Court Favors Staying Troll Suit

The existence of a competitive relationship between the litigants is often times an important consideration to district court judges considering a stay pending patent reexamination. When weighing the equities whether or not to grant a motion to stay the court action pending USPTO reexamination the trend has been to deny motions for direct competitors. This is because, when staying a litigation dispute between competitors, there is a danger that the delay could cause erosion of market share, customer loyalty, or other intangible business factors….not so with patent trolls.

Patent trolls, also known as “non-practicing entities” to some, do not compete with their infringement targets in the marketplace. Not surprisingly, courts have begun to emphasize the “troll” factor as favoring a stay of the litigation. As explained most recently in Mission Abstract LLC. v. Beasley Broadcast Group Inc. (DED),

Mission Abstract and Defendants are not direct competitors. In fact, Mission Abstract is a non-practicing entity, which does not manufacture or sell the products covered by the patents in suit and seeks to collect licensing fees. (D.I. 43 Ex. E) The relationship between the parties is “[ o ]f particular importance” because “[ c ]ourts are generally reluctant to stay proceedings where the parties are direct competitors.” Vehicle IP, LLC, 2010 WL 4823393, at *2. Because Mission Abstract is a non-practicing entity, this factor favors a stay.

(emphasis added, full order here)

Of course, the courts look to several factors in analyzing the competing interests between parties. Primarily, whether (1) a stay will unduly prejudice, or present a clear tactical disadvantage to, the non-moving party; whether (2) a stay will simplify the issues and trial of the case; and whether (3) discovery is complete and a trial date has been set. Still, in many jurisdictions, patent trolls already have one strike against them

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

business method patent

Business Method Patent Definition Keyed to Claim Scope?

The Transitional Program for Covered Business Method Patents, (TPCBMP) will be implemented by the UPSTO on September 16, 2012. The new post grant option essentially provides that any “covered business method patent” is eligible for Post Grant Review (PGR) independent of the standard limitations for initiating PGR (i.e., 9 month window, patent application filing date).

The legislation defines a “covered business method patent” in amorphous terms, as follows:

a patent that claims a method or corresponding apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or service, except that the term does not include patents for technological inventions.

It is left to the USPTO to interpret the practical scope of a “covered business method patent.” Not surprisingly, those that routinely obtain patents in this space, USPTO (Class 705), advocate a narrow interpretation. On the other hand, companies subject to e-commerce patent assertion campaigns hope that the definition will be keyed to claim breadth– embracing patents outside of the banking and financial services industry. Continue Reading Scope of Business Method Patent Challenge to be Decided by USPTO

Group 2 Comments on AIA Implementation Due to USPTO Tomorrow

As pointed out last week, the USPTO has been busy fashioning new rules to implement the various provisions of the Leahy-Smith America Invents Act (AIA). Comments on Group 2 Rules, which include Inter PartesReview & Post Grant, must be submitted by November 15th.

Last week, Cisco, Google, Verizon and Intuit submitted joint comments (here) directed solely to the implementation of post grant proceedings, namely, Inter PartesReview (IPR) and Post Grant Review (PGR). Not surprisingly, these tech giants (i.e., targets of serial patent infringement suits) are especially supportive of post grant mechanisms as an alternative to traditional litigation. The Group’s comments encourage the Office to adopt liberal standards for initiation of IPR and PGR, limit the potential estoppel affect of a concluded proceeding, and provide procedural flexibility for petitioners.

The Groups comments suggest that the new standards for inititiating IPR and PGR are not so different from the previous SNQ standard of inter partes patent reexamination, and should be set to be “relatively low” standards. The comments explain,

[I]t bears emphasis that the thresholds [for IPR and PGR]are just that: initial standards of review that merely determine whether a post-issuance review will be commenced, not whether the petition is ultimately meritorious. Thresholds that are too onerous will nip the new processes in the bud.

As a practical matter, the new thresholds should not necessarily produce a higher rejection rate than that which resulted under the “substantial new question” threshold for inter partes reexamination. Although some have described the new thresholds as “elevated,” the difference is one of kind and not of degree. Under the “substantial new question” inquiry, the PTO looked for the existence of a new question that had not previously been addressed by the Office. If “a patent or printed publication . . . present[ed] a new, non-cumulative technological teaching that was not previously considered and discussed on the record” during the initial examination, the petition met the threshold for review. The new thresholds focus on a different purpose—one of improving patent quality across the wide spectrum of issued patents. No longer is the identification of a new question the critical factor; rather, the focus is on whether review could improve patent quality by altering “at least 1 of the claims challenged in the petition” or by resolving “a novel or unsettled legal question that is important to other patents or patent applications.” Indeed, under this latter standard, no new question need be presented at all

(internal citations omitted)

Here, the Group seems to argue that although the old SNQ standard for inter partes patent reexamination is different in terminology and goal relative to the new standards for IPR and PGR, it is argued that the new standards are not necessarily higher hurdles. Perhaps a better way to look at the changed standard is that going forward, the PTO will review submissions from both sides before deciding to grant the petitioner’s request. So, while the tests for IPR and PGR are couched in different terms, the hurdles presented need not be higher per se — the records will just be more developed.

