Preliminary Responses Accompanied by Declaration Evidence: Updated Results

Back on May 1st of 2016, the Patent Trial & Appeal Board (PTAB) began to accept new testimonial evidence with patentee preliminary responses.  The PTAB implemented this change to address complaints of patentees who claimed they were disadvantaged by previous rules precluding such new evidence from accompanying a preliminary response. It was argued that the previous rules were especially imbalanced as almost all petitions were accompanied by petitioner declaration evidence, and that absent evidence in kind from patentees, institution was unavoidable.  I had my doubts as to whether this new mechanism would be the boon that patentees had hoped.

Now a year removed, some updated results.

To date, the ability to introduce new evidence during the preliminary proceeding seems to have provided only marginal relief for patentees.

In the below chart the start date of August 15th was chosen to capture those Institution Decisions having preliminary responses due on or after May 15th 2016. In this 9 month window of Board decisions, roughly 30% of filers availed themselves of the new option (this is a slight drop from the initial percentage of 38% I found initially, last fall.)  Of those 276 patent owners availing themselves of the new rule, 53% of the Institution Decisions failed to mention the new evidence at all. And, notably, only 12% of the Institution Decisions relied on the testimonial evidence to deny institution.

In 95 of the Institution Decisions, charted below in orange, the Board considered the evidence when assessing a factual dispute between the parties (likely disputing petitioner declaration evidence, the dispute construed in favor of petitioner for institution purposes). The new evidence was cited as supporting the Board’s Decision not to institute an IPR in only 34 of a possible 276 decisions (charted in red). Of course, it is hard to gauge the value of these submissions in the 147 decisions which did not reference the evidence. For example, although unreferenced, the evidence may have nevertheless reinforced a Board determination one way or the other.

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As can be seen in the further chart below, the most effective testimonial submissions during the preliminary proceeding are directed to the technology itself. That is, either explaining a missing claim feature from the perspective of one skilled in the art (59% of cases), or undermining the proffered obvious rationale of the petitioner (39% of cases).

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While the data is still modest, clear trends are emerging as to efficacy.  That said, it appears these spotty results still militate in favor of continued caution for patentees.

Focus of CBM Standing Analysis: Claim Language

Yesterday, the Federal Circuit denied en banc review in Secure Axcess LLC v. PNC Bank National Assoc., et al.  The rehearing request sought a full court review of America Invents Act (AIA) Sec. 18’s definition of a “business method patent.” This same issue was denied en banc review in April of this year in Google v. Unwired Planet. As in that decision, the dissents from denial raised the appeal bar debate now awaiting decision in WiFi One.

In Secure Axcess (here) the majority asserted that the claim based analysis of Unwired Planet was sound statutory construction and provided a manageable resolution to the issue.  The dissent focused on the “used in practice” component of Sec. 18(d)(1) to argue that the context of the infringement assertion, such as banking defendants was more in the spirit of the legislation.  The majority explained the unmanageability of this “used in fact test:

[T]he dissent’s effort to confine the scope of the CBM program to the intended “business method patents” boundary is also intrinsically indeterminate to an unacceptable
degree. What record of lawsuits should count? What happens when more suits are brought? What mention of banking or other particular applications in the specification should count—short of having a claim narrowing effect?

Of perhaps greater interest was some of the dissenting commentary on appeal bar issues.  Judges Dyk, joined by judges Wallach and Hughes explained:

In my view, Versata wrongly held that the appeal bar does not apply to the question of whether the Board correctly determined that a patent is CBM-eligible because it involves a “financial product or service.” Such reviews are inconsistent with the statute as interpreted in Cuozzo Speed Technologies, LLC v. Lee, 136 S. Ct. 2131 (2016), which held that the appeal bar in Section 314(d), identical to the appeal bar here, precludes review.
                                                                .        .         .         .          .
Because the “Director may institute a [CBM] proceeding only for a patent that is a covered business method patent,” AIA § 18(a)(1)(E) (emphasis added), determining what is a CBM is not only “closely tied” to the institution decision, but is expressly part of the institution decision itself. Indeed, it would be difficult to see how the CBM review program, as a five-part statute—where the requirement for institution is discussed in Section (a) and the definition for what is a CBM is discussed in Section (d)—can be read as separating the institution decision from the definition of what is a covered business method patent. The two are not just “closely tied,” but are inextricably intertwined.

