<i>Inter Partes</i> Reviews

IPR Overview

The IPR system was specifically designed to be a cost-effective alternative to patent litigation. To achieve this goal, IPR includes a number of features that make it an attractive alternative to litigation.

Expedited Timeline. As indicated in the graphic below, statutory requirements dictate a tight schedule for IPR proceedings that will generally see a final written decision from the PTAB within 16 – 18 months after the petition is filed. Compared to the common three to five year timeline in a district court, this is a significant advantage.

[IMGCAP(2)]

Limited Discovery and Controlled Costs. IPR rules allow for limited discovery, typically consisting of deposing witnesses who submitted affidavits in a petition for IPR and cross-examination of fact witnesses. The limited nature of this discovery avoids the often burdensome discovery common in district court litigation and plays a critical role in reducing the overall costs.

Expert Patent Judges. Unlike district courts, where the technical expertise and patent experience of judges can vary from significant to almost non-existent, the administrative patent judges of the PTAB have highly technical backgrounds and are experts in patent law. Where the subject matter of a challenged patent is highly complex, the expertise of the PTAB judges can be quite advantageous.

Lower Standard of Review. To invalidate a patent in district court, the accused infringer must present clear and convincing evidence that the patent is invalid. In IPR proceedings, the petitioner only needs to show that the patent is invalid by a preponderance of the evidence since there is no presumption of validity. This can make a big difference, especially if the prior art had already been considered by the PTO.

Year One in Review

With the IPR system now having been in effect for just over a year, a number of interesting trends have emerged, many of which indicate that the USPTO is proving to be a favorable venue for petitioners.

Majority of Petitions Granted or Partially Granted. To capitalize on the above-referenced advantages of IPRs, petitioners must first convince the PTAB to “institute” the review. As of August of 2013, 87% of petitions filed resulted in institution of an IPR proceeding. Importantly, in approximately 83% of those cases, the petition was granted for all of the challenged claims. Although the PTAB has yet to issue a final written decision in an IPR, the success of petitioners in the early stages of these proceedings should be encouraging to counsel with reasonable grounds for invalidity.

[IMGCAP(3)]

Software and Electrical Patents Are the Main Targets. IPR petitions have involved challenges to patents covering a wide range of technologies. However, software, e-commerce and electrical fields make up about 71% of the cases filed to date. The frequency of challenges in these areas is likely attributable to their historically high damages awards and the fact that they are often closely tied to non-practicing entities. Interestingly, owners of software and e-commerce patents have thus far seen the most success in defeating petitioners' bids for IPR proceedings, albeit by a slim margin.

[IMGCAP(4)]

Likelihood of a District Court Stay. Another factor encouraging for IPR petitioners, particularly among those facing or already involved in district court litigation, is the prospect of obtaining a stay of the litigation pending resolution of the IPR. Though the decision to stay lies within the discretion of the court, many district court judges have shown a willingness to stay patent litigation in favor of an IPR. Decisions granting a stay usually note the compact IPR timeline and the apparent judicial economy of allowing invalidity to be resolved in the first instance by the USPTO. Notably, IPR petitions filed early in litigation and that cover all of the asserted claims can increase the likelihood of obtaining a stay of concurrent litigation.

Ability to Request Termination Based on Settlement. Unlike Inter Partes Re-examination, the IPR rules allow the parties to request termination of the proceeding if they reach a settlement. This is advantageous in that the IPR petition can be used as leverage to obtain a favorable settlement if that is one of the potential objectives. In the prior inter partes re-examination, once the petition was filed, the patent owner had little choice but to proceed with the re-examination and hence the filing of an Inter Partes Re-examination provided little incentive to try to reach an amicable settlement.

Strategic Considerations For the Petitioner

With the foregoing trends in mind, filing a petition for IPR may be advisable for counsel seeking to neutralize a potentially threatening patent or one involved in existing litigation where the ultimate outcome is likely to turn on validity. The following are strategic considerations for petitioners deciding whether to petition for IPR and seeking to maximize the effectiveness of a petition.

