else can be learned from the Federal Circuit decision.  In some instances, according to officials, the board will host a session  where all board judges are invited to review and discuss the trial court  decision and the decision of the Federal Circuit. In addition, board officials  told us they track data on Federal Circuit affirmances, remands, and  reversals. The board has recently updated its Standard Operating  Procedure to provide guidance on how it handles cases remanded by the  Federal Circuit. This procedure creates internal norms to promote  timeliness and consistency of the board’s response to remands. The  procedure includes a goal for the board to issue decisions on remands  within 6 months of receipt and calls on the Chief Judge and the Deputy  Chief Judge to discuss each remanded case with the presiding three- judge panel before the panel expends substantial effort on the case. The  Chief Judge may also elect to expand the panel assigned to the  remanded case, when deemed prudent.

Furthermore, officials told us that all board decisions—including final  written decisions, decisions to institute a trial, and any substantive  orders—are reviewed by board judges on the date of issuance.  Specifically, a rotating group of judges, on a voluntary basis, reads and  analyzes each day’s decisions and, according to board officials, sends a  summary list of the number of decisions made that day along with a brief  decision summary for any cases where key issues of interest were raised.  Board officials said that most decisions are straightforward and generally  not summarized in detail. For decisions highlighted in the summary  report, according to officials, a lead judge, in most cases, will then review  the decision more closely. Example summary lists provided to us by the  board show brief summaries of a trial involving interpretations of prior art  admissibility and a trial dealing with an interpretation of a challenge based  on clarity.

Finally, board officials told us that the board has begun to increase the  number of trial decisions considered for precedential and informative  designations as part of its efforts to ensure the consistency of trial  decisions. Board officials also told us that increasing the number of these  designations had not been a priority while the AIA trial procedures and  processes were being operationalized and as the board was hiring more  than 150 administrative patent judges over the past 5 years. However,  officials said that they are now taking steps to simplify the vetting and  voting process, and the board expects more precedential and informative  designations going forward.

Taken together, the board’s review processes help ensure that board trial  decisions are reviewed in some manner. However, because the board  does not have documented procedures for how to review decisions for  consistency, the board cannot fully ensure the consistency of the  decisions or the processes that lead to them. USPTO’s 2014-2018  strategic plan includes the goal to “optimize patent quality and timeliness,”  which includes an objective to “maintain  ability to provide  high-quality decisions.” As part of this objective, the plan states that it is  “critical for the  to ensure consistency in its decisions through  review of decisions in  proceedings.”

Under federal standards for internal control, management should design  control activities to achieve objectives and respond to risks. Such control  activities include clearly documenting internal control in a manner that  allows the documentation to be readily available for examination. The  documentation may appear in management directives, administrative  policies, or operating manuals. However, the board has not yet clearly  documented how judges are to review trial decisions, or the processes  that lead to the decisions, to ensure consistency. Without developing  guidance, such as documented procedures, outlining the steps USPTO  will take to review the Patent Trial and Appeal Board decisions and the  processes that lead to decisions, USPTO cannot ensure that it is fully  meeting the objective of ensuring consistency of its decisions.

The Patent Trial and Appeal Board Has Taken Several Steps to Engage Stakeholders and Address Stakeholder Concerns

The Patent Trial and Appeal Board has taken several steps to engage  stakeholders regarding trial proceedings and decisions and address  related concerns. USPTO’s strategic plan states that the board should  expand outreach to stakeholders by providing opportunities for interaction  and updates on board operations and other important issues. The board  has done so through several types of public outreach efforts, including  participating in roundtables, webinars, and judicial conferences, among  other activities. The board has made several changes to policies and  procedures based on stakeholder feedback gathered through these  mechanisms.

