CAFC Clarifies Burden of Production in AIA Trial Proceedings

In patent examination, once a prima facie case of obviousness is presented in a rejection by the agency, the burden of production switches to the Applicant. In AIA trials, such as Inter Partes Review (IPR) there are no “rejections,” instead, there are “grounds” of unpatentability. These grounds are first presented in a petition, and if satisfying the reasonable likelihood of prevailing standard, instituted for trial by the Patent Trial & Appeal Board (PTAB).  However, institution of a trial ground by the agency is not the same as establishing a prima facie case. 

As the Federal Circuit held yesterday in In re Magnum Oil Tools Int’l, Ltd. the burden of production does not shift to the patentee upon trial institution.

McLinton Energy Group, LLC filed a petition for inter partes review (IPR) of U.S. Patent No. 8,079,413 (‘413 patent) owned by Magnum Oil Tools International, Ltd (IPR2013-00231).  The petition proposed two grounds of invalidity, a first obviousness combination based on an Alpha reference and a second obviousness combination based on a Lehr reference (both using the same secondary references). The petition’s reasoning for the Lehr combination incorporated the reasoning for the Alpha combination. Unfortunately for the petitioner, the Board instituted the IPR based on the Lehr combination, but not the Alpha combination. The Alpha ground was deemed redundant.

The Board ultimately issued a final written decision holding all challenged claims invalid over the Lehr combination.

On appeal to the Federal Circuit, patentee argued that neither the petitioner nor the Board established a prima facie basis for the Lehr ground as the rationale for the combination was based on a different combination of references. The PTO countered that institution of an IPR indicates the Board has necessarily found a reasonable likelihood of success and that this finding shifts the burden of producing evidence of nonobviousness to the patentee. The Federal circuit characterized the Board’s holding as a determination that: “obviousness in an IPR can be based on less than a preponderance of the evidence if the patent holder does not affirmatively disprove the grounds upon which the IPR was initiated.”  The Court soundly rejected this notion. (here)

First addressing the burden of proof, the Federal Circuit explained the related but distinct burdens of proof applicable to the IPR proceeding:  a burden of persuasion; and a burden of production.  In an IPR, the burden of persuasion always remains with the petitioner.  The burden of persuasion in IPR is to prove unpatentability by a preponderance of the evidence.  The burden of production may entail producing additional evidence and presenting persuasive argument based on new evidence or evidence already of record.  Although recognizing that the burden-shifting framework for the burden of production makes sense in the patent examination context, the Court held that shifting the burden of production is improper in the adjudicatory context of an IPR.

The Federal Circuit then found the Board had committed reversible error by improperly shifting the burden to the patentee Magnum. The Board in the Final Written Decision repeatedly shifted the burden to Magnum to disprove obviousness. For example, the Board faulted Magnum for failing to explain why the obviousness argument based on the Alpha combination would not be applicable to the Lehr combination. This shift was improper where, as the Federal Circuit noted, the Board and the petitioner never explained why borrowing the rationale for the Alpha combination applied to the Lehr combination, particularly where Alpha and Lehr operated differently. Without presenting specific arguments explaining why the rationale for the Alpha combination applied to the Lehr combination, the Board had not required the petitioner to support its claim of obviousness by a preponderance of the evidence and thus satisfy its burden of production. Likewise, the Court alluded to further violations of the Administrative Procedure Act (APA), which requires the patentee be on notice of of the agency’s positions and be provided an opportunity to respond. (citing to SAS Institute)

To meet its burden of production, the petitioner must articulate specific reasoning based on evidence before the Board to support the legal conclusion of obviousness. Petitioner had merely made conclusory statements that the same analysis for the Alpha combination applied to the Lehr combination. The Federal Circuit held that these types of conclusory statements cannot satisfy the burden of demonstrating obviousness.

