Tax Strategy Patent Reexamination Continues Despite AIA Provision

Back in January of 2011, the Director of the USPTO initiated reexamination of U.S. Patent 6,567,790 (here), which claims a method of minimizing transfer tax liability. In 2007, the ‘790 Patent was asserted against a corporate officer of Aetna Inc, the case was settled for an undisclosed amount. The Director initiation of the ‘790 Patent reexamination was noteworthy (i.e., independent of a Patentee or Third Party request) as such an agency driven action had not occurred since the 2004 time frame.

Thereafter, the America Invents Act (AIA) was passed into law on September 16, 2011.

The AIA includes Section 14, entitled “Tax Strategies Deemed Within the Prior Art.” This section unequivocally states, as a matter of law, that patent claims directed to a strategy for reducing, avoiding or deferring tax liability are deemed to be within the prior art. This statute applies to all applications existing before or after the date of enactment (9/16/11), but only applies to those patents issued on or after the date of enactment. (USPTO Memo of September 20, 2011 providing guidance to the Examining Corps here). The ‘790 Patent was issued in 2003.

As a reminder, patent reexaminatons are not applications for patents.

While the ‘790 Patent would almost certainly be subject to challenge under the Transitional Program for Covered Business Method Patents (TPCBMP) on September 16, 2012, currently, the USPTO reexamination result appears to have saved the investment banking community some money. (Final action here)

PTAB To Exercise Discretion Relative to Non-registered Practitioners

The new post grant patent proceedings of the America Invents Act (AIA) are adjudicative in nature. That is to say, Derivation, Inter Partes Review (IPR) and Post Grant Review (PGR) will be conducted as trials before the Patent Trial & Appeal Board (PTAB). Patent examiners will no longer referee inter partes disputes at the USPTO (outside of legacy inter partes reexamination proceedings)

While IPR and PGR will include many litigation style mechanisms, such as limited discovery, protective orders, motions, etc, these proceedings will also embrace traditional functions of patent application prosecution. (e.g., claim amending and engineering/scientific analysis). As noted previously, non-registered practitioners can, in limited circumstances, be permitted to appear before the current Board of Patent Appeals & Interferences (BPAI) on a pro hac vice basis. The PTAB will adopt this practice. Rule 42.10(c)

Recently, Chief Judge Smith explained the standard that will be applied to applications of non-registered practitioners by the PTAB.

The Office has proposed to allow for pro hac vice representation for non-registered practitioners before the Board in any of the four new administrative trial proceedings of inter partes review, post grant review, covered business method review, and derivation.  In particular, the Board may recognize counsel pro hac vice during an administrative trial proceeding upon a showing of good cause, subject to conditions that the Board may impose, such as agreeing to be bound by the Office’s Code of Professional Responsibility.  The Office has proposed to permit pro hac vice admission for non-registered practitioners in the new administrative trial proceedings for a few different reasons.

First, the Board currently permits pro hac vice admission in matters before it.  From the Board’s experience, parties have found it helpful in certain circumstances to have a counsel that is experienced in handling expert testimony, cross examination, and other aspects of discovery. 

Second, where a party has selected a non-registered practitioner to represent him/her in a patent infringement action and has expended significant financial or other resources in that infringement action, the Office recognizes that the party may wish to continue using the non-registered practitioner as one of the counsels in the new administrative trial proceedings. 

Lastly, the Office proposes that the grant of a motion to appear pro hac vice be a discretionary action taking into account the specifics of the proceedings.  In making this determination, the Board will consider the impact of granting pro hac vice admission on a party’s ability to timely complete the trial proceeding, if instituted, within the statutory twelve month window and to effectively participate in the proceeding.  Similarly, the Office proposes that the revocation of pro hac vice admission be a discretionary action taking into account various factors, including incompetence, unwillingness to abide by the Office’s Rules of Professional Conduct, and incivility.

Accordingly, for these reasons, the Office believes that pro hac vice admission for non-registered patent practitioners in the new administrative trial proceedings balances the needs of clients to select their counsel against the desire for adequate safeguards for the USPTO, the profession, and the public.