For example, after the Patent Trial and Appeal Board had been  operational for about 18 months, it conducted a series of eight  roundtables in April and May of 2014 at locations around the country to  publicly share information concerning trial proceedings, to obtain public  feedback on these proceedings, and to launch the process of revisiting its  trial rules and trial practice guide. At these roundtables, the board  provided the public with statistics summarizing the administrative trial  proceedings, as well as lessons learned for filing effective petitions,  engaging in successful discovery and amendment practice, and  effectively presenting a case at oral hearing, among other things. The  board also asked for and received feedback from the public on the AIA  administrative trial proceeding rules and trial practice guide, as well as on  experiences in general with the AIA administrative trial proceedings.  Subsequent to the 2014 roundtables, the USPTO sought public input on  all aspects of AIA trial proceedings through a June 27, 2014 Federal  Register notice, which included 17 specific questions regarding certain  trial rules, such as claim construction, the claim amendment process, and  good cause trial extensions. USPTO took a two-step approach in  responding to the 37 comments received in response to this Federal  Register notice. First, USPTO implemented several immediate changes  to board proceedings, including changes to page limits for some  documents. According to the annual report of USPTO’s Patent Public  Advisory Committee, these changes were favorably received by the  stakeholder community. Second, in April 2016, the board implemented  more substantive changes, including allowing testimonial evidence to be  submitted with a patent owner’s preliminary response to a petition and  changing from a page limit to a word count for major briefings, among  other things.

In addition to roundtables, the board has engaged with stakeholders  through several other mechanisms, including webinars and judicial  conferences. For example, in February 2015, the board announced its  inaugural “Boardside Chat” lunchtime webinar series, which has been  held bi-monthly ever since. These webinars are designed to update the  public on current board activities and statistics, and to allow a means for  the board to regularly receive public feedback about AIA trial proceedings  and any issues of concern. Topics discussed at these events include key  trial decisions, proposed changes to trial rules, and best practices for prior  art presentations in AIA trials, among other things. Since 2015, the board  has hosted an annual judicial conference, where the board engages with  stakeholders and educates them about AIA trial proceedings, answers  questions, and receives feedback. Board judges present trial statistics,  information about the internal functioning of the board, practice tips, and  engage in discussions on topics of current interest to stakeholders.  Topics have included motions to amend and the prevalence of multiple  petitions. More recently, the board has conducted other outreach  sessions, including: an August 2017 roundtable meeting with stakeholders from the  American Intellectual Property Law Association to address a broad  range of topics affecting practitioners before the board, including how  patent claims are interpreted, claim amendments, and conditions  under which multiple petitions from a single petitioner would be  denied; a webinar on August 31, 2017, addressing common evidentiary issues  that occur during AIA trial proceedings; and a webinar on September 12, 2017, with the Chief Judge to  commemorate the 5th anniversary of the board, where discussion  topics included the origins and mission of the board, recent board  developments, and operational procedures.

According to USPTO’s Patent Public Advisory Committee, this type of  outreach provides a valuable two-way conduit for constructive flow of  information to and from the board. In addition to these various outreach  efforts, stakeholders are encouraged to provide feedback to the board, on  any topic related to trial proceedings, by e-mail or telephone.

Board officials we interviewed told us that they review information  obtained from stakeholders during roundtable meetings and other  outreach events and implement changes to policies and procedures  where applicable. The officials told us that stakeholder feedback has  been used to inform updates to the board’s trial rules guidance, to modify  rules of practice, and in updating Standard Operating Procedures. In  addition, board officials told us that in response to stakeholder concerns,  they conducted two extensive studies covering motions to amend and the  filing of multiple petitions against a single patent. Furthermore, board  officials told us that they have held training sessions for judges regarding  specific areas of interest to stakeholders. Lastly, board officials also told  us that the board’s website, including the frequently-asked-questions  pages, is updated with information relevant to stakeholders, including  stakeholder concerns. For example, written stakeholder comments  submitted in response to a proposed rulemaking are posted on the  USPTO website for public viewing.

Stakeholders Agree the CBM Program Has Reduced Litigation, and Many See Value in Maintaining Aspects of the Program

Stakeholders we interviewed generally agreed that the CBM program has  reduced litigation, and many said there is value in maintaining some  aspects of the program. Stakeholders generally agreed that the CBM  program has contributed to a decrease in litigation involving business  methods patents and that the program has had positive effects on  innovation and investment. Most stakeholders also said there is value in  maintaining, among other things, the ability to challenge patents on all  four statutory grounds before the Patent Trial and Appeal Board.

