PTAB Boot Camp & More

For those seeking some PTAB related discussion/CLE in the weeks ahead, there are a number of upcoming programs.

First up, next Friday October 7th, the George Washington University Law School will host an IPR-CBM Roundtable Discussion (here) from 12-6PM in the Faculty Conference Center; Fifth Floor, Burns Building Washington, DC 20052. (CLE is not offered for this program)

On October 18-20th the PTAB Bench & Bar Conference will be held at the Center for American & International Law in Plano Texas.  This program offers an afternoon “Bootcamp” with PTAB judges and practitioners on the 18th.  On the 19th the program focuses on “Advanced Practice before the PTAB.”  This second full day offering provides deep dive sessions for those who manage PTAB proceedings, practice before the PTAB, and are looking for a unique program and learning experience that focuses on current issues and best practices. On the afternoon of the 19th through to the 20th the program brings in the perspectives of several Texas and Delaware District Court Judges, as well as Judge Chen of the Federal Circuit and USPTO Director Michelle Lee.

I hope to see you at one of these upcoming events.

315(e) Estoppel as an Affirmative Defense

As most are aware, completed AIA trial proceedings have estoppel consequences for failed petitioners.  For example, an unsuccessful Inter Partes Review (IPR) petitioner of a given patent claim, real party in interest, or privy of the petitioner, is estopped from asserting that the same claim is invalid in a civil or ITC action on any ground that the petitioner raised or reasonably could have raised during the failed IPR. (35 U.S.C. § 315 (e)(2)). The same estoppel applies to requesting or maintaining a proceeding before the USPTO with respect to such a claim (35 U.S.C. § 315(e)(2)).  As can be appreciated from this statutory framework, whether before the courts or the Patent Trial & Appeal Board (PTAB), Congress was clearly interested in preventing patent challengers from getting the proverbial second bite at the apple.

Occasionally, however, a petitioner will uncover new prior art that could not have reasonably have been raised in the earlier PTAB proceeding  Petitioners seeking to overcome the affirmative defense of statutory estoppel may find that the courts are far more receptive in this regard than the PTAB.

First, courts tend to be far stricter in the application of equitable defenses. While 315(e)(2) estoppel is a different animal than equitable estoppel, courts are as yet uncomfortable with its application. As demonstrated in at least one case, Clearlamp, LLC. v. LKQ Corp. Case No. 12 C 2533 (N. D. Ill. 2016) (here), not only is it the proponent of the estoppel (patentee) that bears the burden of proof, but that burden can be quite significant.  In the case of newly uncovered prior art, the court held that a patentee should, for example:

1) Identify the search string and search source that would identify the allegedly unavailable prior art; and
2) Present expert testimony why such a criterion would be part of a skilled searcher’s diligent search.

That is, the patentee, as the proponent of the affirmative defense bears the burden of proving the previous effort deficient to benefit from 315(e)(2) estoppel.

The PTAB on the other hand, takes a more patentee friendly view.  For example, in Praxair Distribution, Inc. v. Ino Therapeutics LLC (IPR2016-00781) (Paper No. 10, August  25, 2016) the Board looks to the petitioner to disprove the applicability of 315(e)(1) estoppel, explaining:

On the record before us, we, therefore, find scant evidence that [Petitioner] engaged ‘a skilled searcher conducting a diligent search’ as contemplated in the legislative history.  . . . . we are not persuaded that Petitioner has demonstrated that a skilled searcher conducting a diligent search would not have expected to discover [new references]

(emphasis added)

Unlike the courts, the Board as the arbiter of the first failed effort is far more comfortable denying follow-on requests.  Indeed, this is even the case where estoppel is not implicated, such as where the first request failed at institution.  Conopco, Inc. dba Unilever v. The Procter & Gamble Company IPR2014-00628, Pet.  Req. for Reh’g Denied, Paper 23, March 20, 2015 (here)

Given the differing institutional perspectives, failed IPR petitioners are better served raising the new art in the courts as compared to the PTAB.

30 Years Since the Formation of the Last National IP Bar Association

What better day to launch the new Patent Trial & Appeal Board (PTAB) Bar Association than on the 5th year anniversary of the enactment of the America Invents Act (AIA). I am honored to have been involved with the creation of the only bar association solely dedicated to practice before the PTAB, and to serve on its inaugural Board of Directors. The organization will help establish best practices for this unique forum, foster communication among stakeholders and the PTAB, and aid practitioners in staying abreast of rule making, procedure and PTAB jurisprudential evolution.

