Patent litigation following the America Invents Act
April 2013 | 10QUESTIONS | LITIGATION & DISPUTE RESOLUTION
FW speaks with Edward D. Manzo, a partner at Husch Blackwell LLP about patent litigation and US patent practice in the wake of the America Invents Act.
FW: What were the key reasons behind the introduction of the new Act?
Manzo: US patent law had some unique provisions compared to other countries. Congress had wanted to pass a patent reform bill for many years that would modernise and harmonise US patent law with that of other major industrial nations. Congress had not enacted comprehensive patent reform for nearly 60 years, and the need was pressing to accommodate changes in the economy and the litigation practices in the patent field.
FW: Could you provide a brief overview of the main provisions of the AIA?
Manzo: The most well-known provision of the AIA is its replacement of the long-tenured ‘first to invent’ approach – the old regime – with a ‘first-inventor-to-file’ approach – the new regime – which, putting aside some technical intricacies, generally became effective for wholly new patent applications or claims filed after 15 March 2013. Under the old regime, an alleged infringer did not know the date the invention was invented. So, he did not know how old the ‘prior art’ had to be to overcome the patent. Other main provisions of the AIA relating mainly to litigation are: three new administrative ‘trial’ procedures pertaining to patent validity; a new mechanism called ‘supplemental examination’, allowing patent owners to cure potential issues of validity or inequitable conduct; a major expansion of the prior user defence; elimination ofqui tam actions for false patent marking; elimination of the best mode defence but not the best mode requirement; and new controls over the joinder of multiple parties in patent litigation. Further main AIA provisions that concern substantive patent law are a modified grace period that protects against an inventor’s own disclosures but not third parties’ disclosures; a new definition of ‘prior art’; and the substantial elimination of patent interferences and their replacement by derivation proceedings.
FW: How does the AIA impact patent challengers?
Manzo: The AIA gave patent challengers three new administrative procedures to contest patent validity. These are very important and potent weapons that can be used to weed out invalid patents without incurring the formidable costs of US patent litigation in court. These administrative procedures are called ‘trials’ at the USPTO and generally take only one year to complete after being declared, with a pre-declaration period of up to six months. They are conducted before the USPTO Patent Trial and Appeal Board (PTAB) where three technically-qualified administrative patent judges, with extensive knowledge of the patent laws, can review the validity of the patent. During these proceedings, the patent has no presumption of validity, the claims are construed broadly – making them easier to attack – and less evidence is required than would be needed in court to show patent invalidity. One administrative trial is the inter partes review where anyone who is not the patent owner can challenge the validity of any patent claims over printed publications and patents. Another administrative trial is the ‘post-grant review’ where, during the first nine months after a patent is issued under the new regime, any third party can challenge the validity of its claims at the USPTO on virtually any basis. This includes even broader prior art challenges than available in inter partes review, including public use or on-sale activities, along with other validity attacks that are not prior art-based, – for example, claim indefiniteness, insufficient written description, lack of enablement, or claims directed to patent-ineligible subject matter. Violation of the best mode requirement cannot be raised. The third administrative trial focuses on any ‘covered business method’ patent. Here, anyone who has been sued for, or charged with, infringement of such a patent can challenge its validity at the USPTO using the post-grant review procedures, with some modifications.
In addition to these new administrative challenge mechanisms, the AIA broadened the definition of ‘prior art’ against new regime patents. For old regime patents, public uses and sale activities had to occur in the US to be effective as ‘prior art.’ However, for new regime patents, there are no geographic restraints on prior art. Also, the AIA rolled back the date when US patents with foreign priority dates speak as prior art references against new regime patents. Instead of that prior art date being the US filing date or a publication date, the earlier foreign filing date applies. These changes make it easier to challenge a US patent issued under the new regime.
FW: What does the AIA mean for individual inventors? Do you expect it to reverse the recent steady decrease of inventor-owned patents?
