Seven Important Changes Following the AIA

The AIA created several new proceedings that impact patents and, by extension, patent license agreements.

Post-Grant Review

PGR is a trial proceeding conducted at the Patent Trial and Appeal Board (PTAB) to review the patentability of one or more claims in a patent on any ground that could be raised under 35 U.S.C. § 282(b)(2) or (3).¹ The procedure for conducting PGR proceedings took effect on September 16, 2012, and applies to patents issuing from applications subject to first-inventor-to-file provisions of the AIA.

The PGR process begins with a third party (a person who is not the owner of the patent) filing a petition no later than nine months after the grant of the patent or issuance of a reissue patent.² A PGR may be instituted upon a showing that at least one claim challenged is more likely than not unpatentable.³ If instituted and not dismissed, a final determination by the PTAB will be issued within one year (extendable for good cause by six months).

In a PGR, 35 U.S.C. § 323⁴ provides that only a patent owner, not a licensee, may file a preliminary response to a petition. Accordingly, a licensee may want to negotiate for input and control of any document that a patent owner files with the USPTO.

In the settlement context, 35 U.S.C. § 327(a) provides: “A post-grant review instituted under this chapter shall be terminated with respect to any petitioner upon the joint request of the petitioner and the patent owner, unless the [USPTO] has decided the merits of the proceeding before the request for termination is filed.” As such, settlement for a PGR may be achieved through the joint request of the petitioner and the patent owner. The statute does not provide the licensee any role in settlement. Thus, a licensee may attempt to negotiate control over whether to settle and the terms of such a settlement, or at a minimum require that the patent owner/licensor obtain the licensee’s express written consent prior to entering into a settlement agreement. These same concerns apply to CBM proceedings, which are similar to PGR proceedings but are directed specifically toward patents claiming financial products and services.

Inter Partes Review

IPR is a trial proceeding conducted at the PTAB to review the patentability of claims in a patent on a ground that could be raised under 35 U.S.C. § 102 or 103, only on the basis of prior art consisting of patents or printed publications.⁵ IPRs began on September 16, 2012.

For first-inventor-to-file patents, the IPR process begins with a third party filing a petition after the later of: (1) nine months after the grant of the patent or issuance of a reissue patent, or (2) the termination of an instituted PGR. These deadlines do not apply to first-to-invent patents.

An IPR is instituted on a showing that there is a reasonable likelihood that the petitioner would prevail regarding at least one challenged claim. If the proceeding is instituted, a final determination by the PTAB will be issued within one year (extendable for good cause by six months).

In an IPR, 35 U.S.C. § 313⁶ provides that only a patent owner, not the licensee, may file a preliminary response to a petition. Accordingly, a licensee may seek during negotiations to have input into and control rights over any document the patent owner files with the USPTO generally and the PTAB specifically.⁷

In the IPR settlement context, 35 U.S.C. § 317(a) provides: “An inter partes review instituted under this chapter shall be terminated with respect to any petitioner upon the joint request of the petitioner and the patent owner, unless the [USPTO] has decided the merits of the proceeding before the request for termination is filed” (emphasis added). Accordingly, settlement for an IPR may be achieved through the joint request of the petitioner and the patent owner. Thus, during negotiations for rights, a licensee may seek to control whether to settle and the terms of a settlement, and require the licensor/patent owner to obtain the licensee’s express written consent prior to entering into the settlement agreement.

Supplemental Examination

Effective September 16, 2012, supplemental examination allows a patent owner to have the USPTO consider, reconsider, or correct information that the patent owner believes is relevant to the patent.⁸ For example, the patent owner may ask the USPTO to consider information and related issues that a potential challenger might raise in litigation. A court or agency cannot hold a patent unenforceable based on information considered by the USPTO during a supplemental examination proceeding. However, the statute clarifies that 35 U.S.C. § 257(c)(1) does not apply to: (1) an allegation set forth with particularity in a civil action or in a notice received by the patent owner in an abbreviated new drug application (ANDA) paragraph IV certification before the date of a supplemental examination request; or (2) a defense raised in an action brought in the International Trade Commission or in a civil action brought in a federal district court.⁹

Only the patent owner may file a request for supplemental examination during the period of enforceability of the patent. As such, a licensee may seek in negotiations to control whether to file a petition for supplemental examination, when to file, the content of the petition, and all correspondence with the USPTO. For example, careful consideration must be given to any decision on supplemental examination in the Hatch-Waxman context. Under the Hatch-Waxman Act, a generic drug company can file an ANDA 48 months after approval. Because supplemental examination is unavailable if a paragraph IV certification is filed and pleaded with particularity prior to the filing of a petition for supplemental examination, a decision should be made whether to file for supplemental examination within 48 months of approval.