The Inaugural Annual Conference of the PTAB Bar Association will take place March 1 & 2, 2017 at the Ritz-Carlton in Washington, D.C. To become a member of the PTAB Bar Association, and for more details on its events and functions, and how to become involved, please visit www.PTABBar.org.  Follow us on Twitter @PTABBar

Four Years of PTAB Trials

I’ve read quite a few AIA retrospectives over the last week in the run up to Friday’s AIA anniversary. Almost all pose the rhetorical question: “who could have predicted the PTAB would become so impactful?” Well, for starters anyone up to their armpits in NPE lawsuits with the only available USPTO solution being patent reexamination, that’s who.  Prior to the AIA the pent up rage/demand for a more effective USPTO post-grant challenge solution was palpable. For that reason, back in July of 2012, I thought that PTAB trials might break the NPE business model, especially for smaller NPEs.  

In 2016, NPEs still exist.  But, there are far fewer small fish.  Even large patent aggregators yearn for the go-go days before the AIA.  It is clear that the AIA trials ended the golden era of seven figure, cost of defense settlements.  Congress did it—it actually provided a workable USPTO post-grant solution that is cost effective, and fast enough to make a difference.  The PTAB levels the playing field.  No longer are businesses helpless to settle cases of dubious merit because of the lopsided discovery costs of an NPE suit, or risks of outlandish jury verdicts.  

That said, four years into AIA trials the PTAB is not without its critics.   

 
Since day one, critics have sought to unravel the PTAB or lessen its perceived anti-patent impact.  First came the legal challenges: district court suits, mandamus filings, Cuozzo, and even the very same constitutional challenges that were flung at patent reexamination in the 1980s.  Not surprisingly, all failed (I give the pending cert petitions zero chance). Yet, that is not to say that the PTAB is perfect, or that an adjustment in practices is unwarranted. Indeed, the PTAB has evolved to a significant degree in its few short years of operation.

One of the more controversial aspects of PTAB practice to date has been the ability (or inability as some would argue) to amend.  Since opening its doors, the PTAB has loosened amendment requirements repeatedly.   That is, the PTAB has expanded page limits, added available claim appendices, clarified the Idle Free requirements, and provided guidance that most motions to amend fail to meet patentability burdens.  On this last point, the Federal Circuit is likely to shift the burden of patentability away from the patentee and back to the challenger in Aqua Products. This change may not lead to a drastic uptick in accepted amendments, but it would at least shift the blame away from stringent agency requirements to the evidence of the patent challenger.

Other patentee friendly changes to PTAB practice include the ability to submit witness testimony in preliminary responses.  This change enables a patentee to stand on equal footing with a petitioner prior to the Board’s Institution Decision. Further Board practices have evolved to protect patentees from harassment via serial filings of a same petitioner.  Lastly, the Board is certainly aware of its perceived bias, and in many cases will go out of its way to ensure fairness to the patentee in procedural skirmishes.

All in all, the PTAB will always cancel more patent claims than the courts.  But this truism is more a consequence of the Board’s technical decision makers, and the lower standard of evidence.  Neither of these aspects can be changed absent a radical legislative overhual. 

Critics will certainly try their best to lobby Congress to align agency practices with the courts in the years ahead, or even eliminate AIA trials altogether.  Yet, such extreme views would seem unlikely to resonate with lawmakers given the value provided by the PTAB to various stakeholders.  That’s not to say that targeted legislation will never occur, just that any such changes are likely to be incremental, and directed to ancillary practice issues.  

In the short term, the Trial Practice Guide is expected to be revised to conform to present PTAB practice, and there is always the possibility of new rules, or guidance from the CAFC.  It is the Federal Circuit that is likely to drive practice changes going forward. Stay tuned.

Like it or not, PTAB trials are here to stay.  Happy Birthday!

Adverse CBM Determination Could Undermine District Court Alice Defense

Alice Corp. Pty, Ltd. v. CLS Bank Int’l (“Alice”) distills the patentable subject matter debate into a two-step analysis.  This analysis overlaps in significant respect with the two-part analysis for assessing whether or not a patent claim qualifies as a covered business method (“CBM”) under Section 18 of the AIA.  For this reason, CBM petitions typically advance a § 101 ground of unpatentability as a matter of course.  The similarities in analytical frameworks — particularly between the “search for an inventive concept” of Alice’s second step and the “technical solution” in CBM’s second part — have not escaped the attention of the Patent Trial and Appeal Board (“PTAB”) and district courts which have compared and sometimes referenced one to support the other.  This relationship should be of particular concern to defendants raising a § 101 invalidity defense in district court actions and should make filing/timing of a CBM petition an important strategic consideration going forward.

