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The AIA's Extra-Judicial Review Kicks In
New York Law Journal
As reported in this column a year ago,1 the Leahy-Smith America Invents Act (AIA) provided the most comprehensive overhaul of the U.S. patent statute since it was enacted in 1952. Just last week, however, on Sept. 16, several provisions of the AIA became effective, with certain parties already taking advantage of the act's extra-judicial review options. This article addresses these provisions, and the new regulations issued recently (in August 2012) for implementing them. This article also addresses recent U.S. Court of Appeals for the Federal Circuit case law, and specifically Akamai Technologies v. Limelight Networks,2 which changed the law related to induced infringement.
The AIA essentially provided for three effective dates for its various provisions: Sept. 16, 2011, Sept. 16, 2012, and March 16, 2013. On Sept. 16, 2011, the date the act was signed, the law was changed: (1) to eliminate the best mode defense in litigations commenced on or after that date (35 U.S.C. §282(3)(A)); (2) to allow for virtual marking enabling companies to "mark" their products by referencing their websites (35 U.S.C. §287); (3) to prohibit suit against multiple defendants unless the claim arises out of the same transaction or occurrence and questions of fact common to all will arise in the action (allegations of infringing the same patent is insufficient) (35 U.S.C. §299); and (4) to expand availability of the prior use defense (except against universities).
On March 18, 2013, our nation's long-standing principle of awarding patents to those who are first-to-invent will be abolished, and we will become a first-to-file country, awarding a patent to the person who files first, not necessarily the one who invents first. Importantly, the AIA further changes the scope of prior art to be considered in evaluating patentability (1) with prior patents and publications being afforded their earliest filing date, including their foreign filing dates (35 U.S.C. §102(a)(2)); (2) by including foreign prior sales and public uses, not just those taking place in the United States (35 U.S.C. §102(a)(1)); (3) by providing the inventor a one-year grace period to file his or her application after his or her first "disclosure" (even if someone else discloses later but before filing) (35 U.S.C. §102(b)(1)(A) & (B)); and (4) by excluding private offers for sale, especially under a non-disclosure agreement, or private uses not "otherwise" making the invention "available to the public." (35 U.S.C. §102(a)(1)).
Although the first-to-file system will not lead to priority contests (which arguably plagued the first-to-invent system), the first-to-file system will lead to "derivation" proceedings, with one party claiming that an earlier filer "derived" his invention from the later filer. The Patent and Trademark Office will preside over derivation proceedings (RIN 0651-AC74), but this will not be available until next March, at the earliest.
Effective starting Sept. 16, 2012, and addressed below are: Pre-Issuance Submissions by Others (AIA, Section 8); Inventor's Oath or Declaration (AIA, Section 4); Supplemental Examination (AIA, Section 12); Citation of Prior Art and Written Statements (AIA, Section 6); Extrajudicial Review, Trials (AIA, Sections 6, 18), including Post-Grant Review, Inter Partes Review, and Business Method Review; Failure to Obtain Advice of Counsel.
Pre-Issuance Submissions (AIA, Section 8) (only for applications, not patents). The AIA provides for allowing any non-party to submit (but not anonymously) to the patent office, during the pendency of a patent application, printed materials having potential relevance to the patentability of the application. The submission must include a concise description of the relevance each document has to the examination, and it must be submitted before the earlier of (1) the date of the notice of allowance; and (2) the later of (i) six months after publication or (ii) date of first rejection.
Inventor's Oath or Declaration (AIA, Section 4). Under the new rules, effective Sept. 16, 2012, the applicant is no longer restricted to inventors; rather, applicants may include assignees, obligated assignees, or entities that otherwise show a proprietary interest in the application. The oath need not name all inventors, identify citizenship, declare the inventor to be the first, or include a priority claim, although an application data sheet must name all the inventors and the priority claim. The rules also allow for a substitute statement in lieu of an oath or declaration in certain circumstances (i.e., when the inventor is deceased, legally incapacitated, cannot be located or refuses to sign even though obligated).