While somewhat of a unique fact pattern, this case demonstrates the importance of fully developing all grounds of unpatentability. The Alpha ground would, under Shaw Industries, be free of IPR estoppel. Yet, returning to the district court on that basis (i.e., three reference obviousness defense) is far from ideal.  (Note: the parties settled prior to CAFC appeal)

Post-Grant Outcomes Pilot Identifies 600+ Patent Applications Related to Ongoing AIA Trial Proceedings

Back in February I discussed the USPTO’s plans to launch a pilot program designed to enhance communication between patent examiners and the Patent Trial & Appeal Board (PTAB).  The USPTO explained the pilot as an attempt to create a bridge between the PTAB and patent examiners examining patent applications related to an ongoing AIA trial proceeding. That pilot, now known as the Post-Grant Outcomes Pilot is well underway.

Post Grant Outcomes is an Enhanced Patent Quality Initiative (EPQI) designed to develop a process for providing post grant information from sources, such as the Federal Circuit, District Courts, the Patent Trial and Appeal Board (PTAB), and the Central Re-examination Unit CRU), to examiners in a way most useful to their patent application examination process. AIA trial proceedings contain prior art and arguments that can be highly relevant to the patentability determination of related applications currently under examination. The USPTO believes that to support a thorough search and examination of any related applications, it is important for examiners to consider the contents (including prior art) of the AIA trial proceeding of the related issued patent. The Post-Grant Outcomes Pilot is designed to  enhance the quality of patentability determinations in these related pending patent applications by notifying examiners when they have an application related to an AIA trial proceeding, streamlining access to the contents of AIA trial proceedings, and determining and disseminating best practices for evaluating those proceedings.

The Pilot launched on April 25, 2016.  The Pilot will conclude after four months or once 400 surveys are received, whichever occurs first.  As of July 18th, 2016, 687 child applications have been identified in the Pilot, with over 200 surveys completed.  You can find the examiner training materials for this program (here) 

USPTO Post-Prosecution Pilot Program

While not directly related to Patent Trial & Appeal Board (PTAB) practice, today, the USPTO announced the launch of the “Post-Prosecution Pilot Program.” (here) The program is designed to provide more feedback to applicants by allowing them to participate in a panel discussion with examiners after a final rejection.

The goal of the Pilot is to reduce the number of appeals to the PTAB. Essentially, the program allows for participation in person, or remotely, in a pre-appeal brief style hearing of the prosecution.  

In my view, this type of feedback will be especially valuable to patent applicants (which is why I recommended the same roughly 6 years ago).

The PTO describes the program as a combination of Pre-Appeal and AFCP 2.0, referring to the new, panel hearing option as “P3.”   P3 provides for (i) an after final response to be considered by a panel of examiners (Pre-Appeal), (ii) an after final response to include an optional proposed amendment (AFCP 2.0), and (iii) an opportunity for the applicant to make an oral presentation to the panel of examiners (new). Finally, the panel decision will be communicated in the form of a brief written summary. 

To be eligible, an application must contain an outstanding final rejection and be (i) an original utility non-provisional  application filed under 35 U.S.C. 111(a), or (ii) an international utility application that has entered the national stage in compliance with 35 U.S.C. 371 (see 37 CFR 1.491). A continuing application (e.g., a continuation or divisional application) is filed under 35 U.S.C. 111(a) and is thus eligible to participate in the P3. Reissue, design, and plant applications, as well as reexamination proceedings, are not eligible to participate in the P3. 

A request for a response under 37 CFR 1.116 to be considered under the P3 must include the following items: (1) A transmittal form, such as form PTO/SB/ 444, that identifies the submission as a P3 submission and requests consideration under the P3; (2) a response under 37 CFR 1.116 comprising no more than five pages of argument; and (3) a statement that the applicant is willing and available to participate in the conference with the panel of examiners. Optionally, a P3 request may include a proposed non-broadening amendment to a claim(s). There is no fee required.

