Patent Re-examination

There has been a significant surge in recent years in the number of patent re-examination requests filed against patents asserted in litigation. Indeed, re-examination is increasingly being utilized by accused patent infringers as a cost-effective tool to challenge patent validity, derail patent litigation proceedings, and limit the accused infringer's exposure to damages. In light of this trend, strategy considerations for the use of parallel patent re-examination proceedings as a tool in patent litigation are examined below.

Re-examination is a patent office procedure for amending or correcting an issued patent and usually involves reassessment of the patent's scope in view of new information concerning the state of the art at the time the patent application was filed. Patent re-examinations are initiated by a request, typically by a party that has been or may be accused of infringement, to the Patent and Trademark Office (“PTO”) to re-examine specifically identified claims of a patent in light of prior art references. If the request raises a “substantial new question of patentability,” the request is granted and the PTO initiates a re-examination proceeding during which the patent examiner determines if the patent claims should be canceled, amended or confirmed.

Two Types of Proceedings

There are two main types of re-examination proceedings: ex parte and inter partes. Ex parte proceedings involve communication back and forth between the patent owner and the PTO ' there is no continued involvement of the third party who requested the re-examination. Inter partes proceedings, on the other hand, allow the third-party requester the opportunity to contest most points raised by the patent owner throughout the proceeding, and the third-party participation culminates in a right to appeal the PTO's decision.

Accused infringers are increasingly filing requests with the PTO to have the patent claim(s) that have been asserted re-examined. Most obviously, patent re-examination proceedings may result in the asserted patent claim(s) being nullified altogether or substantially narrowed. The former generally eliminates potential liability while the latter may, in some cases, give rise to a meritorious argument that the patent no longer covers the accused product(s). In 2009, 41% of the patents that emerged from inter partes re-examinations and 15% of the patents that emerged from ex parte re-examinations were entirely nullified. Only 8% of patents coming out of inter partes proceedings and 14% of the patents that underwent ex parte re-examinations survived entirely intact. Beyond the possibility of avoiding infringement altogether, an accused infringer's potential liability can be minimized if all of the relevant patent claims are substantively amended during the re-examination because the patent owner loses its right to seek damages for activities that occur prior to the date on which the patent emerges from re-examination.

Incentives for Requesting Re-examination

However, beyond the potential to ultimately nullify or narrow the patent, there exist many additional incentives for requesting re-examination. First, an accused infringer may be able to have a district court patent infringement litigation stayed pending resolution of parallel re-examination proceedings. A stay may be a particularly attractive option where an accused infringer requires time to design around an asserted patent. As of September 2009, about 60% of contested motions to stay pending re-examination were granted. A grant of such a motion generally puts the litigation in stasis at least until the PTO examiner issues his final determination, which often occurs two to three years after the re-examination request is filed. The examiner's final determination is subject to an internal PTO appeal process, however, and for that reason stays sometimes remain in effect until the appeal process is completed.

Further, a re-examination proceeding can be an attractive venue in which to litigate issues of validity. While in federal court proceedings a patent is presumed valid and must be shown to be invalid by clear and convincing evidence, in re-examination proceedings the patent examiner rejects the claim if the evidence establishes a prima facie case of unpatentability. The onus is then on the patent owner to rebut the prima facie case set forth by the examiner. In addition, the cost of re-examination proceedings is substantially less than the cost to sustain litigation efforts. According to the AIPLA 2009 Economic Survey, in 2009 the median cost of a patent infringement suit with $1-$25 million at risk was $2.5 million. Comparatively, the median cost of an inter partes re-examination, inclusive of an appeal to federal court, was $188,000. The median cost of an ex parte re-examination was only $10,000.

Also, a re-examination proceeding can limit the risk that a court issues an injunction against sales of the accused device. Since the 2007 decision in eBay v. Mercexchange, 547 U.S. 388 (2006), which limited the circumstances in which injunctions should issue in patent cases, the existence of even an interim re-examination decision adverse to the patent is a significant factor militating against the issuance of an injunction.

Finally, in some circumstances, re-examination essentially provides the accused infringer a second bite at the apple in the sense that the accused infringer has the opportunity to challenge the patent's validity both in federal court and in the PTO. For example, in In re Swanson, 540 F.3d 1368 (Fed. Cir. 2008), the Federal Circuit held that the PTO could consider a “substantial new question of patentability” raised by a prior art reference even where the district court had previously found that the prior art reference did not invalidate the patent. The accused infringer was therefore able to raise its invalidity arguments in both the district court and the PTO.

Another recent case further illustrates the potential impact of a well-formed and well-timed re-examination request. Hitachi, Ltd. was able to successfully use re-examination to defend itself against patent infringement claims brought by Translogic Technology, Inc. in In re Translogic Tech., Inc., 504 F.3d 1249 (Fed. Cir. 2007). While the district court proceedings resulted in jury determinations of validity and induced infringement, Hitachi's re-examination request resulted in a finding by the PTO that the asserted claims of Translogic's patents-in-suit were invalid for being obvious. Both findings were on appeal to the Federal Circuit at the same time. The Federal Circuit upheld the PTO determination of invalidity. Even though the PTO and the district court case were applying different standards of invalidity, the Federal Circuit vacated the jury determinations of validity and infringement in light of its ruling in the PTO appeal.

