Additional discovery at the patent trial and appeal board: will requests for evidence of commercial success be a success?
March 2018 | PROFESSIONAL INSIGHT | INTELLECTUAL PROPERTY
Financier Worldwide Magazine
March 2018 Issue
US patents have been challenged by inter partes review (IPR) at the US Patent Trial and Appeal Board (PTAB) at an increasing rate since their creation by the America Invents Act in 2011. Patent owners often point to the ‘commercial success’ of the products covered by their patent as an indication that their patent is non-obvious. Non-obviousness is a legal requirement for the patent owner to maintain its patent rights. The showing of ‘commercial success’ to fight off a challenger’s claim of patent invalidity is an approach that has been taken by patentees for decades in district court litigations. The basic argument is that consumers would not waste their money on something obvious, or something that shows no significant improvement over a conventional product. By contrast, evidence that consumers are willing to spend a significant amount of money on a given product is evidence that the product is non-obvious. However, this argument has shown to be less successful at the PTAB than in traditional district court litigations. Some of this can be attributed to the fact that the argument alone is logically flawed. For example, market actors can make products a commercial success even if the patent owner is selling an ‘obvious’ product. Blocking patents may keep competitors away, price increases may make a product (particularly in the pharmaceutical field) seem more successful than it is and even something as simple as an effective marketing campaign can lead to huge sales of an obvious product. As such, patentees must be cognisant of the PTAB’s views on commercial success in order to preserve patent validity. If a showing of ‘commercial success’ is necessary to maintain the patent’s validity, the patent owner must also be aware of the PTAB’s requirements for additional discovery on the issue.
Parties should keep several overarching principles in mind when seeking information on commercial success. The first is that the PTAB, by statute, is required to issue opinions within one year of institution of the IPR. The PTAB is conservative when additional discovery is requested on any issue, including requests for additional discovery related to ‘commercial success’. The PTAB has an interest in providing expedited proceedings. The scope of discovery is very constrained in comparison to the district court and, as a general matter, compromises opportunities for discovery at the outset, including “mandatory initial disclosures” and “routine discovery”. The parties will be allowed additional discovery if they mutually agree. If the parties fail to come to an agreement, one party may make a motion for additional discovery from the PTAB, after complying with meet and confer requirements and a conference including the PTAB and the opposing side.
The second overarching principle when seeking additional discovery on commercial success is to know how the PTAB will analyse the request. Recalling that the PTAB has a strong interest in expediting proceedings, it is no surprise that the majority of requests for additional discovery are denied. Nevertheless, parties will often find themselves in a position where obtaining information via additional discovery is critical to advancing its position. For any party seeking additional discovery, it is crucial to understand the Garmin case at the very least. In Garmin International, Inc. v. Cuozzo Speed Technologies, LLC, the PTAB set forth five factors to be weighed against to determine whether additional discovery is “necessary and in the interest of justice”. The five Garmin factors are: (i) more than a possibility and mere allegation that information exists; (ii) whether the request seeks litigation positions and underlying basis; (iii) the ability to generate equivalent information by other means; (iv) whether the request includes easily understandable instructions; and (v) that the requests are not overly burdensome to answer.
The PTAB will usually rely on the first – “more than a possibility and mere allegation” – and fifth – “requests not overly burdensome to answer” – factors when analysing requests for additional discovery relating to commercial success, as well as all other requests for additional discovery. However, a request for additional discovery relating to commercial success should address each of the five factors, with a particular emphasis on factors one and five.
The first Garmin factor suggests that the PTAB will lean toward denying requests for additional discovery when presented with “the mere possibility and mere allegation that something useful will be found”. This factor is highly influential in cases relating to commercial success, including the Garmin decision. In Garmin, patent owner Cuozzo requested items related to showing secondary considerations in favour of non-obviousness, such as long-felt but unresolved need, failure of others, commercial success and copying by others. However, the PTAB criticised Cuozzo’s motion for not providing a “threshold amount of evidence or reasoning tending to show beyond speculation that the information to be discovered will be ‘useful’ to Cuozzo”. With regard to commercial success, Cuozzo did not sufficiently show a nexus between the claimed invention that was the subject of the patent and its discovery requests. This, of course, begets the question: what constitutes a sufficient nexus?
In Schott Gemtron Corp. v. SSW Holding Co., Inc., the PTAB provided guidance for establishing a nexus, looking to Federal Circuit precedent. “[T]o establish a proper nexus between a claimed invention and the commercial success of a product, a patent owner must offer ‘proof that the sales [of the product] were a direct result of the unique characteristics of the claimed invention—as opposed to other economic and commercial factors unrelated to the quality of the patented subject matter”, according to In re Huang.
The PTAB further noted that “commercial success typically is shown with evidence of ‘significant sales in a relevant market’”.
