Practical strategies for challenging US patents at the Patent Office
May 2014 | PROFESSIONAL INSIGHT | INTELLECTUAL PROPERTY
Financier Worldwide Magazine
The 2011 America Invents Act (AIA) created several avenues for quick, efficient adversarial review of granted US patents before the Patent Office and more specifically, the Patent Trial and Appeal Board (generally ‘PTO Review’). One, Post-Grant Review (PGR), similar to a European opposition proceeding, provides adversarial review of patents within nine months of issuance on a wide array of grounds, although the patent must have an earliest effective date on or after 16 March 2013 to be eligible. Another, Inter Partes Review (IPR) provides an adversarial review – limited to whether the patent’s claims are anticipated or obvious – and only after any period for PGR has closed, to the extent that a patent is PGR-eligible based upon its earliest effective date. Finally, Covered Business Method review (CBM) opens PGR review to all patents related to “data processing or other operations used in the practice, administration, or management of a financial product or service”.
Through these new procedures, the AIA largely met its goal of providing a cheaper, faster alternative to district court invalidity litigation. These mechanisms have become popular amongst patent defendants as well as industry competitors generally. But as with any litigation strategy decision, whether or not an entity should utilise PTO Review is a nuanced one that requires weighing a complex set of issues, including the limitations of the various proceedings. What follows is a discussion of the key considerations that companies typically consider: cost, speed, estoppel, expertise and leverage.
One of the most attractive features of PTO Review is the cost. PTO Review generally costs significantly less than district court litigation, and it occurs without the added cost of infringement, inequitable conduct and damages discovery and determination. While a district court litigation routinely costs in excess of $1.5m in attorney’s fees. A typical PTO Review generally costs no more than $500,000 in attorney’s fees, and often considerably less.
While PTO Review costs significantly less than district court litigation when the two are performed serially, PTO Review becomes an additive cost if a district court refuses to stay the case pending the outcome of the PTO Review. Many courts routinely stay cases pending PTO Review, as long as the stay is sought early enough in the litigation, but each judge has discretion as to whether to stay. When a judge refuses to stay related litigation, the PTO Review cost goes from being a significant cost reduction to being a substantial, additive cost. So, it is critical to understand your judge’s tendencies before deciding to seek PTO Review.
Another cost consideration particularly important when defending against a non-practicing entity/patent-assertion entity (collectively ‘NPE’), is the PTO Review’s filing fees. For example, an IPR costs $9000 to file for up to 20 claims of a patent (PGR and CBM are $12,000), plus $200 for each additional claim (PGR and CBM are $250 for each additional claim). If the Patent Office institutes the review, there is an additional cost to cover the Patent Office’s review procedure of $14,000 for the first 15 instituted claims (PGR and CBM are $18,000), plus $400 for each additional instituted claim (PGR and CBM are $550). While that cost is small as compared to the total cost of the proceeding, it can be a significant percentage of a plaintiff’s cost of defence settlement demand, which is an especially common tactic for NPEs. So, in some circumstances the filing fees alone may be cost-prohibitive for an accused infringer.
Your costs are not the only costs to consider. Particularly if you believe the patent holder may have contingent fee counsel, forcing the patents into PTO Review will add significant costs for the patent holder. It is much harder to prosecute a PTO Review on a contingent fee basis because if the patent holder survives the process it does not get a monetary reward. Seeking PTO Review, therefore, creates some cost parity with a contingent-fee patent plaintiff and also oftentimes requires additional prosecution counsel separate from the patent holder’s litigation counsel.
One of the key aspects of PTO Review is that the Patent Office must complete the review within 12 months of institution. The Patent Office is allowed a six month extension of that deadline, but only for good cause and the Patent Office has generally been meeting its 12 month deadline without extension. PTO Review is fast and there are no reliable ways to slow it down. This guaranteed timing is a significant advantage to an accused infringer, both in terms of getting a fast result and keeping costs low. It also requires that you be fully prepared before seeking institution of PTO Review. If a party is not fully prepared keeping up with the pace of a PTO Review proceeding can be overwhelming. And combining the speed of a PTO Review with the additional issues and strategic complexities of un-stayed district court litigation creates overlapping costs and complicated strategy decisions.
Another upside to the speed of the PTO Review is that the Patent Trial & Appeal Board’s (PTAB) decision instituting review, which issues within six months of filing the petition, comes with a preliminary claim construction. In most instances of parallel district court litigation, that means that you receive an initial claim construction determination well before the district court considers claim construction or even has it fully briefed. The PTAB’s claim construction decision, even once it is final, is not binding upon the district court. And the PTAB uses a much broader claim construction standard – the broadest reasonable interpretation of the claims – than the district court. But regardless of these issues, a non-binding claim construction from the PTAB is still a powerful advocacy tool before the district court. In instances where you feel you have strong claim construction arguments, the PTO Review can be a powerful tool even before it becomes final.