Barriers and Limitations Involved with IPRs. The decision to file a petition for an IPR is complicated and frequently turns on the distinctions drawn above with respect to speed, limited scope, ultimate cost savings, and the potential stay of litigation. However, additional barriers and limitations associated with IRPs that should be taken into account include the following:

• Standing. Generally, a petitioner may not have: i) previously filed a civil action challenging the validity of a claim of the subject patent ( e.g. , via a declaratory judgment action); or ii) been served with a complaint alleging infringement of the challenged patent more than one year before the filing of a petition. The petitioner must also not be estopped from challenging the claims on the grounds identified in the petition (e.g., via a previous challenge to the patent in an IPR, PGR, or CBM).
• Limited Invalidity Grounds and Formatting Restrictions. IPR petitions are limited to challenging a patent's claims on anticipation ('102) and obviousness ('103) grounds and only on the basis of prior art patents and printed publications. Additionally, petitions are limited to 60 pages, much of which must be double-spaced. For patents with a large number of claims, multiple petitions may need to be filed to properly attack the claims of interest.
• Estoppel for Future Challenges. The limitations associated with IPRs also extend into the future. A final decision under IPR estops the petitioner from filing any invalidity proceedings in the USPTO, district court, or ITC for any challenged patent claim on any ground that was raised or reasonably could have been raised in the IPR.

IPRs Are an Attractive Alternative. IPRs are not always the best option for all patents or all cases. Indeed, petitioning for IPR places a great deal of litigation strategy outside of the courthouse and into the still somewhat untested hands of the PTAB. However, given their constrained costs and institution success rate, IPRs are an attractive option in many cases. Some specific instances in which IPR may be a good option include the following:

• Previously Cited Art. IPR proceedings see previously cited or considered art in about 66% of cases, and the distinction between newly cited art and previously cited art does not appear to affect the PTAB's decision to institute because of the lower standard of review. Where the strongest invalidating art was previously considered, an IPR can prove to be a more favorable avenue for asserting invalidity.
• Non-Practicing Entity. The IPR process lessens the burden on petitioners who are sued by an NPE, especially when a stay of district court litigation is granted. In such cases, an invalidity challenge may be one of the primary mechanisms for the petitioner to obtain leverage. This is particularly true if the defendant is unable to assert its own patents against the plaintiff to generate leverage, as is often the case with non-practicing entities.
• Complicated Subject Matter. As noted above, the PTAB is more accustomed to facing technically complex invalidity challenges. Thus, cases involving highly complex subject matter may be more suited to the IPR forum.
• Concurrent Litigation. Where there is existing litigation, the ability to move for a stay has a very powerful effect and may assist in leveraging a favorable settlement. Interrupting a district court case and halting the often substantial costs associated with discovery, motion practice, and trial preparation can put power back into the hands of the IPR petitioner.

Mounting a Successful Attack. With the above strategic considerations in mind, there are tactics that the petitioner can draw on to increase chances of a successful petition:

• Expert Testimony. The ability to use experts appears to have given petitioners a leg up in the IPR forum. In about 75% of pending IPRs, the petitioner has filed an expert declaration with the petition. Moreover, petitions filed with an expert declaration have had about a 10% greater chance of being granted.
• Claim Construction. The PTAB has shown an inclination to side with the petitioner's construction, providing that such construction is reasonable. Petitioners appear to have improved their chances of the petition being granted by about 15% by construing one or more claim terms and not simply reciting that they are entitled to their broadest reasonable interpretation.
• Focused Attack. When the IPR petition is directed to a small number of claims (e.g., less than fifteen claims) and focused on limited, well-developed grounds for invalidity (the average number of grounds granted is three), petitioners seem to have had slightly better odds of success. The PTAB has been highly critical of excessive or cumulative grounds for invalidity, suggesting that petitioners taking this route waste valuable space in the petition.

Strategic Considerations'for the Patent Owner

While the statistics seem to indicate that the IPR procedure is pro-petitioner, a patent owner has tools to help mitigate the petitioner's advantage. The tools and timelines, however, must be aggressively managed, as the clock starts running as soon as a petition has been filed. The following are strategic considerations for those defending against an IPR.

Are You Prepared for Institution of the IPR Proceeding? It is vital that the patent owner and its counsel have their strategy planned in advance of the likely grant of a petition for IPR. Consider the fast-paced nature of following:

• The patent owner must submit mandatory notice information a mere 21 days after the petition is filed and the optional preliminary response is due just three months from the notice indicating the accepted filing date of the IPR petition.
• The PTAB aims to render its decision whether to institute the IPR within six months of the filing date of the petition.
• Once the PTAB institutes a review, the patent owner has only three months to perform discovery, depose experts, craft expert declarations of their own, determine any claim amendments to be submitted, and formulate a comprehensive response that addresses each issue in the PTAB's decision to institute.
• The patent owner has only 10 days to object to any evidence presented by the petitioner within the petition and less than one month to provide a listing of any motions it intends to file during the proceeding.

