Patent Quality, Post-Grant Review, And the GAO Report on Patent Litigation

However, in addition to calling on the GAO for its report, the AIA also brought into existence a means of dealing with patent quality through several new post-grant review proceedings. They provide an entirely new pathway for companies, and others, to contest the validity of problematic patents. The new post-grant proceedings were also cited by the GAO in its report as a way of improving patent quality.

Post-Grant Proceedings

The new post-grant proceedings allow a third party to challenge the validity of an issued United States Patent before the U.S. Patent and Trademark Office (USPTO). There are three new post-grant processes: post-grant review (PGR), inter partes review (IPR) and covered business method patent review (CBM). IPR may be filed nine months from the patent's issue date and may only be brought on the ground that a claim is invalid as anticipated or obvious under 35 U.S.C. ” 102 or 103. Effective Sept. 16, 2012, IPR replaced inter partes reexamination.

PGR must be filed not later than nine months from the patent's issue date and may be brought on any ground that a claim is invalid. CBM patent review is a post-grant review without the post-review filing deadline for business patents claiming performing data processing for the administration or management of a financial product or service. CBM is a transitional post-grant review because, absent subsequent legislation extension, the authority to file CBM petitions will terminate Sept. 16, 2019.

These new proceedings provide a more cost effective and speedier process than civil litigation and former USPTO inter partes reexamination procedures. They are also heard by the Patent Trial and Appeal Board (PTAB), as opposed to an examiner, and therefore carry more weight with the courts, as noted below. In addition, the USPTO intends to use the findings of the PTAB in these post-grant proceedings to update and revise the Manual of Patent Examining Procedure ' which will significantly improve patent quality going forward.

A Key Ruling

From a practical standpoint, the new post-grant procedures provide both opportunities for patent holders and would-be challengers, as well as a need for a shift in strategy. As seen in the recent Federal Circuit decision in Fresenious USA, Inc. v. Baxter International, Inc., ___F.3d ___, Nos. 2012-1334, 2012-1335, (Fed. Cir. July 2, 2013), for example, the courts are already deferring to the post-grant review process. In Fresenious , the Federal Circuit found that if a USPTO post-grant proceeding invalidates a patent, the patent owner “no longer has a viable cause of action ' . Therefore, the pending action is moot.”

Of particular interest in this case is that the USPTO post-grant proceeding decision was found to be binding while the infringement case was on remand from the appeal at the Federal Circuit. Prior to this ruling, prevailing wisdom was that a post-grant proceeding needed to be completed prior to the district court judgment. The decision recognizes the curative role of the USPTO post-grant review and the importance of the USPTO acting to correct its own error in issuing the patent in the first place before undue mischief occurs in the court system.

Overall, the Fresenious decision raises the strategic value of these post-grant proceedings, which are often initiated in parallel with infringement actions in the district court. District court judges will be more inclined to stay the district court proceedings when there is a filing of the speedier post-grant proceedings because timelines for these proceedings are relatively finite and speedier than the former inter partes reexamination proceedings and as decided in the Fresenious case, the post-grant proceeding's final decision will moot any district court's judgment if the case is still pending in the court system.

A Shift in Strategy

Another way in which the post-grant proceedings require a shift in strategy is that they apply different standards than district courts. Unlike the district courts, under the AIA post-grant review procedures:

• There is no presumption of validity of the claims of the patent under review;
• Claims are given the “broadest reasonable construction in light of the specification of the patent in which it appears”;
• The evidentiary standard is “preponderance of the evidence”; and
• There is limited discovery.

As a result, it is easier in general for a patent challenger to prevail in a post-grant proceeding than to prevail in a patent invalidity defense in a district court trial. Conversely, it is harder in general for a patent owner to successfully defend in a post-grant proceeding than to prevail over a patent invalidity defense in a district court trial.

