Court Cites Change in Inter Partes Reexamination Standard as Justifying Stay

When faced with the assertion of a patent of questionable validity prospective defendants increasingly resort to patent reexamination. Once a suit is filed, the opportunity to obtain a stay of an ongoing district court infringement action pending a parallel patent reexamination is a major benefit of the USPTO proceeding.

For this reason, patent reexamination parallel to a district court is often initiated in an attempt to stay the more cost prohibitive court proceeding. In deciding whether or not to stay the court proceeding the courts look to many factors. (See factor based analysis here). When considering whether to stay the proceeding in view of an ongoing inter partes patent reexamination (IPX), courts often identify the estoppel provisions of IPX as supporting an argument that issues will be simplified for trial by awaiting the USPTO decision.

In an interesting twist on the special consideration given to IPX filings, a California district court considered the impact on the recent America Invents Act (AIA) change to the standard for initiating IPX.

Specifically, “[t]he threshold for initiating an inter partes review [was] elevated from ‘significant new question of patentability’—a standard that [previously] allow[ed] 95% of all requests to be granted—to a standard requiring petitioners to present information showing that their challenge has a reasonable likelihood of success.” H.R. Rep. No. 112-98, (Pt. 1), at 47 (2011); see also Pragmatus AV, 2011 WL 4802958 at *3 n.1. Neither party has provided any statistics, presumably because none are available yet, regarding the percentage of requests for inter partes reexamination that are granted under this new standard. Nor have the parties provided statistics regarding the percentage of claims that are amended or cancelled after a reexamination request has been granted under the “reasonable likelihood” standard. Congress apparently intended to partially shift the merits determination earlier, to the petition stage of reexamination, likely resulting in a decrease in petitions granted, but an increase in amended or cancelled claims after a request has been granted.  . . .. This suggests that if Inova’s requests for inter partes reexamination are granted, there is an even higher likelihood than under the prior standard that the issues in this action will be simplified by the reexamination. On the other hand, as discussed below, if the USPTO rejects Inova’s requests, the stay will be relatively short. Therefore, this factor weighs in favor of a stay.

.       .      .

Furthermore, given the recent change to the inter partes reexamination standard, it is unclear whether the inter partes reexamination process will take as long as current statistics suggest. If the USPTO does not grant either of the requests for reexamination, the stay will be in place no longer than three months. If the USPTO grants either or both of the requests, the significance of that decision under the elevated standard for reexamination combined with the possibility of a shorter reexamination process, the early stage of this litigation, and Inogen’s failure to move for preliminary injunctive relief suggest that a stay is appropriate. Accordingly, Inova’s Motion to Stay pending reexamination is GRANTED.

(emphasis added) (Order here)

While the decision to stay is also premised on other factors, including the failure of the plaintiff to seek preliminary injuctive relief, the court appears to have been misinformed as to the potential impact of the new IPX standard.

Prior to the new standard, the Substantial New Question of Patentability (SNQ) standard was utilized. Under the old SNQ standard, the USPTO would determine whether or not the submitted art would have been deemed “important to a reasonable examiner;” a fairly low threshold. The new standard is a reasonable likelihood that the requester would prevail with respect to at least 1 of the claims challenged; certainly stricter than the SNQ standard. However, in IPX proceedings, an Office Action typically accompanies the Order. Rejections of an office action require a prima facie showing. In this way, an IPX does not move forward absent such a heightened showing.

Moreover, until replaced by the new Inter Partes Review (IPR) proceeding of the AIA in September 2012, the Office will not consider rebuttal arguments from the Patent Owner prior to issuing the Order. Thus, the request to initiate an IPX remains one-sided despite the change in standard. For this reason the change has not resulted in a detectable drop in the IPX grant rate. Indeed, in the USPTO rule package outlining the implementation details for IPR, the Office estimates a grant rate of 90% for IPR—even with additional Patent Owner rebuttals. (the current IPX grant rate is roughly 93%)

As to speed, while the USPTO has certainly improved over the published IPX pendency statitstics, the change in standard will have no impact in this regard.

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