Stakeholders Generally Agreed the CBM Program Has Contributed to a Decrease in Litigation Involving Business Method Patents

Stakeholders we interviewed generally agreed the CBM program has  reduced litigation involving business method patents because the CBM  program allows these patents to be more easily challenged than in district  courts. Stakeholders told us that fewer business method patent lawsuits  are filed and that existing lawsuits are often dropped after patents have  been through the CBM program. However, stakeholders also noted that  the Supreme Court’s 2014 decision in Alice may have also reduced the  number of business method patent lawsuits. Patents that would be found  invalid under Alice are often very similar to the patents that are eligible for  challenge under the CBM program, and in some cases, according to  stakeholders, it is cheaper and more efficient to challenge a patent’s  validity in district court using Alice than it is to use the CBM program.

Stakeholders described the following additional effects of the CBM  program:

Business method patent assertion is riskier. The CBM program  makes it riskier to assert business method patents because,  compared with district court, the program offers a cheaper and more  efficient way for alleged infringers to challenge a patent’s validity.  District court litigation can take several years and cost several million  dollars, while CBM trials are limited to 18 months and generally cost  much less. In addition, technically trained board judges have greater  expertise in patent law than an average district court judge and jury,  and are often better able to understand complex patentability issues.  Because of this, some alleged infringers are more willing to present  complex arguments—such as questions about whether the patent  meets standards for clarity—to the board than to a jury. As a result,  the CBM program has deterred owners of financial business method  patents from asserting their patents for fear those patents will be ruled  unpatentable. According to stakeholders, the existence of CBM  challenges has put downward pressure on settlement amounts.  Patent owners may want to avoid the risk of their patent being  invalidated and will demand lower settlement amounts to avoid the  risk of CBM and district court proceedings. Petitioners, too, told us  they use this knowledge to negotiate lower settlement fees. In  addition, because challenges under the CBM program may suspend  the parallel district court proceedings, it is more difficult for patent  owners to expect quick settlements from alleged infringers looking to  avoid the rapidly increasing court costs associated with lengthy trials.  The parties can still reach settlements after the alleged infringer files a  challenge under the CBM program, but the patent owners have less  leverage in negotiations. On the other hand, for patent owners willing  to go through a CBM challenge, their patents will emerge stronger  having survived the additional review according to stakeholders we  interviewed.

Business method patent owners have adjusted assertion  strategies to avoid the CBM program. Patent owners are focused  on asserting business method patents that are higher quality and less  vulnerable to challenge under the CBM program or based on the  Supreme Court’s decision in Alice; in other words, those patents that  describe a technological invention that is not abstract and  implemented on a generic computer. In addition, a few stakeholders  told us that they have abandoned some claims in certain patents to  avoid the possibility of their patents being challenged under the CBM  program. Stakeholders also told us that patent owners seem to be  asserting more patents, and more claims, than before the CBM  program was implemented, as a strategy either to ratchet up defense  costs for accused infringers and secure a settlement or to at least  have success with some of the infringement charges. In addition,  some stakeholders said that because the board charges fees for each  petition challenging a patent, asserting more patents is a strategy to  increase expected costs of defending against infringement and, thus,  to increase the likelihood of a settlement. However, our analysis of  RPX litigation data from 2007 to 2017 did not support these  assertions. Patent litigation data did not show an increase in the  monthly average number of patents asserted per case among cases  involving one or more business method patents.

The CBM program has decreased the value of business method  patents. The CBM program has decreased the value of business  method patents generally, even beyond those focused on financial  services. Several stakeholders told us that the board’s broad initial  interpretation of the CBM program’s eligibility requirements  contributed to an increased risk to a wider swath of business method  and software patents than was intended by Congress. Stakeholders  told us that any patent tangentially related to financial business  methods has been devalued because it could potentially be  challenged under the CBM program. In addition, stakeholders said  they believed that the threat of such challenges has decreased the  value of all business method patents, including those that might  ultimately survive a CBM challenge. Some stakeholders pointed to a  decrease in licensing of business method patents and others  suggested that patents have lost value on the secondary patent  market. Available data that we reviewed, though limited, support the  claims that patent values on the secondary market have fallen. A few  stakeholders, however, told us that to the extent these patents have  lost value, the devaluation is related to problems with patent quality.