There are also differences in strategy needed for the AIA post-grant proceedings than for previous USPTO review processes, such as ex parte reexamination and inter partes reexamination. In all three AIA post-grant proceedings, the challenger, rather than the USPTO itself, has the burden to prove that claims under review are unpatentable. The patent owner has the burden to show that the challenger's argument has no merit and, if needed, provide additional evidence that the claim under review is patentable. Unlike the Examiner in a reexamination, the Administrative Patent Judges are not concerned with determining ultimate patentability of the patent claims under review. They are only concerned with whether the parties meet their burdens.

How It Works

The new AIA post-grant proceedings are conducted before a panel of Administrative Patent Judges at the Patent Trial and Appeal and not before a USPTO Examiner. As a result, there are many differences in how these new post-grant proceedings are done from ex parte re-examination and inter partes re-examination. Because the PTAB is a unique tribunal with its own unique culture, rules and procedures, the Administrative Patent Judges will use these unique Board rules and procedures to manage the record to limit the entry of filings of petitions, evidence and argument. The administrative judges will impose deadlines for responses by the parties that are short for post-grant proceedings and will be less likely to grant extensions of time. In view of these differences, it is important to understand the PTAB culture, rules and procedures to ensure a petition will be instituted as well as to successfully prepare for post-grant pre-trial and post-grant trial.

The decision to go forward with one of these new proceedings is a business decision that requires intensive strategic planning. In-house counsel should clearly understand their company's objectives when considering a challenge to problematic patents that may present a liability for current or future business operations. This requires strategic planning, the identification of all the problematic patents, performing prior art and file wrapper analysis, and weighing all the risks and benefits. In addition, the strategic planning should determine any affidavits and factual support required for petition, establish the need for an expert witness, and identify and address the weaknesses of the case. Also, one should map out all phases of the post-grant process to determine the cost of each phase as well as identify any uncertainty in assessing those costs. The purpose of weighing these considerations is to assess the value of using post-grant proceedings to enhance their chances of success with respect to the patent validity issues and at the same time considering any associated litigation.

Conclusion

For a patent owner, there is a “new normal.” The unprepared patent owner runs a considerable risk of being blindsided by these new AIA post-grant proceedings. To prepare, patent owners need to put in place a strategic patent defense plan. Such a plan would require prioritizing the patent owner's patent portfolio based on existing business as well as future planned business; conducting prior art analysis on the high priority patents, based on the prior analysis determining relevant facts that would defend against any assertion using the identified prior art; identifying and addressing any and all weaknesses; identifying any expert witness that may be needed; and developing strategies for licensing high priority patents or neutralizing any identified weakness.

The purpose of having a strategic patent defense plan in place is to assess the company's position if any of their high priority patents are subject to an AIA post-grant review and put in place steps that would enhance their chances of success of defending against one of the post-grant proceedings with respect to the patent validity issues and at the same time considering any associated litigation.

Note: This article is for general information and is not intended to be and should not be taken as legal advice for any particular matter. It is not intended to and does not create any attorney-client relationship. The opinions expressed and any legal positions asserted in the article are those of the author and do not necessarily reflect the opinions or positions of Miles & Stockbridge P.C., its other lawyers, or The Corporate Counselor.

Michael R. Fleming is a lawyer with Miles & Stockbridge's Intellectual Property & Technology Practice. He co-leads the firm's Post-Grant Team and is the former Chief Administrative Patent Judge of the U.S. Patent and Trademark Office. He can be reached at [email protected].

One of the many elements of the sweeping America Invents Act of 2012 (AIA) was a directive to the Government Accountability Office (GAO) requesting a report on factors affecting patent litigation. In particular, the GAO was charged with assessing the extent to which so-called “patent trolls” were damaging patent litigation in the United States. This arose from concerns voiced by some that patent trolls, or non-practicing entities (NPEs), were buying patents on technology and software they had no intention of actually producing in order to bring nuisance suits against companies and others in an attempt to secure settlements and licensing agreements. Essentially, patent trolls were accused of abusing the patent system to build a revenue stream based on forcing companies to pay up or risk potentially expensive litigation.

