Some pre- grant news of note this week. Last Friday the USPTO announced the After Final Consideration Pilot Program 2.0 (Federal Register Notice here). The revised pilot program modifies the initial concept by introducing a patent examiner feedback component.

Recall that the USPTO launched version 1.0 as the  “After Final Consideration Pilot” (AFCP) to foster compact prosecution and to slow the growing RCE backlog. The pilot program allotted additional productivity time to patent examiners in exchange for their consideration of after final amendments that might result in allowance of the application. Prior to the pilot program even amendments requiring nominal further consideration were routinely denied under 37 C.F.R. § 1.116.

Under the terms of the first version of the pilot, examiners decided whether the after final amendment could be fully considered, including any additional search required, within the three hour time limit provided for by the program. (i.e., fully considered and allowed). There was no need to file any special request in the previous version of the program.

Recognizing that some examiners were treating such submissions inconsistently, and that unsuccessful amendments proceeded along the normal course without any additional added value (e.g., acknowledgment/feedback from the examiner), the USPTO has provided for examiner further communication in version 2.0.

Under the terms of the revised pilot program, applicants must:

-submit an amendment (narrowing only, no broadening) of at least 1 independent claim.
-submit a form to participate in the pilot that indicates a willingness to interview the examiner should the amendment fail to result in allowance of the application.
-Only one request per application is permitted.

If the amendment does not result in allowance, the examiner must contact the applicant to schedule an interview to discuss the result.

Note: this program does not apply to patent reexamination or reissue proceedings.

As detailed earlier this week, a patentee’s decision to file a preliminary response in an IPR/CBM preliminary proceeding is not as straightforward as one would expect. Where such a preliminary response is imprudently pursued by a patentee this misstep can be further compounded by other optional filings post-Trial Order.

Subsequent to the filing of a preliminary response by a patentee the Patent Trial & Appeal Board (PTAB) will issue its decision. If unsatisfied with the Trial Order either party may file a Request for Rehearing as a matter of right within 14 days.

As is the case with the optional patentee preliminary response, just because you can request rehearing doesn’t mean you should.

The decision whether or not to institute trial is final and non-appealable. However, a PTAB Trial Order may be reconsidered under an abuse of discretion standard 42.71(c). In order to overturn all or part of a Trial Order the challenging party has the burden of demonstrating that the Board misapprehended or overlooked an aspect of the record.

In all but the most exceptional of circumstances the PTAB, like most courts, rarely finds an abuse of discretion warranting a change in course from an initial decision. Yet, some patentees take the “what do I have to lose” approach without appreciating they have much to lose.

First many such requests fail to appreciate the heightened standards and the need to identify a mistake in the record. Instead, many requests will argue that the “mistake” was the ultimate conclusion of the Board and attempt to present altogether new arguments to the record. Such a filing is not only a complete waste of time but will undermine your credibility with the panel conducting your trial.

Further, for patentees, such requests almost always follow failed preliminary responses. Here the inclusion of new arguments in the request for rehearing only serves to put your adversary on notice of your entire case. Providing advance notice of your forthcoming patentee response, and discovery plan (assuming the petitioner declarant is to be deposed a few weeks later, which is typical) is just not something you should be doing given the odds of success.  To date, all of such requests have been denied. (Click to Enlarge)

On the Petitioner side, a request for rehearing may be less of a strategic concern. This is because a petitioner may not have any other option to file a second petition for claims of the patent if the 12 month window is closed. Likewise, there is less of a concern of disclosing as yet unknown positions (i.e., the petition should have provided such in the first instance). Even if denied, the claims addressed in the petitioner Request will not be part of the trial proceeding.

To date petitioners have experienced more success with their requests for rehearing, however this is just a temporary statistical anomaly. Historically speaking, the PTAB has very rarely reversed course upon request for rehearing.

The new post grant patentability challenges of the America Invents Act (AIA) have been warmly embraced by the public as a cost effective patent dispute resolution tool. Patent challengers have quickly leveraged these new proceedings of the USPTO’s Patent Trial & Appeal Board (PTAB) to circumvent the high cost of patent litigation and to accelerate opportunities for settlement. Patentees, on the other hand, have been largely caught unaware of the significant threat presented by these new road blocks to patent monetization.

