The passage of the America Invents Act (AIA) in 2011 brought about significant changes to the United States patent system. Notably, the AIA changed us from a first-to-invent to a first-to-file system, phasing out interference proceedings and implementing new inter partes procedures for post-issuance challenges of patents, including inter partes review (IPR), post-grant review (PGR), and a transitional program for covered business method patents (CBM).
These new post-issuance procedures have altered the patent landscape, giving parties new tools to challenge patents in a relatively cost- and time-effective manner. According to statistics published by the U.S. Patent & Trademark Office (PTO), more than 1,100 petitions for IPR and CBM have been filed since filing began on Sept. 16, 2012. A majority of the patents challenged by these petitions are subject to concurrent litigation in the federal district courts or International Trade Commission (ITC). In the federal district courts, motions to stay patent litigations pending the outcome of concurrent IPR and CBM proceedings have been requested and granted at a high rate, providing significant tactical leverage to defendant petitioners in these proceedings.
IPR provisions are codified under 35 U.S.C. §§311-319. IPR, which replaced pre-AIA inter partes re-examination proceedings, can be requested by any party other than the owner of a patent who seeks to invalidate the claims of the patent on the basis of prior art in the form of patents or printed publications. Although petitioners can request IPR at any time against patents filed prior to March 16, 2013, petitions directed to patents filed on or after March 16, 2013, cannot be filed prior to the later of nine months after patent grant or the date of termination of any PGR proceeding for that patent. To obtain a granted petition from the PTO, petitioners must demonstrate a reasonable likelihood of success in invalidating at least one of the claims challenged in the targeted patent.
The availability of IPR may be dependent on whether or not other proceedings related to the targeted patent are in play. Petitioners are barred from seeking IPR if they have previously filed a civil action challenging the validity of a claim of the targeted patent. If, on the other hand, the owner of the targeted patent has commenced a civil action alleging patent infringement, petitioners may only be entitled to IPR if they file the petition within one year from the date they were served with the patent owner’s complaint.
IPR currently carries estoppel effects, which can bar the petitioner from asserting invalidity of a challenged claim for any ground that petitioner raised, or reasonably could have raised, during the IPR. This estoppel applies not only to other PTO proceedings, but also to district court actions and ITC proceedings.
IPR final decisions, by statute, must be made by the PTO within 12 months (extendable to 18 months with good cause) from the grant of the IPR petition. Fees start at $23,000 for a petition challenging 15 claims or less.
PGR provisions are codified under 35 U.S.C. §§321-329. PGR is available for patents filed on or after March 16, 2013, and, like IPR, can be requested by any party other than the owner of a patent who seeks to challenge the claims of the patent. Unlike IPR, PGR can be based not only on prior art challenges, but also on lack of written description, lack of enablement or claim indefiniteness. A party seeking PGR must file a petition within nine months of the patent issue date, and must show that it is more likely than not that at least one of the challenged claims is unpatentable. This standard carries a higher burden than the “reasonable likelihood” standard applied to IPR. PGR may also be granted if the petition raises a novel or unsettled legal question relevant to other patents or patent applications.
As with IPR, petitioners are barred from seeking PGR if they have previously filed a civil action challenging the validity of a claim of the patent. PGR also has the same estoppel effects as IPR, although these are arguably more extensive given the broader basis for invalidating patents under PGR. Like IPR, a final decision on PGR must issue from the PTO within 12 months (extendable to 18 months with good cause) from the grant of the PGR petition. The PTO fees for PGR start at $30,000 for a petition challenging 15 claims or less.
Section 18 of the AIA specifically created an eight-year transitional program for reviewing CBM patents, which are defined to include “[patents] that [claim] 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, except that the term does not include patents for technological inventions.” The program under Section 18 extends from Sept. 16, 2012, to Sept. 15, 2020, and is implemented largely using the standards codified for PGR proceedings. There are several notable distinctions.
