PREVAIL Act Aims to Overhaul Patent Challenges: Stricter Rules for Challengers, More Cash for USPTO

The PREVAIL Act (Promoting and Respecting Economically Vital American Innovation Leadership Act) is on the table, and it’s looking to make some major changes to how U.S. patents are challenged and how the Patent Office itself is run. The bill’s main goals, as outlined in its findings, are to bolster U.S. innovation and national security by making patent protections more reliable, partly by addressing what it calls "unintended consequences" of past reforms, like using patent challenges to manipulate stock prices or harass patent owners (SEC. 2).

The Patent Gauntlet: Stiffer Rules for Patent Challengers

If you're looking to challenge a patent's validity after it's been granted, the PREVAIL Act could significantly change your game plan, particularly for Inter Partes Reviews (IPRs) and Post-Grant Reviews (PGRs) – the main proceedings at the Patent Trial and Appeal Board (PTAB).

First off, the bill gets specific about who's footing the bill for a challenge. Anyone financially contributing to an IPR or PGR will be considered a "real party in interest" (SEC. 4, SEC. 5). This means more transparency about who is actually behind a patent challenge. For IPRs specifically, the petitioner must be a certain type of nonprofit organization (as defined by sections 501(a), 501(c)(3), and 170(b)(1)(A) of the Internal Revenue Code), a significant restriction on who can initiate these reviews (SEC. 4).

Big changes are coming to the burden of proof and legal standards. If you're challenging an already issued patent claim in an IPR or PGR, you'll now need to prove it's unpatentable by "clear and convincing evidence" – a higher bar than the current PTAB standard and aligning it with district court litigation (SEC. 4, SEC. 5). The existing legal principle that a patent is presumed valid (35 U.S.C. 282(a)) will now explicitly apply in these PTAB proceedings for issued claims. Claim construction, or how the patent's terms are interpreted, will also mirror the district court standard (35 U.S.C. 282(b)).

Got a second bite at the apple? The Director of the Patent Office can now reject IPR or PGR petitions that present the same prior art or arguments already reviewed, unless "exceptional circumstances" are shown (SEC. 4, SEC. 5). This aims to cut down on repetitive challenges.

Perhaps one of the most impactful changes is around estoppel. If an IPR or PGR is instituted against a patent, the petitioner (and related parties) will be barred from challenging that patent's validity in federal district court or before the International Trade Commission (ITC) on any grounds that were or reasonably could have been raised in the PTAB proceeding (SEC. 4, SEC. 5). This essentially forces challengers to pick their venue carefully. Furthermore, the bill strikes language from 35 U.S.C. 317(a) and 327(a) that previously shielded settling petitioners from this estoppel. This means settling a case at the PTAB might now prevent you from challenging the patent later in court.

Discovery will also be more limited, focusing on depositions of witnesses, identifying real parties in interest, and what's necessary "in the interest of justice" (SEC. 4, SEC. 5).

A New Playbook for the Patent Trial and Appeal Board

The PREVAIL Act also sets new operational rules for the PTAB itself (SEC. 3). The Director must establish a code of conduct for PTAB judges, drawing from the Code of Conduct for United States Judges. A significant change is that a PTAB member who participated in the decision to institute an IPR or PGR will be disqualified from hearing the actual review on its merits. This addresses concerns about potential bias. Additionally, supervisors who aren't on the panel are prohibited from influencing a panel's decision on the merits.

Decisions on requests for rehearing IPR/PGR institution decisions must come within 45 days (with a possible 30-day extension). Rehearings of final written decisions get 90 days (plus a possible 60-day extension) (SEC. 4, SEC. 5).

Show USPTO the Money: Keeping Fees Where They Belong

A long-standing issue for the U.S. Patent and Trademark Office (USPTO) has been fee diversion – where fees collected by the USPTO were used for other government expenses. The PREVAIL Act aims to stop this (SEC. 7). It renames the USPTO's appropriation account to the "United States Patent and Trademark Office Innovation Promotion Fund" and dictates that fees collected by the Director will be available until expended to carry out USPTO activities. Patent fees must be used for patent-related expenses, and trademark fees for trademark expenses.

For example: This is like your local library finally getting to use all its late fees and fundraising money to buy new books and computers, instead of seeing some of it diverted to patch potholes. The idea is a better-funded USPTO could lead to better services and more efficient patent examination.

Perks for Universities and a Look at Small Business Needs

The bill offers a hand to higher education by expanding the definition of a "micro entity" – which qualifies for lower patent fees – to include universities, their employees who assign inventions to the university, and certain 501(c)(3) organizations that commercialize university tech (SEC. 8).

For small businesses, the PREVAIL Act requires the Small Business Administration to report within a year on how patent ownership and infringement lawsuits impact them (SEC. 9). It also mandates that the USPTO make patent and trademark information, including search tools and databases, available online for free, unless third-party licensing costs are prohibitive.

So, What's the Real-World Bottom Line?

The PREVAIL Act is trying to walk a tightrope. On one side, it aims to strengthen the patent system by making patents harder to challenge once granted. This could give patent owners more certainty and potentially curb what some see as abusive or repetitive challenges that drain resources. Proponents might argue this encourages investment in innovation.

On the other side, these stricter rules – like the higher burden of proof, narrower definitions of who can petition for IPR, and stronger estoppel effects – could make it tougher and more expensive for businesses, especially smaller ones or new market entrants, to challenge questionable patents. If a patent that shouldn't have been granted is now harder to overturn, it could stifle competition or allow patent holders to unfairly dominate a market. For companies accused of infringement, their options to fight back by challenging the patent's validity at the PTAB are becoming more constrained.

The changes to USPTO funding are widely seen as positive, potentially leading to a more efficient and effective agency. The benefits for universities are clear. But the core of the bill – the overhaul of patent challenges – presents a complex set of trade-offs between protecting patent holders and ensuring the system allows for robust scrutiny of granted patents.