Manzo: Congress gave individual inventors special attention in the AIA. It created a ‘micro entity’ class of patent applicant, receiving a 75 percent reduction in USPTO fees. The AIA also mandated a study on small business access to capital for investment; established a patent ombudsman program for small business concerns; affirmatively stated the sense of Congress toward “protecting the rights of small businesses and inventors from predatory behaviour that could result in the cutting off of innovation”; mandated a study on international patent protection for small businesses; and called for a pro bono program to assist independent inventors and small businesses who are under-resourced. These steps may reverse or at least slow down any trend in the number of decreased inventor-owned patents, to the extent it is due to the cost of patenting.
FW: What considerations must patent challengers and owners now take into account when entering into patent litigation?
Manzo: Let’s address patent owners first. They routinely find – or have their attention called to – new issues after a patent issues. These new issues often concern additional prior art or information that may not have been disclosed to the USPTO during prosecution, or which was incorrectly or inadequately considered. These issues must be evaluated by litigation counsel and the patent owner before filing a complaint. Sometimes they can dissuade a patent owner from suit, even if there is clear infringement. A finding of inequitable conduct has dire consequences, including unenforceability of the patent and a possible award of substantial attorney fees. To avoid these risks, before litigation, the patent owner may avail itself of the AIA’s new ‘supplemental examination’ provision which allows the patent owner to submit any information to the USPTO believed to be ‘relevant to the patent’ for a supplemental examination. The USPTO will rule within three months whether the submitted information raises a substantial new question of patentability, and if so, the patent enters ex parte re-examination. Unlike prior ex parte re-examinations, this new procedure is allowed to consider issues beyond the validity of claims over prior art printed publications and patents. Not only does this procedure enable the USPTO to rule on all validity issues that have been raised, but in almost all cases precludes an unenforceability ruling in court on the basis of conduct relating to the submitted information. Further assisting the patent owner, the AIA provides that the act of submitting the information “shall not be relevant to enforceability.” In this way, the patent owner is ‘washed clean’ of known validity and unenforceability issues, within broad limits. This procedure is available for both new regime and old regime patents. The patent owner will have to weigh this enormous benefit against the time it takes and the risk that the patent may be narrowed or ruled invalid at the USPTO prior to enforcement litigation. These outcomes can obliterate or diminish potential licensing opportunities, but even if so, the expense of litigation and risks of counterclaims will have been avoided.
Next, before litigation commences and for up to one year after service of the complaint, the patent challenger can seek review of the validity of the patent claims before the PTAB of the USPTO over prior art printed publications and patents. Indeed, most of the 150-plus inter partes reviews that the USPTO has instituted are for patents in pending litigation. Patent owners must take into account that challengers can, subject to making a threshold showing, force the patent back into the USPTO to conduct a fast-track and comparatively economic review of claims. The new administrative trials are conducive to patent challenges for the important reasons discussed already relating to a broader claim interpretation, suspension of the patent’s presumption of validity while at the PTAB, and the lowered burden of proof needed to sustain a challenge. The threshold standard needed to commence the inter partes review trial, where only printed publications and patents can be considered, is a ‘reasonable likelihood of success’ as to at least one claim. The threshold for commencing a post-grant review of a newregimepatent, where most validity challenges can be heard, is that it is more likely than not that at least one challenged claim is invalid. The same standard applies for the covered business method patent review. The primary ways for a patent owner to avoid any of these trials are to show that the challenge is untimely – for inter partes review, not filed within 12 months of the challenger being served with a complaint alleging infringement, and for post-grant review, not filed within 9 months of patent issuance; that the challenger itself filed a declaratory judgment action challenging validity and therefore is barred by the statute; that the standard for instituting has not been met; or that a disclosure requirement – by the challenger – has been violated. The patent challenger will have to weigh the risk that its petition to commence a PTAB trial will be denied. This could put the challenger in a difficult spot. Most federal judges would not take kindly to seeing the same attacks launched against a patent that the PTAB had already considered and rejected at the outset. And if the PTAB actually litigated the case to final written decision, the challenger becomes barred from raising it in district court.
