©2015. Published in Landslide, Vol. 8, No. 1, September/October 2015, 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 Leahy-Smith America Invents Act of 2011 (AIA) represents the most significant reform to the American patent system in nearly six decades—and the road to its adoption was long and heavily negotiated. “Inter partes review” (IPR) refers to a new trial proceeding, established under the AIA, intended to provide a faster, more cost-effective alternative to determining patent validity via traditional district court patent litigation, or the former system of inter partes reexamination. IPRs take place inside the U.S. Patent and Trademark Office (USPTO) before administrative patent judges who sit on a specialized tribunal known as the Patent Trial and Appeal Board (PTAB). In keeping with the spirit of the AIA, the PTAB is required to construe its own rules “to secure the just, speedy, and inexpensive resolution of every proceeding.”1
In order to strike a balance between the interests of patent owners and challengers, the AIA included two important provisions that relate to IPRs. First, if a patent challenger wants to avail itself of the IPR process, it is generally required to file its IPR petition within a year of when it is served with a complaint alleging infringement.2 Second, if a patent challenger pursues an IPR challenge and loses after an IPR trial on the merits, the challenger is thereafter estopped from asserting in a civil action that the patent is invalid on any ground that the challenger could have raised during the IPR.3
In the two and a half years since they were introduced, usage of IPRs has drastically exceeded the projections set when the AIA was negotiated. In addition to creating significant pressure for the PTAB to hire more judges to meet demand, the unexpected volume of IPR actions includes many instances where accused infringers have used the IPR process in ways not anticipated by Congress. In some instances, such manipulation of the process has dramatically increased the cost and complexity of patent assertions for patent owners.
In some cases, accused infringers have filed numerous IPRs against the same patent. In other cases, rather than using the IPR process as a low-cost alternative to determining patent validity via district court patent litigation, challengers have manipulated the timing of their IPRs so that the final IPR decision occurs after the district court trial. This strategy has the potential to give an accused infringer who is defeated at trial an additional “bite at the apple” through the IPR proceedings. In still other instances, challengers have successfully exploited the joinder provisions of the AIA to circumvent the one-year deadline for filing an IPR, forcing patent owners to endure numerous, serial IPR challenges.
When IPR proceedings are manipulated to drive up the cost and complexity of patent enforcement, the additional financial burdens fall especially hard on independent inventors and small businesses, which lack the financial and legal resources to defend their claims. Although IPRs were intended to serve as an alternative to litigation, accused infringers have used IPRs in addition to traditional litigation to overwhelm patent owners. In these situations, patent owners are forced to coordinate multitrack litigation (in the district court and the USPTO) with different timelines, different claim construction standards, different burdens of proof, and, often, different counsel.
As with the rest of the changes implemented under the AIA, the IPR process is still new, and its full and long-term effects remain yet to be seen. Preliminary analysis indicates, however, that additional reform may be required before IPRs are truly able to help achieve Congress’s goal of creating a more equitable and efficient system for patent review.
This article will provide a brief introduction to IPRs, including how they came to be and how they are intended to work, as well as a summary of IPR activity to date. Finally, it will explore several interesting trends revealed by an analysis of the available data, as well as the impact of IPR activity on the need for third-party litigation funding.
Legislative History and Intent
Calls for post-grant review, including IPR, for determining patent validity significantly predate the AIA. Evidence presented in congressional hearings in 2001 and 2004, for example, includes statements from legal and industry group leaders that such review would improve the quality, fairness, and consistency of patent enforcement.4
Early precursors to the AIA were introduced in 2005, 2007, and 2009.5 Several features of the reform—adoption of a first-to-file system and changes to the way damages would be calculated and assessed, for example—represented a historic departure from the American patent system to date, and garnered significant attention and debate, but the bills died or were abandoned without much progress.