The program will begin today and extend until either January 12, 2017, or the date the Office accepts a total (collectively across all technology centers) of 1,600 compliant requests to participate, whichever occurs first. Each individual technology center will accept no more than 200 compliant requests, meaning that the pilot will close with respect to an individual technology center that has accepted 200 compliant requests, even as it continues to run in other technology centers that have yet to accept 200 compliant requests.

Much Maligned PRPS to Phase Out Shortly

In the rush to develop an e-filing system in the months ahead of September 16, 2012, the USPTO deployed a serviceable e-filing system for AIA trial proceedings known as the Patent Review Processing System (PRPS).  While understandable given the time constraints to pull it together, PRPS was a bare bones system that left much to be desired.  Since then, PRPS has done its job, but, the agency has been developing a new, and improved system.  Halleluljah!

That new system is called Patent Trial and Appeal Board End to End (PTAB E2E).  PTAB E2E uses a web browser (Chrome is the preferred browser) and a step by step filing program to enable petitioners and patent owners to provide metadata and upload pdf documents to the system.  PTAB E2E also provides an interface to the USPTO Next Generation financial system (FPNG) for paying fees.

The target date to deploy PTAB E2E is July 9, 2016. Upon initial deployment, PTAB E2E will be used for Inter Partes Review (IPR), Covered Business Method Review (CBM), and Post Grant Review (PGR). Derivations (DER) will still be processed in PRPS until they are migrated into PTAB E2E later in 2016. During the initial deployment both PRPS and PTAB E2E will be unavailable beginning Saturday, July 9, 2016 at 12:01 AM until 5:00 AM, Monday, July 11, 2016.

I would suggest allocating additional time for uploads in the near term.

The new features of PTAB E2E include:

For all external users, with or without a login email address:
• full text document search
• metadata search
• additional search filters
For external users with a login email address:
• a dashboard that includes the most recent document upload activity and status of filed cases
• an improved docket
• easier navigation of AIA review papers and exhibits
• filter search on the docket

The PTAB E2E system link, a user manual, FAQ, and quick reference guides will be available on July 11, 2016 at http://www.uspto.gov/ptab in the upper right portion of the web page.  In the near future, an Application Programming Interface (API) will make PTAB trial data available for bulk data downloads.

Customer support will be available Monday-Friday from 8:00 AM until 6:00 PM EST at 571-272-7822. Additional transition coverage will be available during the week of July 11th until 12:30 AM EST.

IPO Chat Channel Program to Explore Cuozzo Aftermath Next Week

For those seeking some PTAB related CLE credit this month, the IPO Chat Channel will host After Cuozzo: Litigation at the PTAB, U.S. District Court, and the Federal Circuit
Wednesday, July 6th, 3:00pm to 4:00pm ET.  The program will explore:

  • The avenues that remain open for challenging IPR institution decisions, and the pending cert petitions that challenge USPTO post-grant proceedings on constitutional grounds;
  • Whether a Federal Circuit decision on the reviewability of Covered Business Method reviews (CBMs) is inconsistent with Cuozzo;
  • The Federal Circuit decision SAS Institute v. ComplementSoft that gives guidance on procedural safeguards of the Administrative Procedure Act regarding post-grant proceedings;
  • Practical tips for litigators on how to deal with two different claim construction standards going forward and; 
  • What lessons should patent practitioners take from Cuozzo? 

I hope you are able to join me and my fellow speakers for this important discussion.

Patent Attorney Law Clerks Sought to Handle AIA Proceedings

As announced a few weeks back, the Patent Trial & Appeal Board (PTAB) will be taking on a limited number of law clerks.  The posting on USA Jobs (here) explains that: “[t]he Judicial Law Clerk will be responsible for assisting Administrative Patent Judges in the following: adjudicating inter partes review proceedings, post-grant review proceedings, covered business method review proceedings, and derivation proceedings; addressing appeals from adverse decisions of Examiners regarding patent applications, reissue applications, and reexamination requests; conducting interference proceedings; and other projects critical to the Board’s mission.”