My post-Cuozzo read was the same as to this point. The Cuozzo language appears to suggest a different outcome for Versata.

The Federal Circuit continues to struggle with the Cuozzo “shenanigans” guidance as to when the 314(d) appeal bar may be excused.

The problem with the “shenanigans” guidepost is that it is more a characterization of a degree of conduct as opposed to specific acts or classification that the Federal Circuit can apply in practice. The lone example given in Cuozzo is the PTAB moving forward on a 112 ground in an IPR; we can all agree that would be an arbitrary and unreasonable departure from the governing statutes/rules. But, in terms of classification guidance, where does that example fall, really?  Jurisdictional?…acting outside statutory limits?  It cannot be the latter as a violation of 312(a)(3) was barred from appeal in Cuozzo.

WiFi One will take another shot at this issue in the months ahead. Given the mixed perspectives in Secure Axcess, and likely WiFi One, I suspect the Supreme Court will see another round of PTAB shenanigans headed its way.

Unified Patents’ Offers First Quantitative Study of TC Heartland Impact

Since TC Heartland v. LLC D/B/A Heartland Food Products Group V. Kraft Foods Group Brands LLC. made clear that patent venue is not coextensive with personal jurisdiction, debate has swirled as to the impact of this case on the Eastern District of Texas (EDTX).  Of course, the focus is properly on the EDTX as it is the district that effectively broke the system, as I and others made clear to the Supreme Court (Unified Patents amicus). But, little if any of the recent speculation has looked at hard numbers, until now.

A study authored by Unified Patents presents the first glimpse at the coming landscape. The text that follows is authored by Unified Patents.

Summary

TC Heartland stands poised to dramatically alter where patent cases are brought.  But few of the many voices interpreting the decision have used qualitative means to predict how filing patterns may shift and what impact the decision may have on patent law in general.  To remedy this, we combined data on patent filings in 2015 from Professors Colleen Chien & Michael Risch’s prior estimates of what impact a stricter venue ruling in TC Heartland would have on district court filings.  Doing so, we predict that post-TC Heartland might result in following for all of 2017:

●     A 69% decrease in filings (or almost 1000 fewer new cases) in the Eastern District of Texas (ED Texas). This would still make ED Texas the second-most popular venue.

●     A 230% increase in filings (or almost 500 additional new cases) in the District of Delaware (DED) will make it the largest. This may cause issues, given that two of the District’s four full-time seats are vacant.  (Here)

●     A nearly 300% increase in cases (or almost 300 additional new cases) for the Northern District of California (ND Cal), surpassing Central District of California (CD Cal)

●     Sizable increases for Northern District of Texas (ND Tex) and Southern District of New York (SD NY).

●     Relatively minor increases in most other districts, generally based on the location of corporate HQs.

Background

For almost 30 years, the Federal Circuit has taken a broad view of venue in patent cases, allowing patent holders to bring suit in virtually any Federal District court nationwide.   NPEs have taken advantage of these rulings to file suit in venues where they benefit from early trial dates, broad discovery requirements, a history of large jury verdicts, and other factors that pressure accused infringers to settle quickly.   ED Texas, by far the most popular venue in recent years, is a rural district where few tech companies have any physical presence.  Yet it has played host to thousands of patent suits, with more than 25% of all cases in the nation assigned to a single judge sitting in tiny Marshall, Texas.  In that district, more than 90% of all patent litigation is brought by NPEs.  This has forced many small entities to pay high settlement fees, in order to avoid the significant cost and uncertainty of litigation in a far-flung venue—even when the patents may be invalid.

TC Heartland Decision

In TC Heartland LLC v. Kraft Food Group Brands LLC, Slip Op. 16-341, (May 22, 2017)  the Supreme Court unanimously held that—for purposes of establishing “residency” for venue in patent cases—domestic corporations are only residents in the State in which they are incorporated. This decision marks a major milestone in the battle against NPE litigation, and reverses a decades-old decision by the Federal Circuit that opened the floodgates for thousands of NPE filings in “patent-friendly” venues—most notably, the ED Texas.  Of note, the Supreme Court largely agreed with an amicus curiae brief filed by Unified Patents.

