September 30, 2012

Patent Litigation After First-Inventor-to-File: How Long Will We Wander in a Wilderness?

Brad D. Pedersen

Nearly a year after enactment of the Leahy-Smith America Invents Act (AIA), we have yet to experience the biggest changes resulting from what was the most significant patent reform in the United States since 1836. Some have argued that the Patent Act of 1952 was the last big change to patent law; however, it was mostly a codification of existing case law with the exception of changes that overruled the "flash of genius test" that had been established by the Supreme Court. United States patent law really has not experienced changes of this magnitude since 1836 when we went from the original first-to-file (FTF) system to the current first-to-invent (FTI) system. On March 16, 2013, a switch will be flipped and patent prosecution for inventions filed after that date will march forward under an entirely new concept called first-inventor-to-file (FITF). Leahy-SmithAmerica Invents Act, Pub. L. No. 112-29, 125 Stat. 284 (2011). Billed as necessary reforms to bring the United States more in line with other patent systems around the world and to improve the overall quality of our patent system, FITF is actually a unique system, unlike either FTI or the FTF systems used elsewhere around the world. The United States Patent and Trademark Office (PTO) has begun to promulgate guidelines, rules, and regulations to assist patent prosecutors with the uncertainties of the new system, but it will be many years before patent litigators have any significant body of case law to help guide them through the initial wilderness of the new FITF system.

While we are wandering the wilderness without the benefit of case law to guide us, how do patent litigators advise their clients? What is and what isn't prior art under the FITF system? Multi-defendant lawsuits may be a thing of the past, but will consolidation and multi-district litigation make this change largely irrelevant? How will review proceedings be utilized, running in series with patent litigation as opposed to in parallel like current reexamination practice? Will patent owners take advantage of the new supplemental examination process to reduce the potential for allegations of inequitable conduct? For the next several years, until Federal Circuit decisions begin to carve out some precedential jurisprudence, patent counsel will be making educated guesses of how best to advise clients. This article highlights some of the bigger questions that patent counsel will run into as we make our way toward the "promised land" of an improved patent system under the new regime enacted by the AIA.

Why So Long in the Wilderness?

The very first patent applications governed by the FITF won't be filed until March 2013. Even for those applications that are subject to accelerated examination, it will be 2014 before any FITF patents are issued. Due to the current backlog for appeals at the new Patent Trial and Appeal Board (PTAB), it will be at least three to four years before any appeals will be decided by the PTAB for patent applications governed under the FITF system. So, the first appellate decisions under FITF are likely to come from litigation or review challenges to issued patents. Regardless of whether those first FITF patents are asserted in district court litigation or challenged under the new post-grant review proceedings, it will likely be 2016, at the earliest, before appellate decisions on the new section 102 provisions of the AIA begin to issue. If the Patent Act of 1952 is any guide, it will likely be almost a decade before the Supreme Court receives its first major case involving FITF provisions.

Will Multiple-Defendant Litigation be Replaced?

The AIA effectively ended the growing trend of multiple-defendant litigation where a patent owner would sue many defendants as part of the same lawsuit. The tactic was seen by many as providing an unfair advantage to the patent owner, especially for non-practicing entities who benefitted from economies of scale on the one hand and forcing competitors to work together on the other. With recent decisions in both multi-district litigation involving the same patents, and use of consolidated discovery practice by some judges for managing multiple lawsuits filed in the same court on the same patents, it seems likely that most of the problems faced by defendants will remain, although they may have changed in form. The AIA has benefitted defendants in affording them the right to trial alone. This is not insignificant, especially in those instances involving many defendants whose products all blur together and whose defenses may at times seem incompatible when presented to the jury.

When representing a defendant in a consolidated discovery patent lawsuit, there will be new questions on how patent counsel should approach joint discovery. What are the pros and cons for smaller defendants drafting behind the work put in by larger defendants? Will defendants think they are better served by coordinating defenses and possibly saving money by agreeing to work together in a consolidated discovery situation, or are they better off forcing the patent owner to respond to many different discovery requests and case theories? If patent counsel is representing a patent owner, is it good strategy to select a sequence for initiating lawsuits that precludes consolidated litigation, or is it better to try to take advantage of the extra costs and confusions that often come about when multiple defendants' counsel are trying to coordinate a defense strategy? These are some of the strategies that litigants and their counsel will consider. It will take time before trends develop as to which approaches are more successful.

