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    September 01, 2014

    Considerations for Using Post-Grant Proceedings to Attack Patent Validity

    ©2014. Published in Landslide, Vol. 7, No. 1, September/October 2014, by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association or the copyright holder.

    The America Invents Act (AIA), which took effect on September 16, 2012, implemented significant changes in post-grant proceedings in the U.S. Patent and Trademark Office (USPTO). Nearly two years later, new administrative trial proceedings instituted under the AIA have proven to be powerful tools to attack the validity of patents. Since the first decision issued in November 2013,1 nearly all examined patent claims have been canceled. One appellate judge recently called the Patent Trial and Appeal Board (PTAB) panels “death squads killing property rights.”2 These newly available trial proceedings, if properly used, could provide a path to reduce the time and expense associated with patent litigation. This article focuses on the increasing popularity of inter partes review and covered business method reviews, and the unique considerations presented when attacking patent validity.

    Types of Post-Grant Proceedings

    There are different types of post-grant proceedings:

    • Ex Parte Reexamination: Conducted before patent examiners, ex parte reexamination remains essentially unchanged by the AIA and permits challenges of patent validity using patents and printed publications.
    • Supplemental Examination: Conducted before patent examiners, supplemental examination permits an applicant to correct certain defects in patent enforceability prior to litigation, and affords statutory immunity from inequitable conduct charges.
    • Patent Reissue: Conducted before patent examiners, patent reissue remains substantially unchanged post-AIA and allows a patent owner to broaden the scope of an issued patent for two years after grant and to narrow the scope of the patent claims throughout the life of the patent.
    • Inter Partes Review: Conducted before the PTAB, inter partes review (IPR) is a new trial proceeding that replaces the inter partes reexamination and permits challenges of patent validity using a variety of evidence, including patents and printed publications.
    • Covered Business Method Patent Reviews: Conducted before the PTAB and available until September 16, 2020, covered business method patent reviews (CBM) are limited to patents directed to business methods, regardless of their effective filing date, in a process similar to post-grant review.
    • Post-Grant Review: Conducted before the PTAB and available during a nine-month period after patent issuance, post-grant review (PGR) is a new trial proceeding that permits challenges of patent validity on many grounds for patents having an effective filing date on or after March 16, 2013.
    • Derivation Proceeding: Conducted before the PTAB and available for a one-year period following publication of a patent application, derivation proceedings will ultimately replace interference proceedings and permit challenges of patent validity for a noninventor who derived the claimed invention from the inventor and applied for a patent without the inventor’s authorization.
    • Interference Proceedings: Procedurally unchanged by the AIA, the first-to-file aspect of the AIA will eventually eliminate interference proceedings. This proceeding will continue to resolve priority disputes of patents having an effective filing date prior to March 16, 2013.

    Post-Grant Proceedings Are Becoming Increasingly Popular

    Post-grant proceedings are becoming more popular every month. Figure 1 shows the number of AIA petitions filed since September 2012. Through June 5, 2014, a total of 1,477 petitions have been filed.3 The majority of the petitions are for IPR (1,290, or 87.3 percent), followed by CBM (181, or 12.2 percent) and derivation proceedings (6, or 0.4 percent).

    As shown in Figure 1, the rate of filing is increasing. With approximately 90 percent of the challenged claims being canceled by these proceedings, it is expected that the rate of filings will continue to increase. To meet its statutory-mandated deadlines, the USPTO may start to limit the number of filings.4

    Most Petitions Are for Computer/Electrical Patents

    As shown in figure 2, the majority of petitions (70 percent) are for computer and electrical patents. The balance of the petitions are for mechanical, chemical, bio/pharma, and design patents.

    Most Petitions Are Instituted

    As shown in figure 3, the majority of petitions are granted. Roughly 81 percent of IPR petitions are granted and 76 percent of CBM petitions are granted. Of the 1,477 petitions that have been filed, 127 petitions were not instituted and 174 petitions were settled.5

    The PTAB issued its first final decision on November 13, 2013.6 As of May 27, 2014, the PTAB issued 53 final decisions addressing 51 patents.7 All challenged claims were declared unpatentable in 36 patents and some claims were unpatentable in 11 patents. In only four patents were all claims found to be patentable.