Pre-TC Heartland—Projected 2017 Patent Litigation Venue and Volume

The two charts below project what the 2017 distribution of patent suits might have looked like without the TC Heartland decision.  We calculated this distribution by (1) measuring the percent difference between actual volume of NPE and operating company patent litigation for Q1 2015 and Q1 2017 for each venue and then (2) applying that percent change to calculate the total anticipated patent litigation for 2017 based on 2015’s venue and volume. As you can see, we projected more than 3560 cases in total (including 60.2% NPE cases); more than half of those cases would have likely been filed in ED Tex.
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Post-TC Heartland—Projected 2017 Patent Litigation Venue and Volume

In contrast, the two charts below project 2017 patent suits in view of TC Heartland. These post-TC Heartland projections were generated using the anticipated volume of litigation for all of 2017 combined with Professors Colleen Chien and Michael Risch’s research in Recalibrating Patent Venue, 77 Maryland Law Review (forthcoming 2018). In the study, Professors Chien and Risch measured the percentage of NPE and operating company litigation for each of the above-referenced venues in 2015 and estimated the change in those percentages if the Supreme Court reversed the Federal Circuit in TC Heartland.  Using that analysis of in change of venue, the figures below show the estimated 2017 litigation.  (The analysis assumes total volume of litigation would not change because of the decision.)

As you can see, there are approximately 1,000 fewer projected cases (a 69% decrease) for ED Texas and the distribution of cases is more evenly spread around the country.

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USPTO HeadQuarters to Host Half-Day PTAB Trial Conference

As the Patent Trial & Appeal Board (PTAB) has previously announced, it will host a half-day Judicial Conference on June 29, 2017 from 1-5PM.  The conference will be held in the Madison Auditorium.  While an agenda is yet to be released, the agency describes the planned conference as:

[A]n excellent opportunity to learn about PTAB, including practice tips from multiple judges and practitioners, as well as practical insights on the latest PTAB developments. The conference is free of charge and you may attend in-person or by webinar. No registration is required. For those who attend in-person, an informal reception will be held after the conference, offering an opportunity to chat and mingle with PTAB judges and other attendees.

Hope to see you there.

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Webinar to Cover Flurry of CAFC Developments & SAS Cert.

Tomorrow, May 25, 2017, I will present a webinar for Strafford Legal on: Evolving PTAB Trial Practice: Navigating Complex Procedural Rules (live webinar: 1:00PM-2:30PM EDT)
The program will cover a number of important topics, not the least of which is the expected impact of pending en banc decisions of the Federal Circuit as well as the potential impact of the SAS debate now at the Supreme Court.

On June 15th, I, along with my partner Alex Hadjis will present the free PatentsPostGrant.com webinar entitled: ITC as a PTAB Antidote : Navigating Competing Administrative Trial Strategies & Pitfalls (live webinar:1:00pm-2:30pm EDT) (register here)

I hope to hear from you at one of these upcoming events.

Recent Decision out of EDTX First to Get PTAB Estoppel Provision Correct

IPR estoppel is established under 35 U.S.C. § 315(e)(2), which provides that “the petitioner in an inter partes review of a claim in a patent . . . that results in a final written decision . . . may not assert . . . in a civil action . . . that the claim is invalid on any ground that the petitioner raised or reasonably could have raised during that inter partes review.” (emphasis added).

As previously discussed, IPR estoppel has been unnecessarily complicated by the PTAB’s redundancy practice as discussed in Shaw Industries Group, Inc. v. Automated Creel Systems, Inc., 817 F.3d 1293 (Fed. Cir. 2016

For example, the district court in Intellectual Ventures I LLC v. Toshiba Corp., Civ. No. 13-453, explained that, based on Shaw, it was necessary to interpret the scope of estoppel very narrowly, only applying estoppel to prior art or publications actually instituted in the IPR.  As this decision contradicts the plain language of the estoppel statute, it has been heavily criticized as too literal a reading of Shaw.  More recently, several other district courts have taken a more expansive view of Shaw.  But, in my opinion the first district to actually get it right, is, surprisingly, this week’s venue whipping boy— the Eastern District of Texas (EDTX).