Unlike a PGR, which may be sought by any party other than a patent owner, petitions for review of CBM patents may only be made by a party who has been sued for or charged with infringement of a patent (37 C.F.R. §42.302). A petition for CBM review can be made any time after the grant of the patent, except for the nine-month window after grant in which PGR applies.
A majority of the IPR and CBM petitions filed to date have been directed to patents subject to concurrent litigation in the district courts or ITC. Notably, the district courts in particular have been willing to grant motions for litigation stays based on the petitions and/or associated proceedings. Factors the district courts consider in deciding such motions include: (1) whether granting the stay will cause the nonmoving party undue prejudice; (2) whether the stay will simplify issues for trial; and (3) the stage of discovery and whether a trial date has been set. Softview v. Apple, 2013 U.S. Dist. LEXIS 125900, *7-8 (D. Del. Sept. 4, 2013). In the case of CBM proceedings, courts must also consider (as a “fourth factor”) whether a stay would reduce the burden of litigation on the parties and on the court. AIA §18(b)(1)(D). This additional factor is intended to ensure a higher grant rate of CBM stays at the district court level. Market-Alerts Pty. v. Bloomberg Finance, 922 F. Supp. 2d 486, 496 (D. Del. 2013). Therefore, stays for CBM review are particularly favored.
For example, through April 2, 2014, district courts in the Third Circuit granted motions for litigation stays based on IPR proceedings at a rate of 81 percent (38 motions granted, 9 denied). Grant rates for motions for litigation stays based on petitioned CBM proceedings were marginally higher at 81.8 percent (9 motions granted, 2 denied). With the availability of litigation stays, IPR and CBM proceedings provide leverage for petitioner defendants to reduce burn rates in concurrent district court litigations, and increase burdens on patent owners to defend patent invalidity challenges in advance of defendants’ significant discovery and noninfringement contention burdens in litigation.
Experience to date suggests that a petitioner’s overall cost to bring an IPR or CBM proceeding may be an order of magnitude less than its costs to defend a patent litigation lawsuit. It is, however, worth noting that, because the petition effectively represents the petitioner’s case-in-chief for patent invalidity, a substantial portion of the associated cost and effort is expended up front to prepare and file the petition (for example, conducting an exhaustive prior-art search, and preparing claim constructions, detailed patent claim charts and expert declarations). Because petition page length is restricted (37 C.F.R. §42.24a), petitions should be tactically focused, for example, on the subset of asserted claims presenting the greatest obstacle to the petitioner’s litigation position as to noninfringement, and the strongest invalidity positions vis-à-vis the prior art. If necessary to provide sufficient claim coverage, the petitioner may file multiple petitions. Because discovery and trial practice for IPR and CBM proceedings are also quite constrained, these elements need to be planned for and executed in a tactical manner as well.
Individual PR and CBM proceedings may be conducted on behalf of multiple petitioners, either on the basis of submitting a jointly-filed petition or on the basis of later making a successful motion to join under 35 U.S.C. §§315(c), 325(c). If a joint proceeding is conducted, for example by the members of a joint defense group, costs can be significantly lowered through cost sharing. It should be noted that the estoppel effects of the proceedings apply to all direct participants and all other “real parties in interest” that exercise some degree of control over one or more petitioners. Prior to a decision on the merits, a petitioner may move together with the patent owner to terminate proceedings as to those parties, for example, on the basis of reaching a settlement (35 U.S.C. §§317, 327). Any associated settlement agreement must be filed with the PTO. The PTO has discretion to grant or deny such motions. If proceedings are terminated, the estoppel provisions of 35 U.S.C. §§315(e) and 325(e) no longer attach to the petitioner.
In summary, experience to date suggests that patent post-issuance proceedings can provide useful litigation counterbalance for patent litigation defendants. These proceedings can be conducted relatively quickly, surgically and cost-effectively, and should be considered as an element of any patent litigation defendant’s overall defense strategy. •