The Surprising Efficacy of Inter Partes Patent Re-examination

In creating inter partes re-examination, Congress hoped to provide a faster, cheaper alternative for resolving questions of patent validity in the U.S. Patent and Trademark Office (“USPTO”), rather than in the courts. As a measure of the procedure's growing popularity and availability, the rate of requests for inter partes re-examination has steadily increased each year, totaling more than 308 since the procedure was created in November 1999 (USPTO Inter Partes Re-examination Filing Data (Sept. 30, 2007). But, while the pace of re-exam requests continues to increase, the end results of completed proceedings have received relatively little attention.

Here, we report the outcomes of all inter partes re-examinations completed as of August 2008. Although this is a small sample size and it is still too early to form any strong conclusions, there are some important results apparent in this sample. Surprisingly, the proceedings displayed a high 73% “kill” rate (complete elimination of all claims targeted by the requesters) ' a rate which is far above that in litigation (33%) and ex parte re-examination (12%) (See Kimberly A. Moore, Judges, Juries, and Patent Cases ' An Empirical Peek Inside the Black Box, 99 Mich. L. Rev. 365 (2000) and Dennis Crouch, Ex Parte Reexamination Statistics II, Patently-O, available at www.patentlyo.com/patent/2008/06/ex-parte-reexam.html (posted Jun. 25, 2008)).

Is the high kill rate explained by the fact that especially weak patents were targeted? Did the patent owners simply give up because the patents were commercially unimportant? Or is inter partes re-examination truly the better procedure for a party to use in the United States to invalidate a patent?

For both requesters and patent owners, the present study highlights the factors and strategies favoring success in inter partes re-examinations. Although the reported statistics appear to favor requesters, a patent owner has unique procedural tools at its disposal both in the courts and at the USPTO.

Key Findings

• Requester's Success Rate: Third-party requesters succeeded in having all claims canceled or disclaimed in 73% (22) of the first 30 completed inter partes proceedings in which a certificate issued. These early certificates are likely skewed in favor of quick dispositions in which the patent owner simply failed to respond to a first Office action, which occurred in 43% (13) of the proceedings. However, when the patent owner did respond to the first Office action, the requester's success rate fell to 53% (nine out of 17). In any event, the requester's likelihood of a complete victory in inter partes re-exams is substantially greater than that in ex parte cases during the same period: Only 12% of all ex parte re-exams since January 2000 resulted in all claims being canceled.
• Pendency: The inter partes proceedings had an average pendency (measured from request date to certificate issue date) of 33.3 months. Like the requester's success rate, the overall pendency is skewed by the numerous early cases in which the patent owner simply failed to defend its patent. Eliminating these uncontested cases dramatically increases the average pendency up to 42.5 months.
• Grounds of Rejection: In a first Office action, obviousness was the sole ground of rejection in only 20% (six) of the proceedings, whereas anticipation was a ground of rejection in 73% (22) of the proceedings. Nevertheless, obviousness-only rejections did not improve the patent owner's chances of success: 83% (five out of six obviousness-only cases) resulted in all claims being canceled or disclaimed.
• No Board Decisions: None of the first 30 inter partes re-examination certificates was the product of a Board decision. Only one party, a patent owner, filed a notice of appeal, but then dropped the appeal by declining to file an appeal brief. In all cases where examiners found claims to be patentable, the third-party requesters did not bother to appeal the finding.
• Litigation: Five (17%) of the 30 inter partes re-examinations involved concurrent litigation between the patent owner and third-party requester. The causes of action were split: two declaratory judgment (“DJ”) actions brought by the third-party requester, and three infringement suits brought by the patent owner. The only still-pending cases involve re-examinations favoring the plaintiff: one DJ action in which all re-examined claims were canceled, and one infringement suit in which all re-examined claims were confirmed.