In Biscotti Inv. V. Microsoft Corp., Civ. No. 13-01015 (E.D. Tex.) (here) decided to hold Shaw to its unique facts and apply 315(e)(2) estoppel in a sensible way, more in keeping with its legislative intent.

After Biscotti filed suit, Microsoft filed three IPR petitions that were instituted, and ultimately resulted in the PTAB upholding the patentability of all claims. Three later petitions were denied as time-barred. In the district court litigation, Biscotti filed for summary judgment, arguing that Microsoft should be estopped from presenting the same or similar invalidity defenses at trial as were presented at the PTAB.

Magistrate Judge Payne began by noting that the legislative history of IPR estoppel suggests that IPR was intended to completely substitute for invalidity challenges based on patents and printed publications during the civil litigation. (Slip op. at 8.) The judge contrasted this legislative intent with Shaw and noted another recent CAFC case, HP Inc. v. MPHJ Tech. Inv., LLC, holding that non-instituted grounds are not subject to estoppel. (Id. at 9.)

Judge Payne  held that Shaw and HP can be read either broadly or narrowly. The broad interpretation suggests that any ground not raised during the IPR, regardless of whether that ground was included in the petition, is exempt from estoppel. (Id.) The narrow interpretation is that only grounds raised in a petition but not instituted for some procedural reason are exempt from estoppel. (Id. at 11.) Judge Payne noted that the narrow interpretation would be consistent with the purpose and legislative history of the AIA, and also consistent with the precise scenarios analysed in Shaw and HP.

Accordingly, the judge adopted the narrow view of Shaw and HP, holding that Microsoft is estopped from asserting at trial:
1) Grounds for which the PTAB instituted IPR and determined to be insufficient to establish unpatentability after a trial on the merits;
2) Grounds included in the petition but determined by the PTAB to not establish a reasonable likelihood of unpatentability;
3) Grounds not included in the petition that a skilled searcher conducting a diligent search reasonably could have been expected to discover; and
4) Any subsets of invalidity grounds that Microsoft raised or could have raised during the IPR.
(Id. at 13-14.)

And there you have it, the EDTX being the voice of reason on PTAB estoppel.

“All or Nothing” PTAB Institution Practice Coming Soon?

Today, the Supreme Court granted certiorari in SAS Institute Inc., v. ComplemenSoft LLC.   As previously explained, 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 likely unpatentable, the PTAB should institute trial for all petitioned claims.

The dispute stems from an IPR filing of SAS in which it challenged all sixteen claims of ComplementSoft’s 7,110,936 patent.  Trial was instituted for claims 1 and 3-10, but claims 2 and 11-16 were denied institution.  On appeal to the Federal Circuit, SAS argued that it was inefficient to institute on only a subset of claims, and that the controlling rule authorizing partial institution (37 C.F.R. § 42.108(a) was in direct conflict with statutes 35 U.S.C. §§ 314(a)/318(a).  The Federal Circuit disagreed.

Basically, SAS is seeking an end-run around the 314(d) appeal bar.  In other words, had the PTAB simply moved forward with trial on all claims, SAS would have been able to appeal any unfavorable decision on claims 2 and 11-16 (presumably would have been found not unpatentable at the close of trial) as part of its appeal from the Final Written Decision (FWD).  As it currently stands, 314(d) prevents the appeal of claims 2 and 11-16 since they were denied institution.

Setting aside for another day the academic debate on the merits, should the high court accept SAS’s argument, Patentees will be significantly prejudiced.

First, partial institutions are of significant value to patentees.  Frequently, stays of concurrent litigation are avoided since “simplification of issues for trial,” a factor in such determinations, is effectively mooted when it is clear the trial will need to go forward as to at least non-instituted claims.  As between the two options, Patentees, even if later winning on some claims at FWD, will not want their litigation efforts needlessly stalled for an 18 month PTAB proceeding (trial + preliminary proceeding).  Likewise, it would seem unlikely that courts would be interested in lifting a stay during the pendency of an appeal covering all challenged (and presumably litigated) claims.  This would significantly undermine settlement opportunities and unnecessarily expand legal spend, and needlessly expand prosecution history for claims that would have otherwise avoided trial under the current trial framework.

