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CEO’s Guide to Avoiding Patent Litigation Costs

inter partes reviewBusiness executives routinely wrestle with whether to defend a patent infringement suit in court, settle the dispute for less than the cost/risk of defending it (especially in the case of patent “troll” suits), or seek the help of the USPTO to address the problem patent via a post grant patent proceeding. Patent litigation is a well-worn path and the variables and risks associated with it are relatively well understood. The same can, to an extent, be said of patent reexamination at the USPTO. But now that inter partes reexamination has been replaced with inter partes review (IPR), an entirely new mechanism of the America Invents act, CEOs and CFOs around the world are asking how this new option alters the existing landscape.

The primary business distinctions between IPR and court proceedings are cost, predictability, effectiveness, and speed. With respect to cost, according to statistics published by AIPLA and others defending a patent lawsuit through trial costs well in into the millions of dollars for cases involving substantial financial exposure. IPR, in the vast majority of cases, will cost in the hundreds of thousands of dollars. As a business rule of thumb, IPR should prove to be about an order of magnitude more cost effective assuming that the district court litigation is stayed pending the resolution of the IPR.

Predictability can be addressed alongside effectiveness. IPR proceedings are adjudicated by a panel of three Administrative Patent Judges at the Patent Trial and Appeal Board (PTAB). All or virtually all of the APJs assigned to a given case will have a technical degree in a relevant science in addition to a law degree. Many APJs in the growing Trial Section of the PTAB also have decades of previous experience conducting patent interferences (i.e., contested proceedings), or as litigators in private practice. The PTAB accordingly is better suited to adjudicate cases involving cases of any substantial technical complexity. It’s difficult, of course, to quantify the extent to which the PTAB will prove to be more effective than district courts in adjudicating moderately or highly complex validity disputes. Yet, based upon the specialized training and mandate of the PTAB a fair estimate is that IPRs will prove to be at least twice as effective and predictable as district court litigation.

Comparing the speed of the two proceedings is a bit more straightforward. The typical IPR should result in a written decision in about 17 to 18 months (assuming a five month “front end” which includes up to 3 months for a preliminary response and up to 3 months for the PTAB decision whether to institute a trial). This relatively compact timeline vastly improves the well publicized delays of inter partes patent reexamination. Time-to-trial in district courts averages about 27 months according to statistics published by the federal judiciary. Accordingly, IPR proceedings are about one and a half times faster than district court litigation.

As a rule of thumb, then, IPR should prove to be about ten times cheaper, twice as effective and predictable, and one and a half times faster than litigating validity in district court. There are of course myriad strategic and tactical factors which in some cases will dictate that a particular case should be litigated entirely in the district court or International Trade Commission. However, this rule of thumb should provide executives a rough idea of the major differences between the proceedings and the relative advantages of IPR. The impact of the first IPR filings are just now beginning to affect the patent litigation landscape.

3 Responses to “CEO’s Guide to Avoiding Patent Litigation Costs”

  1. Paul F. Morgan says:

    Scott, although I certainly agree with the basis premise here, there are some “apples vs. oranges” issues with making direct comparison statistics. For example, IPRs do not allow any defenses, or license pressures, based on anything other than patent or publication prior art. BUT, on the other hand, a much more valid comparision to patent litigation needs to compare the percentage of patent litigations decided on the basis of the patent being held invalid on patent or publication prior art. That is very low, and thus makes a comparision of litigation to IPR’s on that basis vastly worse.

  2. Paul,

    There are certainly differences, and with most litigation settling, a true comparison is near impossible. Yet, given the same evidence, and the more liberal standards of the USPTO, an IPR filer is always better off.


  3. Paul F. Morgan says:

    Indeed Scott, my point was that IPR odds are far better than litigation odds than you had indicated above, because the real question is whether patent or publication prior art will be more effective in an IPR or should be “saved” for patent litigation. Patent or publication prior art is vastly less likely to be a decisive issue in patent litigation. Or even considered, since that issue rarely obtains a S.J. and only a small percentage of patent suits even go to trial.