The same economic and time pressures that motivate conserving judicial resources will continue to create a push toward use of consolidated discovery, assuming that discovery schedules are timed closely enough to follow a more unified discovery track. But just because cases start out together doesn't mean they will finish together. If there is an extension granted in one case, does that automatically result in an extension for everyone else on the same unified discovery track? If it appears there will be consolidated discovery, counsel for individual defendants may fight harder on venue and jurisdiction issues as a way to push a defendant farther back in the line and possibly avoid being grouped into consolidated discovery with a unified time track.

If discovery is consolidated, will claim construction also be consolidated? Unique aspects of the potential infringing products can easily result in different defendants wanting to seek differing claim constructions. A court could reasonable want to only construe 10 claims terms, but if there are five defendants, all in a consolidated discovery situation, and each of their products is different, each defendant may want to have claim construction on 10 different terms. Even if claim construction issues are consolidated with different defendants being able to request different terms to be construed, will there be a single Markman hearing, or separate Markman hearings for each defendant?

While each defendant may get a separate trial, that doesn't dictate how a judge will handle summary judgment motions in a consolidated discovery situation. Will a judge force the defendants to consolidate summary judgment motions on validity? If one defendant is successful on a summary judgment motion, will other defendants be allowed to take advantage of that and, if so, how? If a court rules against invalidity arguments advanced by one defendant on a piece of prior art, does that legally or practically estop another defendant from using that same piece of prior art in their invalidity arguments? How does the court decide in what order to take up consideration of the motions by different defendants?

The same pressures that urge for the use of consolidated discovery also will create a push for consolidated claim construction and motion practice. Individual tactics will vary among litigants based on individual case strategies, but best practices will eventually develop for how to tilt the process closer to or further away from consolidated claim construction and motion practice.

Once all the discovery and motion practice is complete, the court still has to try any remaining issues. Even with consolidation in discovery on the same patent asserted against five different defendants, each defendant has their own independent products so there is no way to try them in the same trial. The key issue will be determining the sequencing of the trials. Will the timing be determined by a lottery, based on the time stamp of the filing of the complaint, alphabetical order, or even motion practice? What happens if one of the defendants settles or loses a motion at an earlier trial? What does that do for the second defendant's desire and/or ability to take a similar matter through to trial? Undoubtedly, the additional uncertainty about trial sequencing will impact both trial and settlement strategies for all litigants.

Will New Review Proceedings Impact Litigation?

The new review proceedings created by the AIA include incentives to encourage district court judges to stay patent litigation cases while the PTO evaluates patent validity issues that can be raised in these proceedings. The legislative history clearly shows that Congress was trying to fix the problem of parallel-path proceedings, as well as the unreasonably long timeframe required for the PTO to complete its process, when it eliminated inter partes reexamination and replaced it with the set of post-grant review proceedings that will go into effect on September 16, 2012. By statute, the new review proceedings are supposed to be completed in less than two years, but it remains to be seen whether judges and litigants will accept those incentives and let the PTO decide patent validity issues before the rest of the litigated issues are resolved.

For individual defendants, the review proceedings may turn out to be an attractive option to consider, especially if there is a strong non-infringement argument on which a defendant can fall back in the event a validity challenge, via a review proceeding, is not successful. With the option for challenging whether a business method patent presents proper patentable subject matter in a transitional covered business method (CBM) review proceeding, defendants may want to consider the CBM review proceeding if at least one claim in a patent is directed to a financial service or transaction. While the fees for the new review proceedings are higher than current reexamination proceedings, the combination of PTO fees and lawyer fees to initiate and conclude a review proceeding are still likely to be, at most, a fraction of what a defendant is likely to spend in litigation defense.