Numerous Comments Received in Response to Rule Making Effort

With the window for submitting comments on the USPTO post  grant rule sets now closed, the agency has published the complete public comment set.

With respect to the post grant rule sets, a total of 251 comments were received. Data from the USPTO America Invents Act (AIA) micosite break down the submissions as follows:

AIA Provision Comment Period
End		 Comments Received
Inter Partes Review April 10, 2012 49
Post-grant Review April 10, 2012 48
Derivation April 10, 2012 19
Covered Business Method Review April 10, 2012 19
Technological Invention Definition April 10, 2012 28
Umbrella Rules April 9, 2012 66
Trial Practice Guide April 9, 2012
Total — 251

chart-board-comments

Not surprisingly, the vast majority of comments appear directed to:

1. Page Limits (and here)
2. Fee Structure
3. Patentee Estoppel
4. Supplemental Information

Final Rules are expected to issue in the August time frame (setting an internal deadline of August 16, 2012). The Office has also publicly stated that comments may be solicited in the Fall on possible further refinements.

ITC Mandate Provides Safe Haven for Troll Abuse?

With injunctions harder to come by, and some district courts staying proceedings upon the mere filing of a patent reexamination, it is not surprising that non-practicing entities (NPEs) have been heading to the ITC (and, in the process ding-patent-reexamination”>This is a further benefit for NPEs.

Recently, a motion to stay an ITC proceeding pending patent reexamination was again considered by the agency in Certain Blue Ray Disc Players.

The ITC blog has provided a nice summary of the ALJ’s analysis (r: #333333;”>

Can Declaration Evidence be Considered “Written Comments”

Since the advent of inter partes patent reexamination (IPX), both Requesters and Patentees alike have relied upon declaration evidence to bolster their respective positions. Practically speaking, the lack of RCE practice in patent reexamination creates a limited prosecution window relative to the prosecution of patent applications. For this reason, submission of declaration evidence by Patentees under 37 CFR § 1.131 and/or 37 CFR § 1.132 is fairly routine in patent reexamination proceedings.

For Requesters, it is critical to respond to the declaration evidence of the Patentee in kind, especially as the Requester will be estopped from advancing failed arguments of the IPX in a district court or subsequent USPTO proceeding.

Despite this well established, declaration practice in IPX, a recent reexamination dispute before the CAFC questions the statutory propriety of Requester declaration submissions.

The CAFC has recently heard arguments in the appeal of Lingamfelter v. Kappos, which is an appeal of a Board of Patent Appeals and Interferences (BPAI) ruling that invalidated a patent related to beverage packaging (6,789,673). The reexamination was requested by two packaging suppliers of Coca-Cola and Miller Brewing Co., which the Patentee sued for infringement.

The crux of the Patentee’s argument is that the Requesters improperly introduced declarations of Coca-Cola and Miller employees addressing the difference between the claimed invention and the prior art. Based in part on that evidence, the examiner rejected several claims as anticipated or obvious in light of the prior art, a finding that was affirmed by the BPAI.

Specifically, the Patentee challenges the acceptance of evidence from the Requesters, contending that the USPTO exceeded its authority by allowing the Requesters (suppliers, MeadWestvaco Packaging Systems LLC and Graphic Packaging International Inc.), to submit declaration evidence from Coca-Cola and Miller employees. According to the Patentee, while the inter partes reexamination statute permits the USPTO to accept “written comments” from Requesters, “comments” as recited in the relevant statute, does not embrace testimonial “evidence” of declarants. As no discovery is permitted in IPX proceedings, the Patentee argues that he is unable to demonstrate the inaccuracy of the submitted evidence (and testing).

The relevant portion of 35 U.S.C. 314 (B)(2) provides:

(2) Each time that the patent owner files a response to an action on the merits from the Patent and Trademark Office, the third-party requester shall have one opportunity to file written comments addressing issues raised by the action of the Office or the patent owner’s response thereto, if those written comments are received by the Office within 30 days after the date of service of the patent owner’s response.

