Determination of Non-Obviousness by USPTO Disregarded by Court

Last week’s CAFC decision in In re Construction Equipment decided the validity of U.S. Patent 5,234,564…..again. In the first appeal, decided in 2001, the CAFC upheld the validity determination of the District Court. In the second appeal, decided last week, the CAFC considered an appeal from the USPTO rejecting the claims of the ‘564 patent in ex parte patent reexamination. In their second decision, the CAFC found the ‘564 Patent invalid in light of some of the very same prior art references at issue in the first appeal.

In her dissent Judge Newman questioned the constitutionality of the USPTO looking over the shoulder of the CAFC.

In a case of “turnabout is fair play,” last Friday, a United States District Judge for the District of Connecticut considered, and disregarded, the USPTO’s reexamination analysis of the same prior art in Jacobs Vehicle Equipment Co. v. Pacific Diesel Brake Co. et al. (D.Conn).

The Court decided that the earlier ex parte patent reexamination analysis of U.S. Patent 4,848,289, which confirmed the validity of the ‘289 Patent, was flawed in two major respects.

First, the Court explained that the non-obviousness determination of the USPTO in 2005 predated KSR. In this regard, the Court determined that the patent reexamination analysis that confirmed the claims of the ‘289 Patent may have been too rigid an application of the teaching/suggestion/motivation test (TSM).

The second, and perhaps more troubling rationale, was that the USPTO simply did not have the time or robust record to consider the issues in full during patent reexamination as compared to that of the District Court.

The Court noted in footnote 8 of the decision that:

The record before me on issues relating to obviousness is far more complete than the one before the PTO. The ex parte reexamination interview lasted about forty-five minutes. The trial, which was more about invalidity than infringement, lasted several weeks. Nearly all the prior art was before the examiner. But he did not have the benefit of the extensive evidence and arguments submitted to me.

(decision here)

Under the above rationale, a Patentee can either lose their patent in ex parte patent reexamination outright, or simply survive to fight the very same battle on another day, at additional expense. All the while, an ongoing infringement action may even be stayed pending the outcome of the reexamination for seemingly no good reason.

The new proceedings of the America Invents Act (AIA), Inter Partes Review and Post Grant Review will provide for limited discovery, estoppel to prevent duplicative proceedings, and provide adjudicative processing. These more robust proceedings will prevent such inconsistent outcomes going forward.

Unfortunately, ex parte patent reexamination was left largely untouched by the AIA.

 

CAFC Appeal Result Undone 11 Years Later

Patent reexamination is often initiated in parallel with an ongoing infringement litigation. In the case of a parallel inter partes proceeding (IPX), the first of the proceedings to conclude (litigation or IPX) controls the outcome of the other by operation of statutory estoppel. As such, a final holding in the parallel court proceeding will end an ongoing IPX. Moreover, the losing party would be precluded from seeking IPX at a later date.

On the other hand, ex parte patent reexamination (EXP) has no such statutory “shut off valve.” Thus, even a party that was bound by IPX estoppel could file a request for ex parte patent reexamination. In this way, the infringer could attempt to “undo” the effect of the earlier, final, court judgement by invalidating the patent via the EXP filing.

As I explained this past August, the CAFC questioned this “do-over” practice during the oral argument of In re Construction Equipment. Last week the CAFC issued a decision in this case. In the process, the CAFC disturbed the holding of their first decision, issued some 10 years earlier.

In 2001 the validity of the Construction Equipment Patent at issue was upheld by the CAFC.

Last week’s CAFC decision, like their 2001 effort, considered the validity of U.S. Patent 5,234,564 in light of certain prior art references under 35 U.S.C. 103. The recent appeal stemmed from a USPTO ex parte patent reexamination decision of the BPAI. The BPAI rejected the claims of the ‘564 Patent based upon some of the same art of the earlier decision, albeit under the more liberal preponderance of the evidence standard of the USPTO (and perhaps to a lesser extent by applying the KSR precedent not in existence in 2001).

While the majority affirmed the USPTO rejection, thus reversing the outcome of their earlier decision, Judge Newman issued a strongly worded dissent.

In addition to the principles of finality based on separation of powers, the principles of litigation repose are violated by the reopening in an administrative agency of issues that were litigated to finality in judicial proceedings. Throughout the evolving reexamination statutes, no legislation suggested that reexamination might overtake a final judicial decision, or that the preclusive effect of such decision may be ignored. The reexamination statutes do not purport to grant to the PTO the authority to ignore final judgments. Such an adjudicatory structure would not have been contemplated by the Congress, and is improperly accepted by this court.

.           .           .           .           .           .           .

