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Unitex Chemical Corp. suffered an unpleasant shock two years ago. One of its biggest customers had patented a process Unitex says it invented — and had patented, in slightly different form, itself — several years earlier. But taking the customer, Teknor Apex Co., to court would have been prohibitively expensive for the small Greensboro, N.C.-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 request — number 000,001 — for an inter partes re-examination. 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. A party — a potential infringer, the patent office, or even a patent owner — can submit prior art not previously examined by the patent office. Called ex parte re-examination, it’s an administrative procedure, decided by patent examiners, not judges and juries. The idea: to screen out bad patents before they clogged up the courts. According to a patent office spokesperson, approximately 7,000 ex parte re-examinations have been ordered since the system was created. The system was expanded in 1999, creating inter partes re-examination, and further reforms were signed into law by President George W. Bush in November 2002. With these changes, re-examination 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. Patent litigation typically means multimillion-dollar legal bills. As Richard Phillips, chief patent counsel at Exxon Mobil Chemical Co., says, “Patent litigation truly is the sport of kings.” Inter partes re-examination 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, had not received a decision. Patent office lawyers predict inter partes re-examinations will last 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. Unsurprisingly, the majority of ex parte re-examination 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 prior art. As Kenneth Schor, a lawyer in the Office of Patent Administration at the patent office, puts it: “Once the re-examination 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 U.S. Court of Appeals for the Federal Circuit. 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 re-examination. Challengers were now full players in the re-examination game, filing comments and responses every step of the way. “It makes it a fair fight,” explains Steve Weisburd, a partner with Washington, D.C.’s Dickstein Shapiro Morin & Oshinsky. Not quite fair enough. The reforms still did not give the challenger the right to appeal. And challengers also could still not use prior art already cited in the patent. All of this might seem to doom re-examination to irrelevance. But a new set of reforms was tucked into the Department of Justice reauthorizing legislation and signed by President Bush in November. Challengers can now appeal unfavorable re-examinations. And the restriction on already cited prior art has been lifted. “It’s a huge change and, I think, a very just one,” says Steven Moore, an IP partner in the Stamford, Conn., 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. Although re-examination is difficult to predict precisely, Exxon Mobil Chemical’s Phillips and other attorneys say that a re-examination 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 papers, there are no fees for stand-up lawyers, expert witnesses or other courtroom talent. The filing fee for an inter partes re-examination is $8,000. The re-examination game offers contenders a new arena with very different referees and rules. For one thing, the decisions are made by technical specialists, not juries. “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 still one major sticking point. As Robert Clarke, a senior legal adviser in the Office of Patent Legal Administration, explains, if a third party files for re-examination and loses, it is estopped from relying on any prior art it submitted — or could have submitted — in any future re-examination or trial. “These estoppel provisions have scared the bar,” says Clarke. And the provisions aren’t likely to change, he says: “There was legislation introduced to soften them, but it’s inactive.” Some lawyers are nonetheless gung-ho. They argue that inter partes re-examination allows companies to be proactive. Corporations “finally can challenge patents — and claims — they 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 re-examination 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 re-examination 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 re-examinations very closely to see how the rules are applied,” says Exxon Mobil’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.”

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