The Patent Office now weighs where you build when deciding whether competitors can challenge your patents. If your supply chain runs through Asia, your IP just got harder to defend.
Yesterday, members of Congress from both parties grilled the head of the U.S. Patent and Trademark Office over a pair of moves that should change how every growth-stage company with a patent portfolio thinks about its supply chain.
On March 11, USPTO Director John Squires issued a memorandum directing the Patent Trial and Appeal Board to consider domestic manufacturing when deciding whether to let someone challenge your patents. Then, on March 18, he went further: in a precedential ruling, the Director barred foreign state-owned companies from filing patent challenges altogether.
At yesterday's House Judiciary oversight hearing, Rep. Zoe Lofgren cited that 64% of IPR petitions have been discretionarily denied under Squires. Chairman Darrell Issa, despite being a Republican ally of the administration, told Squires that the PTAB system was never meant to be "100% discretionary" and signaled interest in legislative fixes.
If you're a founder or CEO running a company that makes physical products, these moves matter more than anything else that happened in patent law this year. Your IP strategy and your manufacturing strategy just merged.
What Just Changed
The Domestic Manufacturing Test
Since 2012, companies have been able to challenge patents through a process called Inter Partes Review (IPR) at the USPTO. It's faster and cheaper than federal court: roughly $300,000 to $700,000 versus $1 million to $4 million for litigation, with an 18-month timeline versus years in court. For startups facing patent infringement claims, IPR has been the most cost-effective defense available.
Director Squires' March 11 memo adds three new factors the USPTO will now weigh when deciding whether to grant an IPR challenge:
1. Where the accused products are made. The Director will consider "the extent to which any products accused of infringement in a parallel proceeding are manufactured in the United States or are related to investments in American manufacturing operations."
2. Where the patent owner's products are made. He'll also look at "the extent to which any products made, sold, or licensed by the patent owner that compete with the accused products are manufactured in the United States."
3. Whether the challenger is a small business being sued. If you're a small business that's been hit with a patent infringement lawsuit, that fact now cuts in your favor when the USPTO decides whether to take your case.
Two critical details in the fine print. "Manufacturing" doesn't just mean final assembly. The Director will look at where components are made, where subassemblies happen, and whether products assembled in the U.S. get shipped overseas for further processing. And for method patents, the relevant product is the device executing the method.
The Foreign State-Owned Company Ban
One week later, Director Squires issued a precedential ruling in IPR2025-01579 (Tianma Microelectronics v. LG Display). Tianma is affiliated with Aviation Industry Corporation of China (AVIC), a state-owned aerospace and defense conglomerate that sits on the Commerce Department's Entity List.
The Director denied the petition and established a new categorical rule: foreign governments and entities they hold a stake in cannot file IPR petitions or participate as real parties in interest. He extended the Supreme Court's Return Mail doctrine, which already prevents U.S. federal agencies from filing IPRs, to foreign sovereigns. His reasoning was blunt: allowing it would create "a ready recipe ripe for mischief" and let adversaries exploit "opaque investment structures" to undermine U.S. intellectual property.
That's not subtle.
The Numbers Tell the Story
These policy changes aren't happening in a vacuum. The trend is unmistakable:
- FY 2024: 68% of IPR petitions were instituted (meaning the USPTO agreed to hear them) - FY 2025: That dropped to 50% - Early FY 2026 (first two months of data, October-November 2025): Down to 37% - Director Squires personally: Has reviewed 34 petitions since taking personal control of institution decisions in October 2025. He denied all 34.
Every single one.
In the final three months of FY 2025, monthly institution rates hit 24%, 20%, and 27%. For context, in the system's first full year (2013), the institution rate was 87%.
We covered the broader IPR restriction trend in January, when the USPTO proposed "one-and-done" rules that drew 11,442 public comments (97% opposed). The domestic manufacturing memo and foreign company ban are the latest moves in the same direction: making it dramatically harder to challenge patents at the USPTO.
What It Means for Your Business
If You Manufacture in the U.S.
Your patents just got significantly harder to challenge. A competitor who wants to knock out one of your patents through IPR now has to overcome an additional hurdle: the Director will weigh the fact that your products (and potentially the competitor's products) are made domestically. This doesn't guarantee your patents survive every challenge. But it tilts the playing field in your favor.
The practical effect: patents held by companies with U.S. manufacturing operations are becoming more durable. If you're sitting in a board meeting discussing the value of your IP portfolio, that portfolio just became more defensible. And potentially more valuable in M&A discussions, licensing negotiations, and investor due diligence.
If You Manufacture Overseas
This is where it gets uncomfortable. If your manufacturing is primarily in Asia or elsewhere outside the U.S., you've got a two-sided problem.
