Have Patent Owners Gotten What They Wished For?
The last year has been marked by a multitude of changes in regulations, procedures and case law relevant to patent disputes.
May 01, 2019 at 03:20 PM
8 minute read
The last year has been marked by a multitude of changes in regulations, procedures and case law relevant to patent disputes. At the U.S. Patent and Trademark Office (USPTO), new guidance to the examiners restricts their ability to reject claims for being directed to unpatentable subject matter under Section 101, which will inevitably result in more questionable patent claims being issued. At the same time, the Patent Trial and Appeal Board (PTAB) has dramatically modified its procedures and approaches to handling post-grant petitions both at the institution stage and in instituted proceedings, resulting in more petitions being denied and more claims surviving PTAB trials. The PTAB's tightening standards has resulted in more challenges proving to be unsuccessful, while many practitioners seem to believe that the very same challenges would have been more successful a year ago.
District court proceedings themselves have changed, as well, with 101 challenges becoming more difficult and unpredictable; coordination between defendants less feasible with cases being spread across multiple forums post-TC Heartland; and the Phillips standard in both the PTAB and district court forcing defendants to analyze their products accused functionalities and potential noninfringement claim constructions months—and even years—earlier than previously. Pushing this decision to within the first few months of litigation is highly advantageous to plaintiffs, allowing them to maximize the pressure of legal spend (even for entirely meritless infringement allegations) on defendants and forcing many to settle out early rather than rack up considerable legal bills within months of a case being filed.
This article addresses the myriad of interwoven factors and events that have created a new dynamic favoring plaintiffs and suggests new approaches for defendants facing the new patent landscape.
|PTAB Pre-Institution Analysis Changes
Changes to the PTAB's approach of analyzing petitions for institution has changed significantly in the past year. The most relevant to changing the overall balance of patent disputes are the increased use of 35 U.S.C. Sections 314(a), 315(d), and 325(d) to reject petitions and arguments at the institution stage that only a few years ago would have been sufficient for institution purposes. The PTAB's approach to review has led to an increasing number of inter partes review (IPR) petitions not being considered on the merits and instead being denied at institution, primarily under the premise that because a piece of prior art (or “similar” art) was previously considered in some way, that a new post-grant challenge should not be permitted, or that only a limited number of IPR challenges to the same patent should be permitted.
The result of these doctrinal and procedural changes is that defendants feel they are being forced into a race to file petitions before another party files, or face the risk that the PTAB will not consider the substantive arguments of a later-filed petition.
|PTAB Rule Changes and the 'Philips' Standard
While there has been extensive debate regarding whether the Philips standard will change the rate of success of invalidating claims at the PTAB, what is clear is the much broader effect that the Philips standard change is creating in patent disputes that is upsetting the entire dynamic of case management and budgets. Most importantly, this change forces many defendants to move up their costly and time-consuming claim construction and noninfringement analysis of asserted patents months or even years earlier than previously. While some defendants have considered waiting for a district court to issue a claim construction, PTAB judges have already indicated that waiting that long could be problematic (particularly if another IPR is filed on the same patent in the interim). Also, waiting for a claim construction order to issue (even assuming it issues before the one-year service bar) virtually assures that the case will not be stayed, resulting in the very parallel proceedings scenario and accompanying financial expenditures that the America Invents Act (AIA) was originally designed to avoid.
|Patent Office Changes
The Patent Office has released new guidance on 101 and further restricted the ability of examiners to raise 101 challenges. While the patent litigation ecosystem will likely not feel the full effects of these changes for several years, the reduction of 101 rejections has a domino effect on questionable patent claims issuing from the Patent Office. Not only will claims that previously would have been rejected now be issued and asserted against defendants, but the ability for defendants to challenge those claims in post-grant proceedings has also been limited. Combined with the PTAB's increasing unwillingness to review previously considered issues under the Becton doctrine, it is unlikely that 101 challenges will be available in most future PTAB challenges, absent the U.S. Court of Appeals for the Federal Circuit intervention.
|Strategy Changes as a Result of These Developments
PTAB Approach: As an initial matter, defendants need to re-assess how to handle post-grant proceedings, including with respect to: setting the budget; strategy and timing for filing a petition; and choosing counsel. IPR budgets need to be increased to account for the far higher scrutiny being applied by the PTAB at Director Andrei Iancu's direction, both at institution and during trial, as well as to account for the additional events introduced in the proceedings over the past year. For example, sur-replies are now given as of right, and the new motion to amend procedures will raise costs for petitioners.
In terms of strategy and timing for filing a petition, defendants need to more carefully consider the timing of IPRs, including, for example, whether to wait for infringement contentions or be the first to file to reduce the likelihood that the petition will be denied institution by the PTAB under its General Plastic or Becton-Dickinson discretionary factors. These same issues come into play when deciding how many prior art grounds to present in the petition, and how many of the patent's claims to challenge in a single petition. If there are other defendants accused of infringing the same patent, a defendant must carefully consider whether to file an IPR jointly with the other defendants, whether to wait and join a pending IPR filed by another defendant or file a petition alone.
Lastly, post-grant proceedings are a unique animal that include ever-changing requirements and strategy decisions. These proceedings require attorneys not only with technical skill and the ability to advocate before judges, but also attorneys who understand the underlying strategy decisions required to succeed. Many recent IPR failures can be attributed to attorneys inexperienced before the PTAB; who do not keep abreast of the frequent changes to practice before the PTAB; or who are ill-equipped to handle the requirements of PTAB challenges today.
Litigation Approach: Patent litigation strategies also need to be re-assessed in 2019, including how to approach 101 challenges (filing an early motion to dismiss, request early summary judgment, whether to include expert testimony in support of a motion and the likelihood of being reversed on an early 101 “win” and the implications for such a result). The change in dynamics for patent litigation as a result of the PTAB rule and analysis changes also cannot be understated, particularly when understood in the light of SAS.
While SAS is also a burden on patent owners, full institutions increase the risk of estoppel applying. With varying views on the scope of estoppel by district courts, a defendant must be prepared to be excluded from raising any nonsystem prior art should claims survive a PTAB challenge.
Also, as a practical matter, defendants must now make much earlier and more serious case assessments on how to proceed, with a key threshold issue being how to handle IPRs. Given estoppel concerns, the decreased institution rate on recent IPRs, and Phillips standard across both forums, a carefully crafted plan for IPR challenges concurrent with an increased case workup in the initial two to three months is essential to determine the best course of action for a particular litigation. This also includes strategy calls of how to handle claims with serious indefiniteness issues, what claim constructions are necessary for invalidity and balancing noninfringement and invalidity concerns.
While no single development is responsible, the combination and overlap of the developments discussed above has shifted many aspects of patent disputes in favor of plaintiffs and defendants will need to carefully adjust their approach to PTAB proceedings and litigation.
Harper Batts, a partner in Sheppard Mullin's intellectual property practice group in Silicon Valley, has more than a decade of experience as an IP litigator and client counselor. Numerous Fortune 50 clients have relied upon his experience to represent them in highly contentious patent litigation disputes in many different venues, including Texas, Delaware, California, New Jersey, Wisconsin, North Carolina and the U.S. Court of Appeals for the Federal Circuit.
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