Stay or Dismissal of Litigation

SAS Institute To Send Patent Owners Screaming Into the Night?

The Supreme Court will get a heavy dose of the PTAB on November 27th. That is the day the High Court will hear oral arguments in both the Oil States and SAS Institute appeals. While almost all of the focus to date has been on Oil States, the case that is likely to have the biggest impact on the PTAB is SAS.

As a reminder, SAS argues that partial PTAB trial institutions are inconsistent with the controlling statutes of the America Invents Act (AIA).  That is, if the PTAB finds that at least one claim is demonstrated as reasonably likely to be proven (RLP) unpatentable, the PTAB should institute an IPR trial for all petitioned claims. As of today, if a petitioner challenges, say claims 1-10 of a patent, the PTAB assesses each claim as to the RLP standard.  So, if the PTAB is not satisfied as to claims 5-6 of claims 1-10, trial would only go forward on claims 1-4 and 7-10.

If SAS is successful on appeal, PTAB trials would go forward on all claims as long as a single claim of the petition was deemed to meet the RLP standard. This would be a significant change to PTAB trial practice with unfortunate consequences for Patent Owners. Continue Reading SAS Institute & The PTAB: Be Afraid Patent Owners

EDTX Denial of CBM Stay Deemed Abuse of Discretion

Back in March I recounted the curious case of VirtualAgility Inc., v. Salesforce.com Inc., et al. (EDTX). In this dispute, Salesforce.com sought a stay of the EDTX litigation pending Covered Business Method (CBM) review of the VirtualAgility patent. The CBM petition was filed with the USPTO Patent Trial & Appeal Board (PTAB) on May 24, 2013 as CBM2013-00024.

The EDTX determined that a stay was unlikely to simplify the issues for trial based upon an independent assessment of the CBM. This was despite the fact that the PTAB went forward with the CBM (i.e., determined that all of the claims were more likely than not unpatentable on multiple grounds), and the patentee had already amended their claims. Thereafter the case was effectively stayed anyway pending interlocutory appeal to the CAFC (a right newly provided by the CBM statute).

At the CAFC, the parties debated whether or not the Court’s review of the stay denial should be de novo under Section 18(b)(2) of the America Invents Act (AIA). (statute says review may be de novo). The Court avoided this issue by finding that, in any event, the decision of the EDTX to deny the stay was an abuse of discretion.

The Court explained that not only were the factors considered by the lower court not in favor of the patentee, but, heavily favored the petitioner. Moreover, the Court found that the EDTX’s second guessing of the PTAB to be particularly inappropriate.

Congress clearly did not intend district courts to hold mini-trials reviewing the PTAB’s decision on the merits of the CBM review. To do so would overwhelm and dramatically expand the nature of the stay determination. If the district court were required to “review” the merits of the PTAB’s decision to institute a CBM proceeding as part of its stay determination, it would undermine the purpose of the stay.  . . .The stay determination is not the time or the place to review the PTAB’s decisions to institute a CBM proceeding.

The district court’s decision regarding the first and fourth factors was based predominantly on its improper review of whether the PTAB was correct in its determination that the claims of the ’413 patent were more likely than not invalid. After this review is removed from the calculus, the remaining evidence of record weighs heavily in favor of a stay. We find it significant that the PTAB granted CBM review on all asserted claims of the sole asserted patent. And it determined that all of these claims were more likely than not unpatentable on two separate, alternative rounds.

(emphasis in original) (decision here)

The dissent largely takes issue with the delay caused by post-grant proceedings and the potential for gamesmanship, but relies mostly on case law involving patent reexamination, not the speedier PTAB proceedings.

Going forward, stays pending an active CBM review (i.e., one that is ordered, not just filed) should be easier to come by in the EDTX.

ddc29c0373659346b925c74df98ea66b26792620

Texas Court Stuns Patent Troll Business Model

Texas has become well known, some would say infamous, for their patent friendly federal district courts. Over the years, “patent trolls” have increasingly flocked to Texas District Courts such as the eastern district (Marshall) to leverage these pro-patentee forums.