It'll be harder for you to challenge a competitor's patents through IPR. The Director will note that your products aren't made domestically, which counts against institution.
But here's the part most people miss: if you hold U.S. patents and a competitor with domestic manufacturing challenges them, the Director could weigh that the challenger's products are made in America and yours aren't. That could cut against you even as a patent owner.
Companies with offshore manufacturing lose ground on both sides of patent disputes.
If You're a Small Business
There's a genuine bright spot. The third factor explicitly benefits small businesses facing infringement suits. If a large patent holder sues your company and you want to challenge the patent's validity, your size now works in your favor at the institution stage. The memo references SBA size standards and the USPTO's reduced-fee eligibility criteria.
This doesn't fix the cost problem entirely. IPR still runs $300,000 or more. But it means the door is slightly more open for smaller companies that can demonstrate they're being targeted by a larger patent holder.
The Board-Level Question
Here's what I'd tell any CEO in a board meeting right now: your patent strategy is no longer separate from your supply chain strategy. Where you manufacture, where you source components, and where you assemble products now has direct consequences for how strong your patent defense is and how effectively you can challenge competitors' patents.
This is especially true for companies in industries where patent disputes are common: semiconductors, medical devices, clean energy hardware, telecommunications equipment, and advanced manufacturing. If your competitors are reshoring and you're not, the IP gap between you just widened.
What To Do Now
1. Audit your manufacturing footprint against your patent portfolio (CEO/COO, this quarter). Map where your patented products and their components are actually made. Identify any patents that could be affected by the new domestic manufacturing factors.
2. Brief your IP counsel on the March 11 memo and March 18 ruling (General Counsel, this week). If you have any pending IPR proceedings where the patent owner's discretionary brief deadline hasn't passed, the new factors apply immediately. This one's time-sensitive.
3. Reassess your patent challenge strategy (General Counsel/outside IP counsel, next 30 days). If you were planning to use IPR to challenge a competitor's patent, the calculus has changed. With institution rates at 37% and dropping, federal court litigation may be the more realistic path now, despite the higher cost.
4. Factor IP defensibility into supply chain decisions (COO/CFO, ongoing). If you're evaluating whether to reshore manufacturing or keep production offshore, the patent implications should be part of that analysis. Domestic manufacturing doesn't just reduce tariff exposure and supply chain risk. It strengthens your IP position.
5. Review your investor materials and patent valuation (CFO, before next fundraise or board meeting). If your patents are backed by U.S. manufacturing, they're more defensible now. That should be reflected in how you present your IP assets to investors and potential acquirers.
6. Screen your supply chain for foreign state-owned connections (General Counsel, next 60 days). The Tianma ruling creates a new risk vector. If any entity in your supply chain or investment structure has foreign sovereign ties, that could affect their ability to participate in patent proceedings on your behalf.
7. Monitor PTAB institution decisions over the next 90 days (IP counsel, ongoing). The memo provides limited guidance on how much weight these new factors carry. The first wave of decisions applying them will set the practical standard.
What We're Watching
- TRIPS and WTO exposure. Weighting domestic manufacturing in patent validity proceedings could draw a challenge under the TRIPS Agreement's national treatment obligations. If a WTO member argues that the U.S. is discriminating against foreign manufacturers in patent review, it could force revisions. No challenge has been filed yet, but IP scholars are already flagging it.
- The proposed "one-and-done" rules. The October 2025 proposed rulemaking that drew 97% opposition is still pending. If finalized alongside these discretionary changes, IPR could become effectively unavailable for most companies.
- Congressional response is already underway. Yesterday's oversight hearing made it clear that Congress is paying attention. Chairman Issa questioned whether the Director's discretion has exceeded what Congress intended when it created the IPR system. Rep. Lofgren cited the 64% discretionary denial rate. Director Squires defended his approach as "gang tackling" rather than "one and done," arguing all challengers should join a single proceeding. But the bipartisan unease was hard to miss. If Issa moves toward legislation constraining Director discretion over IPR institution, the rules of engagement could shift again.
- First decisions applying the new factors. How much weight does domestic manufacturing actually carry? We won't know until the Director (or PTAB judges, if he delegates back) issues decisions explicitly applying the March 11 memo. Expect the first test cases within 60-90 days.
The patent system is being rewired in real time. The companies that recognize this as a strategic shift, not just a legal update, will be the ones that come out ahead.
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This article is for informational purposes only and does not constitute legal advice. Every company's situation is different, and you should consult with qualified legal counsel before making compliance decisions based on the developments discussed here.
If your company's patent strategy hasn't been reviewed in the context of these PTAB changes, it's time. An Outside General Counsel can help you connect your IP portfolio to your manufacturing and supply chain strategy before your next board meeting or fundraise.