Third, the AIA significantly expanded the prior user defence against infringement, but the expanded defence is effective only for patents issued after 15 September 2011. For patents issued before then, the defence is limited to business method patents. In either case, even if a defendant is practicing the invention and the patent is valid, provided that the use qualifies to support the defence – in terms of time, domestic use, and so on – then there is no liability for infringement. If an accused infringer can demonstrate satisfactory prior domestic use during pre-suit correspondence, then litigation should be unnecessary unless the patent owner is unsatisfied with the proof. Clear and convincing evidence is required to establish this defence.
FW: The AIA includes a new inter partes review procedure that takes the place of the old inter partes reexamination. How drastically will this new component alter strategies and outcomes in patent litigation?
Manzo: This new administrative trial should figure prominently in a patent challenger’s strategy, regardless of the regime under which the patent issued. Inter partesreview provides a fast and focused challenge on validity questions before an expert tribunal specialising in patents without having to litigate infringement, damages, and other issues at the same time. If an alleged infringer has uncovered a prior art patent or printed publication which supports a reasonable likelihood of success of invalidating at least one claim, then the patent can be made the subject of inter partes review, provided that time requirements and other requirements are observed. Further key points are that the art need not be ‘new.’ This trial at the PTAB will almost always conclude within 12 months of being instituted. The institution period is six months or less. A board of three, technically-qualified, PTAB administrative patent judges will decide the case under conditions that are more favourable to the patent challenger than conditions in federal court. At the PTAB, the broadest reasonable construction of the patent in light of the specification applies, there is no presumption of validity, and only a preponderance of the evidence is needed to invalidate a claim. As a result of this, patent owners may temper their positions on amicable resolution if the alleged infringer locates a sufficiently strong prior art document. If the patent survives inter partesreview and an appeal to the Court of Appeals for the Federal Circuit with claims that continue to be asserted, the alleged infringer will have to pursue other defences. These would include non-infringement, unenforceability, invalidity over public uses, sales, or other public disclosures or acts that could not be challenged in the PTAB trial, invalidity for indefiniteness, insufficient written description, lack of enablement, patent ineligibility, and for patents currently subsisting, prior invention by another. In addition, the equitable defences still apply and, in any event, the challenger can seek to minimise or even negate the amount of damages. The alleged infringer may also consider a design-around that avoids the claims and minimises exposure under the patent(s).
Using the USPTO trial procedures will change settlement strategy and timing. In litigation, settlement can await discovery or rulings on dispositive motions, trial, and so on. In the USPTO proceedings, when the PTAB issues a decision whether to go forward with the challenge or not because the underlying standard has, or has not, been met, there can be a strong impetus to reach an amicable agreement at that time, depending on how the PTAB rules. Settlement before the final written decision of a PTAB trial avoids the estoppel effects of a PTAB final ruling. A patent owner may opt to resolve a case even before an ‘initial decision’ by the USPTO on whether to institute trial thereby to avoid the risk of a detailed explanation from an expert body on why there is a reasonable likelihood that claims are invalid. Even if the estoppel effects can be avoided by a subsequent settlement, the ruling is public.
FW: What provisions does the AIA provide for multi-defendant joinder in patent infringement suits?
Manzo: The AIA added a new Section 299 to the US patent statute which supersedes Rule 20 of the Federal Rules of Civil Procedure. Under §299, joinder of multiple defendants is proper only if such defendants are dealing with the “same accused product or process” and questions of fact common to all defendants or counterclaim defendants will arise in the action – as opposed to questions of fact or law, such as claim construction, validity, and so on. Further, the new statute provides that alleging infringement of the same patent by the multiple defendants is insufficient to support joinder. While this new law will control joinder, it does not prevent a trial court from consolidating cases for pre-trial proceedings, including claim construction. I expect that many courts will consolidate cases for pre-trial purposes to conserve judicial resources.