Since September 16, 2012, new USPTO post grant patent proceedings have been increasingly leveraged as the first true alternative to patent litigation. Here again, Texas courts offered patentees a benefit over many other districts in the U.S. That is, historically, Texas judges have been reluctant to stay litigation pending USPTO reexamination proceedings. To date, most presumed that this historical bias against staying litigation pending USPTO reexamination would continue despite the increase in speed in the new patent challenge proceedings of the America Invents Act (AIA). Yet, as made clear last week, the heightened standard necessary to institute an Inter Partes Review at the USPTO’s Patent Trial & Appeal Board (PTAB), coupled with the recent outcome in Fresenius USA v. Baxter Int’l. (CAFC 2013), has Texas courts rethinking the wisdom of their previous anti-stay stance. Continue Reading Texas Court Explains PTAB Roadblock to Patent Litigation

Court Cites Improved Speed of PTAB as Eliminating Potential Prejudice

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 or ex parte 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…not any more.

In SoftView LLC v. Apple Inc., et. al., 1-10-cv-00389 (DED September 4, 2013, Order), Judge Stark (order here) found several aspects of the IPR process militated in favor of a stay, whereas months earlier a motion to stay on patent reexamination grounds was denied. Specifically, the Court found: 

A stay is likely to simplify the issues for trial. Unlike in connection with the earlier requested stay- when only some of the asserted claims stood rejected – the PTAB has granted inter partes review with respect to all of the asserted claims of the patents-in-suit.  . . Should all of the asserted claims be found invalid, this litigation would be “simplified” because it would be concluded. Alternatively, should even some of the asserted claims be found invalid, that finding would reduce the number of issues left to be litigated. Another possibility is that some or all of the claims are found not invalid, yet even in that scenario, litigation should be somewhat simplified due to the estoppel effect on [defendants]- and Moving Defendants’ agreements to be bound certain prior art. Thus, while it remains true that in this litigation Defendants are pursuing invalidity and equitable defenses beyond the scope of what will be considered during the inter partes review, and Softview has reiterated its pledge not to seek to amend claims, the simplification factor favors a stay.

As to the last point on amending, presumably the Patentee agreed to this concession in the hopes of undercuting the argument that a change in claims would frustrate the litigation process and favor a stay. This concession is now a no-win proposition for plaintiffs.

As to the speed of PTAB proceedings compared to earlier stay denial (based on a patent reexamination filing) the Court found:

In the Court’s July 2012 decision denying a stay, the Court noted that the early stage of litigation and lengthy process of reexamination weighed against a stay. . this comparison [is] different now: while the case has substantially progressed, the inter partes review promises to be a more expeditious process than reexamination and appears to be relatively close to completion. . . .by the time case-dispositive motions are filed, the inter partes review is likely to be over. Pursuant to 35 U.S.C. § 316(a)(11 ), the PTAB must issue a final determination within one year of the notice of a review – here by March 29, 2014- unless that period is extended for six months for good cause shown. Hence, while the parties and the Court have dedicated substantial time and resources to this case – and only this case can resolve all of the patent-related disputes among the parties- the Court believes, under the circumstances, it is appropriate to allow the inter partes review a reasonable period to conclude before launching the parties into the expense of expert discovery.

As I predicted when the AIA was first passed, the patent troll game has changed. At least for those wise enough to avail themselves of the new PTAB options.

Increased Speed and Heightened Threshold Showing for New PTAB Proceedings Drive Stays

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)

Fortunately, Graphic Packaging endured the 8 year journey through the USPTO rather than gouging their wrists with a bare bodkin. Of course, now they are thrust back into discovery and district court proceedings…those sharp objects should probably be kept out of reach for awhile longer.

While inter partes reexamination is no longer available having been replaced by the speedier AIA option (IPR), hundreds of these legacy proceedings are still making their way through the USPTO.

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

Liberal Stay Policy Thwarts Patent Suits in New Jersey

Non-practicing entities or “patent trolls” are generally those plaintiffs that seek to enforce patent rights against an industry in which they themselves do not compete. Stated another way, an NPE’s only business is patent litigation.

Often times the patents an NPE is enforcing were purchased from a traditional technology company for the sole purpose of exacting royalties from the relevant industry. In the hands of an NPE, which has no technological industry subject to a patent counter suit by their industry targets, the NPE patents become especially powerful weapons of economic coercion.

Over the last decade, law firms have recognized the efficacy of NPE litigation campaigns and have signed on in great numbers to get a piece of the action. Typically, an NPE will team up with a law firm that will conduct the campaign on their behalf in exchange for a contingent fee arrangement. (i.e., percentage of the collected settlements). This profiteerring business model has lead to a significant proliferation of patent infringement suits.