Stakeholders Generally Agreed the CBM Program Has Had Positive Effects on Innovation and Investment

Stakeholders generally agreed the effects of the CBM program on  innovation and investment have been minimal or mostly positive. More  specifically, stakeholders told us that the CBM program is good for overall  innovation and investment in financial technologies in that the program  eliminates overly broad (non-specific), low-quality patents. Stakeholders  told us they believe the existence and assertion of overly broad patents is  bad for innovation, in part because defending against alleged  infringement is expensive and time-consuming, even under the CBM  program. Assertion of overly broad, unclear, or otherwise low-quality  patents acts much like a tax on investment, according to stakeholders.  Stakeholders also told us that removing such patents from the  marketplace promotes innovation because it prevents these patents from  blocking new innovation. According to stakeholders, innovation is  represented by the quality of the patents issued rather than the quantity.  A large number of patents in a technology space, according to  stakeholders, can make it difficult to innovate within that crowded space.

A few stakeholders had differing views, stating that the CBM program has  affected some companies’ ability to protect a business model with a  business method patent, although one stakeholder acknowledged that the  Supreme Court’s decision in Alice has also had an effect. These types of  comments were generally from stakeholders with company-specific  interests, including individual patent owners and companies that have had  patents invalidated under the CBM program. Other stakeholders,  however, including those in the financial services industry, told us that  innovation in their field is robust. For example, these companies are  developing mobile-payment and blockchain technologies, and the  companies have not seen any negative effects from the CBM program on their ability to innovate, patent, and invest in these financial services  technologies.

Stakeholders generally agreed that the CBM program and the other post- grant programs have had a positive effect on patent quality, as patent  applicants are more and more aware of what it takes to ensure a patent  will survive a post-grant challenge. Several stakeholders highlighted extra  steps they have taken before and during the patent application and  examination stages to ensure their patents will stand up to any eventual  challenges. For example, one patent owner told us how his company  proactively worked to get its patent examined by a foreign patent office, in  an effort to understand any quality issues with the patent, before  submitting a patent application to USPTO. Another stakeholder told us  about an extended back-and-forth with the USPTO examiner. This  stakeholder told us that the additional effort taken during the examination  process resulted in a patent that is much clearer and that will be more  likely to stand up to additional scrutiny.

Most Stakeholders Said There Is Value in Maintaining Aspects of the CBM Program

Most stakeholders told us there was value in maintaining aspects of the  CBM program, including the ability to challenge patents on all four  statutory grounds at the Patent Trial and Appeal Board, and many told us  that it would be useful to expand this capability to a broader set of patents  beyond business methods. However, there was no strong consensus  among stakeholders for how the AIA trials should be designed in the  future.

Stakeholders generally agreed that the ability to challenge a patent’s  validity on subject matter eligibility grounds remains important, although  there was not broad agreement among stakeholders regarding how far  that ability should extend beyond business method patents.

Stakeholders we interviewed pointed to inconsistencies in how federal  courts interpret subject matter eligibility requirements and said that  challenges on subject matter eligibility grounds should remain an option  at the Patent Trial and Appeal Board because of the board’s expertise  over the courts. Some stakeholders said subject matter eligibility  challenges were important for a wider scope of patents than just business  methods because concerns about subject matter eligibility that apply to  business method patents extend to software-related patents in general. In  addition, a few stakeholders suggested that subject matter eligibility  challenges should be available for patents in all areas of technology. The  continued prevalence of challenges in district courts based on the  Supreme Court’s decision in Alice, for business method patents and for a  wider array of patents, highlights the importance of retaining the ability to  challenge patent validity at the board on subject matter eligibility  grounds.