While many of the new PTAB proceedings are only now getting underway a significant number of preliminary proceedings have been concluded. It is during these preliminary proceedings, and shortly thereafter, that many patentees have been committing significant strategic errors.

First, when Congress fashioned the statutes for the new PTAB proceedings it was well aware of the criticisms pertaining to the patent reexamination model. For example, patentees pointed out that reexamination was commenced without receiving any input from the patentee. As a result, the new PTAB proceedings were designed to include the option for a patentee to file a “preliminary response” to a challenger petition. In this way, the PTAB may receive input from both parties before deciding to institute trial. While this new option sounds like a great opportunity for patentees, it’s not the “no-brainer” it seems.

While almost every petition for IPR/CBM filed to date includes declaration evidence of the challenger, a preliminary response may not include such evidence from the patentee. (42.107/207). Thus, attorney argument of a patentee preliminary response is weighted against the declaration evidence of the challenger’s petition As can be appreciated the “reasonable likelihood of success” in this system is significantly skewed in favor of the challenger. Not surprisingly very few grounds of unpatenability have been declined to date as a result of patentee preliminary responses.

Further, should the patentee scramble in the short, statutory time frame to file a preliminary response and fail to persuade the PTAB to deny the petition, once instituted, the third party may be permitted to file supplemental information (42.123/223). In some cases such supplemental information could allow a challenger to further refine their positions based on the preliminary response of the patentee.

Another consideration is that a successful preliminary response may just win the patentee follow-on petitions. On the other hand, if the challenge is overcome after a Trial order, estoppel would serve as a safeguard from such refined attacks.

Failed preliminary responses provide the challenger a 4-6 month preview of the patentee’s positions (patentee response not due until months after Trial Order) for very little strategic value. Indeed, when coupled with a request for rehearing 14 days after a Trial Order, the patentee has essentially provided a nice package to the challenger for purposes of deposition preparation (requests for rehearing in the PTAB, as in most courts, are almost never successful and patentee discovery essentially begins upon Trial Order).

The decision to file a preliminary response depends on many factors, some considerations that impact the decision to file include:

1.    Will the challenger be outside the 12 month window of 42.101 (IPR only) if the preliminary response is successful?
2.    Does the petition include declaration evidence to support the grounds of unpatentability?
3.    Is there a motion to stay pending in a parallel litigation so that a response is necessary for optics?
4.    Are there issues of standing? (precluding a second filing)
5.    Are there weak grounds for some claims that if declined by the PTAB would prevent a stay in a parallel litigation? (if so, prelim. response is best focused on that subset).
6.    Is it clear that the claims need to be amended? (not possible in prelim. response)
7.    In view of the likelihood that the preliminary response will not move the Board off of the challenger’s grounds in most cases, does it make sense to provide advance notice of your arguments for little in return?
8.    Are there multiple defendants likely to seek joinder? Can the dispute be settled with the challenger outside the 12 month window (IPR only) but before trial institution?
9.    Do you need more time than available to develop an adequate response?
10. Will filing an optional paper complicate a parallel proceeding in later stages?

While some have argued that a preliminary response should be made to argue against an adverse claim construction proposed in the petition, the PTAB construction presented at the time of the Trial Order is preliminary and best rebutted by patentee evidence on point.

Later this week I will touch upon another common patentee mistake— filing a Request for Rehearing.

The primary business distinctions between the USPTO Patent Trial & Appeal Board (PTAB) proceedings and traditional court based patent invalidity proceedings are the vast improvements in cost, predictability, effectiveness, and speed of PTAB proceedings— to date, the speed has been changing the perspective of the judiciary on staying litigation pending USPTO proceedings. However, while the PTAB proceedings are far faster than the previous inter partes USPTO option (i.e., inter partes patent reexamination) that doesn’t mean that courts will look past a perceived tactical delay in pursuing IPR.

As a reminder, factors generally considered by district court judges when ruling on motions to stay include whether (1) a stay will unduly prejudice, or present a clear tactical disadvantage to, the non-moving party; (2) a stay will simplify the issues and trial of the case; and (3) discovery is complete and a trial date has been set.