With respect to the “real party in interest” and “privy” aspects of the IPR and PGR estoppel statutes, the Group suggests that the PTO follow the control test. In this regard, the Group proposes the following definitions:

Real party in interest means an entity who controlled the filing of the petition for post-grant review or inter partes review, provided the entity is eligible to file a petition for post-grant review under 35 U.S.C. § 321(a) or inter partes review under 35 U.S.C. § 311(a). Mere contribution of funds or advice regarding the petition is not sufficient to become a real party in interest, nor is mere connection to the petitioner through mutual membership in a joint defense group or other association.

Privy of the petitioner means an entity who assumed control of the post-grant review or inter partes review by unilaterally making the petitioner’s strategic decisions, including which prior art to submit, what legal theories to advance, and whether to seek further review. Mere contribution of funds or advice is not sufficient to become a privy of the petitioner, nor is mere connection to the petitioner through mutual membership in a joint defense group or other association.

The Group seems concerned with the new language of § 315(2) that extends estoppel beyond that of the third party requester. The current version of 315 (applied to inter partes patent reexamination) attaches to “requesters” only and does not extend to privies. Contrast that with the new statute language of petitioner. . . or real party in interest or privy of the petitioner.

Finally, the Group comments on a host of provisions relating to discovery, amendment and petition options. These comments and more can be found (here).

Patent Bar Required or Not?

The USPTO continues to work to fashion rules to implement the new post grant proceedings of the Leahy-Smith America Invents Act (AIA). One can only speculate that the new “trial” like, post grant proceedings of the AIA will be closely modeled on the procedures of existing patent interference practice. This is because the USPTO, aside from patent interference, has limited experience in presiding over the types of contested proceedings contemplated by Inter Partes Review (IPR) and Post Grant Review (PGR).

In patent interferences, the Trial Division of the existing Board of Patent Appeals & Interferences (BPAI) conducts proceedings based upon a Standing Order. Patent interference requires an in depth knowledge of a difficult and relatively obscure aspect of patent law. As such, the attorneys who conduct these proceedings are seldom general litigators, but almost always registered patent attorneys with substantial experience in handling interferences–i.e., members of “the interference bar.”  However, such is not required.

As explained in the Contested Case Practice Guide, § 41.5 Counsel, [t]he Board may authorize a person other than a registered practitioner to appear as counsel in a specific proceeding. But the practice note of the same section of the Guide emphasizes that [c]ontested cases can be technically, legally, and procedurally complex. Consequently, a motion to appear pro hac vice will rarely be granted unless the counsel is an experienced litigating attorney and has an established familiarity with the subject matter at issue in the contested case. (emphasis added) See, e.g., Howell v. Lentz, 83 USPQ2d 1381 (PTOBPAI 2006), discussed in Gholz, A Critique of Recent Opinions in Patent Interferences, 90 JPTOS 9, 20-21 (2008).

So, although it is rarely utilized, pro hac vice practice does exist in patent interferences.

Will this procedural nuance be adopted by the the new Patent Trial & Appeal Board (PTAB) for the umbrella rule set contemplated for PGR and IPR proceedings

While patent interference may serve as a baseline model with respect to IPR and PGR procedural rule makers, the substantive issues of a patent interference trial relating to priority are quite different from the traditional prosecution based mechanisms of IPR and PGR. These differences must be taken in consideration.

Most interferences are terminated during or at the end of the first phase, which usually involves only issues of patentability, including patentability over the prior art available against each party and claim and count scope–including the correspondence of or non-correspondence of the parties’ claims (including claims that the parties seek to add to their cases in interference in order to get around their respective patentability problems) to the count or counts of the interference.

Rarely, an interference proceeds to the second phase, which usually involves issues of priority, derivation, and inventorship.  The focus of the second phase is not patentability of the parties’ claims.

Both IPR and PGR will include substantive amendment opportunities and prior art analysis that are the hallmark of prosecution practice before the USPTO, and will be the very same issues tried by the PTAB fact finders. Of course, the very same practice when before the examining corps of the USPTO requires a registered patent agent or attorney.