Powerscreen requested reexamination on the ground of obviousness, citing the same references and additional references, placing strongest reliance on the same references that had been cited in the litigation. However, when an issue has been litigated and judgment entered in a court of last resort, “[t]he underlying rationale of the doctrine of issue preclusion is that a party who has litigated an issue and lost should be bound by that decision and cannot demand that the issue be decided over again.” In re Freeman, 30 F.3d 1459, 1465 (Fed. Cir. 1994) (in a reexamination completed after litigation, the PTO gave preclusive effect to the district court’s ruling on claim scope, although the Board stated that it did not agree with the district court). These fundamentals of judicial authority and administrative obligation are not subject to the vagaries of shifts in the burden or standard of proof in non-judicial forums, as the panel majority proposes. Although this aspect was weighed in In re Swanson, 540 F.3d 1368 (Fed. Cir. 2008), a lower standard of proof in an administrative agency cannot override the finality of judicial adjudication. The burden of proof assigned to administrative bodies is a matter of policy and procedure, not a change in substantive law. Administrative burdens do not override the Judicial Power of dispositive judgment.

(emphasis added, decision here)

Judge Newman also cited to the concern of the drafters of the America Invents Act (AIA) in providing certainty and finality with respect to the validity of issued patents in support of her policy arguments. Yet, the ability to file an ex parte patent reexamination request after losing in the district court remains an unchecked practice under the America Invents Act.

(Note in some cases a later EXP filing may be precluded under the IPR provision of AIA. However, this new form of EXP estoppel is not triggered by court decisions)

Infringement Defendant Attempts to Prevent/Undo Patent Issuance by APA Action

On Tuesday the CAFC heard arguments in the case of Pregis Corporation v. Kappos and Free Flow Packaging Intl. At issue in this case was a cross appeal of under the Administrative Procedure Act (APA) alleging that the USPTO had issued U.S. Patent 7,361,397 in an arbitrary and capricious manner. The ‘397 Patent is directed to plastic film used in machines that manufacture the now ubiquitous air pillows found in shipping containers.

Yet, rather than going through the time and effort to necessary to sue a government agency on a seemingly novel cause of action, why didn’t appellant Pregis simply seek reexamination of the ‘397 Patent?

At the time Pregis was approached to take a license, the ‘397 Patent had not yet issued from the USPTO. Pregis was approached to take a license to the Free Flow portfolio. (a notice of allowance had issued for the application underlying the ‘397 Patent). Thus, there was no ‘397 Patent to reexamine at the outset of the dispute between the parties.

Being outside the protest window for the maturing application (rarely used anyway), and believing there to be clear mistakes/capricious action made in the allowance of the case, Pregis filed suit against the USPTO under the APA in the Federal District Court of Virginia (Alexandria).

The initial complaint (here) may have been primarily intended as a “back door” protest to encourage the Office to revisit the allowance. Nevertheless, the patent issued in due course and the APA action continued through the Virginia Court. The dispute made its way to the CAFC on Tuesday. Interestingly, the USPTO was represented by an attorney from the Dept. of Justice on appeal.

At mins 23-45 of the CAFC argument, the APA issues were explored, with significant attention applied to public policy concerns. (recording here).

It would seem unlikely that the Court will endorse the practice, nevertheless the debate is quite interesting in view of recent APA issues explored by the CAFC. (In re Jung, Hyatt v. Kappos)

USPTO Considers Record Number of Requests for Patent Reexamination 

In fiscal year 2011 the USPTO initiated a total of 1133 patent reexamination proceedings (both ex parte and inter partes). The 2011 tally represents an overall increase in filings of about 7% relative to 2010 numbers.

Interestingly, while ex parte filings receded slightly, inter partes filings surged by 33% relative to 2010. In FY 2011 374 requests for inter partes patent reexamination were filed.

USPTO statistics for 2011 are found (here)

Ex parte patent reexamination proceedings are typically disfavored over inter partes reexamination proceedings as being too one-sided, and historically biased in favor of patent holders. Likewise, as patent reexamination is increasingly employed as a litigation tool, it is not surprising that the more robust proceeding is now surpassing ex parte filings (especially now that most issued patents qualify by virtue of being filed as applications on or after 11/29/1999)

On the one year enactment anniversary of the America Invents Act (AIA), inter partes patent reexamination (IPX) will be replaced by Inter Partes Review (IPR). The USPTO will gradually implement Inter Partes Review over the first four years by limiting the proceeding to the first 281 filers. This limit was established by the AIA as a control to keep the Office from being overwhelmed in the early implementation stages of this new AIA proceeding.

The 281 filing cap is based upon the total inter partes patent reexamination filings for 2010. (fiscal year concluding before passage of the AIA)

Based upon the current market demand for IPX filings, the USPTO may find themselves up against the 2010 limit very quickly. 