The version of the bill introduced in 2011, however, moved relatively quickly through the Senate Judiciary Committee and was brought to the floor on February 28. On March 8, 2011, the newly renamed “America Invents Act” passed the Senate by a vote of 95–5.6 The House version of the bill passed six weeks later, on June 23, by a vote of 304–117.7 A compromise struck between the House and Senate bill sponsors, Representative Lamar Smith and Senator Patrick Leahy, avoided further prolonged negotiations between the two bodies. The House version of the bill passed the Senate on September 8, 2011, and was signed into law by President Barack Obama on September 16.
Inter Partes Review: Process and Timeline
The IPR process provides an opportunity, under limited circumstances, for a third party to challenge the validity of previously granted patent claims. IPR is limited to claims that could otherwise be raised under § 102 or 103, and “only on the basis of prior art consisting of patents or printed publications.”8
As discussed previously, one of the main objectives for IPR was to establish a time-saving alternative to traditional litigation, which can be dragged out over several years. The IPR process is intended to take a maximum of 12 months from the date of institution, though the USPTO may extend the process by an additional six months. Even at 18 months, IPR would often be significantly faster than traditional litigation. The USPTO published a representative timeline as part of the Office Patent Trial Practice Guide for the trial final rules (see fig. 1).9
Figure 1. Timeline for Inter Partes Review
An IPR is initiated when a third party (often an actual or potential accused infringer) files a petition with the USPTO requesting review of one or more claims in a patent. Such petition may be filed (1) nine months after the grant of the patent (or issuance of a reissued patent), or (2) after the termination of any other post-grant review, whichever is later.10 The petitioner must pay a fee of at least $23,000 for each petition.
Once the petition is filed, the patent owner is permitted, but not required, to file a preliminary response to the petition. The patent owner may attempt to expedite the IPR process by waiving its right to a preliminary response.11
In the preliminary response, the claimholder is permitted to present evidence (other than new testimonial evidence)12 and reasons why the PTAB should not allow the petition to move forward. Arguments in the preliminary response may be procedural (e.g., that the petitioner is not eligible to pursue a review or that the petition is not timely), substantive (e.g., that the petitioner’s claim construction is unreasonable or that the asserted references are not, in fact, prior art), or a combination of both.
At this point, the PTAB has three months to determine whether it will initiate a trial (i.e., allow the petition to move forward). In order for a review to be initiated, the petition and any resulting preliminary response must indicate that there is “a reasonable likelihood that the petitioner would prevail” on at least one of the challenged claims.13 The PTAB’s decision concerning whether to grant or deny the petition is final and not appealable, although either party may request a rehearing of the decision by a PTAB panel.14
The PTAB’s trial institution decisions are made on a claim-by-claim basis. For example, the PTAB can decide to institute a trial with respect to some of the patent claims challenged in an IPR petition, but not others. Significantly, if the PTAB determines that a petitioner has failed to demonstrate a reasonable likelihood of prevailing with respect to a patent claim and declines to institute a trial with respect to such claim, no estoppel attaches and the petitioner is free to challenge that patent claim on all grounds in district court.15 Given the statistics showing that the PTAB invalidates the patent claims in a very high percentage of cases where a trial is instituted, the lack of estoppel in cases where the PTAB declines to institute has the practical effect of giving patent challengers a “free roll.”
Once an IPR petition is instituted, the patent owner and petitioner are entitled to separate, alternating discovery periods. The patent owner may also file a motion to amend the instituted patent claims. Once all motions are filed, either party may request that the PTAB hold oral arguments. Following the hearing, the PTAB is required to enter its final written decision on the validity of the claims no more than one year from the date the IPR was initiated. Parties to an IPR are entitled to appeal the PTAB’s decision to the Federal Circuit within 63 days of the written decision.16
IPR filings are constrained by several limitations. For example, an IPR petition typically may not be filed if the petitioner has already filed a declaratory judgment action challenging the validity of one or more claims of the patent. Moreover, as mentioned above, generally a petition cannot be filed more than one year after the petitioner is served with a complaint alleging infringement of the patent.