It is true that both IPR and PGR (like interferences) will have limited discovery, and other ancillary litigation style mechanisms. Yet, the layering of litigation style mechanisms onto a prosecution foundation would still seem to warrant the USPTO registration requirement historically required to pursue such patentability determinations before the agency.

Group 2 Rule Making Effort in Final Stages

Since the enactment of the Leahy-Smith America Invents Act (AIA), and even before, the USPTO has been busy fashioning new rules to implement the various provisions of the legislation. The USPTO has been aggressively seeking public comment prior to publishing the proposed new rule notices due to the significant amount of changes introduced by the legislation and the short time time frame.

The Office has grouped the various rule packages. Group 1 related to rules that needed to be provided immediately. Group 2 is directed to provisions that will become available 12 months after enactment. These proposed rules are expected to be introduced in late December or early January. The topics covered by Group 2 are as follows:

Group 2 Rulemakings
Subject of Rule Making Section of the AIA
1 Inventor’s oath / declaration 4
2 Third party submission of prior art for a patent application 8
3 Supplemental examination 12
4 Citation of prior art in a patent file 6
5 Umbrella set of rules for contested case procedure N/A
6 Inter partes review 6
7 Post grant review 6
8 Transitional program for covered business methods 18
9 Definition of technological invention 18
10 Derivation proceeding 3

The USPTO is hoping to receive comments on the Group 2 topics by November 15, 2011 (and actually preferred comments be submitted by yesterday). All of the major bar associations are actively collecting comments for submission. Attached is a helpful survey of the various issues relating to the post grant provisions put together by the IPO inter partes practice committee (here).

Comments are welcome.

Proper Petition Practice Especially Critical in Patent Reexamination

In most cases, the distinction between appealable vs. petitionable issues at the USPTO is quite clear. For example, if you believe that a patent examiner has prematurely entered a final rejection, the appropriate avenue for relief is by way of petition. Indeed, the MPEP states such explicitly. MPEP 706.07(c). Yet, not all examination/reexamination disputes are so clear cut. (See earlier discussion on ex parte SNQ review process here)

The distinction between appealable vs. petitionable disputes is especially critical in post grant proceedings such as patent reexamination. This is because failure to appreciate the distinction between the two could potentially forfeit substantive patent rights.

Petitionable issues cannot be appealed to the Board of Patent Appeals and Interferences (BPAI). In other words, a failure to recognize petitionable issues, as they occur, can result in an inability to address them before the Office.

In deciding whether an issue is petitionable vs. appealable, the predecessor court of the CAFC explained, [t]here are a host of various kinds of decisions an examiner makes in the examination proceeding – mostly matters of a discretionary, procedural or non-substantive nature – which have not been and are not now appealable to the board or to this court when they are not directly connected with the merits of issues involving rejections of claims, but traditionally have been settled by petition to the Commissioner. In re Hengehold,440 F.2d 1395, 1403 (CCPA 1971).

Disputes that are “directly connected with the merits of the issues involving rejections of the claims” often times relate to matters of claim language and claim interpretation. Disputes over such matters are common in both application prosecution and patent reexamination. Whether or not these issues are appealable vs. petitionable can be especially confusing.

For example, this week in Ex Parte Taymac Corp. (2011-010682) the Board considered a question relating to a 112 rejection of new claims presented during patent reexamination. During a patent reexamination of U.S. Patent 5,763,831, the examiner rejected the new claims 44-47 as lacking written description support. The Patentee countered that the claim language rejected by the examiner was also found in the original claims, and that MPEP 2258 forbids such a rejection in patent reexamination.

In relevant part, MPEP 2258 provides:

Where new claims are presented or where any part of the disclosure is amended, the claims of the reexamination proceeding, are to be examined for compliance with 35 U.S.C. 112. Consideration of 35 U.S.C. 112 issues should, however, be limited to the amendatory (e.g., new language) matter. For example, a claim which is amended or a new claim which is presented containing a limitation not found in the original patent claim should be considered for compliance under 35 U.S.C. 112 only with respect to that limitation. To go further would be inconsistent with the statute to the extent that 35 U.S.C. 112 issues would be raised as to matter in the original patent claim.  . . If a limitation that appears in an existing patent claim also appears in a claim newly presented in a reexamination proceeding, that limitation cannot be examined as to 35 U.S.C. 112.

(emphasis added)

In addressing the Patentee’s argument, the Board explained that it need not consider the issue since it was a petitionable matter, citing 37 C.F.R. § 41.31(c). Nevertheless, the Board reversed the examiner rejection finding that support did in fact exist.