While USPTO registration does not appear to be required, a technical background necessary to sit for the exam is, as is a state bar membership (prior to start date). This opening will close on July 5th, or when 300 applicants are received, whichever occurs first. Don’t delay.

High Court Upholds BRI & Appeal Bar for AIA Trial Proceedings

In Cuozzo Speed Technologies, LLC v. Lee, the Supreme Court  unanimously upheld the use of the broadest reasonable interpretation (BRI) of patent claims in AIA trial proceedings, and, upheld (6-2)  the appeal bar for AIA trial institution decisions.  While many simply assumed that the High Court would not have granted certiorari absent an interest in reversing the Federal Circuit, my take all along was that this was just a “kick of the tires” on a BRI issue the Court had not had occasion to address previously.  As I, and the rest of the patent world, have beaten the BRI topic to death, let’s move onto the second issue as this one is more than a bit murky going forward.  

To my eyes, the second issue was less predictable.  That is, did the appeal bar of 35 U.S.C. § 314(d) bar all appeals, or just interlocutory appeals of institution decisions? The High Court upheld the appeal bar, but in the process may have called into question the reviewability of a patent’s CBM eligibility as held by the Federal Circuit in Versata Development Group v. SAP America, Inc.

By way of reminder, the patent owner in Versata challenged the PTAB’s determination to institute a CBM, arguing that its patent was outside of the proper definition of a “business method” patent under § 18 of the AIA.  For its part, the USPTO argued that the appeal bar of 35 U.S.C. § 324(e) prevented any challenge to the PTAB’s CBM classification decision.  In its decision, the Federal Circuit determined that the classification of a CBM patent was a consideration of the “ultimate invalidation authority” under Section 18 of the AIA, and as such, appealable despite 324(e).

In this regard, the Federal Circuit explained:

[O]ne of the limits on § 18 invalidation authority is that the patent at issue be a CBM patent. Congress created a special review regime, over and above any other authority the PTAB might have, for reviewing and invalidating patents that qualify as CBM patents.  .   .    .This requirement defines the PTAB’s authority to invalidate under § 18. If a particular patent is not a CBM patent, there is no proper pleading that could be filed to bring it within the PTAB’s § 18 authority. In so concluding, we need not and do not consider all of the various determinations the PTAB may make to initiate proceedings and which may constitute limits on ultimate invalidation authority, reviewable on appeal from a final written decision invalidating a patent. It is enough for us to determine here that the defining characteristic of a patent as a CBM patent, subjecting it to a special PTAB power to invalidate, is such a limit.

(emphasis added)

Contrast the above language of the Versata holding with the majority decision in yesterday’s Cuozzo decision (here), upholding the appeal bar for IPR:

[W]e emphasize that our interpretation applies where the grounds for attacking the decision to institute inter partes review consist of ques­tions that are closely tied to the application and interpre­tation of statutes related to the Patent Office’s decision to initiate inter partes review. See §314(d) (barring appeals of “determinations . . . to initiate an inter partes review under this section” (emphasis added)). This means that we need not, and do not, decide the precise effect of §314(d) on appeals that implicate constitutional questions, that de­pend on other less closely related statutes, or that present other questions of interpretation that reach, in terms of scope and impact, well beyond “this section.” 

(underline added, other emphasis in original)

The High Court’s rationale (albeit in the context of IPR) appears to be that questions arising under the AIA statutes are not reviewable, only those questions relating to “constitutional” or “other less closely related statutes”, or questions beyond “this section” of the AIA.  This analysis would almost certainly exclude the Versata rationale noted above, which rests entirely on the “special power” accorded by AIA Section 18 to the agency.  Indeed, it is worth emphasizing that the definition for the “technological invention” aspect of this “special power” was left entirely to the agency to formulate. This type of “gap” filling was highlighted in the High Court’s discussion of Chevron deference.

Sec. 18 (d) DEFINITION.–
(1) IN GENERAL.–For purposes of this section, the term “covered business method patent” means 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.