Consider the Timing

Once a party has made the strategic decision to proceed with a re-examination request, careful consideration must be given to the timing of the request. Although the requester's objectives greatly influence when to file a request, in general, a re-examination is most effective as a litigation tool when a suit is merely contemplated or in its early stages.

Where the goal is to stay a patent infringement suit, early filing is of particular importance. Despite nearly unconstrained discretion, courts generally consider at least the following factors in making stay determinations: 1) whether discovery is complete and whether a trial date has been set; 2) whether a stay will simplify the issues in question and trial of the case; and 3) whether a stay would unduly prejudice or present a clear tactical disadvantage to the non-moving party. Under these factors, most courts do not consider staying the litigation until the PTO has granted a re-examination request. Some courts will further await the PTO's formal decision to reject the claims, which can occur up to about a year later, and this likewise militates in favor of early filing.

Further, an early filing of a re-examination request may also prove useful even when the movant is not seeking a stay. As outlined above, under the eBay decision, an interim re-examination decision adverse to the patent is a significant factor militating against the issuance of an injunction. To the extent an accused infringer is concerned about the risk of an injunction issuing, an early request is important to obtaining such an interim decision.

It is possible that earlier filing of re-examination requests could have helped Research In Motion avoid paying hundreds of millions of dollars to settle the patent infringement lawsuit brought against it by NTP Inc. NTP, Inc. v. Research in Motion, Ltd., 392 F.3d 1336 (Fed. Cir. 2004). To avoid the forced shutdown of all Blackberry devices, RIM paid NTP more than $600 million in a well-publicized settlement agreement. Re-examination proceedings were initiated regarding the asserted NTP patents, but the proceedings were not filed until late in the game. The PTO ultimately determined that the patents asserted against RIM were invalid for being obvious, but the verdict came too late for RIM, which had already settled with NTP.

Conclusion

While re-examination may not be a viable option for all accused infringers, it is gaining recognition as a cost-effective tool to minimize and derail patent infringement claims, and it is settling into place alongside patent litigation as a preferred venue for resolution of patent disputes.

Elizabeth Iglesias and Azar Mouzari are both litigation associates in the Los Angeles office of Irell & Manella LLP specializing in intellectual property. They can be reached respectively at [email protected] and [email protected].

There has been a significant surge in recent years in the number of patent re-examination requests filed against patents asserted in litigation. Indeed, re-examination is increasingly being utilized by accused patent infringers as a cost-effective tool to challenge patent validity, derail patent litigation proceedings, and limit the accused infringer's exposure to damages. In light of this trend, strategy considerations for the use of parallel patent re-examination proceedings as a tool in patent litigation are examined below.

Re-examination is a patent office procedure for amending or correcting an issued patent and usually involves reassessment of the patent's scope in view of new information concerning the state of the art at the time the patent application was filed. Patent re-examinations are initiated by a request, typically by a party that has been or may be accused of infringement, to the Patent and Trademark Office (“PTO”) to re-examine specifically identified claims of a patent in light of prior art references. If the request raises a “substantial new question of patentability,” the request is granted and the PTO initiates a re-examination proceeding during which the patent examiner determines if the patent claims should be canceled, amended or confirmed.

Two Types of Proceedings

There are two main types of re-examination proceedings: ex parte and inter partes. Ex parte proceedings involve communication back and forth between the patent owner and the PTO ' there is no continued involvement of the third party who requested the re-examination. Inter partes proceedings, on the other hand, allow the third-party requester the opportunity to contest most points raised by the patent owner throughout the proceeding, and the third-party participation culminates in a right to appeal the PTO's decision.

Accused infringers are increasingly filing requests with the PTO to have the patent claim(s) that have been asserted re-examined. Most obviously, patent re-examination proceedings may result in the asserted patent claim(s) being nullified altogether or substantially narrowed. The former generally eliminates potential liability while the latter may, in some cases, give rise to a meritorious argument that the patent no longer covers the accused product(s). In 2009, 41% of the patents that emerged from inter partes re-examinations and 15% of the patents that emerged from ex parte re-examinations were entirely nullified. Only 8% of patents coming out of inter partes proceedings and 14% of the patents that underwent ex parte re-examinations survived entirely intact. Beyond the possibility of avoiding infringement altogether, an accused infringer's potential liability can be minimized if all of the relevant patent claims are substantively amended during the re-examination because the patent owner loses its right to seek damages for activities that occur prior to the date on which the patent emerges from re-examination.