Alice and the Standing Threshold for CBM Review

In Alice, the Supreme Court clarified the analytical framework that it promulgated in Mayo Collaborative Servs. v. Prometheus Laboratories, Inc. for patentable subject matter under 35 U.S.C. § 101.  The first step in this analysis is to determine whether the claims at issue are directed to laws of nature, natural phenomena, or abstract ideas.  If so, the second step — described as “a search for an inventive concept” — requires consideration of the elements of the claims “individually and ‘as an ordered combination’ to determine whether the additional elements ‘transform the nature of the claim’ into a patent-eligible application.”  That is, the court “must examine the limitations of the claims to determine whether the claims contain an ‘inventive concept’ to ‘transform’ the claimed abstract idea into patent-eligible subject matter.” 

The second step of the Alice analysis resembles the second part of the CBM analysis under AIA § 18 which provides an exception to otherwise qualified business methods that are directed to “technological inventions.”  According to this provision, the universe of covered business methods excludes patents for “technological inventions,” which are defined by: (1) “whether the claimed subject matter as a whole recites a technological feature that is novel and unobvious over the prior art” and (2) “solves a technical problem using a technical solution.”   

Parallels Between the Analytical Frameworks

The similarity between these provisions has not been lost upon the PTAB which has cited its CBM standing analysis to reinforce the second step of its Alice analysis.  In J.P. Morgan Chase v. Intellectual Ventures II LLC, the PTAB supported both its standing and Alice “inventive concept” holdings with its finding that “Patent Owner does not explain sufficiently how the access mechanism recited in [the claim-at-issue], construed as ‘hardware and/or software for controlling access to data,’ requires any more than the generic hardware and computer components disclosed in the [patent-at-issue].”  Similarly, the PTAB has referenced its CBM standing analysis to combat patent owners’ arguments that challenged claims have additional elements that transform their abstract ideas into patent-eligible applications.   

In its standing analysis, the PTAB will consider whether the challenged claim (a) merely recites “known technologies, such as computer hardware, communication or computer networks, software, memory, computer-readable storage medium, scanners, display devices or databases, or specialized machines, such as an ATM or point of sale device[;]” (b) recites “the use of known prior art technology to accomplish a process or method, even if that process or method is novel and non-obvious[;]” or (c) combines “prior art structures to achieve the normal, expected, or predictable result of that combination.”    These guideposts mark the same path mapped by Mayo and Alice — the additional features purportedly limiting the claim from monopolizing the abstract idea must be more than “well-understood, routine, conventional activity.”    Accordingly, the PTAB relies on similar factors to assess whether an “inventive concept” exists for purposes of its Alice analysis.  It cites prior art and/or reference material such as textbooks to determine if the challenged claim covers “well-understood, routine, conventional activity” that “does not add significantly more to the abstract idea.” 

Alice, Mayo, and progeny

 Standing for CBM Review
Contains an inventive concept sufficient to transform the claimed abstract idea into a patent-eligible application.

“solves a technical problem using a technical solution.”
Machine-or-transformation test provides a “useful clue” — the claim is (1) “tied to a particular machine or apparatus,” or (2) “transforms a particular article into a different state or thing.”
Must be more than “well-understood, routine, conventional activity.”

 Must be more than (a) “known technologies,” (b) “known prior art technology to accomplish a process or method, even if that process or method is novel and non-obvious,” or (c) a combination of “prior art structures to achieve the normal, expected, or predictable result of that combination.”


PTAB and District Court

The PTAB has closely followed the jurisprudence developing around Alice.  In Ultramercial, Inc. v. Hulu, LLC, the Federal Circuit resurrected the machine-or-transformation test as “a ‘useful clue’ in the second step of the Alice framework.”  That is, “[a] claimed process can be patent-eligible under § 101 if: ‘(1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.’”  This tie between the claimed process and a particular machine is closely aligned with the “technical solution” required by the second part of CBM standing. 

District courts have also recognized the close alignment of the CBM and Alice inquiries.  In Sophos Incorporated v. RPost Holdings, Inc. et al, the court held that the second step of Alice had been satisfied and denied judgment on the pleadings that the patents-in-suit were invalid because they claimed unpatentable abstract ideas.  Applying Alice, the court concluded that the claims did not lack an inventive concept and found support in the PTAB’s denial of petitions to institute CMB review of the patents-in-suit.  Furthermore, recalling the language of the second part of CBM standing, the Court noted that “the patents-in-suit aim to solve a technical problem of electronic messages” and identified the “patents-in-suit’s technical solution” in determining that step two of the analysis under Alice was satisfied.   

Despite these analytical parallels, a district court will not necessarily follow the PTAB’s lead on CBM standing in its own Alice determination for Board determinations that did not hinge on a question of technical contribution in the art.  In Global Cash Access, Inc. v. NRT Technology Corp., the court found the first step of Alice satisfied and noted its disagreement with the PTAB’s threshold analysis.  However, the court disagreed only with whether the challenging party had “oversimplified the challenged claims” and did not express any compunction with a comparison between the CBM standing and Alice analyses itself.   