Similarly, stakeholders told us that patent clarity problems exist beyond  business method patents. Stakeholders said that the federal courts and  jurors do not necessarily have the expertise to interpret patent clarity  requirements and that the technically trained Patent Trial and Appeal  Board judges were better suited to make patentability determinations,  including on clarity grounds. One stakeholder, for example, told us that  petitioners can delve much deeper into the invalidity argument on patent  clarity grounds at a CBM trials than they can as defendants in district  court, mostly because the board judges have the requisite technical  expertise. In addition, many stakeholders told us that challenging patents  on clarity grounds was also important for a much broader array of patents  than business method patents, and some suggested that these  challenges should remain an option for all patents challenged at the  board. In June 2016, we reported that more than 40 percent of patent  examiners experience pressure to avoid rejecting a patent application  because of problems with clarity and we recommended additional steps  USPTO could take to improve patent clarity. This suggests there are a  potentially large number of patents, beyond and including business  method patents, that could benefit from a second look by the board on  these grounds, and inter partes review does not allow patents to be  challenged on clarity grounds.

Stakeholders discussed several other topics related to the future of the  CBM program:

Post-grant review is not an effective substitute for the CBM program for challenging patents on subject matter eligibility and patent clarity grounds. Stakeholders told us that the 9-month window, after a patent is issued, to file challenges using post-grant review is too short to make it an effective substitute for the CBM program. Post-grant review was established as a permanent mechanism at the board for challenging all patents on all statutory grounds. However, only 78 petitions have been filed for post-grant review through September 30, 2017. According to stakeholders, few companies have the resources to continuously monitor patent issuance in real time. In addition, even if companies do discover patents that are relevant to their business, companies, in general, are not willing or able to spend resources challenging patents that may never be used as the basis for an infringement lawsuit. As a result, the public essentially does not have the ability to challenge most patents on subject matter eligibility and clarity grounds, according to stakeholders.

CBM challenges should not be limited to a specific technology.

Although the CBM program was designed to address a problem caused by a narrow set of patents, some stakeholders told us they are troubled by CBM’s focus on patents for financial services and products. Stakeholders said that singling out such services and products is unfair and that the need to determine eligibility for review  created uncertainty for patent owners. In addition, some stakeholders  told us that the singling out of a particular subset of patents may raise  questions about compliance with an international treaty.

Concerns remain about business method and software-related  patents. Some stakeholders told us the patents that the CBM  program was designed to address have largely been addressed by  improved examination at USPTO, reducing the need for the program.  In addition, some stakeholders told us that the CBM program, which  was designed to be temporary, had largely succeeded in addressing  the problems with business method patents. However, other  stakeholders told us that patents of questionable validity, including  business method and software patents, continue to be issued by the  patent office. Given these continuing concerns over software-related  patents, several stakeholders suggested that one viable option for the  future of the CBM program is to expand its eligibility beyond financial  services patents to cover all software-related patents. In addition, in  contrast to the inter partes review program, the CBM program allows  any form of prior art to be used to challenge a patent on novelty or  obviousness grounds. This broader allowance for prior art is important  because many software and business method patents were preceded  by prior art not found in existing patents or printed publications.

In 2016, we reported on a number of patent quality challenges at USPTO  and made several recommendations to help improve the quality and  clarity of issued patents. In that report, we estimated that almost 70  percent of patent examiners did not have enough time to complete a  thorough examination of patent applications given a typical examiner’s  workload. Given these time constraints and other patent quality  challenges, the Patent Trial and Appeal Board has provided a means to  challenge low-quality patents after they have been issued. Stakeholders  generally agreed that the CBM program has reduced lawsuits in the  federal courts involving business method patents, and many stakeholders  were in favor of maintaining aspects of the program.

The board has a track record of issuing timely decisions that have largely  been upheld by the U.S. Court of Appeals for the Federal Circuit.  However, the board does not have guidance, such as documented  procedures, for reviewing trial decisions and the processes that led to the  decisions. Without developing guidance, such as documented  procedures, that outlines the steps USPTO will take to review the Patent  Trial and Appeal Board’s decisions and the processes that lead to  decisions, USPTO cannot fully ensure that it is meeting the objective of  ensuring consistency of its decisions.