It was thought that having challengers file IPRs early in the district court litigation process would allow the district court case to be stayed before substantial resources were spent on the case, and that patent validity issues would subsequently play out in the lower-cost IPR process. If the patent validity was upheld in the IPR, the litigation would be streamlined because, as a result of the estoppel provisions, the challenger would be estopped from contesting in district court any validity issue that it could have presented in the IPR process; conversely, if the patent was invalidated in the IPR, the bulk of the district court litigation costs could be avoided entirely.
In practice, however, some accused infringers allow the district court litigation to advance and wait until the last possible day to file IPRs—making a stay of the litigation unlikely and ensuring that the IPRs do not reach the stage of a final written decision until after the district court case is tried. This timing eliminates any risk that the challenger will be estopped (by an adverse IPR decision) from contesting validity in the district court, and secures another venue (i.e., the USPTO) in which the challenger can seek to invalidate the patent in the event it loses at trial. Contrary to the intent of Congress, timing IPRs in this manner decreases efficiency and increases litigation costs.
Summary of Activity to Date
Under the 12-month implementation timeline for the AIA, the procedure for initiating IPR petitions became effective on September 16, 2012. Between the effective date and June 25, 2015, 3,145 IPR petitions were filed.17
Compared to the previous system of inter partes reexamination, which was eliminated with the passage of the AIA, IPR has been extremely popular. Only 1,919 total requests for inter partes reexamination were received during the life of that program (November 1999–September 2012).18 Significantly more IPR petitions were filed in the first two and a half years under the AIA.19
Patent owners are permitted to submit a preliminary response to IPR petitions filed against their claims. As seen in table 1, of the 2,461 instances where the patent owner’s window to submit a preliminary response has lapsed, responses have been filed in 2,027, approximately 82 percent of the time. In the other 434 instances, the right of the patent owner to submit a preliminary response has been waived.
Table 1. Patent Owner Preliminary Responses
So far, a majority of submitted IPR petitions (approximately 74 percent) have been instituted by the PTAB on at least one claim (see tbl. 2).20 However, this statistic does not distinguish situations where trial is instituted on only a portion of the challenged claims, as opposed to situations where trial is instituted on all of the challenged claims. On a claim-by-claim basis, the percentage of IPR challenges that result in institutions is lower than 74 percent.
Table 2. IPR Petition Dispositions
Of the 1,106 IPR petitions for which final dispositions are available, over half (approximately 54 percent) have resulted in settlements (see tbl. 3).
Table 3. IPR Final Dispositions
An early look at the available data reveals that IPR proceedings are being resolved within the time limits set forth in the AIA. Compared to inter partes reexaminations, which had an average pendency of 36 months from the date of filing to the date a certificate was issued,21 IPR’s 12‑ to 18-month window is significantly shorter.
While the faster timeline provides one tangible benefit to parties to an IPR, there is some concern about whether the PTAB has adequate resources to keep up with the higher-than-anticipated volume of filings. During the development of the AIA, the USPTO estimated that 420 IPRs would be filed in 2013 (the first full year after the AIA was enacted) and projected a moderate increase to 450 in 2014. In reality, 2013 filings moderately exceeded projections, and the number of filings in 2014 was nearly three times what the USPTO originally anticipated (see tbl. 4).22
Table 4. Anticipated vs. Actual Number of IPR Filings
In response to the increased demand for PTAB judges, the USPTO has been actively recruiting new judges since the passage of the AIA. The number of judges more than doubled to over 200 between 2010 and 2014, and is expected to continue to increase as long as the demand for IPRs and other challenges under the AIA remains high.23
Aside from timeline and capacity issues, the data reflects several trends which may be indicative of abuse or misuse of IPR proceedings.