Supplemental Examination (AIA, Section 12) (only for issued patents). Since Sept. 16, 2012, a patent ownerafter a patent has issuedmay now request a "supplemental examination" (SER) "to consider, reconsider, or correct information believed to be relevant to the patent." The main purpose: to "inoculate" the patentee against a subsequent charge of inequitable conduct:
A patent shall not be held unenforceable on the basis of conduct relating to information that had not been considered, was inadequately considered, or was incorrect in a prior examination of the patent if the information was considered, reconsidered, or corrected during a supplemental examination of the patent. (emphasis added).
Significantly, the patent owner will be unable to avoid an inequitable conduct charge if the SER is made AFTER unenforceability is pled with particularity in a civil action. And, no inoculation can result for an ITC action filed before the completion of an SER and any subsequent re-exam.
Citation of Prior Art and Written Statements (AIA, Section 6) (only for issued patents). The AIA further provides for the submissionat any time after issuance, even anonymouslyby any party, including the patent owner, any prior art consisting of patents or printed publications or any statements made by the patent owner in a court proceeding. The latter statements shall only be considered by the PTO to determine "the proper meaning of a patent claim" in a post-grant review proceeding. 35 U.S.C. §301.
Extrajudicial Review/Patent Trial and Appeal Board Trials. Prior to now, a non-party may challenge an improperly issued patent within the PTO in two ways: ex parte reexamination and inter partes reexamination. The first is available against any patent, the non-party cannot participate after the initial filing, the non-party can be anonymous, and no judicial estoppel occurs. Inter partes was available only for patents filed after November 1999, but the non-party was able to participate, the actual party of interest needed to be disclosed, and judicial estoppel applied. Inter partes was only available for challenges based on novelty and obviousness over prior art consisting of patents or publications.
The AIA transforms most non-party challenges into administrative trials, although ex parte reexamination is mostly unchanged. The new post-issuance challenge options are described below.
Post-Grant Review (within nine months of issuance) (37 C.F.R. 42.200-42.224). The new post-grant review process allows for a challenge to an issued patent (one that will issue under first-to-file rules) on any patent law provision (not just prior art publications), provided (1) the request is made within nine months of issuance; and (2) the petitioner has not previously filed a declaratory judgment action challenging the validity of the patent. The PTO will commence the post-grant review if success is "more likely that not" or it raises a novel or unsettled legal question important to other patents or applications. To invalidate, the petitioner must show invalidity by a preponderance of the evidence.
The Patent Trial and Appeal Board (PTAB) will review and hear the petitions and oversee the process, which will include limited discovery, including expert testimony. Only one set of claim amendments/cancellations (non-broadening) is permitted as of right (upon consultation with the PTAB). Intervening rights apply, the party of interest must be identified, and the petitioner will be estopped on any ground that was raised or reasonably could have been raised. Settlement, which is allowed, would remove the estopped effect on the petitioner.
Inter Partes Review (replaces inter partes reexamination, for any patent) (37 C.F.R. §§42.100-42.123). The new inter partes review will also be performed by the PTAB. Unlike post-grant review, inter partes review cannot be filed until the later of (1) nine months after grant or (2) termination of post-grant review. And, unlike the prior inter partes reexamination, the petition may attack any patent whether first-to-file or first-to-invent, and whether pre- or post-1999.
The petition, however, can only contend prior art invalidity based on patents or publications, and cannot be filed if the petitioner previously initiated a declaratory judgment action, or waited a year after served with a complaint. Discovery, testimony, judicial estoppel, amendments and settlement provisions are the same as post-grant review. The standard to commence an inter partes review ("reasonable likelihood that at least one of the claims challenged in the petition is unpatentable") is lower than post-grant review ("more likely than not").
Business Method Review (transitional program for covered business method patents) (37 C.F.R. §§42.300-42.304). If you have been sued for, or accused of, patent infringement, consider filing a petition for post-grant review of a business method patent, which is available (1) for all first-to-invent patents; and (2) after nine months of issuance of first-to-file patents, which patents include at least one claim that covers a method or corresponding apparatus for "performing data processing or other operations used in the practice, administration, or management of a financial product or service." Technically excluding "technological inventions," congressional history suggests a broad view of what "business method" means:
Any business that sells or purchases goods or services "practices" or "administers" a financial service by conducting such transactions.