    The Majority of Petitions Are in Pending Litigation

    A vast majority of the petitions being filed are also in parallel district court litigation. A study by the authors indicates that about 84 percent of IPRs were in pending litigation and about 70 percent of pending litigations were stayed pending resolution of the petitions. During a recent roundtable discussion on April 22, 2014, the PTAB confirmed that 80–90 percent of petitions are in litigation and 72 percent of motions to stay litigation pending post-grant proceedings were granted.8

    Considerations When Challenging Patent Validity

    As demonstrated during the first two years of the new post-grant proceedings, the new IPR and CBM procedures are speedy mechanisms for challenging the patentability of patent claims. IPRs are quickly becoming the preferred procedure for attacking patent validity.

    IPR and CBM proceedings have unique rules that require their own strategies and a special skill set different from traditional patent prosecution and litigation. The PTAB, for example, has quickly reined in commonly used litigation tactics to take excessive discovery. Similarly, the PTAB has developed rules and procedures that discourage strategies typically used during original patent prosecution for amending claims and overcoming prior art. The following comments focus on IPRs, but are equally applicable to CBMs.

    The Burden for Finding Unpatentability Is Lower

    The IPR petitioner’s burden to show that patent claims are unpatentable is lower in the USPTO than for a defendant in district court litigation. In the USPTO, the petitioner must prove unpatentability by a mere “preponderance of the evidence” standard.9 In district court, a defendant must prove invalidity by “clear and convincing evidence.”10 In addition, unlike the district court, the claims are not presumed to be valid before the PTAB.11

    Claim Construction Is Broader

    Claim construction is central to any evaluation of patent infringement and validity. The PTAB will give claims their “broadest reasonable construction in light of the specification of the patent.”12 In contrast, district courts give claims the “ordinary and customary meaning” to a person of ordinary skill in the art.13 A broader claim construction makes it more likely that prior art exists that will render the patent claims unpatentable.

    When presenting their claim constructions to the PTAB, parties must support their constructions with evidence from the patent prosecution file. Parties are also advised to submit declarations from the inventors and technical experts. The claim construction evidence should contain reasoned opinions, not conclusory opinions or proposed constructions in the briefs without support in the prosecution file or other support.14 Unless there is a definition in the patent specification or other evidence, the PTAB will adopt the ordinary and customary meaning of claim terms.15

    The PTAB will typically provide a preliminary claim construction when deciding whether to institute a trial before the court in a parallel litigation will address claim construction. Because the PTAB’s preliminary claim construction is nonfinal, the PTAB may use a different final construction in its final decision. It has been the authors’ experience, however, that there are usually few, if any, significant differences between the initial and final constructions, especially when the patent owner addresses claim construction in the preliminary response. Thus, it is important that the parties carefully consider the claim constructions presented to the PTAB. It is especially challenging to craft a construction without the infringement and validity positions and other discovery typically exchanged between parties in litigation. The PTAB claim construction is not binding on the district court, but many judges give significant deference to the USPTO’s claim constructions in traditional reexaminations, and the authors expect this will continue with IPRs, CBMs, and PGRs.

    Discovery Is Limited

    Discovery in ex parte reexaminations, IPRs, and litigation is different. Discovery in litigation is limited only by the parties’ imagination under Rule 26 of the Federal Rules of Civil Procedure, whereas there is no discovery in ex parte reexaminations. While IPR proceedings permit discovery, it is significantly less than in a district court. There are three types of IPR discovery: (1) automatic discovery, which includes exhibits cited in paper or testimony; (2) routine discovery, which includes cross-examination of affidavit testimony and noncumulative information inconsistent with a position advanced by a party; and (3) additional discovery when in the “interests of justice.”16 Due to statutory-mandated deadlines to complete the trial within 12 months, motions for additional discovery that may delay the trial have been overwhelmingly unsuccessful. The PTAB routinely denies information typically available in litigation, including discovery relating to legal contentions, documents given to experts, and support for secondary considerations of nonobviousness.17 Unlike litigation where depositions are given wide scope, depositions of IPR affiants are limited to the scope of the subject matter in the affidavits.