Just not in New Jersey.

When faced with the high cost of a patent infringement suit defendants increasingly avail themselves of post grant patent alternatives offered by the USPTO, such as patent reexamination or a new patentability trial proceeding of the America Invents Act (AIA). On this basis, defendants will seek to stay the higher cost court proceeding in favor of the lower cost USPTO proceeding. In those cases that are stayed, the patent troll business model begins to unravel. Yet, in many districts, the grant of the stay is far from certain and based on many factors.

The New Jersey district courts, however, are increasingly recognized for their liberal stay policy. In fact, they have rarely, if ever, declined a motion to stay pending USPTO review of the patent. This is the case not only for disputes involving patent trolls, but any patent case. As recently made clear in Synchronoss Technologies inc. v. Asurion Mobile Applications, Inc. (DNJ) (here) the court explained:

[W]hile courts balance the costs and benefits associated with staying a matter pending reexamination of a patent by the PTO, courts have noted that granting a stay pending reexamination is favored. . . .The Court finds that stays pending reexamination are freely given in this District, as “almost every reported New Jersey District Court opinion that has considered the issue has granted a stay where a reexamination request was pending.”

Of course the new patentability proceedings of the AIA provide a significant improvement in speed relative to reexamination model. With New Jersey courts providing stays in almost every case of  the slower, reexamination model, it would seem wise for patent plaintiffs of all kinds to avoid the Garden State…especially patent trolls.

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

Increased Speed and Heightened Threshold Showing for New PTAB Proceedings Drive Stays

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 a patent reexamination was the basis for the motion to stay the court proceeding, the strongest plaintiff arguments in opposition were: (1) the significant USPTO delay would prove prejudicial to the plaintiff; and (2) the SNQ standard of patent reexamination led to a 97% grant rate—both of these arguments are now falling very flat.

Most recently in Capriola Corp., et. al., v. LaRose Industries LLC., et al (FLMD), the court considered a motion to stay pending IPR. Here too, the IPR had been filed but not yet instituted. In granting the stay the court explained: (here)

[A]s the plaintiffs state, the standard for the PTO’s granting an inter partes review under AIA is higher than the standard for the former re-examination . . .In sum, the likelihood of inter partes review appears lower than the earlier likelihood of re-examination but the statutory arrangement promises an expeditious response from PTO on whether to conduct inter partes review. In other words, if the PTO declines inter partes review, little time is lost, but if PTO grants inter partes review, the promise is greater for an important contribution by the PTO to resolution of the governing issues in the litigation. . . .

[B]ecause the PTO apparently will not consume much time unless the PTO perceives an important patent issue within the PTO’s particular expertise; and because an important issue that appears in the litigation also appears to fall within the PTO’s province and particular expertise, prudence commends resort to a stay until either the PTO declines review or, finding an important issue within the PTO’s special province, the PTO grants and completes review to the benefit of the parties, the court, and the public. In other words, the investment of some time at this juncture appears wise.

Coming soon to a court near you.

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

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 standard

that 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.

(Order here)

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.

Reexamination Filing Surge Dismissed as Speculative

Back in September, I explained that the USPTO received an unprecedented number of reexamination filings in the closing days before the September 16th. This surge was a result of several factors: First, the fee for ex parte patent examination was jumping from $2520 to $17,500 as of the 16th;  and, as a result of the one year anniversary of enactment of the America Invents Act (AIA) on the 16th, September 15th was the last day to file a request for inter partes patent reexamination.

Currently, the Central Reexamination Unit (CRU) is working through the bolus of filings, still trying to get them all docketed and reviewed within the 90 day statutory period. Seizing upon this influx of work, a Patentee recently argued against staying their district court proceeding pending inter partes patent reexamination — arguing that the USPTO process would now be much slower.

In Polaris Industries v. BRP US Inc. and Bombardier, the Court dismissed this argument, explaining that:

Regarding the length of the reexamination process, Polaris argues that the recent influx of requests for reexamination at the PTO will cause extraordinary delay. The Leahy-Smith America Invents Act (the “Act”) amended the inter partes reexamination process for all requests filed after September 15, 2012. . . . Because of this deadline, the PTO received an unusually large volume of reexamination requests in September 2012.  . . ., Polaris argued that this high volume of requests will cause the PTO’s reexaminations of the ’285 and ’923 patents to extend to 7 to 10 years.