First, many patents have been the subject of multiple unique IPR petitions. Of 1,743 utility patents challenged under IPR, 27 percent have been challenged by more than one IPR. A significant number of patents have been challenged by five or more IPR petitions, with a smaller number facing over a dozen such challenges. To date, at least two patents have been the subject of 20 or more IPR petitions.
When a patent is challenged through multiple IPRs, the costs to a patent holder forced to defend against numerous IPRs mount quickly, and can jeopardize the patent holder’s ability to enforce its patents. As mentioned in the previous section, one-quarter of all IPR petitions are denied outright. While a patent holder is not required to submit a preliminary response to claims against its patents, the vast majority opt to do so because the most likely way for a patent owner to prevail in an IPR is to convince the PTAB in the preliminary phase to decline to institute a trial. The legal, time, and financial resources required to prepare multiple preliminary responses are potentially devastating to all but the largest, best-funded patent holders.
Of the IPR petitions that have been instituted, petitioners raised more than one ground 65 percent of the time, and challenged more than one claim 90 percent of the time. Almost half of all grounds raised in instituted petitions are, however, denied. There is little in the AIA or the PTAB rules to deter the practice of overfiling. In other words, a petitioner has an incentive to throw out as many arguments as possible, force the patent owner to incur the expense of responding to everything, and leave it to the PTAB to sort out which arguments, if any, are allowed to stick.
A further area of concern with respect to IPRs is that petitioners may not be precluded from filing claims against a patent or patent claims even after other petitions against those claims fail, allowing successive IPRs over the same claims to be filed after the one-year deadline expires. In this regard, patent challengers have sought to exploit the joinder provisions of the AIA to file IPRs outside the one-year window. These cases follow a common fact pattern: The patent challenger files an IPR within the one-year window but trial is instituted only with respect to some of the challenged claims. The institution decision, however, comes after the one-year window has closed. Thereafter, the petitioner files a follow-on IPR attacking on new grounds the claims for which no trial was instituted, and seeks to “join” the follow-on petition with the original IPR. Patent challengers have used the joinder provisions of the AIA to assert that such follow-on petitions are permitted outside the one-year window and, in some instances, the PTAB has agreed.24 In other words, the PTAB has interpreted the joinder provisions expansively to mean that the same party can file a follow-on IPR raising new challenges to the patent, beyond the one-year deadline, and “join” it to a previous IPR filed by the same party prior to expiration of the deadline. Based on this interpretation of the provisions, joinder is not limited to new parties joining an existing IPR, but also includes new challenges raised by an existing party. This means that a patent owner may be forced to expend the time and money to defend the claims multiple times, and that petitioners may get second, third, or even more bites at the same apple. Such tactics are clearly contrary to Congress’s intent.25
As mentioned above, another potential issue with the IPR process is that petitions are often filed in addition to traditional district court litigation, rather than instead of it. The PTAB has acknowledged that this happens in some instances, although it “does not currently track the percentage of IPRs that identify concurrent litigation.”26 There is currently little consistency regarding whether litigation will be stayed when an IPR is filed. Rather, whether or not litigation will be stayed varies by venue, judge, and stage of litigation when the IPR is filed. In fact, in the first year under the AIA, only 60–70 percent of contested requests to stay litigation pending an IPR were granted.27 Depending on the jurisdiction, this percentage is as low as 56 percent or as high as 82 percent.28
Several of the issues outlined above indicate that IPR, in its current state, may strengthen the position in the market of patent challengers with more available resources, at the expense of smaller companies and independent patent holders. While it is relatively inexpensive and simple to file an IPR petition, especially if the petitioner has access to in-house counsel or is filing numerous similar claims, the burden on the patent owner to defend its claims is often much more difficult and time consuming. The reality is that larger companies can afford to file numerous, complicated IPR petitions as well as pursue litigation in district court, while patent holders often lack the resources to adequately defend themselves. Combined with the fact that petitioners are incentivized to overfile claims, the system puts some patent holders at a distinct disadvantage.