Should You File a Preliminary Response? A preliminary response to a petition for IPR is optional and there are pros and cons to filing one. Generally, the PTAB appears to be carefully reviewing the petition arguments, regardless of whether a preliminary response was submitted. According to the latest data, the PTAB's rate for granting the petition is roughly the same regardless of whether a preliminary response is filed. However, the PTAB frequently removes certain claims or challenges that lack merit and the arguments in a preliminary response may help steer the PTAB in the right direction in identifying these. In fact, the latest data shows that the PTAB granted petitions only in part 12% more often when a preliminary response was filed.

[IMGCAP(5)]

Should You File Claim Amendments? The determination whether to file claim amendments is a case-specific one that includes a number of considerations, such as the likelihood of overcoming the validity challenges in the IPR, potential ramifications on infringement positions, and potential ramifications due to the doctrine of intervening rights. Thus, it is critical to consider the dispute as a whole and the broader implications of any claim amendments made during an IPR.

Steve Hemminger is the partner-in-charge of Alston & Bird's Silicon Valley office, where he focuses on complex intellectual property disputes involving patents, trademarks and trade secrets. He can be reached at [email protected]. Chris Kelly is a senior associate in Alston & Bird's Atlanta office and focuses on post-grant patent proceedings, patent prosecution, strategic IP counseling and portfolio management. He can be reached at [email protected].

In September of last year, the America Invents Act (AIA) introduced a number of powerful tools for challenging the validity of an issued patent at the U.S. Patent and Trademark Office (USPTO) ' Inter Partes Review (IPR), Covered Business Method Review (CBMR), and Post-Grant Review (PGR). Over the past year, these procedures have made the USPTO's Patent Trial & Appeal Board (PTAB) the third most active venue for patent litigation. By a large margin, however, the most popular of these procedures has been the IPR.

In their first year, IPR proceedings experienced widespread industry adoption with nearly 500 petitions being filed. If the increasing rate of these filings holds, twice that amount will be filed in the coming year. By adding a fast-tracked, trial-like invalidity proceeding before three technically savvy administrative law judges, the IPR procedure has altered the dynamics for challenging a patent's validity.

[IMGCAP(1)]

IPR Overview

The IPR system was specifically designed to be a cost-effective alternative to patent litigation. To achieve this goal, IPR includes a number of features that make it an attractive alternative to litigation.

Expedited Timeline. As indicated in the graphic below, statutory requirements dictate a tight schedule for IPR proceedings that will generally see a final written decision from the PTAB within 16 – 18 months after the petition is filed. Compared to the common three to five year timeline in a district court, this is a significant advantage.

[IMGCAP(2)]

Limited Discovery and Controlled Costs. IPR rules allow for limited discovery, typically consisting of deposing witnesses who submitted affidavits in a petition for IPR and cross-examination of fact witnesses. The limited nature of this discovery avoids the often burdensome discovery common in district court litigation and plays a critical role in reducing the overall costs.

Expert Patent Judges. Unlike district courts, where the technical expertise and patent experience of judges can vary from significant to almost non-existent, the administrative patent judges of the PTAB have highly technical backgrounds and are experts in patent law. Where the subject matter of a challenged patent is highly complex, the expertise of the PTAB judges can be quite advantageous.

Lower Standard of Review. To invalidate a patent in district court, the accused infringer must present clear and convincing evidence that the patent is invalid. In IPR proceedings, the petitioner only needs to show that the patent is invalid by a preponderance of the evidence since there is no presumption of validity. This can make a big difference, especially if the prior art had already been considered by the PTO.

Year One in Review

With the IPR system now having been in effect for just over a year, a number of interesting trends have emerged, many of which indicate that the USPTO is proving to be a favorable venue for petitioners.