    Settlement Leverage

    The pressure on patent owners to settle the IPR before a final decision has been significant. Both the petitioner and the patent owner need to spend significant effort developing a plan to attack or defend the patent, but the petitioner typically has greater time to plan and prepare the petition. In response to the petition and the PTAB’s decision to institute a trial, the patent owner must then identify the best arguments and evidence to support those arguments within a few months. IPRs move quickly. The PTAB must decide whether to institute a trial within six months of the filing of the petition, and render a final decision within 12 months after the trial is instituted. The PTAB’s regimented rules—detailed requirements and limited page limits—force the parties to pick their best arguments, with little room for error. The PTAB’s recent decisions heavily favoring the petitioner only add more pressure on the patent owner to settle the IPR early.

    In contrast to ex parte reexaminations where the USPTO is required to determine the patentability of the claims,18 the parties may request the PTAB to terminate the IPR proceeding if a settlement is reached.19 The PTAB is required to dismiss the petitioner, but has the discretion to dismiss or continue the trial with respect to the patent owner.20 According to the PTAB, the decision whether to dismiss the trial in response to a settlement is based on the progress of the trial. The longer the patent owner waits to settle the IPR, and the longer the IPR progresses, the greater the risk that the PTAB will continue to trial and cancel the claims. Thus, the patent owner is pressured to settle the dispute before the IPR proceeding has progressed too far. There are no guidelines or decisions to delineate when the proceeding has progressed too far to dismiss, but the authors have settled several IPRs after the decision to institute a trial and before the petitioner’s reply to the patent owner’s response.

    Statistics Show the PTAB Is Pro-Petitioner

    Recent statistics show that the PTAB strongly favors the petitioner. As discussed above, about 80 percent of petitions to invalidate at least some of the claims in a patent are granted.21 About 60 percent of all challenged claims are being reviewed. Once a petition is granted, the outcome highly favors the petitioner. In about 70 percent of IPR trials, all instituted claims were canceled. In almost all of the remaining trials, at least some of the instituted claims were canceled. Out of the 53 final decisions issued since May 2014, only two IPR proceedings resulted in the PTAB finding all instituted claims patentable.22 At a recent PTAB roundtable discussion, Chief Administrative Patent Judge James Smith stated he does not believe this trend will continue. Practitioners have noted that these highly favorable outcomes for petitioners may have resulted from particularly strong cases being selected for the first IPR petitions. The recent increase in filings may indicate that petitioners are now bringing weaker cases, and could result in the PTAB finding a higher percentage of claims to be patentable.

    The Limited Ability of the Patent Owner to Amend the Claims

    One of the significant factors favoring IPRs rather than ex parte reexaminations as the mechanism to attack patentability is the limited ability of the patent owner to amend the claims. Unlike ex parte reexaminations, which permit the patent owner to amend the claims to overcome prior art and read on accused infringing devices, IPRs do not provide for claim amendments as a matter of right—a patent owner must move to amend its claims, but can do so only once.23 After the PTAB grants permission to file a motion to amend, the amendments are limited to cancellation of any challenged claim and a “reasonable number” of substitute claims.24

    Unlike initial patent examination or the old inter partes reexamination, the PTAB does not examine the amended claims. Thus, the PTAB has set a high bar for the patent owner to prove patentability of the amended claims. Instead of having to overcome the references identified by the petitioner or the examiner, the patent owner must prove the “general patentability [of the amended claims] over prior art.”25 To establish patentability of the proposed amended claims, a patent owner may not simply show that the newly added limitations in the amended claims are supported by the specification and were not taught or suggested by the petitioner’s identified prior art. Instead, the patent owner must define the level of ordinary skill in the art and what was previously known in the art for the newly added limitations. The patent owner must also either affirmatively state that he or she was the first to have invented or developed that feature, or if not, where those features existed in other contexts and how they worked.26

    The burden to prove patentability, coupled with a 15-page limit, significantly limits the ability to amend.27 Of the 1,290 IPR trials instituted, the first successful motion to amend was granted on May 20, 2014.28 As practitioners examine the guidelines and the PTAB refines its rules and standards, the authors expect that the ability to amend claims will ease in the future.