While ultimately the Board reversed the rejection, a 112 rejection that runs afoul of 35 U.S.C. § 301 seems to be more of a substantive rather than procedural issue. The fact that the MPEP describes a procedure/policy for handling such § 112 rejections, for consistency with the patent reexamination statute (35 U.S.C. § 301), would not seem to render the ultimate issue a procedural/petitionable matter.

Had the Board not found support for the claims on appeal, the Patentee would have been well past the time to petition the examiner’s decision under 37 C.F.R. § 1.181 (outside the two month window). While a later petition under 37 C.F.R. § 1.183 is possible, such relief requires extraordinary circumstances.

Clearly, Patentees and participating Third Party Requesters (IPX) need to closely consider such issues to avoid losing the opportunity for USPTO review.

Parallel Litigation Stayed in View of “Tremendous” Reexamination Claim Count

When faced with the assertion of a patent of dubious validity, prospective defendants increasingly resort to patent patent reexamination. Patent reexamination can be a cost effective mechanism to dissolve the dispute, or at the very least, shift some leverage to the prospective defendant relative to willfulness, intervening rights, claim construction, etc.

Once a suit is filed, the opportunity to obtain a stay of an ongoing district court infringement action pending a parallel patent reexamination is a major benefit of the USPTO proceeding. Courts have the inherent power to manage their dockets, including the authority to stay patent infringement litigation pending the conclusion of a USPTO patent reexamination. A stay of the court proceeding enables defendants to halt, or altogether avoid cost prohibitive litigation discovery, which can be rather lengthy and painful.

For this reason, patent reexamination parallel to a district court is often initiated in an attempt to stay the more cost prohibitive court proceeding. In deciding whether or not to stay the court proceeding the courts look to many factors. (See factor based analysis here) Perceptions as to whether or not a stay is warranted will vary significantly, even though the same analysis is performed by each judge/court.  Attitudes vary across courts (ITC v. EDTX, v NDCA), even amongst judges of the same court.

Often times, the conduct of the litigating parties can be another factor impacting the court’s analysis.

Recently, in Dura Global Technologies LLC. et. al., v. Magna International Inc. et al. (EDMI), the court considered staying an ongoing litigation between the parties based on a pending ex parte patent reexamination of the patent at issue (U.S. Patent 6,766,617). In considering the factors, the court noted the unusual claim additions made during the ongoing USPTO proceeding:

After considering the parties’ arguments and the facts of this case, the Court finds that staying this case will simplify the issues and allow the Court to handle this case more efficiently. Dura has added a tremendous number of new claims to the ‘617 Patent and over 500 claims remain at issue in the reexamination. It makes sense for the USPTO to determine the patentability and final language of these claims before the parties continue with the case. Many of these claims could be amended or canceled during the reexamination proceeding. While the Court’s current Scheduling Order provides that claim construction will not begin until the results of the reexamination are reasonably known (i.e., the USPTO issues a “notice of allowance”), the parties would still have to expend money conducting discovery when the claims in the patent are not yet final.

(emphasis added)

Interestingly, the new Inter Partes Patent Review statute attempts to address this issue by providing that an amendment may be introduced to propose “a reasonable number of substitute claims”, which would seem far less than 500.

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

Halloween Webinar to Discuss AIA Implementation Plans & Progress

Next Monday, the USPTO will host a free public webinar at 1PM to discuss the America Invents Act (AIA). USPTO participants in the webinar will outline the agency’s implementation plans, and answer a selection of questions submitted during the session. Questions should be submitted in advance to aia_townhallquestions@uspto.gov.

Scheduled to speak during the webinar are:

David Kappos, Under Secretary of Commerce for Intellectual Property and Director of the USPTO
Teresa Stanek Rea, Deputy Under Secretary of Commerce for Intellectual Property and Deputy Director of the USPTO
Robert L. Stoll, Commissioner for Patents
Bernard Knight, USPTO General Counsel
James D. Smith, BPAI Chief Administrative Patent Judge

Webcast viewing instructions may be found (here) 

Failed Inter Partes Patent Reexamination Challenges to be Resurrected?

When Congress provided for inter partes patent reexamination (IPX) in the 1999 American Inventors Protection Act, estoppel provisions were fashioned to prevent abuse of the new, post grant mechanism.

The IPX estoppel provisions are codified as 35 U.S.C. § 315 (c) and § 317 (b). Section 315(c) prevents a requester in IPX from pursuing failed arguments in a district court, correspondingly, 317 (b) prevents a requester that has failed to prove invalidity in an IPX, or at the district court from requesting a second IPX on any issue that was raised or could have been raised in the failed proceeding.