In addition to showing a nexus, the PTAB requires that requests be narrow and specific – again, relating to the PTAB’s interest in streamlining the decision-making process. For example, in Kingston Technology Company, Inc. v. Catr Co., Ltd, the PTAB allowed additional discovery relating to commercial success where the requesting party presented narrow, specific requests, such as the financial results of a particular product, as opposed to simply requesting broader categories of financial information, which may suggest a ‘fishing expedition’ for relevant documents.
The first Garmin factor may also be supported when the counsel has admitted relevance of the requested discovery in related litigations. In most cases, it is easier to obtain information in the district court than before the PTAB, as the district courts are governed by broader and looser requirements when it comes to discovery requests. The discovery obtained in the district court can then be strategically used to obtain additional discovery in the co-pending IPR. For example, in Chervon North America, Inc., et al. v. Milwaukee Electric Tool Corp., the PTAB granted the patent owner’s request for additional discovery of 12 of the petitioner’s (the patent challenger’s) documents. In supporting its request, the patent owner argued that litigation counsel representing the patent owner in a related district court litigation had already identified the requested documents as relevant to secondary considerations of non-obviousness. Considering the first Garmin factor, the PTAB stated that the “patent owner’s assertion is not based on mere speculation, but on direct input from its litigation counsel…it has provided sufficient reasoning tending to show that the documents will have substantive value with respect to the issue of secondary considerations”. Therefore, the PTAB found that the first Garmin factor weighed in favour of additional discovery.
The PTAB has also addressed the third Garmin factor, the “ability to generate equivalent information by other means” when addressing requests for additional discovery on commercial success. In Telebrands Corp. v. Tinnus Enterprises, LLC, the PTAB granted the patent owner’s request to discover documents that may show secondary considerations of non-obviousness, particularly commercial success, because “[while] petitioner argues that ‘patent owner already has access to equivalent information concerning commercial success’ based on sales of its own product…petitioner does not, however, concede that patent owner’s product has been commercially successful”. In other words, the patent owner sought additional discovery of petitioner’s sales. If the petitioner’s product was infringing, evidence of the infringing product’s commercial success could be used to support patent validity, regardless of whether the patent owner’s product was a commercial success. Accordingly, the PTAB was not persuaded that the information was equivalent, and found that the third Garmin factor supported additional discovery.
It is important to be mindful of the fourth factor, especially when drafting requests for additional discovery, because it stands for the idea that less is more when requesting additional discovery – something that attorneys tend to do the opposite of. The fourth Garmin factor requires that requests for ‘additional discovery’ be easily understandable. In Garmin, the PTAB stated that Cuozzo’s two-page instructions for interrogatories and two-page instructions for document requests were easily understandable. Similarly, the PTAB in Kingston also held that the fourth factor favoured additional discovery, despite the petitioner arguing that the requests “essentially lack…any instructions at all” and do not provide definitions for terms such as “sales revenues”, “gross margins”, “form factor” and “feedback”. The PTAB agreed with the patent owner “that the instructions, which simply state ‘that the following documents be produced within 14 days’ are easily understandable”. Again, less is more when drafting requests for additional discovery.
As noted, the fifth factor (whether there are less burdensome means in which to provide a moving party with requested information) has been one of the two most influential Garmin factors in PTAB decisions. For example, in Kingston, the PTAB required the parties to meet and confer to determine whether it was appropriate to provide summaries of financial records, rather than the voluminous records themselves.
Counsel should also keep in mind, however, that the question is whether the means of additional discovery are unduly burdensome, not whether the information obtained as a result would complicate the issues and yield additional hearings. For example, in Telebrands, in relation to the fifth factor, the PTAB rejected the petitioner’s argument that a request for production of “any and all documents” was unduly burdensome and effectively required a “trial within a trial” on the issue of infringement. According to the PTAB, the petitioner’s argument failed because it was “directed to the merits of patent owner’s contention of commercial success based on sales of petitioner’s product, rather than any burden posed by the requested discovery”. In other words, the PTAB said that the fifth factor asks if the additional discovery itself would be unduly burdensome, not whether the information discovered would result in any burdensome proceedings. Accordingly, the PTAB held that the fifth factor favoured additional discovery.
In summary, two rules should be kept in mind when requesting additional discovery on commercial success at the PTAB. First, avoid additional discovery if possible – the PTAB prefers a quick discovery process preferably concluded in the process of initial discovery. Second, if additional discovery is required, the request should be drafted with the Garmin factors in mind, with a particular eye toward factors one – “more than a possibility and mere allegation” – and five – “requests not overly burdensome to answer”.
Benjamin Cappel is an associate at Sughrue Mion PLLC. He can be contacted on +1 (202) 857 2275 or by email: firstname.lastname@example.org.
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