(2) REGULATIONS.–To assist in implementing the transitional proceeding authorized by this subsection, the Director shall issue regulations for determining whether a patent is for a technological invention.

(emphasis added)

If there were any doubt over the potential applicability of the Cuozzo analysis to Versata, the dissent highlighted the concern:

Even more striking are the consequences that today’s decision portends for the AIA’s other patent review mechanisms, post-grant review and CBM review, which are subject to a “no appeal” provision virtually identical to §314(d). See §324(e) .   .    .    . Congress imposed a subject matter restriction: The Patent Office “may institute a [CBM review] proceeding only for a patent that is a covered business method patent,” which Congress defined to cover certain patents with claims relating to “a financial product or service.” AIA §§18(a)(1)(E), (d)(1), at 1442; see §18(a)(1)(A) .   .    .   . suppose that the Patent Office purported to forgive the post-grant review petition’s tardiness by declaring the challenged patent a “covered business method patent,” even though the patent has nothing to do with financial products or services (it claims, say, a new kind of tempered glass). Again, this involves the application of statutes related to the Patent Office’s institution decision. See AIA §18(a)(1)(E), at 1442 (Patent Office “may institute a [CBM review] proceeding only for a patent that is a covered business method patent”). So is this specious determination immune from judicial scrutiny under the Court’s reasoning?

The Federal Circuit may have some rethinking to do on the question of CBM standing.

For a deeper dive into Cuozzo issues, please join me on the IPO Chat Channel’s upcoming program entitled: After Cuozzo: Litigation at the PTAB, U.S. District Court, and the Federal Circuit.  July 6th @3PM  register (here)

HUMIRA® Subject to Additional IPRs

Guest Post by Tia Fenton & Jeff McIntyre

As discussed previously, biosimilar applicants can gain significant strategic advantage by availing themselves of Patent Trial & Appeal Board (PTAB) patent challenge mechanisms. Last week, the Board agreed to consider two additional patentability disputes over AbbVie’s HUMIRA® drug (IPR2016-00188 and IPR2016-00189).
 
In the new ‘188 and ‘189 IPRs, Coherus challenged the patentability of AbbVie’s U.S. Patent Nos. 9,017,680 (“the ‘680 patent) and 9,073,987 (“the ‘987 patent”), respectively.  The ‘680 and ‘987 patents are two of a series of patents covering various aspects of AbbVie’s HUMIRA® drug.  HUMIRA®, one of the top selling drugs in the world, is used to treat numerous autoimmune diseases including rheumatoid arthritis. Coherus announced its plans to file an application to market a biosimilar version of HUMIRA® in the second half of 2016 and filing IPRs against HUMIRA® patents is part of Coherus’s strategy for entering the market.

The ‘680 patent is a continuation of U.S. Patent No. 8,889,135 (“the ‘135 patent).  As discussed previously, Coherus filed IPR2016-00172 against the ‘135 patent, and the ‘172 IPR was instituted last month.  

In the ‘188 IPR, pending claims 1-4 (directed to methods of treating rheumatoid arthritis) were challenged as obvious over prior publications.  In the ‘189 IPR, pending claims 1-2 (also directed to methods of treating rheumatoid arthritis) were challenged as obvious over the same prior publications. The obviousness challenges were both supported by the declarations of two scientists.  AbbVie filed preliminary patent owner responses, but before the current rule change that would have allowed a responsive submission of new, expert evidence.  In its responses, AbbVie argued that Coherus’s position was flawed and that the claims were entitled to secondary considerations of non-obviousness.

At this preliminary stage, the PTAB agreed with Coherus, determining there is a reasonable likelihood that Coherus will show that the challenged claims are unpatentable.  The PTAB noted that, based on currently available evidence, HUMIRA®’s commercial success is not commensurate with the scope of the claimed invention.  Of course, this determination will likely be revisited once AbbVie is able to present evidence.  Trial will proceed and the PTAB will make a final determination on the patentability of the claims of the ‘680 and ‘987 patents within the next 12 months.