By design, IPR filings must be made within 12 months of service of a complaint, which is typically early in most litigation dockets. As such, the above stay analysis is typically quite favorable for IPR filers. Yet, in faster paced districts, it is important to file as soon as possible if a stay is desired. This fact was recently made clear in Universal Electronics Inc. v. Universal Remote Control Inc. (CDCA) where the court explained (here):

To the extent Defendant sought a tactical advantage, it appears to have been to obtain the Court’s claim construction before filing its inter partes review petitions, perhaps to see if they were necessary, as Defendant did not petition for review of the ‘367 Patent, which the Court’s claim construction removed from consideration in this case. That strategy negatively impacted the likelihood that this motion would be granted . .

(emphasis added)

While generally speaking IPR filings are being viewed more favorably by the courts relative to the slower reexamination predecessor, it is clear that speed of the USPTO may be overlooked where the petitioner has introduced delay.

Finally, the Court expressed an interesting perspective as to parallel USPTO proceedings, noting:

The Court is concerned that allowing the progress of its docket to depend on the status of proceedings elsewhere can interfere with its obligation “to secure the just, speedy, and inexpensive determination of every action.” Fed. R. Civ. P. 1. “If litigation were stayed every time a claim in suit undergoes reexamination, federal infringement actions would be dogged by fits and starts. Federal court calendars should not be hijacked in this manner.” Comcast Cable Commc’ns Corp., LLC v. Finisar Corp., No. C 06-04206 WHA, 2007 WL 1052883, at *1 (N.D. Cal. Apr. 5, 2007).

Here the court quotes an older case relating to slower patent reexamination proceedings. While some courts may object to the “hijacking” of their dockets in the early stage of a litigation (discovery has not yet begun in Universal), they may find this hijacking far more distasteful when the PTAB issues a final written decision holding claims unpatentable before the court can get to trial— which will be the case in most districts where an IPR is allowed to proceed in parallel.

This case was brought to my attention by the great Docket Navigator.

As I pointed out last week, Congress is considering fixes to the U.S patent system are designed to combat the patent troll problem. Yesterday, S.866 or the “Patent Quality Improvement Act” was introduced by Senator Charles Schumer (D-NY) to amend Sec. 18 of the recently passed America Invents Act (AIA). The Bill proposes to remove the 8-year sunset provision of the Transitional Program for Covered Business Method (CBM) Patents so that it becomes permanent. Additionally, the Bill proposes to remove the language “a financial product or” from the standing definition. In its place, the bill proposes “an enterprise, product, or.” The change would effectively make clear that any e-commerce patent, even if not related to finances per se, is subject to a CBM challenge. (Note that the USPTO has been sued very recently on the importance of this “financial” component of the statute.)

The Bill essentially seeks to codify Senator Schumer’s commentary provided to the USPTO last year on the appropriate scope of a CBM. In his earlier comments to the USPTO, the Senator urged the USPTO to take an expansive read of a covered business method patent such that e-commerce and software patents would be covered.

As I have pointed out in the past, CBM challenges are especially lethal to patent trolls. While the above fix will not apply to trolls excepted under the ”technological invention” component of the CBM definition, it would almost certainly devastate the business model for most e-commerce and software patent trolls. Without the leverage of the high cost of litigation to force settlements, and with the far less expensive and challenger friendly proceedings of the USPTO, contingency based legal representation becomes a very dicey proposition.

I expect that this legislation will garner wide support and become law in the near term.

Every time Congress has tasked the USPTO with conducting a new post grant patent proceeding the agency finds itself fending off legal challenges to their new authority. For ex parte patent reexamination, Ethicon v. Quigg explored whether or not the USPTO had authority to conduct such a reexamination in parallel to a district court proceeding. Thereafter, In re Swanson and In re Trans Texas Holdings explored topics such as issue preclusion and the appropriate threshold for granting an ex parte patent reexamination. Similarly, when inter partes reexamination was introduced Sony v. Dudas challenged the USPTO’s procedural treatment of these filings. Not surprisingly, now that the new patentability challenges of the America Invents Act (AIA) are being embraced by patent challengers the USPTO is seeing another flurry of lawsuits.