Methodology

There are many reasons why a requester may seek to file re-examination other than seeking a complete “kill” of all claims in the patent. A requester may have a more limited objective than removing all claims, such as forcing the patent owner to clarify the meaning of the claims in light of particular prior art references, or only trying to force a narrowing amendment of one claim in the patent. As a practical matter, it is not possible to know the requester's intent in filing a request. Accordingly, this article focuses on the kill rate as a convenient measure of overall “efficacy.”

Every Inter Partes Re-examination Certificate issued as of July 31, 2008 was obtained from the USPTO's Official Gazette. The completeness of this list was confirmed by the sequential number listed on each certificate (i.e., 1st, 2nd, etc.). Using the re-examination control number listed on the certificates, the prosecution history of each proceeding was obtained through the USPTO's public Patent Application Information Retrieval (“PAIR”) database. For each proceeding, the reason for the issuance of the certificate was obtained from the Notice of Intent to Issue Inter Partes Re-examination Certificate (“NIRC”) and verified against the prosecution history. Also noted was the stage at which each proceeding had concluded. The examiner's grounds for rejection were obtained from the first Office action on the merits. To determine whether a patent under re-examination was also involved in litigation, a search was performed by entering the patent number into Westlaw's LITALERT database and by searching each patent on LexisNexis. The docket report was obtained for each litigation.

Overview of All Completed Re-examinations

Table 1, below, lists all Inter Partes Re-examination Certificates that were issued between Nov. 29, 1999 and July 31, 2008.

Completed Re-examinations By Technology Area

Figure 1, below, illustrates the number of completed inter partes re-examinations based on the technology area of the patent.

Outcome and Pendency

Table 2, below, summarizes the outcome and pendency of all proceedings, as well as the outcome and pendency of those proceedings in which the patent owner challenged the third-party requester by at least responding to a first Office action.

Table 3, below, summarizes the outcome and pendency based on technology area.

Procedural History of Completed Re-examinations

As shown, the outcome and pendency of the first 30 re-examinations depended heavily on whether the patent owner contested the proceeding by responding to a first Office action. To get a sense of the procedural history of the re-exams, Figure 2, on page 3, shows the last procedural step at which each re-examination was concluded.

Concurrent Litigation

Table 4, below, lists all Inter Partes Re-examination Certificates in which the patent was involved in a concurrent district court litigation. The cases are roughly split between infringement suits brought by patent owners and declaratory DJ actions brought by third-party requesters. The plaintiff in each case in underlined.

Strategic Considerations

Inter Partes vs. Ex Parte

As the early certificates here demonstrate, requesters in inter partes re-examinations have a much higher success rate than in ex parte re-examinations. Even in contested proceedings where the patent owners responded to first Office actions, the requester's likelihood of having all claims canceled or disclaimed in inter partes proceedings is 53%, compared with only 12% in all ex parte proceedings. This difference may be explained by the third party's involvement in inter partes proceedings (i.e., comments submitted after patent owner's responses), the absence of inter partes interviews with the examiner, and the fact that a possible estoppel against a losing requester raises the requester's stakes in making the inter partes request, meaning that a requester is less likely to file in the absence of strong prior art.

Aside from frequent claim cancellations, an additional 35% of contested inter partes proceedings resulted in claims being changed. Because no claim may be broadened during re-examination (35 U.S.C. '314(a)), a narrowing amendment that has sacrificed valuable claim scope may also be considered a victory for third-party requesters. Such amendments also raise the possibility of intervening rights under 35 U.S.C. '317(b).

But requesters must weigh these advantages against a possible estoppel. Unlike requesters in ex parte proceedings, a requester who is unsuccessful in an inter partes proceeding is forever barred from raising issues in a subsequent litigation if those issues were raised or could have been raised in the prior re-examination. This means that an inter partes requester should not hold back any known prior art patents/publications or invalidity arguments during re-examination.