Inventor Declarations

The AIA allows a patent assignee to file a substitute statement in lieu of an inventor’s declaration or oath when an inventor is: (1) unable to submit the oath, or (2) unwilling to submit an oath yet has an obligation to assign the invention to the assignee.¹⁰ A licensee may negotiate for all employees of the licensor to execute an assignment agreement, and require that the licensor file a substitute statement should the licensee request it.

Derivation Proceedings

To retain the one-year grace period for filing applications in the United States after a public disclosure, the AIA introduced the process whereby an “applicant” may request a derivation proceeding.¹¹ Because the “applicant” would be the future patent owner/licensor, a licensee may negotiate to obtain control over whether to initiate a derivation proceeding, control over the content of papers filed with the USPTO, and cooperation with the licensor’s employees and inventors in the filing and prosecution of the derivation proceeding.

Citation of Prior Art and Written Statements

Notably, the written statement of a patent owner filed in a proceeding before a federal court or the USPTO is citable prior art in reexamination proceedings the director orders, in IPR proceedings, and in PGR proceedings.¹² Therefore, a licensee may also seek during negotiations input or control of documents filed during the prosecution of patents as well as their content.

Joint Research Agreements

Under the Cooperative Research and Technology Enhancement (CREATE) Act of 2004 (which amended 35 U.S.C. § 102(c)), confidential information shared under a joint research agreement in effect on or before the date the claimed invention was made will not be the basis of an obviousness determination under patent law.¹³ A licensee may desire to have such a clause in an agreement to avoid any previously filed and issued patents the licensor may have obtained prior to entering into the agreement. Thus, a licensee may desire to include in a license agreement language similar to that set forth below:

Notwithstanding anything to the contrary in this Agreement, Licensee shall have the right to invoke 35 U.S.C. § 102(c) without the prior written consent of the other Party. Where Licensee intends to invoke 35 U.S.C. § 102(c) as permitted by the preceding sentence, it shall notify the other Party and the other Party shall cooperate and coordinate its activities with Licensee with respect to any submissions, filings, or other activities in support thereof. The Parties acknowledge and agree that this Agreement is a “joint research agreement” as defined in 35 U.S.C. § 100(h).¹⁴

Enforceability of “No Challenge” Clauses Post-AIA

Pre-Litigation Traditional “No Challenge” Clauses Are Not Enforceable

In the aftermath of MedImmune, Inc. v. Genentech, Inc.,¹⁵ which breathed life into a licensee’s ability to threaten patentees with litigation, patentees tried to protect themselves by bargaining for clauses that prevent the licensee from challenging the patent’s validity (i.e., “no challenge” clauses). However, the Supreme Court in Lear, Inc. v. Adkins introduced the doctrine of licensee estoppel, whereby pre-litigation “no challenge” clauses were deemed unenforceable in all license agreements.¹⁶ The holding of Lear has been extended to patent licenses as well; therefore, pre-litigation “no challenge” clauses are unenforceable in patent cases.¹⁷

“No Challenge” Clauses in License Agreements or Consent Judgments Used to Settle Litigation Are Enforceable

If the license agreement with a “no challenge” clause is entered into when litigation is threatened, even if prior to initiation, the clause is enforceable.¹⁸ Also, for public policy and judicial economy reasons, the Lear doctrine does not apply to post-litigation situations because courts will honor the settlement terms of parties that have already had their day in court.

Many pre-AIA litigation settlement agreements have language that mirrors, “licensee will not challenge the patent in any suit in any United States district court or in any court in any foreign country challenging or contesting the validity of the patent.” In the post-AIA context, case law suggests that a party may challenge the patent in a new PTAB proceeding without breaching that settlement clause.¹⁹ Moreover, the post-AIA challenges can be settled by agreement. As such, a “no challenge” clause in a settlement agreement should be drafted to cover all challenges to the validity of the patent.

Licensees should leverage their royalty payments to obtain “no challenge” clauses with limited power. They can also tactfully leverage use of post-grant proceedings by drafting a petition and showing it to the other side, prior to filing. Combined with statistics of the PTAB’s patent invalidation rate, and the likelihood that a particular judge or district will grant a stay of litigation while the PTAB is deciding, the licensee can obtain favorable terms.

