Rippling Effect of PTAB Proceedings to Upset Patent Litigation Business Model?
Opponents of the U.S. patent system are quick to deride the America Invents Act (AIA) as a failure when it comes to the so called “patent troll” or “non-practicing entity” (NPE) problem. Indeed, a steady stream of news articles from otherwise reliable sources such as the Wall Street Journal only serve to sensationalize and reinforce this misperception. Most such articles will focus on what has happened prior to September 16, 2012 (i.e., failure of the joinder rules) as opposed to what is now happening as a result of the AIA.
On September 16th, 2012 the new post grant patent proceedings of the America Invents Act (AIA) became available to patent challengers for the first time. These proceedings have only been available for a few months, but allow challenges to suspect patents of any vintage in a far more speedier, cost effective, and challenger friendly manner relative to that of the federal district courts. The idea behind these proceedings is that for the very first time, there will be a true, accelerated alternative to patent litigation. Not surprisingly, there has been a robust demand for these proceedings with over 100 petitions filed in the first few months—many of which target NPE portfolios. The new post grant proceedings of the USPTO’s Patent Trial & Appeal Board (PTAB) will conclude in a fast enough time (12-18 months) to transform the existing litigation landscape in a manner that will significantly undermine the NPE patent litigation business model.
The impact of these new, AIA post grant proceedings are only now beginning to be felt in the district courts.
Last week, in Semiconductor Energy Laboratory Co. Ltd. v. Chimei Innolux Corporation et al. (CACD) the very first litigation was stayed pending the outcome of the new PTAB proceedings. Shortly after September 16, 2012 the defendants, CMI, sought Inter Partes Review (IPR) of the 6 patents-in-suit. Immediately thereafter, CMI sought a stay of the ongoing litigation pending the outcome of the PTAB proceedings.
The Order staying the litigation issued last week. In the Order the Court noted features of the new AIA proceedings that make them more attractive relative to past USPTO options, explaining:
As this Court has previously noted, the amended standards for granting inter partes review probably results in an even higher likelihood than under the prior standardthat the issues in this action will be simplified . . . .and the delay caused by the new IPR procedure is significantly less than the delay caused by the old procedure.
As IPR, CBM and PGR filings become more commonplace going forward, the contingency fee model that is primarily responsible for spawning the boom in NPE litigation will become a much riskier proposition. Simply stated, the contingency representation will now have to account for the likelihood that the dispute will almost certainly transfer over to the unfamiliar USPTO forum. Once there, the cost to conduct the proceeding for a challenger will be on the order of 10-20% of the cost of court based litigation proceeding. With the higher cost proceeding stayed, and the corresponding cost pressure off the challenger, and with the added benefit of the lower standards of proof accepted by the USPTO to prove unpatentability, plaintiff attorneys may find that the risk of investing in all but the largest NPE portfolios a bet no longer worth making.