We are making the following recommendation to USPTO:

The Director of USPTO should develop guidance, such as  documented procedures, for judges reviewing the Patent Trial and  Appeal Board’s decisions and the processes that lead to the  decisions. (Recommendation 1)

We provided a draft of this report to the Department of Commerce for  review and comment. In its comments, reproduced in appendix II, the  department agreed with the recommendation and stated that it has begun  taking steps to address it, including drafting a formal, written charter that  documents procedures for reviewing board decisions. The department  further stated that it intends to address the recommendation within one  year. In addition, it provided technical comments, which we incorporated  as appropriate.

As agreed with your office, unless you publicly announce the contents  of this report earlier, we plan no further distribution until 8 days from the  report date. At that time, we will send copies of this report to the  appropriate congressional committees, the Secretary of Commerce, and  other interested parties. In addition, this report will be available at no  charge on the GAO website at http://www.gao.gov.

If you or your staff members have any questions about this report, please  contact me at (202) 512-3841 or neumannj@gao.gov. Contact points for  our Offices of Congressional Relations and Public Affairs may be found  on the last page of this report. Key contributors to this report are listed in  appendix III.

Appendix I: Objectives, Scope, and Methodology

Our objectives were to (1) describe the extent to which the Patent Trial  and Appeal Board’s Transitional Program For Covered Business Method  Patents (CBM program) has been used to challenge patents, and the  results of those challenges; (2) examine the extent to which USPTO  ensures timeliness of trial decisions, reviews decisions for consistency,  and engages with stakeholders to improve its administrative proceedings  for the program; and (3) discuss stakeholder views on the effects of the  CBM program and whether it should be extended past its scheduled  September 2020 sunset date.

To describe the extent to which the CBM program has been used to  challenge patents, and the results of those challenges, we obtained data  on board proceedings from two companies—RPX Corporation and  Unified Patents—that included information on all of the board’s  proceedings from September 2012 through September 2017. RPX and  Unified Patents collect, compile, and analyze data from the U.S. Patent  and Trademark Office’s publicly available data system. Both companies  manually review these data to verify variables and to manually code  additional information from other publicly available board documents. We  conducted data quality testing, interviewed relevant officials, and  reviewed relevant documentation for the data. We found these data to be  sufficiently reliable for the purposes of our reporting objectives.

For petitions filed at the board, data from RPX and Unified Patents  include information on the patent in dispute, including its U.S. patent  number, petition-filing dates, and trial institution and final written decision  dates. RPX data include the patent claims challenged and the statutory  grounds on which they were challenged. In addition, RPX data includes  which patent claims were instituted for trial on which statutory grounds,  and which patent claims were ruled unpatentable on which statutory  grounds. RPX and Unified Patents provided the names of the petitioners  and patent owners, as well as whether the patent owner is an operating  company or one of several classifications of non-practicing entities. RPX  also provided the names of the parties’ attorneys. We categorized which  program each petition was filed under (CBM, inter partes review, or post- grant review) to enable comparisons across programs.

We used the data from Unified Patents on Patent Trial and Appeal Board  proceedings to supplement the RPX data for outcomes of each petition.  Specifically, we compared the Unified Patents’ outcome variable—which  describes the final outcome of the proceeding—and the RPX outcome  variable to create a new variable that reflects the full available information  about each petition’s outcome. There were some—fewer than 3 percent  of cases—where the two variable values were inconsistent with one  another. In these cases, we reviewed trial documentation to determine  the correct value for the outcome variable. The Unified Patents outcome  variable sometimes had more information than the RPX variable. For  example, cases that were terminated because of settlement were  identified as settlements in the Unified Patents data, but not in the RPX  data. We retained the additional detail for our analysis.

To determine trial outcomes at the patent level, we analyzed the petition  in which the patent proceeded the furthest in the CBM process. For  example, if a patent was challenged under the CBM program multiple  times—for example, three times—and two petitions were not instituted to  the trial phase and one was instituted and then settled before the board  judges issued a final written decision, we used the petition that proceeded  the furthest for our patent-level analysis of outcomes. In this way, we  were able to report what happened to patents under the CBM program,  while not double-counting those patents that were challenged more than  once.

