Drawn by the promise of speed and expertise, scores of megacorporations from Apple Inc. to Toyota Motor Corp. are flocking to the hottest new forum for intellectual property fights: the Patent Trial and Appeal Board.
Part of the U.S. Patent and Trademark Office, the new board — with 182 judges and 50 more expected hires — has become a strategic venue for corporations seeking to beat back patent infringement suits.
“There has been unexpected interest in our proceedings,” said Chief Administrative Patent Judge James Smith in an interview at the patent office headquarters in Alexandria, Va. “We are pleased that the more cases we’ve decided, the greater the interest in our trial jurisdiction seems to be.”
Companies have filed about 650 patent validity challenges since the board opened its doors on September 16, 2012, Smith said. And the pace keeps accelerating. In the first 10 days of October, the board got 40 more new cases, including eight from Google Inc., four from Samsung Electronics Co., one from American Express Co. and one from Intel Corp.
At this rate, it now rivals the most popular jurisdiction for patent litigation in the country, the U.S. District Court for the Eastern District of Texas, where 1,266 new patent cases were filed in fiscal year 2012, according to the patent office.
“Anytime now that a company is talking about patent litigation strategy, [the board] is going to be part of the conversation automatically,” said Finnegan, Henderson, Farabow, Garrett & Dunner partner Erika Arner. In June, she won the first — and, to date, only — fully litigated case before the board on behalf of client SAP A.G., invalidating a $345 million patent held by Versata Software Inc. “The patent office seems serious about using the proceedings to correct errors…in patents that should not have been issued.”
Under the America Invents Act of 2011 that created the board, patent judges must resolve cases within a year (18 months under extraordinary circumstances) once a petition is granted. In district courts, it takes more than double that time on average for a patent case to go to trial, a 2012 study by PricewaterhouseCoopers showed.
The board’s mandate is much narrower. It only decides if patents are valid, not whether they’ve been infringed, and discovery is limited. Still, the tight deadlines pressure the judges to deliver.
Smith, who was associate general counsel and chief intellectual property counsel at Baxter International Inc. before becoming the head patent judge in May 2011, likens his job to that of a frog in a cauldron. At first, the water is at room temperature and the frog is happy — and then the heat begins to rise. “But by then, the frog isn’t going anywhere because it’s already in the water and it’s too late,” he said, laughing. “The next step is just to keep up with what we’re facing.”
Last week, about a dozen lawyers and spectators filled a windowless, low-­ceilinged hearing room on the ninth floor of the patent office, where one of the board’s first cases was coming to trial.
Liberty Mutual Insurance Co., represented by Ropes & Gray partners J. Steven Baughman and James Myers, was challenging a patent held by Progressive Casualty Insurance Co., represented by Jones Day partners Calvin Griffith, James Wamsley III and John Biernacki.
The patent involves using detailed information from vehicle sensors — measuring factors such as speed, the use of brakes and whether everyone in the car is wearing seat belts — to determine a level of risk to set an insurance premium. Progressive calls it “Snapshot,” a voluntary program that “gives you a personalized rate based on your driving,” according to the company’s website.
Progressive’s patent isn’t on the actual vehicle sensors, but rather on the concept of using that information to set insurance rates, a so-called method of doing business. The board has special procedures for evaluating such patents — one of four new categories of cases created by the American Invents Act that replace an unwieldy and less popular review system at the patent office.
Liberty, which not coincidentally faces an infringement suit by Progressive in the U.S. District Court for the Northern District of Ohio, argued that other inventors had already thought of Progressive’s concept and that the patent was also invalid because it didn’t properly explain how the data would be processed.
Progressive countered that its idea is novel and created “an entirely new product line known as ‘usage based insurance.’ ” Further, it said that Liberty relied on faulty references to prior inventions.
The judges — each case is heard by a panel of three — were engaged and polite, peppering the lawyers with a series of detailed questions. “What about figure five?”, “Sorry to put you on the spot…,” “It says here on page 12…,” “If I could trouble you to point out…,” asked judges Jameson Lee, Joni Chang and Michael Zecher, clearly familiar with the case’s voluminous record.
Hiring judges has been one of the biggest challenges, Smith said. Patent judges must be lawyers and have an engineering or science degree. The salary — a maximum of $165,300 a year — doesn’t help. “It’s a problem for us that they could have higher-paying legal jobs,” he said. “It takes someone who is really committed to public service and our particular mission.”
The board’s judges don’t wear robes in court. “By polling of the judges, we declined to do that,” Smith said, adding the majority “wanted to preserve the historic feel of the board, of patent professionals with patent professionals discussing the case.” (The board and its predecessors at the patent office date back 152 years. Abraham Lincoln named the first three judges.)
The board doesn’t automatically agree to hear every case filed. Rather, the petitioner in the initial filing has to show that it’s “more likely than not” to prevail. So far, that hurdle hasn’t proven too daunting. In the first year, the board turned down just 25 out of 486 challenges.
What’s key for petitioners is whether district court judges will agree to stay pending parallel litigation while the board reviews the patent’s validity. In Liberty’s case, U.S. District Judge Benita Pearson in Youngstown, Ohio, agreed to do so, writing that it would be “wasteful to now engage in litigation over patent claims that are likely to be altered or invalidated.”
Winning a district court stay is “a huge money saver” for a client who has been sued for patent infringement, said Blair Jacobs, an IP partner at McDermott Will & Emery who is representing several such clients before the board. “Most clients are not going to want to pay bills to fight on both fronts,” he said.
Smith also recognized that stays are vital to petitioners, and said that’s one reason why adhering to the one-year deadline is so critical. If the cases take longer, district court judges have indicated “that they will become increasingly reluctant to stay parallel proceedings in favor of ours,” he said. “We want the parties and the district courts to be so confident not only in the quality of our decisions but in the pace at which they are delivered that they say, ‘We’re just going to wait on [the board].’ “
It’s an arrangement, however, that may disadvantage the patent owner, said Peter Toren, a partner at Weisbrod Matteis & Copley who represents inventors.
Small companies and nonpracticing entities — commonly known as patent trolls — often don’t have the money to pay a lawyer to sue a company for patent infringement and instead may retain counsel on a contingent-fee basis.
Plaintiffs lawyers point out that there’s no money if you win at the patent board. You simply get confirmation that your patent is valid, and the money-making district court case is delayed a year. If you lose at the patent board, it’s likely to hurt or destroy any parallel infringement case.
“There are a lot of crappy patents being litigated. If this reduces the number of bad patents being litigated, that’s a good thing,” Toren said. “But as a ­plaintiffs lawyer, I’m concerned it may be misused by large companies to increase pressure on small entities.”
Still, Herbert Wamsley, executive director of the Intellectual Property Owners Association, said inventors can benefit from board proceedings, too. “In the majority of [district court] cases, the defendant sued raises the invalidity defense,” he said. If the board upholds the patent, then the inventor is in a much stronger position to win money in district court.
Contact Jenna Greene at firstname.lastname@example.org.