FW: In what ways will the AIA help businesses combat the risk of patent trolling? What success do you expect in this regard?
Manzo: The new USPTO trial procedures for challenging validity should be very effective against the enforcement of weak or invalid patents, no matter who is asserting them. First, if the patent is for ‘data processing or other operations used in the practice, administration, or management a financial product or service’ and not a purely ‘technological invention’, then a broad range of attacks can be mounted against the patent at the USPTO in the covered business method (CBM) review, regardless of when the patent issued or its underlying application was filed. The AIA made special provisions to stay litigation to allow such CBM reviews to proceed and provided for immediate appeals from stay decisions. Second, as explained above, targeted businesses can use inter partes review at the USPTO to challenge patents as invalid over prior art printed publications and patents. Third, if the patent is a new regime patent, then a much broader range of attacks can be made at the USPTO in a ‘post-grant review’, but only if that procedure is sought within the first nine months after the patent issue date. These new tools will be important weapons in defending against patents. I expect the USPTO to declare many claims invalid for one reason or another. Filing – or threatening to file – a solid petition against the patent at the USPTO should make a genuine ‘troll’ want to minimise its loss potential and find a non-litigated solution that allows it to live another day. The alleged infringer gains significant bargaining leverage with the right attack on the patent in the right forum.
FW: Experts predicted a surge of patent filings in the run up to the implementation of the AIA. To what extent did this materialise?
Manzo: It was almost a tsunami. The USPTO saw a sharp spike in patent application filings to beat the trigger date of 16 March 2013 for the new regime. Those applicants retained the right to prove prior invention to overcome putative prior art, avoided the expanded definitions of prior art which apply to first-inventor-to-file patents only, and preserved a broader grace period.
FW: In your opinion, what will be the long-term impact of the AIA? What developments do you predict for the coming months and years?
Manzo: An unintended consequence is that for about 20-25 years, US patent litigation could be complicated by the new AIA provisions in several ways. First, when first-inventor-to-file patents become the subject of infringement litigation, they are likely to be in the same suit with pre-AIA patents. Two different sets of laws will apply, including the definitions of prior art and the grace period. Prior invention will be allowed to be proven for some patents in suit but not others. Courts may want to reconsider their views on bifurcation of claims to avoid rampant confusion by juries. If the case becomes bifurcated on this basis, the cost of litigating to conclusion will necessarily increase. Apart from litigation, inventors will file more provisional applications or multiple provisional applications as work progresses. ‘File early and often’ will be the mantra since pre-filing date inventive activity is virtually irrelevant – except to prove that some other patent applicant derived the invention. For new regime patents, patent challengers will broaden their searches to global proportions, as public uses, on sale activities, and other forms of public knowledge have no geographic borders. The AIA should lead to greater certainty as to patents, provide fast validity challenges that can relieve over-burdened federal courts from adjudicating these exact same issues, and assist patent owners by removing newly-discovered issues before embarking on licensing or litigation. Interference practice will wind down, but a new specialty practice will arise for handling patent challenges at the PTAB. Under the USPTO regulations, lead counsel in these new administrative trials must be a registered US patent attorney or agent. Patent Office licensed practitioners with significant patent litigation experience are very well suited to this new practice.
Edward D. Manzo is a partner at Husch Blackwell LLP. He has successfully resolved numerous patent and trademark infringements and misappropriations on behalf of clients whose businesses involved semiconductors, consumer goods, computing systems, electronics, infrastructure materials and medical technology. He has taught the doctrinal patent law course at DePaul University College of Law and has led dozens of lectures for Patent Resources Group, law schools, bar associations and Intellectual Property Inns of Court. Mr Manzo has authored and co-authored a number of respected reference books focusing on patent claims and the America Invents Act. He can be contacted on +1 (312) 526 1535 or by email: firstname.lastname@example.org.
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Edward D. Manzo
Husch Blackwell LLP