In early March, patentee Versata filed suit against the USPTO under the Administrative Procedure Act (APA) challenging the agency’s definition of a “covered business method,” and the ability to raise 101 as a statutory ground in a Covered Business Method (CBM) challenge. (101 is argued as not being embraced by 35 U.S.C. § 282, complaint here).

Last week, patentee Mentor Graphics also filed an APA action in the EDVA challenging the USPTO’s decision to institute an IPR on its patent and seeking an injunction to stop the proceeding. Mentor Graphics alleges that the petitioner should be barred by the 12 month window of 35 USC § 315(b) based on the fact that it acquired a company that was sued some years previously on their patent. (complaint here). The USPTO explained in the Trial Order that the patentee had not shown that the petitioner had exercised control over the previous litigation (i.e., privy), and, that in any event the acquisition occurred post IPR petition filing.

The prohibition of 315(b) is essentially a codification of a laches time bar. The policy behind the statute is to encourage litigants to come to the USPTO early in a litigation battle. Applying this laches prohibition to new parties of a new lawsuit would seem a difficult sell.

Although many of the more significant changes to U.S. patent law provided by the America Invents Act (AIA) are only months old, Congress is already considering a re-calibration of these changes. Over the past few months the patent troll dilemma has been given significant attention by Congress and politicians are now clamoring to fashion legislation to address the problem. While the “SHIELD Act” has been discussed for the better part of the last year, and rewritten in that time frame, lawmakers are well aware that this “loser pays” proposal is significantly flawed and a non-starter in a political sense. As a result a new legislative solution is rumored for consideration by Congress next week. The new bill will propose an expansion of the patentability trial mechanisms of the AIA.

While the legislation is not yet public, Senator Charles Schumer (D-NY) will introduce legislation that will force trolls to the USPTO before they can file a lawsuit. (Senator Schumer was the force behind the Transitional Program for Covered Business Method (CBM) Patents) It is unclear exactly how this “PTO first” control will be mandated. The new legislation is rumored to remove the “transitional” nature of the CBM program and to expand the standing required for a CBM proceeding to include any patent asserted by a patent troll.

One might argue that the legislation is unnecessary since any defendant can already seek review at the USPTO via CBM or Inter Partes Review (IPR). In fact upward of 50% of such filings already relate to troll suits. Yet, the intent here seems to be to provide the expanded scope of CBM (any statutory defense to invalidity) for troll asserted patents. Also, while any patent can be challenged at least as to some grounds at the USPTO, that doesn’t mean that the courts (I’m talking about you Texas) will stay their proceedings pending review. Of course, the CBM statute has additional teeth in this regard, not to mention a more liberal estoppel standard.

Interestingly, the USPTO is now forced to cut capital expenditures to account for sequestration of funds. Perhaps Congress should provide the USPTO its full budget allocation before making the Patent Trial & Appeal Board (PTAB) the busiest patent court in the U.S.

Keep calm and work harder PTAB.

Parties to an Inter Parties Review (IPR) proceeding may obtain “limited discovery” at the USPTO’s Patent Trial & Appeal Board (PTAB). Such discovery is limited as it must fall in an accepted class of discovery, namely, “routine discovery” or “additional discovery.”See Rule § 42.51. Routine discovery is generally categorized as: (1) any exhibit not otherwise publicly available or served, (2) cross examination of a declarant, and (3) non-cumulative information that is inconsistent with a position taken by the party before the PTAB.

“Additional discovery” defines everything outside of the above noted categories. To seek such additional discovery in an IPR an “interest of justice” showing is required. Since patent challengers in IPR rely on patent and printed publications filed with their IPR petition, they need only routine discovery (i.e., the ability to cross examine the patentees’ declarant).

Patentees on the other hand have been seeking additional discovery at  the PTAB on a variety of topics, typically issues of standing and secondary indicia. However, the interest of justice showing is proving quite difficult to meet for patentees. In fact, to date, there has not been any additional discovery authorized at the PTAB. For plaintiff attorneys more accustomed to the liberal relevance standard of F.R.E. Rule 401, the PTAB’s high hurdle for additional discovery is a sobering reality check.