To examine the extent to which USPTO ensures trial timeliness, reviews  past decisions for consistency, and engages with stakeholders to improve  its administrative proceedings for the program, we reviewed the America  Invents Act (AIA); USPTO’s strategic plan; the Patent Trial and Appeal  Board’s policy and guidance documents, including the Trial Practice  Guide; and we interviewed board officials on several occasions. We  compared USPTO’s efforts to review decisions for consistency against  USPTO’s current strategic plan as well as Standards for Internal Control  in the Federal Government (commonly referred to as the “Green Book”).  In addition, we reviewed publicly available information documenting the  steps the board takes to engage with stakeholders, including  documentation of webinars, judicial conferences, and roundtable  discussions.

To obtain stakeholder views on the effects of the CBM program and  whether it should be extended, we conducted semi-structured interviews  with 38 stakeholders knowledgeable about the CBM program. To identify  these stakeholders, we first identified the following sets of stakeholder  groups: petitioners and patent owners who have been involved with CBM  trials; attorneys who have represented clients with board proceedings;  industry trade groups; academic and legal commentators; public interest  groups; and venture capitalists. We identified petitioners, patent owners,  and attorneys who had been involved in board proceedings using data  from RPX Corporation and Unified Patents. We ranked petitioners, patent  owners, and attorneys based on how many CBM cases they had been  involved with, and how many inter partes review cases they had been  involved with in front of the board. We then requested, via email,  interviews with several stakeholders from each stakeholder group, and  began our semi-structured interviews as stakeholders accepted our  invitation. During our initial set of semi-structured interviews, we identified  additional stakeholders through an iterative process known as a “snowball  selection method,” whereby during each interview we solicited names of  additional stakeholders it would be useful to interview. As we obtained  the names of additional stakeholders, we requested additional interviews,  conducted interviews, and solicited additional stakeholders, until we (a)  had interviewed four or more stakeholders from each identified  stakeholder group and (b) found that stakeholder responses were, in  general, commonly describing the same broad themes and relevant  points that previous stakeholders had described about the topics we were  discussing. In total, the stakeholders we recruited and interviewed did not  form a random, statistically representative sample of all relevant  stakeholders. As such, we cannot generalize the results of the interviews.  However, these stakeholder groups and the stakeholders we interviewed  provide a broad spectrum of informed opinions on the CBM program.

Of the 38 stakeholders interviewed, 14 had previously petitioned CBM  against more than one patent owner, and many of those had also  petitioned an inter partes review. In addition, we interviewed 6 patent  owners that had been involved in multiple CBM trials. We also  interviewed attorneys from 5 law firms that have represented multiple  petitioners and patents owners in CBM cases. In addition, we interviewed  officials from 4 trade groups, 4 venture capital firms, and 5 academics  and legal commentators, all of whom had interest and expertise in the  CBM program.

During our semi-structured interviews, we asked stakeholders the  following three broad questions:

How much and in what way has the existence of the CBM program  affected patent assertion strategies since 2012?

How much has the CBM program influenced investment decisions  and innovation for technologies related to financial-services business  methods?

Should the CBM program be allowed to expire in September 2020 or  should it be renewed?

For each question, we used a consistent set of follow-up prompts to  ensure that we fully covered all aspects of each topic with the  stakeholders, that we received complete answers, and that we were able  to accurately record the responses. While we asked every stakeholder  each of the three questions, we did so keeping in mind the particular  background and experience of each stakeholder because experience and  expertise differed across our wide range of stakeholders. As such, during  each interview, we focused on the topics where the stakeholder had the  most experience, expertise, or knowledge.

To systematically analyze the information we collected during our semi- structured interviews, we used qualitative analysis software to group the  responses into categories and themes. All information was individually  coded by two analysts. We classified individual responses according to  these broad themes, which generally corresponded to our main  questions:

The effect of the CBM program on patent assertion and litigation.