Second, patentees have only recently secured the right to submit new testimonial evidence to avoid institution.  Should the all or nothing institution model become reality, there would be even less of an appetite to submit this testimony.  As it stands now, there is value in such submissions since avoiding trial on even a subset of claims is, as noted above, of significant value.  If Patentees now have to defeat every claim to avoid trial, they are better off keeping their evidence and arguments for trial. In my experience the submission of early evidence fosters settlement.

Third, if the PTAB need only find a single claim of a challenged set susceptible to unpatentability the quality of institution decisions will significantly degrade.  For example, as institution would likely analyze the broadest claim, meaningful discussions of narrower claim terms wouldn’t even need to be included in the decision.  Likewise, it is human nature that institution will become far more attractive from the agency perspective (or so it will be argued).  This is because it is far easier to author an opinion to institute on a single claim as opposed to authoring a denial that would need to address every claim.   As it stands, institution decisions offer a great deal of guidance to the parties, and also help facilitate settlements.  The loss of quality institution decision would be a loss for both sides.

To the extent there is any benefit to an “all or nothing” system it would be the simplification of estoppel determinations.  With no partial institutions or redundancy issues to deal with, district courts may have an easier time grappling with the scope of statutory estoppel.  But, having advocated for this benefit previously, I am now convinced it is not worth the significant drawbacks noted above.

There will certainly be a significant amount of amicus briefing on this issue in the months ahead. Stay tuned.

Public vs. Private Rights: Another PTAB Distraction

We all remember the “Great BRI Debate” that was Cuozzo Speed Techs., LLC v. Lee, 136 S. Ct. 2131, 2143–44 (2016). PTAB critics argued that the Board’s “broadest” claim construction rubric was unfairly stretching claims to embrace prior art — resulting in inevitable invalidity determinations. And that since the PTAB was now in the business of litigation, they must follow litigation claim construction practices deemed more favorable to patent holders (especially since the PTAB amendment process, the justification for BRI, was argued as illusory).

In reality, the difference between BRI and the district court Philips practices is the label used to reference each. Both constructions apply the ordinary and customary meaning of a claim term at the time of the invention from the perspective of one of skill in the art. The difference in outcomes is a simple reflection of expert agency’s technical insight, not a meaningful difference in claim construction frameworks. For this reason, and many others, Cuozzo failed.

Attempts to derail PTAB trial proceedings still persist some 5 years into its life. These attempts now include recycling failed constitutional arguments against Article I adjudication practices.

Over the years the constitutionality of USPTO post-grant procedures have been repeatedly challenged. Typically, it is argued that the 7th Amendment’s guarantee to a jury trial is inconsistent with Article I adjudication. Most recently, the Supreme Court denied certiorari in two cases challenging the constitutionality of PTAB trial proceedings. MCM Portfolio LLC v. Hewlett-Packard Co. et al., and Cooper et al. v Lee et al.  These cases largely presented the same constitutional challenge as that lodged against the USPTO’s patent reexamination system in the 1980s, in Patlex Corp. v. Mossinghoff, 758 F.2d 594 (Fed. Cir. 1985).  That is, as a private property right, a patent may not be adjudicated by an Article I Court without violating the 7th amendment.  As explained by the Federal Circuit in MCM, patent validity is found to fall within the “public rights exception,” permitting adjudication before non-Article III tribunals.

The debate as to whether a patent is purely a private right or public right has continued. Last week en banc review of the MCM was denied (here) in Cascades Projection v. Epson and Sony, but a pending petition for certiorari in Oil States Energy Services v. Greene’s Energy Group also remains (gov’t brief here).

While it seems clear that neither the Federal Circuit nor the Supreme Court are the least bit uncomfortable with Article I adjudication of patent rights — as practiced for decades at both the ITC and USPTO— the academic distraction of whether a patent is truly a private right, or something in between private and public rights, remains.

Today’s debate centers around a 19th century Supreme Court decision, McCormick Harvesting Mach. Co. v. Aultman-Miller Co., 169 U.S. 606 (1898).  In Harvesting, the Court considered whether a patent resissue filing could result in the cancellation of originally issued claims if the reissue application were abandoned. Stated another way, would the original claims stand as valid even though the patent examiner found them unpatentable during the now abandoned reissue proceeding?

In upholding the validity of those claims, the high court explained:

The only authority competent to set a patent aside, or to annul it, or to correct it for any reason whatever, is vested in the courts of the United States, and not in the department which issued the patent.