The independent analysis of some district courts on the first step of the Alice inquiry is heartening for failed petitioners, such as the recent decision in Plaid Technologies Inc. v. Yodlee.com CBM2014-00065, Paper 7 (PTAB August 23,2016). In this case, while finding the patent eligible for CBM review, and that the technological invention prong was not met by the mere inclusion of conventional computer hardware, the Board nevertheless denied the 101 challenge on step one of Alice, explaining:

“[W]e agree with Patent Owner that Petitioner’s proffered assertion that the claims of the ’783 patent are directed to retrieving and storing personal information is an impermissible over-generalizing of the claims. . . . [W]e note that independent claim 1 recites repeatedly references to computer technology, such as ‘wide- area computer network,’ ‘processor,’ ‘information provider,’ ‘data,’ and ‘end user,’ which supports our determination that independent claim 1 is directed to computer technologies, such as retrieving and storing personal information securely stored under the control of a processor at a remote location. To be sure, technology is usually analyzed under the second step of [Alice], however, that is not to say that it cannot also be a factor to support a determination concerning the first step of Alice. . . . Petitioner’s analyses as to whether ‘retrieving and storing personal information’ is an abstract idea are misplaced, as Petitioner has not identified any evidence or analysis concerning ‘information securely stored at a remote location.'” 

Conclusion and Practical Implications

            Petitioners and Patent Owners before the PTAB and parties arguing patent validity of business related patents in district court thus have another source of support for their § 101 positions.  However, this PTAB determination is not without risk.  The similarities between the second step of Alice and the second part of CBM standing have been recognized to allow one to support or undermine the other.  Thus, the interrelationship between these two analytical frameworks is another consideration warring parties in district court should have before filing and/or when opposing a petition for CBM review.  

134 S. Ct. 2347 (2014).
132 S. Ct. 1289 (2012).
Alice, 134 S. Ct. at 2355.
Id. (quoting Mayo, 132 S. Ct. at 1298, 1297).
Id. at 2357 (quoting Mayo, 132 S.Ct. at 1294, 1298).
37 C.F.R. § 42.301(b).
Case CBM2014-00157, Paper 40 at 17 (PTAB Jan. 12, 2016).
See Informatica Corp v. Protegrity Corp., Case CBM2015-00021, Paper 38 at 33 (PTAB May 31, 2016); Epicor Software Corp. v. Protegrity Corp., Case CBM2015-00002, Paper 46 at 31 (PTAB April 20, 2016).
Office Patent Trial Practice Guide, 77 Fed. Reg. 48,756, at 48,763–64 (Aug. 14, 2012).
Alice, 134 S.Ct. at 2359-60 (quoting Mayo, 132 S.Ct. at 1294).
Epicor Software Corp. v. Protegrity Corp., Case CBM2015-00006, Paper 54 at 33 (PTAB Apr. 18, 2016).  See also Apple Inc. v. SmartFlash LLC, Case CBM2015-00033, Paper 40 at 22 (PTAB May 26, 2016) (prior art was evidence that this concept was well-known and conventional and thus not inventive); Square, Inc. v. Protegrity Corp., Case CBM2014-00182, Paper 60 at 33 (PTAB March 2, 2016) (based on patent, declaration, and textbook, PTAB finds claim is “well-understood, routine, conventional activity that does not add significantly more to the abstract idea.”).
772 F.3d 709, 716 (Fed. Cir. Nov. 14, 2014).
Id. (quoting In re Bilski, 545 F.3d 943, 954 (Fed.Cir.2008) (en banc), aff’d on other grounds, Bilski v. Kappos, 561 U.S. 593, 130 S.Ct. 3218 (2010)).
No. 1-13-cv-12856, at 24-27 (D. Mass. June 3, 2016).
Id. at 27 n.6.  
Id. at 26-27 (emphasis added).
No. 2:15-cv-00822, at 12 n.6 (D. Nev. Mar. 25, 2016).
Id.

Federal Holiday Treatment for Emergencies Not Unprecedented

As many recall, back on December 22nd, the USPTO’s e-filing systems crashed. The outage lasted several days as the replacement of large power supplies driving the systems was time consuming. To account for the inability to file electronically during this outage (the predominant channel for accepting filings from the public), the agency issued a notice explaining that December 22nd through 24th were “considered” to be federal holidays for filing purposes.  That is, any filings falling due on December 22-24th would be accepted as timely on the next business day. Given the Christmas holiday of Friday December 25th, and the following weekend, the next business day was December 28th.