Licensing Strategies

From the patent owner's perspective, the prospect of a drawn-out inter partes validity challenge is not an attractive one. Thus, just as licensors often seek reimbursement from licensees for the cost of prosecuting and litigating the licensed patents, so too should those licensors seek reimbursement for the cost of re-examination. In addition, to further discourage a licensee's incentive to attack the patent, the licensor may seek to negotiate termination of the license in the event the licensee or its privy requests a re-examination of the licensed patent.

From the requester's perspective, the large number of uncontested re-exams (13 of 30) suggests that certain patent owners will not fight to defend certain patents. The requester should be wary, however, as these early certificates may overstate the frequency of uncontested proceedings.

Litigation Strategies

• Stay of Litigation Pending Re-examination

A patent owner in an inter partes re-examination has the unique ability under 35 U.S.C. '318 to request a stay of concurrent litigation, which will typically be granted unless the stay would “not serve the interests of justice.” A third-party requester, by contrast, must rely on a court's inherent authority to stay the litigation, and the requester's motion will be treated the same as if it were pending ex parte re-examination.

• Suspension of Re-examination Pending Litigation

A patent owner may also seek to suspend re-examination under 35 U.S.C. '314(c) “for good cause.” For example, a suspension may be granted if the litigation has reached the appeal stage at a time when the inter partes re-examination is still in its early stages.

Conclusions

Overall, the high kill rate (73%) and relatively short average pendency (33 months) of the first 30 inter partes re-examinations are likely skewed by the large number of cases in which the patent owner simply failed to respond to a first Office action (43%), as well as by the complete absence of Board appeals. When only contested re-exams are included, the average pendency jumps to 42.5 months.

Nevertheless, in contested cases where the patent owner does respond to Office actions, the 53% kill rate is still higher than in litigation and ex parte re-examination. These results, although based on a small early sample of completed inter partes re-examinations, demonstrate the effectiveness of third-party participation, showing a rate of efficacy that is closer to European opposition than to ex parte re-examination. Before choosing whether to use ex parte re-examination, inter partes re-examination, or litigation, a party must balance a number of factors, including the overall objective (e.g., total claim elimination or just forcing a narrowing amendment), costs, estoppel, strength of prior art, and time to completion.

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In creating inter partes re-examination, Congress hoped to provide a faster, cheaper alternative for resolving questions of patent validity in the U.S. Patent and Trademark Office (“USPTO”), rather than in the courts. As a measure of the procedure's growing popularity and availability, the rate of requests for inter partes re-examination has steadily increased each year, totaling more than 308 since the procedure was created in November 1999 (USPTO Inter Partes Re-examination Filing Data (Sept. 30, 2007). But, while the pace of re-exam requests continues to increase, the end results of completed proceedings have received relatively little attention.

Here, we report the outcomes of all inter partes re-examinations completed as of August 2008. Although this is a small sample size and it is still too early to form any strong conclusions, there are some important results apparent in this sample. Surprisingly, the proceedings displayed a high 73% “kill” rate (complete elimination of all claims targeted by the requesters) ' a rate which is far above that in litigation (33%) and ex parte re-examination (12%) (See Kimberly A. Moore, Judges, Juries, and Patent Cases ' An Empirical Peek Inside the Black Box, 99 Mich. L. Rev. 365 (2000) and Dennis Crouch, Ex Parte Reexamination Statistics II, Patently-O, available at www.patentlyo.com/patent/2008/06/ex-parte-reexam.html (posted Jun. 25, 2008)).

Is the high kill rate explained by the fact that especially weak patents were targeted? Did the patent owners simply give up because the patents were commercially unimportant? Or is inter partes re-examination truly the better procedure for a party to use in the United States to invalidate a patent?

For both requesters and patent owners, the present study highlights the factors and strategies favoring success in inter partes re-examinations. Although the reported statistics appear to favor requesters, a patent owner has unique procedural tools at its disposal both in the courts and at the USPTO.