Divorced from context, this quote is cited for the proposition that patent validity is the sole province of the courts, and can never be properly delegated to an Article I court.
Not so fast.First, Harvesting was a discussion of patent reissue at a time in history where no PTO post-grant challenges existed. So, of course, the only authority at that time was the courts. (i.e., no enabling statute existed for the examiner in Harvesting to have cancelled claims of an issued patent). Harvesting was a decision on statutory authority, nothing more. Patent reissue, to this day, operates the exact same way with respect to claim surrender. While a patent examiner is free to reject originally issued claims in reissue proceedings, a reissue applicant is free to abandon the proceeding without surrendering those original claims. Since Harvesting, of course, Congress has created numerous post-grant patent challenge mechanisms, starting in the 1980s with patent reexamination.Patlex decided that patent reexamination was a proper challenge to validity delegated to an expert administrative agency by Congress.  In an attempt to distinguish Patlex, as was tried in Cuozzo, it is argued that AIA trial proceedings are litigation-like, and that examiner based proceedings are somehow different — nonsense.  While patent reexamination begins with an examiner, it ends at the Board. The Federal Circuit affirms the Board; this is a distinction without a difference. There is no meaningful way to distinguish Patlex as to USPTO procedures.

Ultimately, one is left going back to the original question, is a patent a private or public right?  The correct answer is that a patent has components of both private and public rights.

The proper definition of how a government issued (intangible) property right should be classified with respect to public vs. private right is best enunciated in B&B Hardware, Inc. v. Hargis Indus., Inc.,135 S. Ct. 1293, 1316-17 (2015) (Thomas, J., dissenting), which described the idea of a “quasi-private right”:

[T]rademark registration under the Lanham Act has the characteristics of a quasi-private right” and that, because registration is a “statutory government entitlement, no one disputes that the [Trademark Trial and Appeal Board] may constitutionally adjudicate a registration claim.” Id. at 1317. But the “right to adopt and exclusively use a trademark appears to be a private property right . . .

(emphasis added)

In my view, the B&B delineation between infringement (private right) and validity (public right) is the most sensible. To the extent the Supreme Court or CAFC ever take up this debate again, it will be to clarify this principle, not to unravel a half century or more of Article I adjudication practices.

PTAB Related CLE

May 10th-11th: American Conference Institute presents its Third Annual Post-Grant PTO Proceedings in New York City (here). This two-day event will cover a variety of AIA Trial Proceeding topics. The second day will include a three-hour workshop entitled Parallel Proceedings: The Good, The Bad, and The Ugly. 

May 16, 2017: MIP PTAB Forum 2017 will be held in New York City. (here)  This is a full-day forum on PTAB trial practices.

May 25, 2017: Strafford Legal presents: Evolving PTAB Trial Practice: Navigating Complex Procedural Rules (live webinar: 1:00PM-2:30PM EDT)

June 15, 2017: Strafford Legal presents: ITC as a PTAB Antidote : Navigating Competing Administrative Trial Strategies & Pitfalls (1:00pm-2:30pm EDT).

I hope to hear from you at one of these upcoming events.

“Under This Section” a Limitation on the Scope of 314(d) Appeal Bar?

In today’s en banc argument (audio here) the Federal Circuit considered the whether it should overrule Achates Reference Publishing, Inc. v. Apple Inc., 803 F.3d 652 (Fed. Cir. 2015) and hold that judicial review is available for a patent owner to challenge the PTO’s determination that the petitioner satisfied the timeliness requirement of 35 U.S.C. § 315(b) governing the filing of petitions for inter partes review.

As expected much of the debate focused on whether or not the “under this section” language of 314(d) limited the appeal bar to solely patentability matters (i.e., 314(a); or, whether that phrase swept in related sections, and how the language “less closely related statutes” of Cuozzo impacted the analysis.  Judge Chen and others appeared to find the “under this section” language must have some meaning, and that it must be a restriction on the appeal bar— thereby additionally freeing up questions of RPI/privity for review.  Others on the Court seemed to respond favorably to the government’s position that “under this section,” in the administrative law context, provided a more expansive bar that swept in all aspects of AIA trial institution.

Stay tuned.