(emphasis added)

The above argument did not appear to be given much in the way of serious consideration by either the USPTO or third party in their responsive briefs. (here and here). Yet surprisingly, the CAFC appeared to receive this argument quite favorably during the oral hearing. (here) The Court also seemed persuaded by the fact that the new statutes outlining Inter Partes Review (IPR) specifically distinguishes between “evidence” and “comments” and also provides for limited discovery. (as perhaps an indication that Congress was intending to address shortcomings of IPX)

Moreover, the Court found that there may not be Chevron deference accorded to the PTO’s proferred definition of “comments” as it did not appear the the agency had ever interpreted “comments” previously. Likewise, neither the PTO nor the Requesters had presented any evidence as to the practical realities of current declaration practice to exhibit such an agency supported definition of “comments.”

Should the CAFC reverse the BPAI on this issue it will create quite a mess for the USPTO….stay tuned.

Upcoming CLE

For those looking for some CLE credit this week, I, along with Mr. Andrei Iancu, Irell & Manella; and Mr. John Scott, QUALCOMM, Inc., will be presenting on the IPO Chat Channel (Wednesday, April 18th) Intervening Rights in Patent Litigation.

The program will look at the Marine Polymer case as well as other recent cases in which parallel proceedings before the USPTO have factored into concurrent litigation strategy.

Additional information, and registration information may be found (here)

Discovery Practice in Post Grant Patent Proceedings

In patent litigation before the federal district courts and the International Trade Commission (ITC), parties are obligated to preserve and prevent the destruction of potentially relevant information. This duty often commences as soon as litigation is reasonably foreseeable. Many courts also extend the duty to counsel for the litigants and require that counsel take affirmative steps to ensure that their clients are aware of, and take steps to comply with, the duty to preserve documents. As a result, counsel typically consult with their clients regarding this duty and provide their clients with a “litigation hold” letter that explains the measures the client should undertake to preserve potentially relevant information.

The new post grant review (PGR) and inter partes review (IPR) procedures created by the America Invents Act are adversarial proceedings in which the parties may take limited discovery from one another. The question arises: are the parties to PGR and IPR proceedings under a duty to preserve potentially relevant information?

Parties to PGR and IPR proceedings may take limited discovery that falls under the categories of “routine discovery” and “additional discovery.” See Proposed Rule § 42.51. Routine discovery includes “non-cumulative information that is inconsistent with a position advanced by the patent owner or petitioner during the proceeding.” Id. § 42.51(b)(3). Additional discovery is obtainable by any party which can show “good cause” in PGR proceedings and can show that the discovery sought is required “in the interest of justice” in IPR proceedings. Id. §§ 42.51(c), 42.224.

As a practical matter, parties to a PGR/IPR proceeding will naturally try to obtain any information that supports its positions and/or damages the other party’s positions. Presumably, both sides will try to characterize such information, when requested from the other, as information that contradicts the positions of the party from which discovery is sought, so that the discovery falls within the “routine discovery” umbrella and must be voluntarily produced by the party in possession of it. As indicated in a prior post, such information will often relate to secondary considerations of nonobviousness, including evidence of copying and commercial success by the petitioner and evidence of testing and licensing by the patent owner. Additionally, each party will likely request from the other any relevant statements made in prior litigation or administrative proceedings.

But what happens when one of the parties, when PGR/IPR as been ordered or is reasonably foreseeable, does not take any measures to prevent the destruction of documents that potentially contradict positions that it will likely have to take in PGR/IPR? In many instances, this issue may be preempted by the fact that the PGR/IPR proceeding was precipitated by district court or ITC litigation, and thus, the duty to preserve potentially relevant information will have already started prior to the PGR/IPR proceeding. In situations where no concurrent litigation exists, it remains to be seen whether the PTAB will impose a duty to preserve potentially relevant information once PGR/IPR is ordered, requested, or reasonably foreseeable.

