The Leahy-Smith America Invents Act (AIA) became fully effective in March 2013, and its impact over the last five years continues to disrupt U.S. patent practice. The AIA made significant statutory changes to how patent applications were prosecuted at the U.S. Patent and Trademark Office (USPTO); however, the changes to post-grant proceedings (PGPs) are possibly more significant.
The AIA authorized administrative proceedings as an alternative to litigation and left it to the USPTO to promulgate accompanying rules to incentivize various PGPs where patents could be challenged, see Pub. L. No. 112-29, 125 Stat. 284 (2011). To accomplish the objectives of the PGPs, the USPTO established the Patent Trial and Appeal Board (PTAB) as an administrative tribunal to oversee the proceedings and conduct trials.
There are three different PGPs: Inter Partes Review (IPR); Covered Business Methods (CBM); and Post-Grant Review (PGR) for patents issued on application filed after the AIA. The most frequently used of the three PGPs, by far, is the IPR, which accounted for 92 percent of all petitions by type between September 2012 and May 2018. IPRs are both popular and controversial due to the frequency with which petitioners succeed in having issued patents declared unpatentable. For instance, the PTAB struck down claims as unpatentable in 39 percent of all instituted IPRs that were adjudicated between September 2012 and February 2018. This controversy ultimately gave way to a challenge on constitutional grounds, which made its way to the U.S. Supreme Court in Oil States Energy Services v. Greene’s Energy Group, 138 S.Ct. 1365 (2018).
The Supreme Court upheld the ability to challenge third-party patent claims in an IPR, much to the disappointment of those favoring a patentee-friendly patent system. The Supreme Court answered the stated issue—whether IPR unconstitutionally assesses rights that should only be adjudicated by Article III courts—in the negative. Writing for a seven-member majority, Justice Clarence Thomas reasoned that the IPR proceeding simply reconsidered the USPTO’s grant of a patent, which falls squarely within the public-rights doctrine and can be adjudicated by an administrative tribunal.The Supreme Court explained “the public-rights doctrine applies to matters ‘arising between the government and others, which from their nature do not require judicial determination and yet are susceptible of it.’” Since only Justice Neil Gorsuch and Chief Justice John Roberts dissented from the court’s opinion, Justice Anthony Kennedy’s retirement is unlikely to provide any motivation to revisit this holding and it will stand unless Congress revisits the AIA to overrule it.
Although the court’s ruling was purposely narrow and did not address PGR or CBM proceedings, they also, by implication, are constitutional when courts view issued patents as public franchises rather than personal property rights, which must be adjudicated in an Article III tribunal. Clearly, all of the post-grant proceedings (PGPs) are alive and well and deserve careful consideration by anyone who faces an infringement claim or has received a licensing letter. In view of this determination, PGPs are here for the foreseeable future, and a review of requirements and application is in order.
Post-Grant Review for Post-AIA Patents
Under 35 U.S.C. Section 321, any party other than the patentee may petition for PGR within nine months following the grant of a patent under the first-inventor rules of the AIA. The challenge may fall under any ground described in Section 282, including unpatentable subject matter, obviousness, novelty, or enablement. While the PTAB may decide to institute a PGR only if it is “more likely than not that at least one of the claims challenged in the petition is unpatentable,” the standard may also be satisfied by “a showing that the petition raises a novel or unsettled legal question that is important to other patents or patent applications.” “A patent owner may file a preliminary response to the petition … setting forth the reasons why no PGR should be instituted.”
Covered Business Methods
CBM review differs from PGR and IPR because it is subject to a sunset date of September 2020. As a result, the CBM provisions of the AIA were not codified along with the others. As the name implies, CBM has limited application and is permissible only when the subject patent implicates a covered business method “used in the practice, administration, or management of a financial product or service” and is not a “patent for technological inventions.” CBM is also available only to an accused infringer. To avoid conflicts with a pending PGR, a CBM is available only after the conclusion of a PGR or nine months after the grant of a patent, whichever is later.
With a handful of exceptions, CBM is subject to the same procedures governing PGR. The challenger may dispute the validity of the patent under the same bases available in PGR (37 C.F.R. Section 42.304), with additional requirements for art used in novelty or obviousness challenges (AIA Section 18(a)(1)(C)). The legal standard for instituting a CBM also carries over from PGR: the PTAB will institute a CBM only upon a showing that one or more claims challenged are “more likely than not” to be invalidated, or if “the petition raises a novel or unsettled legal question that is important to other patents or patent applications.” As in PGR, the patent owner may respond to the challenger’s petition by filing a preliminary response.