Challenge Disincentives Are Enforceable

Licensor Strategies and Best Practices

There are various alternatives a licensor can use to incentivize “no challenge” clauses, without running afoul of the rule against enforceability. For example, a licensor can negotiate a shorter license term, with renewal contingent on no disputes or litigation between the parties concerning the patent covered by the license agreement.

A licensor may also negotiate notice and information procedures, where the licensee must give the licensor advanced notice and information regarding any potential challenge. This advanced notice may help a licensor strategically utilize one of the many post-grant proceedings in the aftermath of the AIA, file a request for an ex parte reexamination, or file a reissue application to fix any issues with its patent.

A licensor may additionally set up a royalty structure to disincentivize patent challenges. For example, if a licensor sought a higher up-front license cost, a licensee may be less inclined to challenge a patent and more inclined to reap the benefits of having the license at a reduced (or negligible) later cost. A licensor could negotiate a royalty increase in the event that a licensee challenged the patent, or introduce a fee shifting clause, which might require the payment of attorneys’ fees and costs upon a challenge.

These strategies may stop the licensee’s challenge altogether.

Licensee Strategies and Best Practices

Third-Party Challenges to Patent Owner’s Patent. A licensee may require that a licensor notify the licensee of any challenges, or threatened challenges, to the patent made by a third party. Service of papers in a post-grant proceeding involves the patent owner only, and initially only the patent owner’s prosecution counsel. A licensee probably would not receive notice that a patent has been challenged by a third party unless the patent owner tells the licensee. Sample license language includes:

If Licensor learns a Third Party has filed a Post-Grant Proceeding regarding any Licensed Patent, Licensor will notify Licensee in writing to that effect within 10 days of such filing. Once such a Post-Grant Proceeding has commenced, Licensor shall provide Licensee:

(A) with a copy of any action, communication, letter, or other correspondence issued by the relevant patent office or the Third Party within at least 10 days of receipt thereof;

(B) with a copy of any proposed response, amendment, paper, or other correspondence to be filed with the relevant patent office no more than 30 days prior to filing the same in any patent office worldwide, unless otherwise agreed by patent counsel for both parties. Licensee may provide suggestions and recommendations regarding the content of the response, amendment, paper, or other correspondence by no later than 15 days prior to its filing. Licensor shall accept any suggestions or recommendations Licensee provides;

(C) with a copy of any response, amendment, paper, or other correspondence as filed with the relevant patent office no more than 10 days²⁰ after Licensor receives confirmation from the relevant patent office that the response, amendment, paper, or other correspondence has been filed; and

(D) Licensor agrees not to settle any Post-Grant Proceeding a Third Party files regarding a Licensed Patent without the prior written approval of Licensee, not to be unreasonably withheld or delayed.

Patent Owner Challenges to Its Patent. While drafting the license terms, a licensee can negotiate that a patent owner not file its own request to modify the patent without the licensee’s approval, include an express right to challenge, and/or make explicit that the patent owner makes no admission of validity or enforceability of the patent. A licensee can also limit licensor disincentivizing clauses by limiting the forum for challenges. For example, proceedings in front of the PTAB are significantly cheaper and more efficient than proceedings in front of a federal district court. As such, a licensee can include language similar to:

Should a Party desire to file a Post-Grant Proceeding regarding a Licensed Patent, the Party shall so notify the other Party. The Parties shall then consult with each other and consider each other’s input regarding whether such a post-grant proceeding should be filed; provided, however, Licensee shall have final decision authority regarding filing such a proceeding. Should such a proceeding be filed, Licensor shall provide Licensee:

(A) with a copy of any action, communication, letter, or other correspondence issued by the relevant patent office within at least 10 days of receipt thereof;

(B) with a copy of any response, amendment, paper, or other correspondence to be filed with the relevant patent office no more than 30 days prior to filing the same in any patent office worldwide, unless otherwise agreed by patent counsel for both parties. Licensee may provide suggestions and recommendations regarding the content of the response, amendment, paper, or other correspondence by no later than 15 days prior to its filing. Licensor shall accept any suggestions or recommendations Licensee provides;

(C) with a copy of any response, amendment, paper, or other correspondence as filed with the relevant patent office no more than 10 days after Licensor receives confirmation from the relevant patent office that the response, amendment, paper, or other correspondence has been filed; and

(D) Licensor shall not settle such a Post-Grant Proceeding without the prior written approval of Licensee, not to be unreasonably withheld or delayed.