The effect of the CBM program on innovation and investment in  business methods.

Within each broad theme, we labeled and organized sub-themes. We  established the sub-themes by identifying natural clusters of stakeholder  responses.

We analyzed the categorized themes and sub-themes to draw inferences  about the effectiveness of the CBM program by taking the following steps:  We first examined the amount and nature of agreement and  disagreement between responses within each theme and sub-theme. We  then assessed the strength of the arguments supporting each categorized  response, and considered factors including the number of stakeholders  who discussed a topic, including the strength of the rationale for each  viewpoint and other supporting evidence provided. We also considered  the way in which stakeholders’ interests could influence their  perspectives.

In this report, we present the themes with the strongest and most  consistent support based on rationale including the prevalence of each  argument, the presence of credible evidence in support of statements,  and the amount of consistency and corroboration of themes across  stakeholders. Because stakeholders do not make up a defined population  that we could sample from, and because the stakeholders we interviewed  had a wide range of experience and expertise, we did not tally up similar  responses and do not present stakeholder responses based solely on  how many stakeholders agreed or disagreed with a given statement.

We conducted this performance audit from November 2016 to March  2018 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient and appropriate evidence to provide a reasonable basis  for our findings and conclusions based on our audit objectives. We  believe that the evidence obtained provides a reasonable basis for our  findings and conclusions based on our audit objectives.

Appendix II: Comments from the Department of Commerce

Appendix III: GAO Contact and Staff Acknowledgments

In addition to the contact named above, the following individuals made  contributions to this report: Rob Marek (Assistant Director), Kevin Bray,  Mark Braza, Richard Burkard, Stephanie Gaines, Michael Krafve, Cynthia  Norris, Ardith Spence, Sara Sullivan, and Sarah Williamson.

Intellectual Property: Patent Office Should Define Quality, Reassess  Incentives, and Improve Clarity. GAO-16-490. Washington, D.C.: June  30, 2016.

Intellectual Property: Patent Office Should Strengthen Search Capabilities  and Better Monitor Examiners’ Work. GAO-16-479. Washington, D.C.:  June 30, 2016.

Intellectual Property: Assessing Factors That Affect Patent Infringement  Litigation Could Help Improve Patent Quality. GAO-13-465. Washington,  D.C.: August 22, 2013.

U.S. Patent and Trademark Office: Performance Management Processes.  GAO-10-946R. Washington, D.C.: September 24, 2010.

Intellectual Property: Enhanced Planning by U.S. Personnel Overseas  Could Strengthen Efforts. GAO-09-863. Washington, D.C.: September 30,  2009.

Check 21 Act: Most Consumers Have Accepted and Banks Are  Progressing Toward Full Adoption of Check Truncation. GAO-09-8.  Washington, D.C.: October 28, 2008.

U.S. Patent and Trademark Office: Hiring Efforts Are Not Sufficient to  Reduce the Patent Application Backlog. GAO-08-527T. Washington,  D.C.: February 27, 2008.

U.S. Patent And Trademark Office: Hiring Efforts Are Not Sufficient to  Reduce the Patent Application Backlog. GAO-07-1102. Washington,  D.C.: September 4, 2007.

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Intellectual Property: Key Processes for Managing Patent Automation  Strategy Need Strengthening. GAO-05-336. Washington, D.C.: June 17,  2005.

Intellectual Property: USPTO Has Made Progress in Hiring Examiners,  but Challenges to Retention Remain. GAO-05-720. Washington, D.C.:  June 17, 2005.

Entities facing lawsuits for infringing a certain type of patent (e.g., for online shopping) can challenge the validity of that patent through a U.S. Patent and Trademark Office program for a fraction of the time and money that would be spent in federal courts.

Under the program, the Patent Trial and Appeal Board decides whether these patents are valid. We recommended that the Patent Office develop guidance for reviewing these decisions to ensure consistency.

The program is set to expire in September 2020—but stakeholders say that it has reduced lawsuits, and that aspects of the program should be included in other Patent Office programs.