In addition to the financial and resource disparity between many petitioners and patent holders during the IPR process, even the threat of being pulled into such proceedings can have far-reaching consequences for patent owners.
First, patent owners may face increased barriers to obtaining competent legal representation to pursue potential infringement claims. Lawyers and law firms have historically accepted these representations on a contingency basis. With the additional risk posed by IPRs and the uncertainty of how IPR petitions will affect patent owner–initiated litigation, firms are less willing to take on contingency representations, and in many cases are unwilling to defend IPRs as part of their contingent fee agreement. It is the experience of this author, through regular communication with law firms over the past year, that many firms are reluctant to defend IPRs under contingency agreements, and that the unwillingness to do so is growing.
Second, the risk of facing an IPR petition may also make it significantly more difficult for patent owners to conduct business as usual. For example, patent royalty streams that would otherwise be used to secure funding may become less attractive to investors, especially given the possibility of multiple, successive IPRs to be filed against the patents that support those royalty streams.
When combined, the practical effect of these two considerations is that the process of defending one’s patent rights becomes significantly more risky and expensive. A patent owner who, in the past, could use a contingent fee arrangement to cover all necessary attorneys’ fees related to asserting his or her patent must now spend additional money out of pocket to defend the IPR, often on an hourly basis, as well as give up a percentage of the case to pay the contingent fee firm for its work on traditional enforcement litigation. If faced with decreased royalty streams and other sources of funding, the patent owner may not have funds available for an adequate IPR defense, or may be forced to dedicate critical capital to the additional legal costs, all at the cost of conducting his or her business. Given the increased cost of having to defend patent rights in two forums, some patent owners will inevitably be discouraged from enforcing their rights altogether.
In addition to the uphill battle facing patent owners, the early data suggests that the IPR process may have fallen short in another area: relieving crowded court dockets. As mentioned previously, the PTAB has been forced to expand significantly in order to meet IPR demand. Such growth was an anticipated consequence of the AIA, although perhaps to a smaller degree. What was not anticipated, however, is the degree to which IPRs proceed alongside district court litigation. This is due, again, to the inconsistency regarding whether district court litigation is stayed when an IPR is filed. In spite of hopes to the contrary, the implementation of IPRs has not provided any meaningful docket relief. Complicating this issue further, final decisions in IPR proceedings can be appealed to the Federal Circuit, leaving the door open for even more inconsistency and inefficiency.
A common criticism of inter partes reexamination is that the bygone process often unfairly benefited patent owners by allowing them to expand upon and enhance their previously granted patent claims. While it is still new and the full ramifications of the AIA remain yet to be seen, an analysis of early data raises an interesting question as to whether IPR goes too far in the opposite direction.
By offering a condensed timeline and allowing parties to present their cases to expert members at the PTAB, IPRs were intended to provide patent owners and accused infringers with a more efficient, less costly alternative to traditional district court litigation. Instead, it appears that IPRs have the potential to be used as a tool to discourage patent owners from enforcing their legitimate rights, by increasing the cost and complexity of enforcing patent rights.
Given the major, sweeping changes instituted by the AIA, it should not come as a surprise that the reform has some unintended consequences. If, with further research and analysis, IPRs are found to place an undue burden on patent owners, Congress should be open to taking additional steps to ensure that IPRs and the rest of the changes under the AIA contribute to a more equitable and efficient patent enforcement environment.
1. 37 C.F.R. § 42.1.
2. 35 U.S.C. § 315(b).
3. Id. § 315(e)(2).
4. See Joe Matal, A Guide to the Legislative History of the America Invents Act: Part II of II, 21 Fed. Cir. B.J. 539 (2012), available at http://www.uspto.gov/sites/default/files/aia_implementation/guide_to_aia_part_2.pdf.
5. See Joe Matal, A Guide to the Legislative History of the America Invents Act: Part I of II, 21 Fed. Cir. B.J. 435 (2012), available at http://www.uspto.gov/sites/default/files/aia_implementation/guide-to-aia-p1.pdf.