The Parties agree that for this Agreement, “Prosecution” shall not include Post-Grant Proceedings.“Post-Grant Proceedings” means all proceedings before any national patent authority that involves the review, examination, analysis, or any combination thereof, of any issued Patent. Particular examples of Post-Grant Proceedings include, but are not limited to, post-grant review proceedings, inter partes review proceedings, supplemental examination, patent interference proceedings, opposition proceedings, and reexamination.

Conclusion

The AIA has introduced various proceedings that dramatically affect strategic and practical decisions about licensing. Similarly, the case law concerning patent licenses has raised new considerations for parties wishing to enter into a license agreement. Staying up-to-date on recent developments is more critical than ever to ensure successful license negotiations.

Endnotes

1. Section 282(b) provides:

The following shall be defenses in any action involving the validity or infringement of a patent and shall be pleaded:

. . . .

(2) Invalidity of the patent or any claim in suit on any ground specified in part II as a condition for patentability.

(3) Invalidity of the patent or any claim in suit for failure to comply with—

(A) any requirement of section 112, except that the failure to disclose the best mode shall not be a basis on which any claim of a patent may be canceled or held invalid or otherwise unenforceable; or

(B) any requirement of section 251.

2. Post Grant Review, USPTO, http://www.uspto.gov/patents-application-process/appealing-patent-decisions/trials/post-grant-review (last visited Oct. 18, 2015).

3. Id.

4. Section 323 provides: “If a post-grant review petition is filed under section 321, the patent owner shall have the right to file a preliminary response to the petition . . . .”

5. Inter Partes Review, USPTO, http://www.uspto.gov/patents-application-process/appealing-patent-decisions/trials/inter-partes-review (last visited Oct. 18, 2015).

6. Section 313 provides: “If an inter partes review petition is filed under section 311, the patent owner shall have the right to file a preliminary response to the petition.”

7. In most circumstances, the licensee will be willing to publicly disclose/acknowledge its license agreement with the licensor. Where the licensee seeks to remain anonymous, real party in interest considerations arise. See Rules of Practice for Trials before the Patent Trial and Appeal Board and Judicial Review of Patent Trial and Appeal Board Decisions, 77 Fed. Reg. 48,612 (Aug. 14, 2012) (to be codified at 37 C.F.R. pts. 1, 42 & 90).

8. 35 U.S.C. § 257(a).

9. Id. § 257(c)(2).

10. Id. § 115(d).

11. The applicant’s petition for a derivation proceeding must set forth with particularity “the basis for finding that an individual named in an earlier application as the inventor or a joint inventor derived such invention from an individual named in the petitioner’s application as the inventor or a joint inventor and, without authorization, the earlier application claiming such invention was filed.” Id. § 135(a)(1).

12. Id. §§ 301, 304, 314, 324.

13. Section 102(c) provides:

Subject matter disclosed and a claimed invention shall be deemed to have been owned by the same person or subject to an obligation of assignment to the same person [for purposes of determining prior art] if—

(1) the subject matter disclosed was developed and the claimed invention was made by, or on behalf of, 1 or more parties to a joint research agreement that was in effect on or before the effective filing date of the claimed invention;

(2) the claimed invention was made as a result of activities undertaken within the scope of the joint research agreement; and

(3) the application for patent for the claimed invention discloses or is amended to disclose the names of the parties to the joint research agreement.

14. In order to invoke the CREATE Act, the patent application for the claimed invention must disclose or be amended to disclose the names of the parties to the “joint research agreement.” Thus, prior to invoking the CREATE Act, a licensee should determine whether it desires to have the agreement with the licensor remain anonymous.

15. 549 U.S. 118, 127 (2007).

16. 395 U.S. 653 (1969).

17. Rates Tech. Inc. v. Speakeasy, Inc., 685 F.3d 163 (2d Cir. 2012).

18. Id.

19. See Joy Mfg. Co. v. Nat’l Mine Serv. Co., 810 F.2d 1127, 1129–30 (Fed. Cir. 1987) (finding that filing a request for reexamination at the USPTO did not violate the covenant not to sue in any United States court, and that injunction against continuing reexamination was “not available”).

20. Note that objections to evidence need to be made within five days so the licensee may seek to change this language.