Coherus has lodged one additional IPR petition at the PTAB directed against another patent in AbbVie’s HUMIRA® portfolio, IPR2016-01018.  A decision on instituting trial in IPR2016-01018 will be issued in late fall.

Instituted Grounds Can be Supported with New Evidence Not Present in Petition/Institution Decision

Within the past week, the Court of Appeals for the Federal Circuit (CAFC) has issued two significant opinions on AIA trial practice—both of which explain the critical import of the Administrative Procedure Act (APA). As discussed earlier this week, 5 U.S.C. § 554(b)(3) prevents the Patent Trial & Appeal Board (PTAB) from introducing new claim interpretation theories without notice, or opportunity to respond in SAS Institute Inc., v. ComplemenSoft LLC. On the heels of that decision comes perhaps an even more significant decision in Genzyme Therapeutic Products LP v. BioMarin Pharmaceutical Inc.

In Genzyme, the Court dispelled a widely held belief held by many practitioners and PTAB judges alike.  Namely, that an AIA trial petition must function as a storehouse for all possible evidence and arguments.  In a plainly worded opinion the Federal Circuit found that “[t]he purpose of the trial in an inter partes review proceeding is to give the parties an opportunity to build a record by introducing evidence—not simply to weigh evidence of which the Board is already aware.” (emphasis added) (here)

Simply stated, this decision is an AIA trial practice game changer.

Genzyme appealed a PTAB final written decision in two IPR proceedings in which the Board held claims of two of its patents unpatentable as obvious.  In its Institution Decision, the Board instituted review of one patent on two grounds: a combination of a Duke press release and two references known as Barton and van der Ploeg ’88; and a .combination of a reference known as Reuser with Barton and van der Ploeg ’88.  The Board instituted review of a second patent based on a combination of the Duke press release, Reuser, and a reference known as van Hove. None of these references included data from in vivo tests on live animals.

In its trial responses, Genzyme introduced evidence of in vivo experiments, arguing that, because the Board did not institute review based on any references that included in vivo data, petitioner should not be permitted to use any prior art showing successful in vivo tests to demonstrate obviousness. However, in its trial reply, petitioner noted two in vivo studies, referred to as van der Ploeg ’91 and Kikuchi.  In its finding that the disputed claims were obvious, the Board found that a person of ordinary skill at the relevant priority date would have been motivated to pursue the clinical development of the therapy disclosed in Reuser.  As support for its findings as to the state of the art regarding in vivo studies, relevant to obviousness, the Board referred to the Kikuchi and van der Ploeg ’91 references, concluding that “a person of ordinary skill in the art would have had a reasonable expectation of success at the time the invention was made.”

Genzyme cried foul.

In its CAFC appeal, Genzyme had argued that the Board violated the requirements of notice and an opportunity to respond found in the Administrative Procedure Act (“APA”) because, in finding that the claims at issue were unpatentable, the Board relied on “facts and legal arguments” that were not set forth in the institution decisions–that is, the data on in vivo test results. Therefore, Genzyme argued, it was denied notice “of the issues to be considered by the Board and an opportunity to address the facts and legal arguments on which the Board’s patentability determination [would] rest.”

However, the Court found that Genzyme did have notice of the specific combinations of references that the Board relied on in finding the claims invalid, which did not change. The final written decisions in the IPRs only cited to additional evidence that reinforced these original trial grounds. That is, the in vivo studies were referenced in the obviousness determination, but only insofar as establishing what a person of ordinary skill would have known.  On Genzyme’s theory that this specific explanation needed to be in the petition from the start, the Court explained that “as long as the opposing party is given notice of the evidence and an opportunity to respond to it, the introduction of such evidence is perfectly permissible under the APA.”