The GAO released its report in August. Perhaps surprisingly, the GAO found that NPEs were not the main contributor to alleged problems with patent litigation in the United States. Instead, the GAO concluded that poor patent quality was to blame for most nuisance infringement suits. Its analysis showed that companies that make products brought most of the patent infringement lawsuits and that non-practicing entities brought only about 20% of all lawsuits. The GAO report also concluded that rather than focusing on the identity of the litigants, emphasis should be placed on improving the quality of issued patents and the examination process in order to strengthen the U.S. patent system. See the report at'http://1.usa.gov/17QD7Uw.

The key message from the GAO seems to be, then, that in-house counsel concerned with a perceived growth in patent troll activity should be placing the blame on the quality of issued patents. In practical terms, there might not appear to be much that in-house counsel can do to remedy this situation, other than ensure their own company's patents are strong and enforceable and that they follow proper licensing procedures for patents they do not own.

However, in addition to calling on the GAO for its report, the AIA also brought into existence a means of dealing with patent quality through several new post-grant review proceedings. They provide an entirely new pathway for companies, and others, to contest the validity of problematic patents. The new post-grant proceedings were also cited by the GAO in its report as a way of improving patent quality.

Post-Grant Proceedings

The new post-grant proceedings allow a third party to challenge the validity of an issued United States Patent before the U.S. Patent and Trademark Office (USPTO). There are three new post-grant processes: post-grant review (PGR), inter partes review (IPR) and covered business method patent review (CBM). IPR may be filed nine months from the patent's issue date and may only be brought on the ground that a claim is invalid as anticipated or obvious under 35 U.S.C. ” 102 or 103. Effective Sept. 16, 2012, IPR replaced inter partes reexamination.

PGR must be filed not later than nine months from the patent's issue date and may be brought on any ground that a claim is invalid. CBM patent review is a post-grant review without the post-review filing deadline for business patents claiming performing data processing for the administration or management of a financial product or service. CBM is a transitional post-grant review because, absent subsequent legislation extension, the authority to file CBM petitions will terminate Sept. 16, 2019.

These new proceedings provide a more cost effective and speedier process than civil litigation and former USPTO inter partes reexamination procedures. They are also heard by the Patent Trial and Appeal Board (PTAB), as opposed to an examiner, and therefore carry more weight with the courts, as noted below. In addition, the USPTO intends to use the findings of the PTAB in these post-grant proceedings to update and revise the Manual of Patent Examining Procedure ' which will significantly improve patent quality going forward.

A Key Ruling

From a practical standpoint, the new post-grant procedures provide both opportunities for patent holders and would-be challengers, as well as a need for a shift in strategy. As seen in the recent Federal Circuit decision in Fresenious USA, Inc. v. Baxter International, Inc., ___F.3d ___, Nos. 2012-1334, 2012-1335, (Fed. Cir. July 2, 2013), for example, the courts are already deferring to the post-grant review process. In Fresenious , the Federal Circuit found that if a USPTO post-grant proceeding invalidates a patent, the patent owner “no longer has a viable cause of action ' . Therefore, the pending action is moot.”

Of particular interest in this case is that the USPTO post-grant proceeding decision was found to be binding while the infringement case was on remand from the appeal at the Federal Circuit. Prior to this ruling, prevailing wisdom was that a post-grant proceeding needed to be completed prior to the district court judgment. The decision recognizes the curative role of the USPTO post-grant review and the importance of the USPTO acting to correct its own error in issuing the patent in the first place before undue mischief occurs in the court system.

Overall, the Fresenious decision raises the strategic value of these post-grant proceedings, which are often initiated in parallel with infringement actions in the district court. District court judges will be more inclined to stay the district court proceedings when there is a filing of the speedier post-grant proceedings because timelines for these proceedings are relatively finite and speedier than the former inter partes reexamination proceedings and as decided in the Fresenious case, the post-grant proceeding's final decision will moot any district court's judgment if the case is still pending in the court system.