Key Findings

• Requester's Success Rate: Third-party requesters succeeded in having all claims canceled or disclaimed in 73% (22) of the first 30 completed inter partes proceedings in which a certificate issued. These early certificates are likely skewed in favor of quick dispositions in which the patent owner simply failed to respond to a first Office action, which occurred in 43% (13) of the proceedings. However, when the patent owner did respond to the first Office action, the requester's success rate fell to 53% (nine out of 17). In any event, the requester's likelihood of a complete victory in inter partes re-exams is substantially greater than that in ex parte cases during the same period: Only 12% of all ex parte re-exams since January 2000 resulted in all claims being canceled.
• Pendency: The inter partes proceedings had an average pendency (measured from request date to certificate issue date) of 33.3 months. Like the requester's success rate, the overall pendency is skewed by the numerous early cases in which the patent owner simply failed to defend its patent. Eliminating these uncontested cases dramatically increases the average pendency up to 42.5 months.
• Grounds of Rejection: In a first Office action, obviousness was the sole ground of rejection in only 20% (six) of the proceedings, whereas anticipation was a ground of rejection in 73% (22) of the proceedings. Nevertheless, obviousness-only rejections did not improve the patent owner's chances of success: 83% (five out of six obviousness-only cases) resulted in all claims being canceled or disclaimed.
• No Board Decisions: None of the first 30 inter partes re-examination certificates was the product of a Board decision. Only one party, a patent owner, filed a notice of appeal, but then dropped the appeal by declining to file an appeal brief. In all cases where examiners found claims to be patentable, the third-party requesters did not bother to appeal the finding.
• Litigation: Five (17%) of the 30 inter partes re-examinations involved concurrent litigation between the patent owner and third-party requester. The causes of action were split: two declaratory judgment (“DJ”) actions brought by the third-party requester, and three infringement suits brought by the patent owner. The only still-pending cases involve re-examinations favoring the plaintiff: one DJ action in which all re-examined claims were canceled, and one infringement suit in which all re-examined claims were confirmed.

Methodology

There are many reasons why a requester may seek to file re-examination other than seeking a complete “kill” of all claims in the patent. A requester may have a more limited objective than removing all claims, such as forcing the patent owner to clarify the meaning of the claims in light of particular prior art references, or only trying to force a narrowing amendment of one claim in the patent. As a practical matter, it is not possible to know the requester's intent in filing a request. Accordingly, this article focuses on the kill rate as a convenient measure of overall “efficacy.”

Every Inter Partes Re-examination Certificate issued as of July 31, 2008 was obtained from the USPTO's Official Gazette. The completeness of this list was confirmed by the sequential number listed on each certificate (i.e., 1st, 2nd, etc.). Using the re-examination control number listed on the certificates, the prosecution history of each proceeding was obtained through the USPTO's public Patent Application Information Retrieval (“PAIR”) database. For each proceeding, the reason for the issuance of the certificate was obtained from the Notice of Intent to Issue Inter Partes Re-examination Certificate (“NIRC”) and verified against the prosecution history. Also noted was the stage at which each proceeding had concluded. The examiner's grounds for rejection were obtained from the first Office action on the merits. To determine whether a patent under re-examination was also involved in litigation, a search was performed by entering the patent number into Westlaw's LITALERT database and by searching each patent on LexisNexis. The docket report was obtained for each litigation.

Overview of All Completed Re-examinations

Table 1, below, lists all Inter Partes Re-examination Certificates that were issued between Nov. 29, 1999 and July 31, 2008.

Completed Re-examinations By Technology Area

Figure 1, below, illustrates the number of completed inter partes re-examinations based on the technology area of the patent.

Outcome and Pendency

Table 2, below, summarizes the outcome and pendency of all proceedings, as well as the outcome and pendency of those proceedings in which the patent owner challenged the third-party requester by at least responding to a first Office action.

Table 3, below, summarizes the outcome and pendency based on technology area.

Procedural History of Completed Re-examinations

As shown, the outcome and pendency of the first 30 re-examinations depended heavily on whether the patent owner contested the proceeding by responding to a first Office action. To get a sense of the procedural history of the re-exams, Figure 2, on page 3, shows the last procedural step at which each re-examination was concluded.