Not stopping there, the Court amplified that there is no requirement for an institution decision to “anticipate and set forth every legal or factual issue that might arise in the course of the trial.” In the adversarial IPR process, evidence will be developed in the course of the trial and the Board complies with the APA if it allows the parties to receive “adequate notice of the issues that would be considered, and ultimately resolved,” at the hearing.  In this IPR, Genzyme–which brought up the subject of in vivo references initially– was not denied notice, or an opportunity to be heard “at a meaningful point.”

While earlier CAFC decisions on AIA trial practice such as Belden Inc., v. Berk-Tek LLC made clear that the Board had considerable discretion in allowing rebuttal evidence from petitioners that served to bolster a trial ground rather than formulate a new one, Genzyme makes clear that additional evidence is, in fact, expected. 

The practice of preparing the most comprehensive petition possible will still hold given the ability of patentees to present new evidence in their preliminary responses pointing out an evidentiary or legal oversight.  Yet, Genzyme has offered comforting clarity to petitioners, and makes decisions to institute AIA trial proceedings all the more formidable for patentees.

Pre-Suit Opinion of Counsel/PTAB Challenge Critical to Avoiding Enhanced Damages

Section 284 of the Patent Act provides that, upon a finding of patent infringement, courts “may increase the damages up to three times the amount found or assessed.” Up until this past Monday, the Federal Circuit’s en banc decision in In re Seagate Technology, LLC controlled  this determination, requiring patentees to show that an accused infringer’s actions were both objectively and subjectively reckless—both by clear and convincing evidence.

Needless to say, patentees rarely met these exacting burdens of proof.  

In most cases, accused infringers would raise ex post infringement defenses that raised “a substantial question as to the validity or non-infringement of the patent” to negate a finding of objective recklessness. In other words, even if the infringer was unaware of the colorable defense when infringement began, Seagate’s-objective prong could provide a get-out-of-jail free card if a colorable defense was later developed during trial. The ability to wait for a lawsuit was an especially cost effective tool for in-house counsel that hoped to avoid costly, proactive strategies such as procuring an opinion of counsel, or openly challenging the patent on at the PTAB.  That is, pre-suit, smoking gun evidence of infringement was readily negated by a proficient trial defense. 

The game has now changed—significantly—with the Supreme Court’s decision this week in Halo Elecs. v. Pulse Elecs (here)

In the much anticipated decision, the Supreme Court abrogated the Federal Circuit’s two-part test under Seagate for determining whether damages for patent infringement may be trebled from that assessed by the jury. Now, the decision to award enhanced damages is left to the discretion of the district court. 

Rather than focus on objective recklessness, the Court’s decision instructs the lower courts to look for culpable conduct, which “is generally measured against the knowledge of the actor at the time of the challenged conduct.” This is because enhanced damages are “designed as a ‘punitive’ or ‘vindictive’ sanction for egregious infringement behavior.” Most importantly, this showing is now based on the much more liberal, preponderance of the evidence standard.

The Court’s decision in Halo makes clear that an accused infringer’s pre-suit conduct is now of primary importance. And while there is no affirmative obligation on the part of an accused infringer to obtain—or later present to the jury—an opinion of counsel regarding invalidity and/or non-infringement to combat an allegation of enhanced damages, such opinions take on heightened importance after Halo.  Opinions are often preferred for nuisance matters as opinions are typically a fraction of the cost of a PTAB proceeding. For larger liability disputes, PTAB petitions might be prepared, pre-suit, for filing should litigation ensue. In this way, the petition can demonstrate both pre-suit, and post-suit reasonableness.

As noted above, the existence of a colorable defense at trial will no longer insulate against a finding of enhanced damages, at least as it pertains to pre-suit conduct. Thus, for any alleged culpable conduct occurring pre-suit, an accused infringer may be wise to have a competent opinion of counsel at the ready. Alternatively, the “opinion” may take the form of a “pocket IPR” for use once litigation ensues to establish the reasonableness of its actions in the face of the patentee’s infringement allegations.