Last week, Elm 3DS Innovations, sued the USPTO in the Eastern District of Virginia to enjoin the agency from conducting Inter Partes Review (IPR) of its patents. 3DS argues that the IPRs filed against it were due to be filed on December 24th by statute, and that the agency’s action to extend this due date was “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law, and otherwise in excess of statutory jurisdiction, authority, or limitations.” (complaint here)

3DS has an uphill battle.

The USPTO has consistently interpreted the relevant statute to cover non-postal emergencies. Even agencies without a statute conveying discretionary power for such emergencies have employed the same accommodation to extend statutory deadlines.

First, the USPTO, like all agencies, has the power to extend due dates that qualify for rule-based extension. The issue in the 3DS IPR scenario is the filing deadline is statutory. 35 U.S.C. 315(b). To extend statutory deadlines, treating business days as federal holidays was the USPTO’s only option in the face of the e-filing crisis.  For this reason, the December Notice explained:

On December 22, 2015, at approximately 7:00 pm, the United States Patent and Trademark Office (USPTO) experienced a major power outage at its headquarters in Alexandria, Virginia, resulting in damaged equipment that required the subsequent shutdown of many USPTO online and information technology systems. The USPTO is currently estimating that these systems will be impacted through at least the Federal holiday on Friday, December 25, 2015. In light of this emergency situation, the USPTO will consider each day from Tuesday, December 22, 2015, through Thursday, December 24, 2015, to be a “Federal holiday within the District of Columbia” under 35 U.S.C. § 21 and 37 C.F.R. §§ 1.6, 1.7, 1.9, 2.2(d), 2.195, and 2.196. Any action or fee due on these days will be considered as timely for the purposes of, e.g., 15 U.S.C. §§ 1051(b), 1058, 1059, 1062(b), 1063, 1064, and 1126(d), or 35 U.S.C. §§ 119, 120, 133, and 151, if the action is taken, or the fee paid, on the next succeeding business day on which the USPTO is open (37 C.F.R. §§ 1.7(a) and 2.196). A subsequent notice is anticipated to be issued as needed if the USPTO’s systems are not fully operational by Monday, December 28, 2015.

(emphasis added)
It is important to note that  the USPTO did not declare December 22nd-24th as federal holidays—the USPTO plainly does not have the power to declare federal holidays. Rather, it explained the contingency plan for the e-filing crash in terms of holidays for calculating due dates. This straight-forward explanation makes sense since most filers are well aware of holiday filing rules. Thus, the critical question is whether or not, in the face of emergency, the agency has the authority to “consider” a business day as a holiday to extend statutory deadlines.

The relevant authority cited in the December Notice, 35 U.S.C. § 21 states:

35 U.S.C. 21    FILING DATE AND DAY FOR TAKING ACTION.
(a) The Director may by rule prescribe that any paper or fee required to be filed in the Patent and Trademark Office will be considered filed in the Office on the date on which it was deposited with the United States Postal Service or would have been deposited with the United States Postal Service but for postal service interruptions or emergencies designated by the Director.
(b) When the day, or the last day, for taking any action or paying any fee in the United States Patent and Trademark Office falls on Saturday, Sunday, or a Federal holiday within the District of Columbia, the action may be taken, or fee paid, on the next succeeding secular or business day.

(emphasis added)

The focus then is really on 35 U.S.C. 21(a) as the operation of holiday deadlines under 21(b) is not in dispute.  That is, does the language “emergencies” relate to only postal emergencies as asserted by 3DS, or, does it confer discretion to the Director to designate other emergencies impacting filings?  

Over the years the USPTO has applied 21(a) discretion to non-postal emergencies, and has distinguished non-qualifying emergencies.  For example, in the days after 9-11 the USPTO appears to have construed 21(a) as conveying the power to consider a business day as a federal holiday in the face of a non-postal emergency.

The 9-11 Notice explained in relevant part::

The United States Patent and Trademark Office, as of approximately 10:30 a.m., September 11, 2001, has been closed for official business as a result of an order by the Office of Personnel Management. In the emergency situation of this day, the Patent and Trademark Office will consider September 11 a “federal holiday within the District of Columbia” under 35 U.S.C. § 21(b). Although normally the Patent and Trademark Office does not consider days on which the agency is closed for only part of the day as a federal holiday, it is making an exception for the unusual circumstances of this date.

(emphasis added)
Another emergency after 9-11 where the USPTO did not allow for extension of statutory deadlines was during the Tsunami impacting Japanese filers.  

The Tsunami Notice explained in relevant part:

Since this catastrophic event occurred outside the United States and did not result in a postal service interruption in the United States Postal Service, the USPTO has no authority to designate a postal service emergency as authorized by 35 U.S.C. 21(a).