Interestingly, 317 (b) precludes a second IPX (outside of very limited circumstances, “newly discovered” art.). Yet, with IPX being replaced by Inter Partes Review (IPR) in less than a year, have failed IPX challengers been given an unexpected reprieve from the estoppel impact of 317(b)? That is to say, is there anything stopping a request for IPR by a challenger that has previously failed to prove invalidity in IPX?

The answer to this question will depend on whether or not the Requester is involved in a parallel litigation.

Inter Partes Review as currently written in the pending legislation, includes 35 U.S.C. § 315. Section 315(b) is entitled “Patent Owner’s Action,” and provides as follows:

An inter partes review may not be instituted if the petition requesting the proceeding is filed more than 1 year after the date on which the petitioner, real party in interest, or privy of the petitioner is served with a complaint alleging infringement of the patent.

(emphasis added)

Clearly, an IPR would be barred by an IPX requester that has been involved in a lawsuit for longer than 12 months. As most IPX filings are related to a parallel litigation, and a final decision in IPX spans several years, there is a practical estoppel effect.

However, what about a failed IPX challenge that does not have associated litigation?

317 (b) is quite specific in precluding a second IPX, which makes sense as when it was written there were no other forms of inter partes challenges at the USPTO for challenging validity. The USPTO has also refused to extend this provision to other office proceedings in the past (See Sony v. Dudas). For example, the USPTO will allow a second ex parte patent reexamination request by an earlier IPX Requester even though such appears to violate the spirit of the estoppel concept.

Likewise, the aspect of the new Inter Partes Review statute that applies to USPTO proceedings is as follows:

315 (e) Estoppel

(1) PROCEEDINGS BEFORE THE OFFICE- The petitioner in an inter partes review of a claim in a patent under this chapter that results in a final written decision under section 318(a), or the real party in interest or privy of the petitioner, may not request or maintain a proceeding before the Office with respect to that claim on any ground that the petitioner raised or reasonably could have raised during that inter partes review.

(emphasis added)

Come September 16, 2012, it may be that certain failed IPX challengers take advantage of the opportunity to get a second bite at the apple.

District Court Stay Pending Patent Reexamination By-passed Via ITC

The initiation of patent reexamination parallel to a district court patent infringement proceeding has become quite routine over the past few years. The use of such a parallel reexamination proceeding offers many benefits to defendants, such as helping prove objectively reasonable behavior to avoid a finding of willful infringement, creating a further prosecution history estoppel/disclaimer record for Markman purposes, establishing an intervening rights defense, or demonstrating materiality of a reference underlying an inequitable conduct defense. Yet, one of the most common defendant uses of a parallel patent reexamination is the ability to shut down a district court proceeding altogether in favor of USPTO reexamination proceedings.

Stays pending patent reexamination are granted quite routinely, albeit inconsistently. Depending upon the court, a case may be stayed based upon the mere filing of a request for reexamination, or upon grant even though such requests are granted in roughly 95% of cases. Likewise, once a case is stayed, serial requests for patent reexamination, if tolerated by the judge, can ensure that the validity case remains with the USPTO indefinitely.

So, for those plaintiffs subject to a stay that are being damaged by continued infringement, aside from battling the a continuous stream of patent reexaminations requests for years on end, is there a way to resume the litigation battle without waiting for the reexamination(s) to end?

If you fail to get through to a particular district court judge that decides to stay your case, have you considered going around him? The “ITC end-around” has been used several times over the past year, most recently by Westinghouse Solar.

Westinghouse sued Zep Solar in a U.S. District Court for infringement of U.S. Patents Nos. 7,406,800 and 7,987,641.

In defending the suit, Zep filed a request for patent reexamination of the ‘800 Patent. The USPTO granted the request for reexamination and promptly stayed the case pending the outcome. In the reexamination, the USPTO canceled claims 1-4, 7-9, 11 and 12 of the ‘800 patent. Thereafter, Zep filed a second reexamination directed to the remaining three claims. The second reexamination is ongoing. Reexamination of the ‘641 Patent is also ongoing.

Westinghouse moved to lift the stay but the court denied the motion pending results of the second reexamination. At that point Westinghouse opted for the ITC end-around.

The tactic is simply to take the same dispute to the ITC, where stays pending patent reexamination just don’t happen, and where a stayed district court proceeding of the same dispute is the norm. To date, the ITC mandate to expeditiously adjudicate 337 actions has led to relatively few stays pending reexamination. In some cases, stays have been entered and later reversed by the full Commission. (See Tessera Decision here).

With stays becoming commonplace, and new, speedier post grant proceedings making such decisions even easier for district court judges, patent disputes are expected to continue to migrate away from district courts to the ITC.