On Sept. 16, 2011, President Barack Obama signed into law the Leahy-Smith America Invents Act (AIA), which directs the U.S. Patent and Trademark Office (USPTO) to issue administrative rules implementing the AIA’s provisions by Sept. 16. Accordingly, in July and August, the USPTO published six sets of final rules in the Federal Register.

Of particular interest to patent litigators in this blizzard of administrative regulations are the new final rules for two new administrative trial proceedings, which offer an alternative to federal district court litigation for challenging the patentability of a claimed invention in an issued patent. These two new proceedings replace traditional inter partes patent re-examination with a revamped inter partes review (IPR) process and add a new post-grant review (PGR) mechanism.

Inter Partes Review

The AIA overhauls the procedure for inter partes review of issued patents at the USPTO, promoting IPR as an alternative to litigation about a patent’s validity. The new IPR rules provide an accelerated procedure for challenging patents: It’s 12 to 18 months, compared to an average pendency of 36 months under the prior system.

The new IPR rules also provide a broader range of available challenges to the patent and an administrative proceeding in which the patent does not enjoy the presumption of validity that attaches when it is challenged in litigation. In addition, unlike current practice, parties can terminate the IPR upon settlement, providing flexibility for parties in litigation.

However, the new procedure has drawbacks, as well. The filing fees can be substantial, especially if multiple patents and numerous claims are involved. The USPTO will require a $27,200 filing fee for a petition covering up to 20 claims, increasing to $68,000 for 51 to 60 claims, and $27,200 for each additional 10 claims. None of these fees will be refunded if, after a party files a petition asking the agency to start an IPR, the agency does not grant the petition.

The USPTO estimated in the Federal Register that preparing an IPR petition will cost $46,000 and that the average cost for the re-exam will be $400,000. Thus, costs for administrative challenges involving multiple patents easily could exceed $1 million.

In addition, the USPTO has raised the standards for IPR. The old standard for initiating inter partes re-examination was whether a substantial new question of patentability existed. The new standard is whether there is “a reasonable likelihood that the requester will prevail with respect to at least one of the patent claims challenged in the patent.”

Parties have a limited window within which to seek IPR review, as well. A third party may file a petition for IPR after the later of either: 1. nine months after the grant of the patent or issuance of a reissue patent; or 2. the termination of any post-grant review. But a party cannot file for IPR more than one year after a complaint was filed.

Taken together, the high costs — starting at almost half-a-million dollars to challenge a single patent — and higher standards of review likely will limit substantially those cases in which IPR is a feasible option for challenging a patent’s validity.

Post-Grant Review

The new rules under the AIA provide another type of review of issued patents: a procedure called post-grant review. At present, re-examination practice is limited to questions of novelty and obviousness based upon prior art in the form of printed publications. The new PGR system broadens the bases for review to encompass almost any validity challenge.

But as with the new IPR, time restrictions apply. PGR only will be available during a nine-month window following the issuance of the patent. And the system will not be implemented fully until 2013 because the review is only available for patents with a priority date on or after March 16, 2013. There is an exception however: PGR is available against “business method” patents beginning Sept. 16.

How popular will PGR be? Europe has a comparable opposition system; according to a Jan. 6 posting on patent law blog Patently-O, approximately 5 percent to 7 percent of patents issued by the European Patent Office are opposed during the nine-month post-grant window — figures substantially higher than current use of the inter partes re-examination system.

But, there are reasons to believe that the new U.S. system will not see similar usage. As noted above, the new threshold that requires a showing of “reasonable likelihood that the petitioner will prevail with respect to at least one claim challenged” is likely to be more difficult to meet for the same reasons noted above with respect to IPR.

The other reason is, again, cost. As noted above, the initial filing fees alone will be in at least the mid-five figures, while the equivalent fee for a European Patent Office opposition is approximately $1,000.

The USPTO rules putting into effect the AIA’s provisions provide new opportunities for lawyers representing companies that seek to challenge a patent’s validity outside federal district court litigation. But the high costs of filing and prosecuting a challenge, as well as the substantive increases in the burden of proof for initiating the review, likely mean that use of these provisions by litigants will be the exception and not the rule.

USPTO rules