Concurrent Litigation

Table 4, below, lists all Inter Partes Re-examination Certificates in which the patent was involved in a concurrent district court litigation. The cases are roughly split between infringement suits brought by patent owners and declaratory DJ actions brought by third-party requesters. The plaintiff in each case in underlined.

Strategic Considerations

Inter Partes vs. Ex Parte

As the early certificates here demonstrate, requesters in inter partes re-examinations have a much higher success rate than in ex parte re-examinations. Even in contested proceedings where the patent owners responded to first Office actions, the requester's likelihood of having all claims canceled or disclaimed in inter partes proceedings is 53%, compared with only 12% in all ex parte proceedings. This difference may be explained by the third party's involvement in inter partes proceedings (i.e., comments submitted after patent owner's responses), the absence of inter partes interviews with the examiner, and the fact that a possible estoppel against a losing requester raises the requester's stakes in making the inter partes request, meaning that a requester is less likely to file in the absence of strong prior art.

Aside from frequent claim cancellations, an additional 35% of contested inter partes proceedings resulted in claims being changed. Because no claim may be broadened during re-examination (35 U.S.C. '314(a)), a narrowing amendment that has sacrificed valuable claim scope may also be considered a victory for third-party requesters. Such amendments also raise the possibility of intervening rights under 35 U.S.C. '317(b).

But requesters must weigh these advantages against a possible estoppel. Unlike requesters in ex parte proceedings, a requester who is unsuccessful in an inter partes proceeding is forever barred from raising issues in a subsequent litigation if those issues were raised or could have been raised in the prior re-examination. This means that an inter partes requester should not hold back any known prior art patents/publications or invalidity arguments during re-examination.

Licensing Strategies

From the patent owner's perspective, the prospect of a drawn-out inter partes validity challenge is not an attractive one. Thus, just as licensors often seek reimbursement from licensees for the cost of prosecuting and litigating the licensed patents, so too should those licensors seek reimbursement for the cost of re-examination. In addition, to further discourage a licensee's incentive to attack the patent, the licensor may seek to negotiate termination of the license in the event the licensee or its privy requests a re-examination of the licensed patent.

From the requester's perspective, the large number of uncontested re-exams (13 of 30) suggests that certain patent owners will not fight to defend certain patents. The requester should be wary, however, as these early certificates may overstate the frequency of uncontested proceedings.

Litigation Strategies

• Stay of Litigation Pending Re-examination

A patent owner in an inter partes re-examination has the unique ability under 35 U.S.C. '318 to request a stay of concurrent litigation, which will typically be granted unless the stay would “not serve the interests of justice.” A third-party requester, by contrast, must rely on a court's inherent authority to stay the litigation, and the requester's motion will be treated the same as if it were pending ex parte re-examination.

• Suspension of Re-examination Pending Litigation

A patent owner may also seek to suspend re-examination under 35 U.S.C. '314(c) “for good cause.” For example, a suspension may be granted if the litigation has reached the appeal stage at a time when the inter partes re-examination is still in its early stages.

Conclusions

Overall, the high kill rate (73%) and relatively short average pendency (33 months) of the first 30 inter partes re-examinations are likely skewed by the large number of cases in which the patent owner simply failed to respond to a first Office action (43%), as well as by the complete absence of Board appeals. When only contested re-exams are included, the average pendency jumps to 42.5 months.

Nevertheless, in contested cases where the patent owner does respond to Office actions, the 53% kill rate is still higher than in litigation and ex parte re-examination. These results, although based on a small early sample of completed inter partes re-examinations, demonstrate the effectiveness of third-party participation, showing a rate of efficacy that is closer to European opposition than to ex parte re-examination. Before choosing whether to use ex parte re-examination, inter partes re-examination, or litigation, a party must balance a number of factors, including the overall objective (e.g., total claim elimination or just forcing a narrowing amendment), costs, estoppel, strength of prior art, and time to completion.

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