    Petitioner Estoppel Is Limited

    The estoppel effect in IPRs is a much more significant factor than in ex parte reexaminations. In IPRs, a petitioner is estopped from relitigating invalidity based on any issue raised or that reasonably could have been raised at the PTAB. This standard has not been delineated by the PTAB. Estoppel requires a final decision, but after that it gets murky. It is unclear whether prior art that has been identified but not raised is also estopped. Similarly, it is unclear whether prior art and invalidity arguments raised by the petitioner but not addressed by the PTAB give rise to estoppel. Estoppel, however, does not reach all invalidity arguments. Because only patents or published prior art may be raised in IPR proceedings, a defendant in district court may still raise invalidity arguments, such as nonpatentable subject matter, statutory bars triggered by public use or sale, or lack of sufficient written description and enablement. If the USPTO does not institute the IPR trial or the parties settle, estoppel does not attach to the petitioner.29

    Timing Is Generally Faster

    The IPRs will generally be faster than district court litigation and ex parte reexaminations. IPRs move quickly—the PTAB must decide whether to institute a trial within six months of the filing of the petition, and render a final decision within 12 months after the trial is instituted, with only a possible six-month extension for good cause.30 Median time to trial in the district court is around 30 months, with significant variations across jurisdictions.31 The average pendency of ex parte reexaminations is nearly 28 months.32

    It Could Save Money

    According to an informal survey, the attorney’s fees and costs to complete a PTAB proceeding range from $200,000 to $850,000. In contrast, a patent lawsuit in the district court costs in the range of $530,000 to $3.5 million through the end of discovery, and $970,000 to $6 million through final disposition.33 District court litigation typically involves increased discovery costs, hearings, and additional issues, including infringement, which is not determined at a PTAB proceeding. However, if the litigation is not stayed, the parties will incur additional costs as the IPR and district court litigation proceed concurrently.

    PTAB Has Technical Expertise

    In contrast with most district court judges and juries, the PTAB is staffed with experienced patent attorneys with technical backgrounds. Familiarity with patent law and greater technical understanding favors petitioners, particularly where the technology or aspects of patent law at issue are complex.

    Because the PTAB judges have extensive patent litigation and/or patent prosecution experience, practitioners must have an early and thorough plan to present their case and arguments. The early decisions demonstrate that the PTAB will efficiently weed out redundant, ancillary, or weak issues to isolate the crucial dispositive issues. The PTAB is an ideal tribunal for petitioners with a strong unpatentability case or for patent owners if the unpatentability case requires a technical analysis that is difficult, if not impossible, to present to lay judges or juries. This requires practitioners who are skilled in post-grant proceedings, not lay trial lawyers who are not familiar with the intricacies of the strict and highly technical IPR rules or do not understand the interplay between post-grant proceedings and patent litigation.

    It has been the authors’ experience that a skilled patent practitioner will be able to present a well-reasoned unpatentability argument that is a detailed, precise tutorial of the prior art. Properly presenting an unpatentability argument is often tedious, but a skilled patent lawyer will address all of the claim limitations while avoiding broad characterizations of the prior art. In response to the expertise of the PTAB, it is becoming more important that practitioners be able to articulate why a person of ordinary skill in the art would find the proposed prior art combination obvious.34 According to comments made during recent PTAB roundtable discussions, the PTAB disfavors attorney argument that merely recites an advantage or goal in the prior art that meets an advantage or goal of the proposed combination, a tactic commonly used by inexperienced practitioners or lay trial lawyers. The PTAB, however, has looked with favor on declarations that present a coherent basis for the rationale to combine.35

    The Future Looks Promising

    Nearly two years after implementation of the America Invents Act, the new administrative trial proceedings have proven to be powerful tools to attack the validity of patents. The increasing number of new petitions demonstrates the patent bar’s interest in these newly available proceedings. The recent PTAB decisions indicate that these new evidentiary proceedings, if properly used, could provide a path to reduce the time and expense associated with patent litigation. As the USPTO and the patent bar flush out these new procedures over the next year, it will be interesting to see how the post-AIA experience will affect the conduct and resolution of patent disputes.

    Endnotes

    1. Garmin Int’l, Inc. v. Cuozzo Speed Techs. LLC, 108 U.S.P.Q.2d (BNA) 1852 (P.T.A.B. 2013), Paper No. 59.

    2. Former Chief Judge Rader of the Court of Appeals for the Federal Circuit initially made this comment at the American Intellectual Property Law Association (AIPLA) annual conference in October 2013, and reiterated his statement at a conference hosted by George Mason University School of Law in May 2014.