If the PTAB imposes a duty to preserve documents similar to the district courts, then the consequences to non-compliant petitioners and patent owners could be severe. The PTO’s proposed rules package authorizes sanctions similar to the “Rambo sanctions” of the Federal Rules of Civil Procedure, e.g., the ability to enter an order holding facts to have been established, an order precluding a party from presenting or contesting an issue, or entry of judgment against a party. The discussion accompanying the proposed rules package explicitly states that sanctionable conduct includes “failure to disclose a prior relevant inconsistent statement.” Proposed Rules of Practice for Trials before the PTAB at 24. Counsel who are wary of Rambo sanctions are advised to provide “hold” letters with instructions to their clients for preserving information that is potentially relevant to a PGR/IPR proceeding. In light of the inherent difficulty in detecting a party’s negligent or deliberate destruction of relevant information, it is quite possible that sanctions would be severe if the PTAB adopts the practice of the district courts and the ITC.

SNQ Analysis Not Explicit in New Post Grant Standards

As discussed earlier in the week, a petitioner must demonstrate  a reasonable likelihood of prevailing (RLP) in order to successfully initiate an inter partes review. As of September 16, 2011, this standard has also been applied in assessing requests for inter partes patent reexamination. In arriving at a new standard, Congress hoped to address criticisms that the previously applied substantial new question of patentability (SNQ) standard was too low, and fostered harassment of Patentees.

Patently-O has reported a recent petition decision that comments on the new RLP test, and whether or not the new threshold would necessarily exclude requests for IPX that would fail the old SNQ test.

The petition, found here, explains in relevant part (click to enlarge):

insert

The IPR standard and PGR standard are also fleshed out in 325(d), which was not cited in the decision, which explains:

“In determining whether to institute or order a proceeding under this chapter, chapter 30, or chapter 31, the Director may take into account whether, and reject the petition or request because,the same or substantially the same prior art or arguments previously were presented to the Office.”

Clearly, the above noted language of 325(d) provides a discretionary duty (i.e., “may”). Yet, when judging the “reasonable likelihood” that a petitioner will prevail, if the Office has previously considered, and rejected a same argument, such would seem to speak to a likelihood of failure. Also, unless and until the technical amendments to the AIA (now being discussed in Congress) are passed, there is nothing to stop an unsuccessful third party requester in IPX from simply seeking a “do-over” in IPR.  (absent external litigation events such as the 12 month IPR window expiring, or a DJ action) Thus, failure to exercise the 325(d) discretion would seem to invite a misuse of Office resources.

Moreover, Congress raised the SNQ threshold for post grant proceedings to reign in the high patent reexamination grant rates, and to address the concern that Patentees were being harassed. Ignoring 325(d) would not seem to be consistent with the intent of Congress. Indeed, as posted earlier in the week, Chief Judge Smith’s explanation of the new standards for PGR and IPR  seem to indicate that previously settled issues will factor into the threshold determinations.

Whatever the decision with respect to 325(d) the USPTO message to the public should be consistent.

post grant standardsPost Grant Review Has a Higher Threshold Than Inter Partes Review

The threshold necessary for initiating an Inter Partes Review (IPR) is prescribed by statute as a reasonable likelihood that a petitioner will prevail (RLP) with respect to at least one challenged claim. On the other hand, the threshold necessary to trigger a Post Grant Review (PGR) is prescribed by statute as more likely than not that a challenged claim is unpatentable. Absent review of the legislative history, it is far from straightforward as to the difference in these standards. Fortunately, the PTO has issued an explanation clarifying the difference. Continue Reading Different Thresholds for New Post Grant Proceedings

Commentary on Notice of Proposed Rules to Implement Post Grant Patent Proceedings Due on Monday

The deadlines for submitting comments to the USPTO on the Group 2 rule making proposals (i.e., post grant patent proceedings) are next Monday and Tuesday, April 9-10th. (depending upon the publication date)

While the USPTO should be applauded for their monumental, and comprehensive proposals (most of which are quite good and well thought out), some issues are still to be refined. The most problematic issues presented by the proposed rules, at least in my opinion, are as follows:

1. Page Limits (and here)
2. Fee Structure
3. Patentee Estoppel
4. Supplemental Information