Incentives for Requesting Re-examination

However, beyond the potential to ultimately nullify or narrow the patent, there exist many additional incentives for requesting re-examination. First, an accused infringer may be able to have a district court patent infringement litigation stayed pending resolution of parallel re-examination proceedings. A stay may be a particularly attractive option where an accused infringer requires time to design around an asserted patent. As of September 2009, about 60% of contested motions to stay pending re-examination were granted. A grant of such a motion generally puts the litigation in stasis at least until the PTO examiner issues his final determination, which often occurs two to three years after the re-examination request is filed. The examiner's final determination is subject to an internal PTO appeal process, however, and for that reason stays sometimes remain in effect until the appeal process is completed.

Further, a re-examination proceeding can be an attractive venue in which to litigate issues of validity. While in federal court proceedings a patent is presumed valid and must be shown to be invalid by clear and convincing evidence, in re-examination proceedings the patent examiner rejects the claim if the evidence establishes a prima facie case of unpatentability. The onus is then on the patent owner to rebut the prima facie case set forth by the examiner. In addition, the cost of re-examination proceedings is substantially less than the cost to sustain litigation efforts. According to the AIPLA 2009 Economic Survey, in 2009 the median cost of a patent infringement suit with $1-$25 million at risk was $2.5 million. Comparatively, the median cost of an inter partes re-examination, inclusive of an appeal to federal court, was $188,000. The median cost of an ex parte re-examination was only $10,000.

Also, a re-examination proceeding can limit the risk that a court issues an injunction against sales of the accused device. Since the 2007 decision in eBay v. Mercexchange, 547 U.S. 388 (2006), which limited the circumstances in which injunctions should issue in patent cases, the existence of even an interim re-examination decision adverse to the patent is a significant factor militating against the issuance of an injunction.

Finally, in some circumstances, re-examination essentially provides the accused infringer a second bite at the apple in the sense that the accused infringer has the opportunity to challenge the patent's validity both in federal court and in the PTO. For example, in In re Swanson, 540 F.3d 1368 (Fed. Cir. 2008), the Federal Circuit held that the PTO could consider a “substantial new question of patentability” raised by a prior art reference even where the district court had previously found that the prior art reference did not invalidate the patent. The accused infringer was therefore able to raise its invalidity arguments in both the district court and the PTO.

Another recent case further illustrates the potential impact of a well-formed and well-timed re-examination request. Hitachi, Ltd. was able to successfully use re-examination to defend itself against patent infringement claims brought by Translogic Technology, Inc. in In re Translogic Tech., Inc., 504 F.3d 1249 (Fed. Cir. 2007). While the district court proceedings resulted in jury determinations of validity and induced infringement, Hitachi's re-examination request resulted in a finding by the PTO that the asserted claims of Translogic's patents-in-suit were invalid for being obvious. Both findings were on appeal to the Federal Circuit at the same time. The Federal Circuit upheld the PTO determination of invalidity. Even though the PTO and the district court case were applying different standards of invalidity, the Federal Circuit vacated the jury determinations of validity and infringement in light of its ruling in the PTO appeal.

Consider the Timing

Once a party has made the strategic decision to proceed with a re-examination request, careful consideration must be given to the timing of the request. Although the requester's objectives greatly influence when to file a request, in general, a re-examination is most effective as a litigation tool when a suit is merely contemplated or in its early stages.

Where the goal is to stay a patent infringement suit, early filing is of particular importance. Despite nearly unconstrained discretion, courts generally consider at least the following factors in making stay determinations: 1) whether discovery is complete and whether a trial date has been set; 2) whether a stay will simplify the issues in question and trial of the case; and 3) whether a stay would unduly prejudice or present a clear tactical disadvantage to the non-moving party. Under these factors, most courts do not consider staying the litigation until the PTO has granted a re-examination request. Some courts will further await the PTO's formal decision to reject the claims, which can occur up to about a year later, and this likewise militates in favor of early filing.

Further, an early filing of a re-examination request may also prove useful even when the movant is not seeking a stay. As outlined above, under the eBay decision, an interim re-examination decision adverse to the patent is a significant factor militating against the issuance of an injunction. To the extent an accused infringer is concerned about the risk of an injunction issuing, an early request is important to obtaining such an interim decision.

It is possible that earlier filing of re-examination requests could have helped Research In Motion avoid paying hundreds of millions of dollars to settle the patent infringement lawsuit brought against it by NTP Inc. NTP, Inc. v. Research in Motion, Ltd., 392 F.3d 1336 (Fed. Cir. 2004). To avoid the forced shutdown of all Blackberry devices, RIM paid NTP more than $600 million in a well-publicized settlement agreement. Re-examination proceedings were initiated regarding the asserted NTP patents, but the proceedings were not filed until late in the game. The PTO ultimately determined that the patents asserted against RIM were invalid for being obvious, but the verdict came too late for RIM, which had already settled with NTP.

Conclusion

While re-examination may not be a viable option for all accused infringers, it is gaining recognition as a cost-effective tool to minimize and derail patent infringement claims, and it is settling into place alongside patent litigation as a preferred venue for resolution of patent disputes.

Elizabeth Iglesias and Azar Mouzari are both litigation associates in the Los Angeles office of Irell & Manella LLP specializing in intellectual property. They can be reached respectively at [email protected] and [email protected].