Patent Post-Grant Review, Due Diligence, and Valuation
Among its many changes, the America Invents Act (AIA) provides several new post-grant procedures for a third party to challenge the validity of an issued U.S. patent. These procedures are intended to provide a more cost-effective and speedier forum than civil litigation, and also provide a potentially lower threshold for invalidating a patent claim. Though it is unclear how extensively these proceedings will be used, it is conceivable that third parties will find them to be decidedly pro-challenger, and thus a preferred forum to that of the federal courts. To this end, such proceedings could, and likely will, have a direct effect on patent valuation and how firms conduct due diligence.
Under the AIA, the four patent review procedures that a third party may use to challenge the validity of a patent claim include:
- Ex Parte Reexamination
- Post-Grant Review (PGR)
- Inter Partes Review (IPR)
- Covered Business Methods (CBM)
While the first was in existence prior to the AIA enactment, the latter three are entirely new. They are the focus of this article.
These three proceedings provide unique quasi-litigation forums for evaluating patent validity. There are certainly nuances that distinguish each of these proceedings, such as when they may be brought and what grounds may be argued. Nevertheless, there are also a few aspects that are common to these proceedings and that render them pro-challenger:
1. Lower standard for establishing claim invalidity
In federal district court, the invalidity of a challenged patent claim must be established by clear and convincing evidence. This standard, however, is lowered in each of the new AIA post-grant procedures to a showing of a preponderance of the evidence. Thus, if a third party wishes to challenge the validity of an issued patent claim, it has a lower burden of proof using the new AIA post-grant procedures.
2. Potentially broader standard for claim interpretation
The new procedures also provide the potential for broader patent claim construction, which draws in more potentially invalidating prior art. While the AIA does not specifically set forth a standard for claim interpretation, the Patent and Trademark Office has adopted for these procedures the standard that it uses throughout examinationnamely, the broadest reasonable interpretation that is consistent with the specification.
This is significant because in federal district court, claims are construed such that they remain valid in view of the prior art. Thus, it is conceivable that a claim under the new AIA post-grant procedures will be construed more broadly than it would in court. When paired with a lower standard for invalidity, a patent challenger using one of the new AIA procedures may have more invalidating art available to them. This, in turn, increases the likelihood that the patent claim could be held invalid.
3. Cheaper cost and quicker resolution
The timelines for these proceedings are relatively finite. Each proceeding, with limited exception, must be resolved within 18 months from the initial petition, as opposed to civil litigation, which could take multiple years to reach a resolution. While the costs of conducting each procedure will be expensivefiling fees alone for each are in excess of $25,000these costs are likely to be significantly lower than what would be incurred in litigation. Thus, a patent challenger can obtain a faster, cheaper result using one of the new AIA post-grant procedures, with a higher potential for a successful outcome.
One of the built-in trade-offs for third parties electing to use these new procedures is the estoppel effect. According to the AIA, petitioners that use one of the new post-grant procedures will be unable to present in a later civil litigation any argument that they brought or could have brought in the post-grant procedure. Thus, the apparent intent of the statute is that the petitioner should be stuck with whatever result it obtains in the validity challenge.
The realized effect that these three procedures will have on patent litigation strategy is still uncertain, as they are still in their early stagesthe IPR and CBM took effect on September 16, 2012, and the PGR took effect on March 16, 2013. Some of the factors that will affect this are:
- The likelihood that a patent challenger would be successful in an action.
- How often a civil litigation will be stayed pending the outcome of a post-grant procedure.
- How strictly courts will treat the claim construction of the post-grant procedure.
- How stringently courts will apply the estoppel provision.
At one extreme, such factors may result in the AIA procedures being seldom used. At the other extreme, they may become so frequently used that patent trials will essentially become bifurcated. The more likely result, however, is probably somewhere in between, with treatment of these factors being variedat least at firstbetween venues and courts, and even among judges.
How, then, should inventors and companies that derive value from patented technologies or methods view these changes? In the abstract, at least, the increased risk for patent invalidation should have some impact on the valuation of existing patents, though how much is uncertain. One logical way to resolve this, particularly if the patented technology or method is a major portion of the investment, is to conduct due diligence efforts under the assumption that the patent could be challenged under one of the new procedures.
Companies may first want to stringently consider the prosecution histories of the patents being evaluated. They may also wish to consider what art was provided to or cited by the PTO during examination and compare that with the state of the art at the time the application(s) were filed. In effect, they may want to understand what art was in the public domain at the time the application(s) was/were filed and how a patent challenger could use that art to attempt to invalidate a claim.
While this is not new in the world of due diligence, increased emphasis or scrutiny needs to be placed on these steps with the enactment of the AIA. This will inherently provide some clarity as to the strength and value of a given patent claim. If there is significant uncertainty as to whether a claim is valid in view of a newly identified reference (or a change in the law), this uncertainty can be mitigated by taking advantage of ancillary examination procedures, such as reexamination or supplemental examination.
In the end, such preparation will not insulate the patent from being challenged. However, by educating themselves and understanding such risks, firms can gain greater understanding of the true strength of a patent claim and can take action, where applicable, to resolve any outstanding uncertainties. This will ultimately contribute to confidence in any final valuation of the patent or patent portfolio.
J. Eric Sumner is a member of Fox Rothschild's intellectual property practice, representing clients ranging from small start-ups to Fortune 100 corporations. His practice focuses on all fields of intellectual property law, with a particular emphasis on worldwide acquisition and enforcement of patents in the pharmaceutical, biotechnology, and chemical arts. He can be reached at firstname.lastname@example.org.