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Nitex Chemical Corporation got an unpleasant shock two years ago. One of its biggest customers had patented a process Unitex says it inventedand had patented, in slightly different form, itselfseveral years earlier. But taking the customer, Teknor Apex Company, to court would have been prohibitively expensive for the small Greensboro, North Carolina based chemical maker. So instead Unitex decided to challenge Teknor Apex’s patent using a new U.S. Patent and Trademark Office proceeding. In July 2001 it filed the very first requestnumber 000,001for an inter partes reexamination. Unitex’s out-of-court challenge was 22 years in the making: Before 1981 no one could challenge a U.S. patent without going to court. But that year Congress rolled out a new method for questioning the validity of patents. Called ex parte reexamination, it’s an administrative procedure, not a judicial one, and is decided by patent examiners, not judges and juries. The idea: to screen out bad patents before they clogged up the courts. According to patent office spokesperson Bridget Quinn, approximately 7,000 ex parte reexaminations have been ordered since the system was created. The system was expanded in 1999, and further reforms were signed into law by President George Bush in November. With these changes, “inter partes,” or between parties, reexamination has become a much less risky game for companies to play. And it’s a contest that’s both faster and cheaper than going to court. As Richard Phillips, chief patent counsel at Exxon Mobil Chemical Company, says: “Patent litigation truly is the sport of kings.” In a country where patent litigation typically means multimillion-dollar legal bills, inter partes reexamination will appeal most to companies lacking deep pockets. Unitex, for example, has spent a total of $40,000 on legal fees. “It’s a much less expensive way to get a determination from the patent office,” says Lance Johnson, a partner at Washington, D.C., firm Roylance, Abrams, Berdo & Goodman, who is handling the Unitex case. The process also promises to be faster than patent litigation, which can drag on through appeals for years. Unitex filed its request 18 months ago and, at press time, was expecting a December decision. Patent office lawyers predict inter partes reexaminations will last, on average, about 20 months. Champions of the new procedure say its speed will especially benefit companies in rapidly changing sectors, such as biotechnology, and those in which the market value of new ideas is short-lived, such as computers. fair fight Unsurprisingly, the majority of ex parte reexamination requests filed in the past 22 years were initiated by third parties wanting to knock out competitors’ claims. But under the 1981 regime, these third parties risked more than they might gain. For one thing, they weren’t really “party” to the process, being limited solely to an initial submission of evidence. As Kenneth Schor, a lawyer in the Office of Patent Administration at the patent office, puts it: “Once the reexamination starts, it’s just the patent office and the patent owner.” Even worse, those challenging a patent weren’t allowed to contest the resulting decision, either to the Board of Patent Appeals and Interferences in the patent office or to the Federal Court of Appeals. Patent holders, on the other hand, could appeal to both. Any challenger with a serious case was thus forced to turn to litigation. “Lawyers were reluctant to take a chance and use their silver bullet because if the tribunal ruled against them, they were precluded from using it again if they were sued for infringement,” explains Lee Schrader, vice president of the American Intellectual Property Law Association. Attempting to even up the game, Congress passed the American Inventors Protection Act in 1999. It created a new patent-challenging procedure: inter partes reexamination. Challengers were now full players in the reexamination game, filing comments and responses every step of the way. “It makes it a fair fight,” explains Steve Weisburd, a partner with New York’s Dickstein Shapiro. But the reforms did not give the challenger the right to appeal. Case law tossed in another hurdle, preventing challengers from using prior art that the examiners had already seen. Impediments Removed All of this might seem to doom reexamination to irrelevance. But reforms tucked into the Department of Justice reauthorizing legislation and signed by President Bush in November have made the procedure far more attractive. Gone is the unequal access to appeal. Congress also removed the restriction on using prior art to which examiners had access in the application process. “It’s a huge change and, I think, a very just one,” says Steven Moore, an IP partner in the Stamford, Connecticut, office of Pillsbury Winthrop. With these impediments out of the way, many predict that IP lawyers will find the patent office more enticing than the courtroom. For one thing, reexamination is a lot cheaper. Although it’s difficult to predict precisely, Exxon Mobil Chemical’s Phillips and other attorneys say that a reexamination will cost about a tenth of what a full-blown infringement suit does. The biggest savings comes from avoiding discovery. And since all evidence is provided by filing papersinterviews and oral arguments are forbiddenthere are no fees for stand-up lawyers, expert witnesses, or other courtroom talent. The filing fee for an inter partes reexamination is $8,000. It’s not just that the expenses are lower. The reexamination game offers contenders a new arena with very different referees and rules. For one thing, the decisions are made by technical specialists, not juries. And risky courtroom variables, like credibility challenges and oratory, are removed. “The process plays to patent office strengths and to coming up with the right technical answer,” says Johnson, who was himself a patent examiner for four years. But there’s one major sticking point that could keep some IP lawyers off the reexamination playing field. As Robert Clarke, a senior legal adviser in the Office of Patent Legal Administration, explains, if a third party files for reexamination and loses, it cannot reuse any prior art it submittedor could have submittedin any future reexamination or trial. “These estoppel provisions have scared the bar,” says Clarke. And they aren’t likely to change, he says: “There was legislation introduced to soften them, but it’s inactive.” Wary Companies While it remains to be seen whether a traditionally risk-averse IP bar will embrace the new procedures, some lawyers are gung-ho. They argue that inter partes reexamination allows companies to be proactive. Corporations “finally can challenge patentsand claimsthey think are invalid without first receiving the threatening letter,” asserts Pillsbury Winthrop’s Moore. A former in-house counsel at a drug company himself, Moore predicts that reexamination is going to be “massive” in the biotech industry. Seminal biotech patents issued recently “block researchers from doing a lot of things,” Moore says. Companies crave the chance to challenge specific claims in these patents, he says, and inter partes reexamination provides just the tool to do that. Others, however, sound a more cautious note. “We, like most corporate patent departments, will watch future inter partes reexaminations very closely to see how the rules are applied,” says Exxon Mobil Chemical’s Phillips. “But we will be reluctant to be the first ones to jump into the pool, not knowing if it’s hot or cold.” Mark Costello, chief patent counsel at Xerox, has a similarly measured view. He and his colleagues are generally pleased with the reforms and think that inter partes reexamination has the potential to reduce litigation expenses. “But we have no particular plans to use it,” he says. And, Costello argues, reexamination of a complicated patent can cost over $100,000. “It’s only cheap with respect to full-blown litigation,” he says.

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