6. 157 Cong. Rec. S1381 (daily ed. Mar. 8, 2011).
7. 157 Cong. Rec. H4505 (daily ed. June 23, 2011).
8. Inter Partes Disputes, USPTO, http://www.uspto.gov/patent/laws-and-regulations/america-invents-act-aia/inter-partes-disputes (last modified Apr. 2, 2013).
9. 77 Fed. Reg. 48,756 (Aug. 14, 2012).
10. Inter Partes Disputes, supra note 8.
11. 37 C.F.R. §§ 42.107(b), .207(b).
12. Id. § 42.207(c).
13. 35 U.S.C. § 314(a).
14. Id. §§ 314(d), 324(e); 37 C.F.R. § 42.71(d).
15. 35 U.S.C. § 315(e)(2) (providing that estoppel attaches only after a “final written decision”).
16. Id. § 141(c); 37 C.F.R. § 90.3(a)(1).
17. AIA Trial Statistics, USPTO, http://www.uspto.gov/patents-application-process/appealing-patent-decisions/statistics/aia-trial-statistics (follow “AIA Progress Statistics – Graphical View and Subsets” hyperlink) (last modified June 29, 2015) [hereinafter June 2015 AIA Progress Statistics Graphs].
18. Inter Parte Reexamination Filing Data, USPTO (Sept. 30, 2013), http://www.uspto.gov/patents/stats/inter_parte_historical_stats_roll_up_EOY2013.pdf.
19. June 2015 AIA Progress Statistics Graphs, supra note 17.
21. Inter Parte Reexamination Filing Data, supra note 18.
22. AIA Trial Statistics, USPTO, http://www.uspto.gov/patents-application-process/appealing-patent-decisions/statistics/aia-trial-statistics (follow “AIA Progress Statistics” hyperlink) (last modified June 29, 2015).
23. James Donald Smith, Patent Public Advisory Committee Quarterly Meeting: Patent Trial and Appeal Board Update, USPTO (Aug. 14, 2014), http://www.uspto.gov/sites/default/files/about/advisory/ppac/20140814_PPAC_PTABUpdate.pdf.
24. There is a divergence of opinion among PTAB judges whether or not the joinder rules permit a patent owner to be exposed to serial follow-on IPRs from the same petitioner after the one-year filing deadline expires. Compare Target Corp. v. Destination Maternity Corp., No. IPR2014-00508, Paper No. 31 (P.T.A.B. Feb. 12, 2015) (allowing follow-on IPR), with Skyhawke Techs., LLC v. L&H Concepts, LLC, No. IPR2014-01485, Paper No. 13 (P.T.A.B. Mar. 20, 2015) (denying follow-on IPR). Thus, as a practical matter, whether or not a patent owner will be at risk for such follow-on IPRs is a function of the particular three-judge PTAB panel that the patent owner draws when the original IPR is filed—a result that Congress could not have intended.
25. H.R. Rep. No. 112-98, pt. 1, at 48 (2011) (“While this amendment is intended to remove current disincentives to current administrative processes, the changes made by it are not to be used as tools for harassment or a means to prevent market entry through repeated litigation and administrative attacks on the validity of a patent. Doing so would frustrate the purpose of the section as providing quick and cost effective alternatives to litigation.”).
26. America Invents Act (AIA) Frequently Asked Questions, USPTO, http://www.uspto.gov/patent/laws-and-regulations/america-invents-act-aia/america-invents-act-aia-frequently-asked (last modified Dec. 13, 2014).
27. Robert Arcamona & David Cavanaugh, Stays to Litigation Pending IPR and CBM Review: Statistics, Trends, and Key Issues, Intell. Prop. Today, Mar. 2014, at 9, available at https://www.wilmerhale.com/uploadedFiles/Shared_Content/Editorial/Publications/Documents/IP-today-stays-to-litigation-pending.PDF.