 However, the actual effect of the Act on the PTO’s reexamination process remains to be seen. See Inogen, Inc. v. Inova Labs, Inc., No. SACV 11–1692–JST, 2012 WL 4748803, at *3 (C.D. Cal. Mar. 20, 2012) (noting reluctance to rely on current reexamination statistics given the Act’s amendments). The court in Inogen posited that because the Act raised the threshold for granting requests for inter partes reexaminations (termed “inter partes reviews” under the Act), the PTO may actually grant fewer requests in the future. Id. Given the uncertainty of the PTO’s future workload, Polaris has not provided persuasive evidence that the reexaminations of the ’285 and ’923 patents will be pending for nearly a decade. On the other hand, BRP promptly requested the reexaminations after the dispute between the parties emerged, and BRP has not engaged in improper litigation tactics that might otherwise warrant declining a request for a stay.

As I pointed out previously, there will almost certainly be a short term slowing at the Central Reexamination Unit (CRU) while the bolus of filings is processed; however that affect should be short lived. This is because there are far fewer filings coming in the door now that the fees for ex parte reexamination have been drastically increased and inter partes patent reexamination is no more.  (Note that the new PTAB trial filings do not go to the CRU)

New CBM Challenges to Derail Business Method Patent Assertions?

Last September 16th marked the one year anniversary of the enactment of the America Invents Act (AIA). This “patent reform” legislation introduced several new post grant avenues to challenge an issued patent at the USPTO. One of these new options is the very specialized, Transitional Program for Covered Business Method Patents, or “CBM” proceeding.

The CBM option is noteworthy in several respects: first, it is a post grant review challenge that is limited to a special class of patents (i.e., “covered business method” patents); second, only those challengers that have been sued or charged with infringement of a covered patent may petition the USPTO to initiate a CBM proceeding; third, the estoppel is limited to those grounds actually raised in the proceeding (that is, there is no “reasonably could have raised” estoppel); and finally, the CBM statutes include unique controls that virtually ensure that any ongoing litigation at the time of a CBM filing will be stayed pending USPTO review.

As explained above, the CBM proceeding presents an insignificant of estoppel risk. This “free shot” combined with the near certain stay of costly court proceedings presents a “pay to stay” opportunity that qualifying defendants may find hard to resist.

Assuming a petitioner can demonstrate the necessary standing to file a CBM petition, the CBM statutes are designed to guarantee a stay of the parallel court proceeding.

First, the CBM statute mandates that a court considering a motion for stay pending a CBM proceeding apply a four-factor test. Of course, this factor based analysis is already familiar to the courts, however, courts tend to apply a three factor test, namely:

(A) whether a stay, or the denial thereof, will simplify the issues in question and streamline the trial;

(B) whether discovery is complete and whether a trial date has been set; and

(C) whether a stay, or the denial thereof, would unduly prejudice the nonmoving party or present a clear tactical advantage for the moving party.

The CBM statutes require all courts to consider a fourth step, which almost always weighs in favor of a stay:

(D) whether a stay, or the denial thereof, will reduce the burden of litigation on the parties and on the court.

The addition of this fourth factor is designed to tip the scales in favor of staying the district court proceeding. The legislative history of the AIA could not be clearer in this regard explaining that “[s]ince the entire purpose of the transitional program at the PTO is to reduce the burden of litigation, it is nearly impossible to imagine a scenario in which a district court would not issue a stay.” 157 CONG. REC. S1053 (daily ed. Mar. 1, 2011)

As if the above signals to the district courts were not clear enough the CBM statute also provides for interlocutory review of stay determinations; this review is also de novo. As such, even when the district court court refuses to stay the proceeding, it is effectively derailed for the months required to await the result of the interlocutory review.

It would seem foolish for district courts to deny motions to stay pending CBM proceedings only to have the certain interlocutory review effectively provide the same relief. Indeed, the CBM proceeding will only advance further by the time the CAFC considers the matter on de novo review. The CAFC may also consider the practical implications of upholding a stay denial pending CBM, that is, ensuring that two disputes on the same patent make it on their docket in the months ahead.