For defendants in a multiple-defendant situation, there are additional wrinkles that play a part in the strategy. Consideration of initiating a review proceeding may depend on where a given defendant fits into the case. Does the defendant agree with the invalidity positions to be advanced in a review proceeding, or might those positions have a negative impact on the given defendant's arguments for non-infringement? The addition of the new review proceedings does not appear to significantly change how these issues are dealt with as compared to current practice in multi-defendant litigation.

While the incentives to stay litigation are clear for a defendant who successfully initiates a review proceeding, it is not clear whether other defendants in a consolidated discovery situation will also be able to obtain a corresponding stay of their proceedings. It seems reasonable to expect that if a review proceeding is granted on a petition by one defendant in a consolidated discovery situation, then other defendants in that situation might also receive a stay. But, for example, if the review proceeding is not granted for all of the patent claims at issue, a corresponding stay may not be a foregone conclusion.

For review proceedings initiated by a single defendant, the estoppel issues in any corresponding litigation may be relatively clear. But what happens to review proceeding estoppel when you add the wrinkle of a multiple-defendant situation? If one of the defendants is estopped from raising validity on prior art issues that were raised in a review proceeding, is that estoppel legally or practically imputed to the other defendants in a consolidated discovery situation, even if they have no privity with the party that initiated the review? If this is the case, how might multiple defendants work together in filing review proceedings? Do they come together and draw straws, agreeing that the party who draws the short straw "takes one for the team?" Again, expect there to be a sorting out process over the next few years of what will be considered best practice as various strategies and approaches are attempted by defendants in consolidated discovery situations.

The final rules for review proceedings seem to answer the question about privity among consolidated defendants in the negative. Still, even though only one party may be legally estopped, practically speaking, every other one of the multiple defendants may be estopped if they try to raise the same arguments or variations on the same arguments that were raised in the review proceeding. Why should the court bother hearing these arguments again after the PTO has ruled, especially if the standard for claim construction is broader and the burden of proof is lower in the review proceedings than it is in district court? Consolidated defendants who are not in privity with a review proceeding petitioner will still be impacted by the outcome of the review proceeding.

What Will FITF Change for Patent Validity?

Until the courts start interpreting the new FITF provisions, which likely won't be until 2015, both patent prosecutors and litigators will be relatively in the dark about the correct interpretation of many of changes being made to the U.S. patent system. The PTO has issued proposed rules on how the office will be interpreting the new FITF provisions; however, the proposed rules are quite explicit that they are not to be considered formal interpretation. Also, because the statute has changed so much, it is hard to predict how much current case law will still apply.

The proposed rules highlight what is likely to be a significant debate about the proper scope of the first-to-publish (FTP) grace period under new section 102(b)(1/2)(B). Should the FTP grace period be interpreted narrowly as suggested in the proposed rules? Or should the FTP grace period be interpreted more broadly as advocated by the university consortium in its testimony before Congress? The eventual outcome of this debate may not be resolved until there is final PTO rule making, further congressional clarification or even a Supreme Court decision interpreting these new provisions.

When it comes to case law, KSR remains applicable, as does the current case law for anticipation being used under the new law. But the changes to what will be considered printed or publicly available prior art are open to significant interpretation. One comma in the new section 102(A)(1) could change everything: ", or otherwise publicly available." The legislative history is clear that that last phrase of the new section 102(A)(1) is meant to apply to all of the preceding categories in the section. For that reason, the case law from the old section 102 is likely to be thrown out as precedential value, although not necessarily as instructive value for interpreting the new section 102(A)(1).

In many respects, the changes made to the U.S. patent system are like changing the rules of the game from chess to 3D chess. All of the sudden you are playing with these separately operable pieces that can play in different forums, even though it's really all part of the same game. This creates an exponential increase in complexity. Practitioners and patent owners will need to proceed carefully and thoughtfully as we wander our way through, and hopefully out of, the wilderness of the new patent system over the next few years.

Brad D. Pedersen

Partner, Patterson Thuente Christensen Pedersen, P.A.

Brad D. Pedersen is a patent attorney with more than 25 years of experience in patent law, engineering, business, and entrepreneurship. He is a partner Patterson Thuente Christensen Pedersen, P.A., an intellectual property law firm in Minneapolis, Minnesota.