Group 2 Rules to be Published in January

The Patent Public Advisory Committee (PPAC) convened yesterday at the USPTO for their quarterly meeting. During the meeting, the USPTO presented an update on office operations and AIA implementation status. The update on the Group 2 rule making is found in the presentation materials of Janet Gongola, Patent Reform Coordinator (here)

Below is the current estimated timeline for publishing the proposed rules for Post Grant Review, Inter Partes Review, and Supplemental Examination, among other proceedings. Interestingly, it appears as though there will be public round table meetings on the NPRM, which is scheduled to be published in mid-late January. (Click to Enlarge)

timeline

ABA, AIPLA and IPO Suggest PTAB Model Rules to USPTO

Early last week, the major bar associations submitted comments to the USPTO on the current Group 2 Rule Making effort. As a reminder, Group 2 Rules are a second phase of USPTO rules designed to implement features of the America Invents Act (AIA). The Group 2 Rules include Inter Partes Review (IPR) & Post Grant Review (PGR).

Unlike other organizations that submitted commentary only, the ABA, AIPLA and IPO coordinated their efforts to prepare a set of model rules. Of course, the Office has been working on their own rule sets in parallel. As such, the submitted model rule set (here) is primarily provided to serve as a preliminary gauge of stakeholder expectations.

Some interesting suggestions in the model rules are as follows:

1. Practitioners IPR/PGR: The model rules suggest that lead counsel in any PGR/IPR proceeding must be a registered practitioner. Pro hac vice practice is contemplated, but is suggested to be “rarely granted.” (See proposed rule 41.5)

2. Thresholds: The model rules argue that the standards to implement IPR & PGR should be the same as the differences in wording are not substantive. (see footnote 11 in overview). To date, the USPTO has been taking the position publicly that the standards are indeed different. The submission also points out that the AIA statutes require a denial of a petition that seeks to advance the same, or substantially the same arguments previously considered by the Office.

3. Timing: The model rules provide for automatic extensions to the 12 month statutory time frame for certain developments in IPR/PGR. For example, where prior use or public sale evidence is alleged in PGR (due to needed discovery) an automatic extension is suggested. (likewise for those proceedings in which a significant number of new claims are added, etc). A general theme of the suggested timing provisions is that Patentees should be accorded ample time relative to third parties since third parties have had significant time to prepare their petitions. Prior to petition determination, the model rules suggest a total duration of 6 months; 3 months from petition filing to preliminary response, then 3 months for the Office decision to issue. (this is consistent with my earlier estimate of this timing, chart here)

4. Discovery: The model rules allocate a Patentee discovery phase (months 1-6 after Order), the Requester discovery phase occurs thereafter (months 6-9).

5. Oral Hearing: 1 hour in total duration; 30 minutes per side.

The submission is impressive in scope and detail; it is certainly worth a read.

Details relating to specific timing an extension scenarios are not expected to be adopted by the Office. For example, many oral arguments in high profile inter partes patent reexamination disputes routinely extend beyond 60 minutes, and automatic extensions are not expected to be favored by the Office. As such, the Office is more likely to substitute their own judgement in arriving at these more detailed timing provisions of IPR/PGR. Nevertheless, the overall themes and concepts presented in the model rules will serve as a valuable benchmark to the agency as Group 2 rule making efforts finalize over the next 4-6 weeks.

Director Kappos to Speak at CLE Webinar Tomorrow

For those requiring some additional CLE for 2011, Director Kappos will be speaking at American University Washington College of Law tomorrow, November 30, 2011. The program is entitled “The America Invents Act: A Patent Law Game Changer in a 21st Century Global Economy.” CLE credit (1.5) is available.

Registration details are found (here)

New Appeal Rules Effective January 23, 2012

This past Monday the USPTO released the final rule package pertaining to the Rules of Practice Before the Board of Patent Appeals & Interferences in Ex Parte Appeals. (here).

This final rule notification stems from the earlier notice of proposed rule making issued last November. The rules are limited to ex parte proceedings only and have no bearing on patent interferences, or inter partes patent reexamination. Likewise, the new rules will not control Inter Partes Review or Post Grant Review. The final rules become effective on January 23, 2012. (for appeals initiated on or after the effective date)

In response to the original publication of the rules, I pointed out that the proposal provides an interesting safeguard against new rejections in an Examiner Answer. Namely, the filing of a 1.181 petition challenging such a rejection tolls the period for filing a Reply brief. Thus an Applicant may await decision on the petition before filing the Reply. This provision will be very helpful in patent application prosecution, but may aggravate ex parte reexamination pendency if abused.