A Shift in Strategy

Another way in which the post-grant proceedings require a shift in strategy is that they apply different standards than district courts. Unlike the district courts, under the AIA post-grant review procedures:

• There is no presumption of validity of the claims of the patent under review;
• Claims are given the “broadest reasonable construction in light of the specification of the patent in which it appears”;
• The evidentiary standard is “preponderance of the evidence”; and
• There is limited discovery.

As a result, it is easier in general for a patent challenger to prevail in a post-grant proceeding than to prevail in a patent invalidity defense in a district court trial. Conversely, it is harder in general for a patent owner to successfully defend in a post-grant proceeding than to prevail over a patent invalidity defense in a district court trial.

There are also differences in strategy needed for the AIA post-grant proceedings than for previous USPTO review processes, such as ex parte reexamination and inter partes reexamination. In all three AIA post-grant proceedings, the challenger, rather than the USPTO itself, has the burden to prove that claims under review are unpatentable. The patent owner has the burden to show that the challenger's argument has no merit and, if needed, provide additional evidence that the claim under review is patentable. Unlike the Examiner in a reexamination, the Administrative Patent Judges are not concerned with determining ultimate patentability of the patent claims under review. They are only concerned with whether the parties meet their burdens.

How It Works

The new AIA post-grant proceedings are conducted before a panel of Administrative Patent Judges at the Patent Trial and Appeal and not before a USPTO Examiner. As a result, there are many differences in how these new post-grant proceedings are done from ex parte re-examination and inter partes re-examination. Because the PTAB is a unique tribunal with its own unique culture, rules and procedures, the Administrative Patent Judges will use these unique Board rules and procedures to manage the record to limit the entry of filings of petitions, evidence and argument. The administrative judges will impose deadlines for responses by the parties that are short for post-grant proceedings and will be less likely to grant extensions of time. In view of these differences, it is important to understand the PTAB culture, rules and procedures to ensure a petition will be instituted as well as to successfully prepare for post-grant pre-trial and post-grant trial.

The decision to go forward with one of these new proceedings is a business decision that requires intensive strategic planning. In-house counsel should clearly understand their company's objectives when considering a challenge to problematic patents that may present a liability for current or future business operations. This requires strategic planning, the identification of all the problematic patents, performing prior art and file wrapper analysis, and weighing all the risks and benefits. In addition, the strategic planning should determine any affidavits and factual support required for petition, establish the need for an expert witness, and identify and address the weaknesses of the case. Also, one should map out all phases of the post-grant process to determine the cost of each phase as well as identify any uncertainty in assessing those costs. The purpose of weighing these considerations is to assess the value of using post-grant proceedings to enhance their chances of success with respect to the patent validity issues and at the same time considering any associated litigation.

Conclusion

For a patent owner, there is a “new normal.” The unprepared patent owner runs a considerable risk of being blindsided by these new AIA post-grant proceedings. To prepare, patent owners need to put in place a strategic patent defense plan. Such a plan would require prioritizing the patent owner's patent portfolio based on existing business as well as future planned business; conducting prior art analysis on the high priority patents, based on the prior analysis determining relevant facts that would defend against any assertion using the identified prior art; identifying and addressing any and all weaknesses; identifying any expert witness that may be needed; and developing strategies for licensing high priority patents or neutralizing any identified weakness.

The purpose of having a strategic patent defense plan in place is to assess the company's position if any of their high priority patents are subject to an AIA post-grant review and put in place steps that would enhance their chances of success of defending against one of the post-grant proceedings with respect to the patent validity issues and at the same time considering any associated litigation.

Note: This article is for general information and is not intended to be and should not be taken as legal advice for any particular matter. It is not intended to and does not create any attorney-client relationship. The opinions expressed and any legal positions asserted in the article are those of the author and do not necessarily reflect the opinions or positions of Miles & Stockbridge P.C., its other lawyers, or The Corporate Counselor.

Michael R. Fleming is a lawyer with Miles & Stockbridge's Intellectual Property & Technology Practice. He co-leads the firm's Post-Grant Team and is the former Chief Administrative Patent Judge of the U.S. Patent and Trademark Office. He can be reached at [email protected].