All told it appears that the Director has only designated “emergencies” under 21(a) twice in the last 15 years.  Once for 9-11 and the second time this past December for the e-filing crash.  As the tsunami emergency was not postal, and was outside of the U.S., it was deemed beyond the reach of the catch-all “emergencies” and the explicit postal interruption exception of 21(a). Given this history, 3DS would appear to be hard pressed to argue that the interpretation of 21(a) in the December Notice is arbitrary of capricious. 

Further, other federal agencies have taken similar approaches to the unavailability of their electronic systems.  For example, during the government shutdown of 2013, the National Labor Relations Board (NLRB) issued the following notice in the Federal Register:

In the event the Board’s offices are closed due to a lapse in appropriated funds, documents may not be filed electronically at www.nlrb.gov. .     .     .     .     .Extensions of time for filing cannot apply to the 6-month period provided by Section 10(b) of the Act for the filing of charges, 29 U.S.C. 160(b), or to Applications for awards of fees and other expenses under the Equal Access to Justice Act, 5 U.S.C. 504. However, with respect to time computations for filing and serving charges filed pursuant to Section 10(b) or applications filed pursuant to the Equal Access to Justice Act, the Board hereby gives notice of its intention to construe the phrase “Saturday, Sunday, or a legal holiday” in its rules pertaining to filing and service, Section 102.111(a), 29 CFR 102.111(a), to encompass any day on which the Agency’s offices are closed for all or any portion of the day due to lack of appropriated funds.

(emphasis added)

It does not appear that the NLRB has a companion statute to 35 U.S.C. § 21(a).  For this reason, the NLRB also prudently counseled for the belt and suspenders approach (which would have saved the petitioners here a lot of grief):

Notwithstanding the foregoing, persons wishing to file a charge pursuant to Section 10(b) of the Act, and for whom the 6-month period of Section 10(b) may expire during the interruption in the Board’s normal operations, are cautioned that the operation of Section 10(b) during an interruption in the Board’s normal operations is uncertain. Consequently, it would be prudent to file the charge during the interruption in the Board’s operations by faxing a copy of the charge to the appropriate Regional Office.

Given the discretion accorded to the Director under 21(a) to “designate”  emergencies that might excuse a late filing, and the deference accorded to consistent agency interpretations of its governing statutes, I expect the USPTO will prevail.

Amendment Practice to Remain Unpopular Regardless of In Re Aqua Products Outcome

Last Friday the Federal Circuit agreed to rehear In re Aqua Products Inc. The en banc rehearing will consider amendment practices of the Patent Trial & Appeal Board (PTAB) in AIA trial proceedings. Specifically, the Court will explore where the burdens of persuasion and production properly lie for motions to amend. To date the Court has repeatedly found the burden of persuasion to rest with the patentee for motions to amend.

While it appears likely that the Court will shift burdens away from patentees seeking amended claims before the PTAB, practically speaking, such an outcome is unlikely to make much of a difference. At the end of the day, amendments will always remain highly unattractive for patentees at the PTAB.

In it’s rehearing Order (here), the Court posed the following questions:

(a) When the patent owner moves to amend its claims under 35 U.S.C. § 316(d), may the PTO require the patent owner to bear the burden of persuasion, or a burden of production, regarding patentability of the amended claims as a condition of allowing them? Which burdens are permitted under 35 U.S.C. § 316(e)?

(b) When the petitioner does not challenge the patentability of a proposed amended claim, or the Board thinks the challenge is inadequate, may the Board sua sponte raise patentability challenges to such a claim? If so, where would the burden of persuasion, or a burden of production, lie?

My expectation is that the CAFC will shift the burdens to the petitioner in the first instance, and where absent (settlement), the Board. Patentees will be left with some burdens as the movant, these are likely to be limited to the express requirements of the rules; such as the amendment being responsive to a trial ground, non-broadening, and submitted as a 1-for1 substitution of claims. As to the Board’s sua sponte power, I can’t imagine the Court restraining an expert agency in this regard.  

Will any of these potential changes make amendment at the PTAB attractive enough to spur filing rates above the current rates?  
Nope.

To be sure, there is incremental value in relieving patentees of such burdens. But, most amendments are declined on prior art grounds. Shifting of the burdens with a preponderance of the evidence standard will barely move the needle for patentees.

More importantly, most every AIA trial proceeding is directed to a patent in active litigation, or at least heavily licensed. Patentees involved in active litigation are usually careful not to amend their claims so that their accused infringers no longer infringe, further constraining the types of amendments patent owners are willing to put forth.  Even if such an amendment could be fashioned to both maintain infringement and avoid the art, patentees remain constrained by the fear of intervening rights  

A patentee must propose neither an amendment with a change too small to be granted nor one containing a change “substantive” enough to trigger intervening rights. See Laitram Corp. v. NEC Corp., 163 F.3d 1342, 1346 (Fed. Cir. 1998) (“If substantive changes have been made to the original claims, the patentee is entitled to infringement damages only for the period following the issuance of” the modified claims). This is near impossible.

