Guest Post: Protectionist PTO Memo is on a Collision Course with TRIPS

Guest post by Sapna Kumar. Prof. Kumar is the Henry J. Fletcher Professor of Law at the University of Minnesota Law School.

USPTO Director John Squires recently issued a memorandum regarding a new policy for instituting IPR and PGR proceedings. The memo argues that manufacturing moving overseas is causing “significant economic and national security damage” and claims that [t]hese developments bear directly” on the Director’s “statutory obligation to consider the effect of institution standards on the economy and the integrity of the patent system.” It further notes that large companies lacking “significant” U.S. manufacturing are the “most frequent users of IPR and PGR proceedings.” Based on these findings, the memo states that in determining whether to institute IPR and PGR proceedings, the Director will consider to what extent accused infringing products at issue in a parallel proceeding are U.S. manufactured or relate to U.S. manufacturing operations and to what extent the patent owner’s competing products are U.S. manufactured.

The United States is a member of the World Trade Organization (WTO) and a signatory to the WTO-administered Agreement on Trade-Related Aspects of Intellectual Property (TRIPS). The USPTO has acknowledged that “TRIPS applies basic international trade principles to member states regarding intellectual property including national treatment.” As Article 3 states, “[e]ach Member shall accord to the nationals of other Members treatment no less favourable than that it accords to its own nationals” for IP protection. With regard to nondiscriminatory practices, Article 27 further specifies that “patents shall be available and patent rights enjoyable without discrimination as to the place of invention, the field of technology and whether products are imported or locally produced.”

Based on memo’s language, the USPTO will be more likely to institute an IPR or a PGR against a patent holder whose competing products are not manufactured in the United States, and will be less likely to do so against a patent holder that domestically manufactures its competing products. This means that the strength of U.S. patent rights will now vary based on whether patented products are produced in the United States or abroad. This appears to violate Article 27, given it limits enjoyable patent rights based on where products are being produced.

The government will likely respond that any actions they take are justified under TRIPS’s national security exception under Article 73(b). But Article 73(b) is actually quite narrow. Although it states that nothing in TRIPS “shall be construed. . . to prevent a Member from taking any action which it considers necessary for the protection of its essential security interests” relating an “emergency in international relations,” a WTO panel in Russia—Measures Concerning Traffic in Transit (2019) held that this excludes “political or economic conflicts. . .unless they give rise to defense and military interests, or maintenance of law and public order interests.” Moreover, the fact that the memo’s measures apply to all classes of invention and to companies from any country undermines any argument that Article 73 applies.

It is worth noting that the USPTO could use its new policy to target patents held by Chinese companies. Both Republican and Democratic administrations have been frustrated by China’s support of IP theft. The USPTO could use its new policy to violate national treatment under Article 3 by specifically targeting Chinese companies that manufacture their products abroad. Given the Federal Circuit’s position in In re Motorola Solutions, Inc. that Congress committed decisions regarding IPR and PGR institutions to the Director’s discretion and insulated them from judicial review outside “colorable constitutional claims,” a company facing this situation would have no recourse.

Some attorneys and scholars may argue that discriminating against patent holders based on where they manufacture their patented products is no different than what occurs in ITC in Section 337 proceedings. Under 19 U.S.C. § 1337, a patent holder can use the ITC to get an exclusion order to block importation of infringing goods only if the patent holder can show that such importation could “destroy or substantially injure” a U.S. industry, “prevent the establishment of such an industry,” or “restrain or monopolize trade and commerce in the United States.” This created a parallel system of patent litigation that only companies with domestic industries can utilize. However, the ITC only considers domestic industry with regard to whether the remedy of an exclusion order is available; unlike IPRs and PGRs, ITC decisions regarding patent validity do not bind federal courts. By contrast, the memo creates a system in which patent holders using domestic manufacturing are less likely to have their patents invalidated than those that use foreign manufacturing.

Finally, it is important to highlight that unlike Section 337, which was passed by Congress, the PTO issued the memo without notice or an opportunity for impacted companies to comment. From an administrative law standpoint, this is deeply troubling, given the broad implications this new policy could have. The PTO’s actions are furthermore in tension with the major questions doctrine, given that the PTO is using vague language under 35 U.S.C. §§ 316(b) and 326(b) to justify a policy that could have a substantial economic impact on manufacturing and political significance by violating TRIPS.

In conclusion, the PTO’s memo is highly problematic. It undermines the United States’s commitments under TRIPS by conferring greater rights to patent holders that manufacture patented goods domestically. It furthermore raises concerns regarding the massive amount of power the Director claims to possess without any judicial oversight.