Once a PTO Review ends with a final decision, both the petitioner and any party in privity with the petitioner is estopped from asserting any invalidity ground against a reviewed claim that the petitioner “raised or reasonably could have raised” in the PTO Review. As of the writing of this article, there are two significant unknowns in this standard.
First, the courts have not defined the bounds of privity. Any party that is somehow associated with a petitioner has to be very careful to maintain clear separation with the petitioner if that party believes they are not in privity with the petitioner. That can be especially difficult in the situation where, for example, a petitioner is part of a joint defence group that is defending the patents in district court litigation in which some defendants are not participating in PTO Review. In that instance, all parties must remain vigilant in not creating a perception of privity based upon district court litigation, where many of the same invalidity arguments will likely be raised.
Second, the “raised or reasonably could have raised” standard has not been defined. For estoppels to apply, there most be a final decision and the arguments raised are estopped, but after that it gets murky. For example, it is unclear whether prior art that had been identified and not raised is also estopped. It is also unclear whether prior art that had not yet been identified is estopped. Of course, a patentee will almost always have an argument, whether or not it is legitimate, that by its nature any piece of prior art is public and, therefore, could have been “reasonably” found and raised at the time of seeking PTO Review.
This analysis is complicated by the Patent Office’s strict PTO Review petition page limits (60-page limit for IPR and 80 pages for PGR and CBM). Furthermore, the page limits are inclusive of any claim charts the petitioner submits, whether they are part of the body of the petition or attached as exhibits. With only 60/80 pages, a petitioner can only discuss its best arguments, not all of its arguments. A petitioner may choose to file multiple petitions which allows for more careful analysis of more references and/or more claims, but even that process likely has some limitation and at some point becomes cost-prohibitive.
Furthermore, even if a party decides to perform a scorched-earth prior art search and then file on every viable argument, there are still limitations. The Patent Office decisions have been focusing upon what they consider to be the best or key arguments and labelling the rest of the arguments cumulative, without providing any substantive analysis of the “cumulative” arguments. It is not clear whether the arguments deemed “cumulative” will be estopped, although there are arguments on both sides of that issue.
The estoppel issues are complex and a petitioner needs to analyse and understand them in detail before filing a petition that could significantly limit its rights. Similarly, a party that has any relationship to a petitioner, including membership in a joint defence group related to the patents-at-issue, needs to analyse the privity issues and protect itself.
The Patent Office has hired carefully and extensively to create a stable of PTAB administrative law judges with deep knowledge of both the patent system and patent litigation. As a direct result of that, in the first year plus of PTO Review practitioners have seen the three judge panels that handle and decide each PTO Review to be engaged, active participants in the process. They understand the details of both the asserted patent and the prior art, coupled with a clear understanding of the litigation process and how it can get out of hand. It is relatively common for the PTAB to request a call with counsel on an issue that they identify leading to spirited, engaged debates. This expertise leads to thorough analysis and carefully thought out decisions. And it is especially valuable where your strongest arguments are obviousness arguments that combine multiple references. The PTAB is much more equipped to consider multiple references than a typical lay jury.
One of the key reasons that accused infringers file PTO Review petitions is to gain settlement leverage. A key component of PTO Review is that they can be settled, unlike ex parte reexamination which cannot be stopped by anyone but the Patent Office once a petition is filed. So, a PTO Review can be a significant settlement lever for an accused infringer because of its speed, the skill of the PTAB judges, the early, initial claim construction ruling and the very limited set of circumstances in which the patent holder is allowed to amend the claims to overcome the asserted prior art. As with estoppel, however, it is important to carefully consider how the dynamics of a joint defence group impact your individual leverage. The decision as to whether to join a group filing a PTO Review or not can be a very complex one that has significant impact upon your settlement potential.
Deciding whether or not to utilise PTO Review is a complex, layered decision that requires careful review of the circumstances of your case, the parties involved and the particulars of the asserted patent and prior art, as well as the dynamics of any joint defence group. But it is clear that PTO Review is a powerful tool for accused infringers or marketplace competitors to place a patent holder’s patent in jeopardy and make sure that the PTO quickly and relatively inexpensively considers the key prior art references and arguments.
R. David Donoghue is a partner and Steven E. Jedlinski is an associate at Holland & Knight LLP. Mr Donoghue can be contacted on +1 (312) 578 6553 or by email: firstname.lastname@example.org. Mr Jedlinski can be contacted on +1 (312) 715 5818 or by email: email@example.com.
© Financier Worldwide
R. David Donoghue and Steven E. Jedlinski
Holland & Knight LLP