The fear of intervening rights  is especially prevalent in arts where licensing entities are the most active, such as consumer electronics. (Not coincidentally, this is the bulk of PTAB AIA trial proceedings). In such quickly developing technologies, an amendment may not only give up past damages, but foreclose future damages if the technology has already advanced beyond the patented device or methodology.

Lastly, it is often pointed out that patentees amended at a greater rate in the previous inter partes reexamination proceeding; this is true. Yet, the previous reexamination model did not require substitute claims (i.e., a 1-for-1 substitution of newly added claims relative to challenged claims). Without this control, patentees often added hundreds of new claims, but rarely amended originally issued claims for the reasons noted above. These new claims often took relatively minor features and presented them in endless variations. The primary purpose was to frustrate a patent challengers ability to respond within a short time frame. That is, with only 30 days to respond to a patentee filing (non-extendable by statute), and with the estoppel risk of not addressing such claims, newly added claims were a convenient tool to make life miserable for an adversary. As can be appreciated, such claim sets also made these disputes unwieldy for the USPTO to process in an effective manner. In large part, this is why AIA amendments are limited to 1-for 1 substitution.

As In re Aqua Products Inc. will not disturb any of intervening rights, substantial evidence, substitute claim practices, or infringement concerns of patentees, the issues presented by the CAFC are largely academic ones. Practically speaking, motions to amend will remain a rare occurrence at the PTAB.

Opportunity to Amend Prior to Expiration Not Enough

The Patent Trial & Appeal Board (PTAB) applies the broadest reasonable interpretation (BRI) standard of claim construction in all post-grant patent proceedings. See Cuozzo Speed Techs., LLC v. Lee, 136 S. Ct. 2131, 2145 (2016). The lone exception is for expired patents.  Once a patent expires, the USPTO switches to the district court “Phillips” framework. The justification for this switch is that patentee may no longer amend at expiration, and that in such cases, the district court construction should apply.

As can be appreciated, the expiration of a patent in the middle of an agency proceeding can result in inefficiencies.  Recently, the PTAB considered whether or not the expiration of a patent on appeal to the Board required a new Philips construction.  The Board determined that since there was an opportunity to amend prior to the appeal (i.e., the justification for applying BRI) that no such do-over was required.  The CAFC disagreed.
The CAFC made clear in In Re CSB-System International, Inc.(here) that, if a patent expires the agency must switch to the “Phillips standard of claim construction” from the BRI standard.
The dispute arose from an ex parte reexamination in which, as part of the proceeding, the examiner construed several claim terms. CSB appealed the rejection to the Board.  The patent expired after the examiner’s final rejection (i.e., before the Board had decided the appeal). In the appeal, the Board again applied the BRI standard when it reviewed the examiner’s claim constructions. The Board affirmed the examiner’s rejection of the claim.

In its decision, the Board recognized that the patent had expired, but nevertheless applied the BRI standard ”because CSB had the opportunity to amend its patent claims while they were pending before the examiner in the reexamination, as the patent had yet to expire.” CSB, slip. op. at 8. The PTO further argued that because the Board reviews the examiner’s work, the Board must use the same construction standard as used by the examiner—the BRI standard. The CAFC found fault with both arguments: the CAFC pointed out that the fact that the patent owner could have amended its claims while before the examiner does not make use of BRI reasonable where a patent expires during a reexamination because the patent owner’s ability to amend is substantially diminished when this occurs regardless of the stage of the reexamination. In fact, 37 C.F.R. § 1.530(j) states that “No amendment may be proposed for entry in an expired patent..” The CAFC also noted that under 37 C.F.R. § 1.530 patents that expire during an appeal to the Board will not be issued with amended claims even if the patent owner amended them earlier, while before the examiner.

As the CAFC noted, “ it is not always clear how much time a Board appeal will take. . .” Perhaps more importantly, in the case of patent reexamination, is the lengthy path of patent reexaminations to final conclusion. With such proceedings often pending for multiple years, such delays for patents close to expiration may result in even longer delays while the office re-forms its earlier claim constructions.  Of course, in many cases, such as CSB, there will be no difference in outcome as the analytical frameworks for Philips and BRI are largely indistinguishable.  