    3. Patent Trial and Appeal Board AIA Progress: Statistics (as of 6/5/14), USPTO, Article no longer available [hereinafter AIA Statistics].

    4. See 37 C.F.R. § 42.102(b) (allowing the director of the USPTO to limit the number of petitions that may be instituted during the first four years after implementation of IPR).

    5. AIA Statistics, supra note 3.

    6. Garmin, 108 U.S.P.Q.2d (BNA) 1852.

    7. The authors compiled this data using information provided by the PTAB website.

    8. AIA Trial Roundtables, USPTO, 49 (May 3, 2014), Article no longer available

    9. 35 U.S.C. § 316(e).

    10. Microsoft Corp. v. i4i Ltd. P’ship, 131 S. Ct. 2238, 2242 (2011).

    11. 35 U.S.C. § 282 (“A patent shall be presumed valid.”).

    12. 37 C.F.R. § 42.100(b).

    13. Shire Dev., LLC v. Watson Pharm., Inc., 746 F.3d 1326, 1330 (Fed. Cir. 2014).

    14. Veeam Software Corp. v. Symantec Corp., No. IPR2013-00141 (P.T.A.B. Aug. 7, 2013), Paper No. 11.

    15. Johnson Health Tech. Co. Ltd. v. Icon Health & Fitness, Inc., No. IPR2014-00184 (P.T.A.B. June 10, 2014), Paper No. 12 (“We interpret the claim terms of the [patent] according to their ordinary and customary meaning in the context of the patent’s written description.”).

    16. 37 C.F.R. § 42.51(b).

    17. Apple Inc. v. Achates Reference Publ’g, Inc., No. IPR2013-00080 (P.T.A.B. Apr. 3, 2013), Paper No. 17.

    18. 37 C.F.R. § 1.570.

    19. 35 U.S.C. § 317.

    20. 37 C.F.R. § 42.74(a).

    21. See AIA Statistics, supra note 3; AIA Trial Roundtables, supra note 8.

    22. See ABB Inc. v. ROY-G-BIV Corp., Nos. IPR2013-00074, – 00286 (P.T.A.B. Apr. 11, 2014), Paper No. 80.

    23. 35 U.S.C. § 316(d).

    24. Id. The rule creates a presumption of a one-for-one substitution in which a substituted claim is allowed to replace a challenged claim.

    25. Idle Free Sys., Inc. v. Bergstrom, Inc., No. IPR2012-00027 (P.T.A.B. June 11, 2013), Paper No. 26.

    26. Id.

    27. 37 C.F.R. § 42.24(a)(1)(v).

    28. Int’l Flavors & Fragrances, Inc. v. U.S. Dep’t of Agriculture, No. IPR2013-00124 (P.T.A.B. May 20, 2014), Paper No. 12.

    29. 35 U.S.C. §§ 315(e), 317(a).

    30. 35 U.S.C. §§ 314(b), 316(a)(11); 37 C.F.R. § 42.107(b).

    31. Chris Barry et al., PricewaterhouseCoopers LLP, 2013 Patent Litigation Study 21 (2013), Article no longer available.

    32. Ex Parte Reexamination Filing Data, USPTO (Sept. 30, 2013), http://www.uspto.gov/patents/stats/Reexamination_Information.jsp (follow “ex parte reexamination historical statistics” hyperlink).

    33. Am. Intellectual Prop. Law Ass’n, 2013 Report of the Economic Survey (2013).

    34. See Dell Inc. v. Elecs. & Telecomms. Research Inst., No. IPR2014-00152 (P.T.A.B. May 16, 2014), Paper No. 12 (denying petition for institution because the petitioner failed to explain how a person of ordinary skill in the art would be motivated to combine the cited references); Heart Failure Techs., LLC v. CardioKinetix, Inc., No. IPR2013-00183 (P.T.A.B. July 31, 2013), Paper No. 12.

    35. See Riverbed Tech., Inc. v. Silver Peak Sys., Inc., No. IPR2014-00245 (P.T.A.B. June 11, 2014), Paper No. 12 (deciding to institute proceedings based on well-supported rationale to combine references); Vestcom Int’l, Inc. v. Grandville Printing Co., No. IPR2013-00031 (P.T.A.B. Apr. 1, 2013), Paper No. 22.