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.