In the district court discovery is virtually boundless. District court discovery is possible for information having any tendency to make a fact of consequence more or less probable than it would be without the evidence. On the other hand, the PTAB standard is far more restrictive due to the limited scope and accelerated timing of these patentability proceedings.

The seminal decision on PTAB discovery was issued in Garmin International Inc, et al v. Cuozzo Speed Technologies LLC (here)

In the Garmin IPR, patentee Cuozzo filed a motion for additional discovery seeking interrogatories, documents and what appeared to be a F.R.C.P style 30(b)(6) deposition on the topic of secondary considerations of non-obviousness.

In response, the PTAB explained their systemically different discovery framework to the patentee:

[I]nter partes review, discovery is limited as compared to that available in district court litigation. Limited discovery lowers the cost, minimizes the complexity, and shortens the period required for dispute resolution. There is a one-year statutory deadline for completion of inter partes review . . .. What constitutes permissible discovery must be considered with that constraint in mind.

The PTAB then explained that Cuozzo’s motion for additional discovery was deficient under the interests of justice standards, explaining 5 factors that must be considered in that regard:

1. More Than A Possibility And Mere Allegation — The mere possibility of finding something useful, and mere allegation that something useful will be found, are insufficient to demonstrate that the requested discovery is necessary in the interest of justice. The party requesting discovery should already be in possession of evidence tending to show beyond speculation that in fact something useful will be uncovered.

2. Litigation Positions And Underlying Basis — Asking for the other party’s litigation positions and the underlying basis for those positions is not necessary in the interest of justice. The Board has established rules for the presentation of arguments and evidence. There is a proper time and place for each party to make its presentation. A party may not attempt to alter the Board’s trial procedures under the pretext of discovery.

3. Ability To Generate Equivalent Information By Other Means – Information a party can reasonably figure out or assemble without a discovery request would not be in the interest of justice to have produced by the other party. In that connection, the Board would want to know the ability of the requesting party to generate the requested information without need of discovery.

4. Easily Understandable Instructions — The questions should be easily understandable. For example, ten pages of complex instructions for answering questions is prima facie unclear. Such instructions are counter-productive and tend to undermine the responder’s ability to answer efficiently, accurately, and confidently.

5. Requests Not Overly Burdensome To Answer — The requests must not be overly burdensome to answer, given the expedited nature of Inter Partes Review. The burden includes financial burden, burden on human resources, and burden on meeting the time schedule of Inter Partes Review. Requests should be sensible and responsibly tailored according to a genuine need.

For those practicing before the PTAB that are accustomed to wide open district court discovery practices, your “discovery plan” should be very simple: Don’t plan on getting any.

The primary business distinctions between the USPTO Patent Trial & Appeal Board (PTAB) proceedings and traditional court based patent invalidity proceedings are the vast improvements in cost, predictability, effectiveness, and speed of PTAB proceedings— but it is the speed and effectiveness that is changing the perspective of the judiciary on staying litigation pending USPTO proceedings.

As most are aware, the old patent reexamination system, at least on the inter partes side, has been replaced by IPR. IPR must be concluded by statute within 12-18 months, a marked improvement over the (roughly speaking) previous 6+year path through the Central Reexamination Unit (CRU), Board of Patent Appeals & Interferences (BPAI) and Court of Appeals for the Federal Circuit (CAFC). These changes are being quickly recognized by courts, several of which have agreed to halt litigation proceedings upon the mere filing of an IPR (months in advance of an Order to grant the IPR petitions).

Previously, when an inter partes patent reexamination was the basis for the motion to stay the court proceeding, the strongest plaintiff arguments in opposition were that the significant USPTO delay would prove prejudicial to the plaintiff. Indeed, some of the cases stayed in the early days of inter partes reexamination are only now being reopened, 8 years later. In Graphic Packaging International, Inc., v. C.W. Zumbiel Co. (NDGA) a stay was entered pending inter partes patent reexamination in 2004. the underlying reexamination finally ended a few weeks back (April 11th) by printing of the reexamination certificate, an 8 year journey in total. (order here). The presiding judge commemorated the reopening of the case with a quote from Hamlet.