Senator Charles Schumer, 157 Cong. Rec. S5432 (daily ed. Sept. 8, 2011).
The post-grant review of business method patents follows the discussed-above post-grant review procedures, with some exceptions, including that only public prior art can be used to challenge a first-to-invent patent (e.g., that which "discloses the invention") and that estoppel is limited to issues actually raised. Also, stay of a pending district court litigation should be easier to obtain since the court must consider whether a stay "will reduce the burden of litigation on the parties and on the court." The business method review program is "transitional" since it "sunsets" after eight years.
Common Rules for Extra-Judicial Review (37 C.F.R. §42.1-42.80). There are several noteworthy rules common to extra-judicial review: (1) lead counsel must be a registered practitioner, although the board may recognize counsel pro hac vice upon a showing of good cause; (2) confidential documents may be submitted under seal, but will become public after conclusion of the proceedings unless the PTO grants a motion to expunge; (3) the parties may agree to mandatory discovery of initial disclosures (37 C.F.R. §42.51(a)); (4) a discovery of any exhibit cited in a paper or in testimony, cross-examination (i.e., deposition) of affidavit witnesses, and production of inconsistent information is "automatic"; and (5) additional discovery is available on motion. The hearing will typically be held without live testimony.
Failure to Obtain Advice of Counsel. Only for patents issuing on or after Sept. 16, 2012, an accused infringer's failure to obtain an opinion of counsel will no longer be used to infer willful infringement or an intent to induce infringement of the patent. (35 U.S.C. §298).
On Aug. 31, 2012, the Federal Circuit decided en banc that a party who knowingly induces others to engage in acts that collectively practice all of the steps of a patented method, or who performs some of those steps itself and induces others to perform the remaining steps, can be held liable for induced infringement. In doing so, the court overruled BMC Resources v. Paymentech, 498 F.3d 1373 (Fed. Cir. 2007), which held that in order for a party to be liable for induced infringement, some other single party (as opposed to multiple parties performing different steps) must be liable of direct infringement. More specifically, a six-judge majority of the court held that "all of the steps of a claimed method must be performed in order to find induced infringement, but that it is not necessary to prove that all the steps were committed by a single entity." (slip op. at 10).
The court acknowledged that it is well settled that there can be no indirect infringement without direct infringement. The court also acknowledged that liability for direct infringement requires that a single party commit all the acts necessary to constitute infringement. But, the court stated that "[r]equiring proof that there has been direct infringement is not the same as requiring proof that a single party would be liable as a direct infringer." Id. 16. Thus, divided infringement can support a finding of inducement, even though the divided infringers may not be liable for direct infringement. The court explained:
If a party has knowingly induced others to commit the acts necessary to infringe the plaintiff's patent and those others commit those acts, there is no reason to immunize the inducer from liability for indirect infringement simply because the parties have structured their conduct so that no single defendant has committed all the acts necessary to give rise to liability for direct infringement. Id.
As such, the court ruled that "Epic can be held liable for inducing infringement if it can be shown that (1) it knew of McKesson's patent, (2) it induced the performance of the steps of the method claimed in the patent, and (3) those steps were performed." Id. at 35. Similarly, "Limelight would be liable for inducing infringement if the patentee could show that (1) Limelight knew of Akamai's patent, (2) it performed all but one of the steps of the method claimed in the patent, (3) it induced the content providers to perform the final step of the method claim, and (4) the content providers in fact performed that final step." Id. at 36.
Much is happening in the development of patent law as Congress and the courts try to keep up with advances in technology and the sophistication of, and at times manipulation by, patent litigants. It remains to be seen whether our new extra-judicial proceedings relieve the courts of workload, reduce the cost burdens on litigants and/or achieve efficient and effective justice, but no one can legitimately criticize the generally fine objectives of the AIA.
Robert C. Scheinfeld is a partner and the head of the intellectual property group in the New York office of Baker Botts. Parker H. Bagley is a partner at Goodwin Procter in its intellectual property and litigation practice.
1. Sept. 19, 2011, NYLJ, "FinallyA Revitalized Patent Act."
2. 2012 WL 3764695 (Fed. Cir. 2012).