Majority of Petitions Granted or Partially Granted. To capitalize on the above-referenced advantages of IPRs, petitioners must first convince the PTAB to “institute” the review. As of August of 2013, 87% of petitions filed resulted in institution of an IPR proceeding. Importantly, in approximately 83% of those cases, the petition was granted for all of the challenged claims. Although the PTAB has yet to issue a final written decision in an IPR, the success of petitioners in the early stages of these proceedings should be encouraging to counsel with reasonable grounds for invalidity.

[IMGCAP(3)]

Software and Electrical Patents Are the Main Targets. IPR petitions have involved challenges to patents covering a wide range of technologies. However, software, e-commerce and electrical fields make up about 71% of the cases filed to date. The frequency of challenges in these areas is likely attributable to their historically high damages awards and the fact that they are often closely tied to non-practicing entities. Interestingly, owners of software and e-commerce patents have thus far seen the most success in defeating petitioners' bids for IPR proceedings, albeit by a slim margin.

[IMGCAP(4)]

Likelihood of a District Court Stay. Another factor encouraging for IPR petitioners, particularly among those facing or already involved in district court litigation, is the prospect of obtaining a stay of the litigation pending resolution of the IPR. Though the decision to stay lies within the discretion of the court, many district court judges have shown a willingness to stay patent litigation in favor of an IPR. Decisions granting a stay usually note the compact IPR timeline and the apparent judicial economy of allowing invalidity to be resolved in the first instance by the USPTO. Notably, IPR petitions filed early in litigation and that cover all of the asserted claims can increase the likelihood of obtaining a stay of concurrent litigation.

Ability to Request Termination Based on Settlement. Unlike Inter Partes Re-examination, the IPR rules allow the parties to request termination of the proceeding if they reach a settlement. This is advantageous in that the IPR petition can be used as leverage to obtain a favorable settlement if that is one of the potential objectives. In the prior inter partes re-examination, once the petition was filed, the patent owner had little choice but to proceed with the re-examination and hence the filing of an Inter Partes Re-examination provided little incentive to try to reach an amicable settlement.

Strategic Considerations For the Petitioner

With the foregoing trends in mind, filing a petition for IPR may be advisable for counsel seeking to neutralize a potentially threatening patent or one involved in existing litigation where the ultimate outcome is likely to turn on validity. The following are strategic considerations for petitioners deciding whether to petition for IPR and seeking to maximize the effectiveness of a petition.

Barriers and Limitations Involved with IPRs. The decision to file a petition for an IPR is complicated and frequently turns on the distinctions drawn above with respect to speed, limited scope, ultimate cost savings, and the potential stay of litigation. However, additional barriers and limitations associated with IRPs that should be taken into account include the following:

• Standing. Generally, a petitioner may not have: i) previously filed a civil action challenging the validity of a claim of the subject patent ( e.g. , via a declaratory judgment action); or ii) been served with a complaint alleging infringement of the challenged patent more than one year before the filing of a petition. The petitioner must also not be estopped from challenging the claims on the grounds identified in the petition (e.g., via a previous challenge to the patent in an IPR, PGR, or CBM).
• Limited Invalidity Grounds and Formatting Restrictions. IPR petitions are limited to challenging a patent's claims on anticipation ('102) and obviousness ('103) grounds and only on the basis of prior art patents and printed publications. Additionally, petitions are limited to 60 pages, much of which must be double-spaced. For patents with a large number of claims, multiple petitions may need to be filed to properly attack the claims of interest.
• Estoppel for Future Challenges. The limitations associated with IPRs also extend into the future. A final decision under IPR estops the petitioner from filing any invalidity proceedings in the USPTO, district court, or ITC for any challenged patent claim on any ground that was raised or reasonably could have been raised in the IPR.

IPRs Are an Attractive Alternative. IPRs are not always the best option for all patents or all cases. Indeed, petitioning for IPR places a great deal of litigation strategy outside of the courthouse and into the still somewhat untested hands of the PTAB. However, given their constrained costs and institution success rate, IPRs are an attractive option in many cases. Some specific instances in which IPR may be a good option include the following:

• Previously Cited Art. IPR proceedings see previously cited or considered art in about 66% of cases, and the distinction between newly cited art and previously cited art does not appear to affect the PTAB's decision to institute because of the lower standard of review. Where the strongest invalidating art was previously considered, an IPR can prove to be a more favorable avenue for asserting invalidity.
• Non-Practicing Entity. The IPR process lessens the burden on petitioners who are sued by an NPE, especially when a stay of district court litigation is granted. In such cases, an invalidity challenge may be one of the primary mechanisms for the petitioner to obtain leverage. This is particularly true if the defendant is unable to assert its own patents against the plaintiff to generate leverage, as is often the case with non-practicing entities.
• Complicated Subject Matter. As noted above, the PTAB is more accustomed to facing technically complex invalidity challenges. Thus, cases involving highly complex subject matter may be more suited to the IPR forum.
• Concurrent Litigation. Where there is existing litigation, the ability to move for a stay has a very powerful effect and may assist in leveraging a favorable settlement. Interrupting a district court case and halting the often substantial costs associated with discovery, motion practice, and trial preparation can put power back into the hands of the IPR petitioner.

Mounting a Successful Attack. With the above strategic considerations in mind, there are tactics that the petitioner can draw on to increase chances of a successful petition:

• Expert Testimony. The ability to use experts appears to have given petitioners a leg up in the IPR forum. In about 75% of pending IPRs, the petitioner has filed an expert declaration with the petition. Moreover, petitions filed with an expert declaration have had about a 10% greater chance of being granted.
• Claim Construction. The PTAB has shown an inclination to side with the petitioner's construction, providing that such construction is reasonable. Petitioners appear to have improved their chances of the petition being granted by about 15% by construing one or more claim terms and not simply reciting that they are entitled to their broadest reasonable interpretation.
• Focused Attack. When the IPR petition is directed to a small number of claims (e.g., less than fifteen claims) and focused on limited, well-developed grounds for invalidity (the average number of grounds granted is three), petitioners seem to have had slightly better odds of success. The PTAB has been highly critical of excessive or cumulative grounds for invalidity, suggesting that petitioners taking this route waste valuable space in the petition.

Strategic Considerations'for the Patent Owner

While the statistics seem to indicate that the IPR procedure is pro-petitioner, a patent owner has tools to help mitigate the petitioner's advantage. The tools and timelines, however, must be aggressively managed, as the clock starts running as soon as a petition has been filed. The following are strategic considerations for those defending against an IPR.

Are You Prepared for Institution of the IPR Proceeding? It is vital that the patent owner and its counsel have their strategy planned in advance of the likely grant of a petition for IPR. Consider the fast-paced nature of following:

• The patent owner must submit mandatory notice information a mere 21 days after the petition is filed and the optional preliminary response is due just three months from the notice indicating the accepted filing date of the IPR petition.
• The PTAB aims to render its decision whether to institute the IPR within six months of the filing date of the petition.
• Once the PTAB institutes a review, the patent owner has only three months to perform discovery, depose experts, craft expert declarations of their own, determine any claim amendments to be submitted, and formulate a comprehensive response that addresses each issue in the PTAB's decision to institute.
• The patent owner has only 10 days to object to any evidence presented by the petitioner within the petition and less than one month to provide a listing of any motions it intends to file during the proceeding.

Should You File a Preliminary Response? A preliminary response to a petition for IPR is optional and there are pros and cons to filing one. Generally, the PTAB appears to be carefully reviewing the petition arguments, regardless of whether a preliminary response was submitted. According to the latest data, the PTAB's rate for granting the petition is roughly the same regardless of whether a preliminary response is filed. However, the PTAB frequently removes certain claims or challenges that lack merit and the arguments in a preliminary response may help steer the PTAB in the right direction in identifying these. In fact, the latest data shows that the PTAB granted petitions only in part 12% more often when a preliminary response was filed.

[IMGCAP(5)]

Should You File Claim Amendments? The determination whether to file claim amendments is a case-specific one that includes a number of considerations, such as the likelihood of overcoming the validity challenges in the IPR, potential ramifications on infringement positions, and potential ramifications due to the doctrine of intervening rights. Thus, it is critical to consider the dispute as a whole and the broader implications of any claim amendments made during an IPR.

Steve Hemminger is the partner-in-charge of Alston & Bird's Silicon Valley office, where he focuses on complex intellectual property disputes involving patents, trademarks and trade secrets. He can be reached at [email protected]. Chris Kelly is a senior associate in Alston & Bird's Atlanta office and focuses on post-grant patent proceedings, patent prosecution, strategic IP counseling and portfolio management. He can be reached at [email protected].