For who would bear the whips and scorns of time,

Th’ oppressor’s wrong, the proud man’s contumely,

The pangs of despised love, the law’s delay,

The insolence of office, and the spurns

That patient merit of th’ unworthy takes,

When he himself might his quietus make

With a bare bodkin?

– William Shakespeare, Hamlet, Act 3, Scene 1. (emphasis added)

Failure to Consider AIA Patentability Challenges May Be Costly Mistake for Law Firms

The face of patent litigation in the U.S. was forever changed on September 16, 2012. This was the date the post grant patentability trials of the America Invent’s Act first became available to patent challengers. The emergence of the new low cost alternatives to patent litigation creates opportunities for patent challengers to pursue a lower cost resolution to patent disputes on far more favorable terms relative to the district court.

If not adequately considered as an alternative to patent litigation, ignorance of the new AIA proceedings may create malpractice opportunities for unsuccessful litigants against their former law firms.

When there is an imminent threat of litigation potential defendants sometimes pursue a declaratory judgement (DJ) action. The DJ allows the defendant to  secure a favorable venue and remove the cloud of infringement placed over its business rather than wait to be sued by the Patentee. For those prospective defendants choosing to utilize a DJ action to secure venue after the enactment of the America Invents Act, doing so will foreclose a later filed inter partes challenge (i.e., Inter Partes Review (IPR) or Post Grant Review (PGR)) at the USPTO.

The America Invents Act provides with respect to Inter Partes Review (see 325 for PGR):

Sec. 315. Relation to other proceedings or actions

(a) Infringer’s Civil Action-

(1) INTER PARTES REVIEW BARRED BY CIVIL ACTION- An inter partes review may not be instituted if, before the date on which the petition for such a review is filed, the petitioner or real party in interest filed a civil action challenging the validity of a claim of the patent.

Clearly, moving forward on a DJ of invalidity prior to a PTAB filing will completely foreclose the cheaper USPTO option. Perhaps such a strategy is warranted in some cases, but, unless memorialized in writing, the choice may come back to haunt firms during a typical fee dispute/malpractice battle.

For example, the PTAB option is far more favorable to challengers with respect to the same evidence. The evidentiary standard in PTAB review proceedings is a preponderance of the evidence. On the other hand, the federal district court requires “clear and convincing evidence” that is applied in light of a presumption of validity (also not used at the PTAB). So, when going forward with a DJ of invalidity on heightened standards in the District Court, winning arguably just demonstrates a poor choice in fora.  That is to say, one could argue that winning under the heightened standards necessarily demonstrates a win under more liberal PTAB standards.

With this background in mind, Ecast Inc. v. Morrison & Foerster L.L.P.(Superior Court for the State of California, County of San Francisco) is instructive. Ecast, a former client of the law firm, sued the firm for malpractice. The complaint stemmed from the firm’s defense of Ecast in a patent infringement suit in the Northern District of Illinois.

Notably, at paragraph 25 of the complaint, it is alleged that:

Once Defendants undertook to represent Ecast in the Rowe case, Defendants failed to sufficiently explain and advise Ecast of the benefits Ecast could have derived by filing a request for reexamination of the patents-in-suit. Proper pursuit of a patent reexamination could have resulted in a stay of the Rowe litigation for a substantial period of time. Although technically a stay, the reexamination process often serves to effectively end the patent litigation in many cases and could have terminated the Rowe case. (emphasis added)

Paragraphs 28-29 go on to allege that:

Had Ecast been properly advised of the benefits to be gained by the reexamination process, mainly a significant stay of the Rowe case possibly leading to avoidance of all further litigation risks, legal fees and expenses, then Ecast would have chosen to pursue reexamination.

(emphasis added)

While the above case is in the context of patent reexamination, the gist of the argument as to cheaper and more effective USPTO options is equally applicable to the new AIA proceedings. With the increased speed of these proceedings and the loss of right to pursue such after filing a DJ on invalidity, the Ecast arguments may become all the more compelling for those litigants faced with a large, outstanding legal bill; especially those law firms that have not diligently informed their disgruntled clients of their PTAB options.