Inter Partes Review
The requirements for instituting an IPR are more stringent than those associated with the PRG and CBM proceedings. A petition for IPR may generally be filed any time during the life of the patent, but the request cannot be filed more than one year after the petitioner has been served a complaint alleging infringement of the subject patent. Moreover, the patent may only be challenged on novelty or obviousness grounds. Like CBM, IPR is available only after the possibility of PGR has been extinguished, i.e., nine months of the grant of a patent.
Although the IPR is limited to novelty or obviousness grounds, it is more attractive to defendants than the PGR and CBM proceedings because the threshold for instituting an IPR is lower. The PTAB may institute an IPR if “there is a reasonable likelihood that the petitioner would prevail with respect to at least one of the claims challenged in the petition.” The PTAB has confirmed that “the ‘reasonable likelihood’ standard is lower than the ‘more likely than not’ standard. The reasonable likelihood standard allows for the exercise of discretion but still encompasses a 50/50 chance whereas the ‘more likely than not’ standard requires greater than a 50 percent chance of prevailing.” Message from Chief Judge James Donald Smith, USPTO, https://www.uspto.gov/patent/laws-and-regulations/america-invents-act-aia/message-chief-judge-james-donald-smith-board#heading-1.
Post-Grant Proceedings and Patent Litigation
In addition to clarifying patentability, PGPs may serve as a valuable tool with a less costly basis for resolving an infringement charge. If the infringement charge is made through a filed complaint, the district court may grant a motion to stay the litigation pending resolution by the PTAB, AIA Section 18(b). See VirtualAgility v. Salesforce.com, 759 F.3d 1307, 1309-10 (Fed. Cir. 2014). Although there is some discovery in an IPR, there is no damages discovery and no award of damages. Accordingly, the disclosure of sensitive financial and product design information is not required in an IPR. A stay thus gives an accused infringer time to consider a design-around or limit the patent claims so they no longer apply to the accused product.
When considering a motion to stay, courts weigh “whether a stay … will simplify the issues in question and streamline the trial; whether discovery is complete and whether a trial date has been set; whether a stay … would unduly prejudice the nonmoving party or present a clear tactical advantage for the moving party; and whether a stay … will reduce the burden of litigation on the parties and on the court,” as in Benefit Funding Systems v. Advance American Cash Advance Centers, 767 F.3d 1383, 1384 (Fed. Cir. 2014). It is best to file an IPR as early as possible for at least two reasons. First, a court may consider the PTAB’s reasons for instituting the PGP when deciding whether to grant the stay. Second, a court is more likely to grant a stay before the litigation is too far along, especially where the PTAB already granted the petition.
The Supreme Court’s decision in SAS Institute v. Iancu 138 S. Ct. 1348 (2018) struck down the PTAB’s practice of instituting an IPR on less than all of the claims challenged in the petition and held that the PTAB must instead issue a final, written decision on all of the claims in a petition. The Federal Circuit’s conclusion in PGS Geophysical AS v. Iancu, 2018 U.S. App. LEXIS 15418, *9 (Fed. Cir. June 7, 2018), further refined the SAS holding to include all grounds in the petition. In light of these decisions, petitioners have already secured remand for further proceedings where the PTAB improperly instituted IPR on limited grounds. See, e.g., Adidas AG v. Nike, No. 18-1180, slip op. at 4 (Fed. Cir. July 2, 2018). This is good news for the requester because the estoppel provisions associated with IPR were becoming a separate point of litigation for those denied full review by the PTAB on all of the claims and grounds cited in their petitions. As SAS and PGS solidify the possibility that IPR will “simplify the issues at hand,” courts are more likely to grant stay requests in favor of resolution at the PTAB.
Although the landscape is changing quickly, companies involved in patent-savvy industries are well-advised to continue monitoring the changes and consider their options when confronted with a possible patent infringement issue. As always, early due diligence may be rewarded with an opportunity to avoid litigation expense.
Jonathan M. Dunsay is an associate at Volpe and Koenig. His practice focuses on the preparation of a wide range of patent applications, litigation, licensing, and IP portfolio management.
Joshua D. Schmid is a law clerk with the firm.