While there is little incentive for delay in application prosecution once reaching the Examiner Answer phase, such is not always the case for ex parte patent reexamination. For example, prosecution cannot simply be restarted by the filing of an RCE; likewise extensions of time are not available as a matter of right. So, once reaching the appeal phase, faced with the proposition of losing at the Board, initiation of the proposed petition procedure may be used as a de facto delay tactic. In my experience the pendency of a 1.181 petitions can be upward of 4-6 months, if not longer. Since most patent reexamination is now conducted concurrent with litigation, delay of an adverse decision can be very valuable to litigants in certain circumstances.

The PTO addressed this concern in its response to Comment 60 in the Final Rule publication. In the response the PTO acknowledges the potential for abuse in ex parte reexamination proceedings and states that internal controls will be put in place to manage such situations. However, the Office was not willing to commit to a hard deadline for deciding such petitions.

Generally speaking, the Final Rules are largely the same as that originally proposed and are applicant/patentee friendly. Assuming proper implementation and oversight, the new rules are a very positive development.

Interestingly, in responding to a comment pointing out the value of the pre-appeal brief conference (Comment 87), the Office indicated that different “rule making initiative” is currently under consideration for that proceeding. As I pointed out some time ago in a guest post for IPWatchdog, a few slight revisions to this proceeding would be highly beneficial.

Historical Patent Reexamination Statistics Belie Modern Practices

When considering whether or not to stay a parallel litigation in view of a pending patent reexamination a district court will consider several factors. While delay is common to all stayed cases, the degree of delay caused by patent reexamination can be considered prejudicial. For this reason, especially when it comes to inter partes patent reexamination, the average length of the proceeding can be instructive to the Court.

Hoping to convince the Court of a prejudicial delay, Patentees will argue that inter partes patent reexamination takes on the order of 5-7 years to complete through appeal, citing those cases that have been fully contested through appeal. Defendants, on the other hand, will cite to published USPTO statistics that indicate inter partes patent reexamination pendency to be an average of 36 months, including appeal. (As pointed out previously, the 36 month statistic is skewed by the small number of completed inter partes patent reexaminations that have been fully contested through appeal).

However, regardless of the statistical theory advanced to the court, what neither theory considers is that historical statistics are weighed down by years of past USPTO practices. As one plaintiff found out recently, the USPTO has greatly streamlined the processing of inter partes patent reexamination relative to past practices.

In LG Electronics USA Inc. et al. v. Whirlpool Corp. et al. (DCNJ), the Court denied Whirlpool’s bid to stay the action last January pending inter partes patent reexamination of the patents in suit. The Court determined at the time that the reexaminations could very well take more than five years and the motion was denied without prejudice.

More recently, Whirlpool was successful in securing a six month stay. Thereafter, LG requested reconsideration. In considering the request, the Court noted:

[I]n its motion for reconsideration, LG insists that the Court was under a false impression that the reexaminations were moving quickly [when deciding to grant the six month stay] and that a final determination is imminent. LG would have the Court ignore what has actually taken place and substitute statistical evidence of the average pendency of inter partes reexamination. This argument is questionable at best. In its February 2011 opinion denying a stay of the case, the Court relied on a prediction that reexamination could take longer than five years. Specifically, in its January opposition brief, LG noted that the average pendency of inter partes reexamination was over 36 months, not including appeal.

In its opposition to the second motion to stay, and in its current brief to the Court, LG offers the same argument, namely that the entire reexamination process, including all appeals, is statistically likely to take as long as four years. Statistical evidence is clearly unconvincing in the face of an actual timeline. It became apparent that reexamination had proceeded much faster than expected, a fact the Court noted during the October 4, 2011 hearing. In particular, three of the four reexaminations have rendered actions closing prosecution and have issued right of appeal notices in under 12 months, far short of LG’s 36 month prediction.

(emphasis added) full decision here

It may be that the the Court was interpreting LG’s 36 month prediction to refer to the examination phase alone. (i.e., “not including appeal”).  Actually, the 36 month figure is published by the USPTO is the average time to NIRC. (so, it does include appeals, but these numbers are skewed as explained in the link above)

Still, statistical debates aside, the issuance of a RAN within 12 months is a significant improvement over past IPX time lines.

Crucial Funding Necessary to Implement America Invents Act

The “minibus” spending bill (H.R. 2112) passed by the House and Senate late Thursday was signed into law by President Obama last Friday. The bill temporarily solves USPTO’s funding problems through September 30, 2012 (end of fiscal year ‘012). The bill allocates at least $2.7 billion of fee collections in 2012, up from about $2.1 billion in 2011. The Office can spend only what it collects, but estimates suggest a $2.7 billion influx of fees for fiscal 2012.

With the need to reconfigure the Board of Patent Appeals & Interferences (BPAI) into the Patent Trial & Appeal Board (PTAB) including at least 100 new Administrative Patent Judges, the increased funding was an absolute necessity to implement the new mechanisms of the AIA.