RPI Determination Under 315(b) Focuses on Litigation Control

In determining whether a party is a real party-in-interest subject to the one-year statutory bar of 35 U.S.C. § 315(b), the focus of the Patent Trial & Appeal Board (PTAB) to date has been honing in on the exercise of control over the earlier filed patent infringement lawsuit. The PTAB recently considered whether control of the allegedly infringing activity is enough to transform a party not named in the original complaint to an RPI for 315(b) purposes in Department of Justice v. IRIS Corporation Berhad, Case IPR2016-00497, slip op. at 7-9 (PTAB Jul. 25, 2016) (Paper 7).

In November, 2006, IRIS sued Japan Airlines Corporation (JAL) for infringing U.S. Patent No. 6,111,506 relating to a security system using an improved security identification document such as a passport. The patented technology covered JAL’s examination of electronic passports as required by U.S. federal law, which prompted the Department of Justice (DOJ) to intervene in the suit. JAL sought and obtained a dismissal on the basis that the federal legal requirement to examine passports conflicts with the patent laws, thus exempting JAL from infringement liability and leaving IRIS’s exclusive remedy as an action against the United States. In 2014, the Federal Circuit affirmed the dismissal on an appeal in which the DOJ also participated.

IRIS subsequently filed suit against the United States in the Court of Federal Claims on February 24, 2015, alleging infringement of the ‘506 patent. Less than one year later, the DOJ filed a Petition for Inter Partes Review (IPR) of the ‘506 patent on January 22, 2016. In its Preliminary Response, IRIS sought to terminate the IPR as time-barred by 35 U.S.C. § 315(b), which states that:

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

According to IRIS, the DOJ qualified as a real party-in-interest to the 2006 JAL lawsuit because the U.S. government had directed and controlled the allegedly infringing activity forming the basis of the JAL lawsuit, had filed a notice of appearance in the district court, and had participated in the appeal to the Federal Circuit.

The Board disagreed with IRIS’s argument. According to the Board, the “mere participation in litigation and assumption of liability do not, without more, make a real party in interest.” The U.S. government’s direction and control of the allegedly infringing activity did not relate directly to the factors considered in determining whether a third party is a real party-in-interest. In particular, the Board faulted IRIS as failing to provide any evidence that the DOJ had exercised or could have exercised “control over the proceeding,” i.e., over the 2006 JAL lawsuit. IRIS focused on the DOJ being a real party-in-interest to the 2006 JAL litigation by virtue of its control of the allegedly infringing activity.

Going forward it may be that patentees seeking to challenge intervenor defendants under 315(b) should instead outline the status of such defendants under Rule 24 of the F.R.C.P.  Such as the ability to introduce pleadings, or control the litigation apart from other defendants.  Alternatively, evidence can be adduced that shows a level of cooperation with other named parties to control the litigation.

Anti-Competitive IPR Settlements for Orange Book Patents?

The Patent Trial & Appeal Board (PTAB) has the power to terminate an Inter Partes Review (IPR), Post Grant Review (PGR), or Transitional Proceeding for Covered Business Method Patents (CBM) upon request of the parties. As provided in 35 U.S.C. 317 (b), such settlement agreements must be in writing, and submitted to the agency before the proceeding can be terminated.  These submissions may be, at party request, maintained as business confidential— not surprisingly, almost all are submitted under seal.  The statute explains that the the confidential nature of these settlements will be generally maintained, but “shall be made available only to Federal Government agencies on written request, or to any person on a showing of good cause.”

The rationale behind making these agreements available to government agencies in particular is to safeguard the public from ant-competitive practices. Some commentators have begun to question whether or not “reverse payment” settlements are being made to terminate PTAB trial proceedings involving Orange Book patents.

A recent paper by economists Erik Hovenkamp and Jorge Lemus (here) explains that:

In searching for potentially anti-competitive reverse payment settlements between competitors, we look for PTAB settlements that exhibit some particular characteristics that are suggestive of reverse payment. We focus on pharmaceutical patents and we search for PTAB challenges exhibiting each of the following three properties:

(C1) The petitioner is a drug producer (typically a generic manufacturer) and the disputed patent covers an FDA-approved brand-name drug;

(C2) the dispute was settled, resulting in termination of the proceeding; and

(C3) following the settlement, the challenger did not market a generic version of the patented drug.

This combination of factors is strongly suggestive of a reverse payment settlement. It creates an inference that the generic firm was given cash – rather than a license – in exchange for terminating its validity challenge of a brand-name drug patent.

The paper then goes on to analyze several specific PTAB proceedings, explaining that that while the inference conditions of such cases suggest reverse payment, due to the confidentiality of the underlying settlements, the authors are unable to identify the magnitude of any such payments. Of course, the magnitude of such payments was recently highlighted by the Supreme Court in FTC v. Actavis (2013) . Thus, the authors suggest that while expanded antitrust scrutiny may be warranted, the outcome of such an inquiry is speculative.

An interesting read for those practicing in the Bio/Pharma space.