New Declaration Evidence Proper If Rebutting Patentee Arguments to Trial Grounds

The Patent Trial & Appeal Board (PTAB) assesses the content of a patent challenger’s petition (in view of any patentee preliminary response) to determine whether or not to institute an AIA trial proceeding.  If trial is instituted, the Patentee may submit a Patentee Response together with any supporting testimonial evidence.  In most cases, the Patentee Response is the last Patentee response on the merits. Thereafter, the Petitioner, which has the burden of demonstrating unpatentability, is given the last substantive filing via its Petitioner Reply. A few months later, the oral hearing marks the conclusion of the formal trial schedule.

Since the Petitioner is provided with the last substantive response, a common dispute in AIA trial proceedings is the content of the Petitioner Reply.  That is, Patentee’s often argue that arguments or testimony of the Petitioner Reply are “new.”  This raises the question of whether or not the trial is limited to only that material present in the petition filing, or if it also encompasses rebuttal arguments, and more particularly, new rebuttal testimony of a declarant.
Not surprisingly, Patentees espouse the narrow view that trial is strictly limited to the content of the petition materials. On the other side of the debate, Petitioners point out that rebuttal of the Patentee’s arguments, whether via new testimony or argument, is entirely proper— especially as trial is still ongoing. The Board is drawn into this debate via a Patentee request to file a Motion to Strike the rebuttal, or Motion to Exclude as inconsistent with due process, Rule 42.23(b) and certain statements of the Trial Practice Guide. 

This dichotomy was addressed today by the Federal Circuit in Belden Inc., v. Berk-Tek LLC (here).   At issue in Belden was a rebuttal declaration first introduced by the Petitioner in its Reply.  On appeal the Patentee challenged the PTAB’s denial of Patentee’s Motion to Exclude the declaration as a violation of due process, and inconsistent with the Rules and Trial Guide.  The Court found “new” rebuttal evidence to be lawful and fair, emphasizing the additional procedural safeguards offered by the PTAB to adress such during trial. 

The Court first addressed the argument that the new declaration violated Rule 42.23(b), explaining:

Belden asserts that Berk-Tek’s filing of the Baxter declaration violated 37 C.F.R. § 42.23(b), which states that “[a] reply may only respond to arguments raised in the corresponding opposition or patent owner response.” The Board found no violation, concluding that Mr. Baxter’s declaration “fairly responds to Mr. Clark’s declaration” and is “generally . . . in fair reply to Mr. Clark’s declaration and/or Belden’s response to the revised petition.” We see no error in that ruling.

Next, as to the statements of the Trial Guide, the Court explained:

Belden relies on a passage from the Patent Office Trial Practice Guide that elaborates on the regulation that limits replies to responsive arguments, excluding new issues. The passage states that “[e]xamples of indications that a new issue has been raised in a reply include new evidence necessary to make out a prima facie case for the . . . unpatentability of an original . . . claim.” 77 Fed. Reg. at 48,767. Belden argues that the Baxter declaration, submitted with Berk-Tek’s Reply, was necessary to make out the prima facie case of obviousness and for that reason should have been excluded. Although the Board has recognized that the Guide merely “provides guidance,” Innolux Corp. v. Semiconductor Energy Lab. Co., IPR2013-60, 2013 WL 8595541, at *3 (PTAB May 3, 2013), the Board did not reject Belden’s contention on the ground that the Guide is not a binding regulation. Rather, the Board rejected Belden’s premise “that Mr. Baxter’s testimony was necessary for Berk-Tek to establish a prima facie case.” We see no error in that ruling                                                                                                        
                                                          .          .          .         .          .
To be sure, the Board cited Mr. Baxter’s declaration in its Final Written Decision—mostly in explaining why it was rejecting Belden’s arguments, but partly in stating the affirmative reasons to find the motivation required for a prima facie case. But such citations do not mean that the Baxter declaration was “necessary” for the prima facie case. Evidence admitted in rebuttal to respond to the patent owner’s criticisms will commonly confirm the prima facie case. That does not make it necessary to the prima facie case. And nothing required the Board to write its opinion to separate the material offered by Berk-Tek at different stages of the proceeding.

(emphasis added, internal citatons omitted)

Finally, the Court emphasized additional PTAB procedural mechanisms to address due process concerns for new declarations, noting the failure of Patentee to avail themselves of most:

[I]f the petitioner submits a new expert declaration with its Reply, the patent owner can respond in multiple ways. It can cross-examine the expert and move to file observations on the cross-examination. It can move to exclude the declaration. It can dispute the substance of the declaration at oral hearing before the Board. It can move for permission to submit a surreply responding to the declaration’s contents. And it can request that the Board waive or suspend a regulation that the patent owner believes impairs its opportunity to respond to the declaration. The options are not mutually exclusive.

In the foregoing respects, the Board’s rules and practices establish standards bearing similarities to those often applied in district-court litigation.  .    .    .Those standards are widely employed to provide the required procedural fairness through careful case-specific application.

Here, the Board held Berk-Tek to the response-only standard for evidence submitted with a Reply and even held itself to ensuring that the prima facie case did not depend on that evidence. It provided for Belden’s cross examination of Mr. Baxter and for submission of nonargumentative observations on that cross-examination. It accepted Belden’s detailed motion to exclude (and its reply after Berk-Tek’s response). It provided Belden with a meaningful opportunity to respond to the propriety of Mr. Baxter’s evidence submitted with Berk-Tek’s Reply, in that it granted every request Belden made for consideration of the issue. Belden did not seek to file a surreply, to file additional observations on its cross-examination, to make arguments in those observations, or to have the Board waive any other regulations that it believed prevented it from adequately responding to Mr. Baxter’s declaration. With no Board denial of concrete, focused requests before us, we are not prepared to find that Belden was denied a meaningful opportunity to respond to the grounds of rejection, and we find no basis for disturbing the Board’s denial of Belden’s motion to exclude.

(emphasis added,internal citations omitted)

This decision should help provide much needed clarity to the propriety of Petitioner Replies and supporting testimonial evidence.

Fee Setting Authority to be Exercised for FY 2017 (Oct. 2016)

In advance of the November 19, 2015 Patent Public Advisory Committee (PPAC) meeting, the USPTO has distributed its first fee change plan.  As a reminder, the agency was given fee setting authority under the America Invents Act, this is the first time that authority is being exercised.  The PPAC will provide input on the proposed fees (both patent and trademark) at its upcoming meeting.  Thereafter, the USPTO will issue a Federal Register Notice in January of 2016, with plans on a final notice of rulemaking, and implementation for fiscal year 2017 (October 1, 2016). 

Notable Patent Trial & Appeal Board (PTAB) fee increases include:
fees
(USPTO fee setting page here for more background)

1. IPR fees will increase from $23,000 to $30,500      (Request increases $5k, Institution $2.5K)
2. PGR/CBM fees will increase from $30,000 to $38,000    (Request increase $4k, Institution $6K)
3. Appeal to PTAB from ex parte proceeding will increase from $2800 to $3500 (Notice of appeal + appeal forwarding, large entity)

Notable fee decreases:
1. Ex parte reexamination requests that are less than 40 pages are discounted 50% relative to existing fees, which remain unchanged.

Notable increase in prosecution fees
1. $600 increase for IDS submissions after notice of allowance
-(Note: Proposal to eliminate need for RCE with IDS, and QPIDS program).

Secondary Indicia of Greater Value in Bio/Pharma

The submission of objective evidence of non-obviousness is rarely effective in the predictable arts (i.e., mechanical/electrical).  This is because such evidence must have a “nexus” to the claimed invention.  And, as the most common secondary indicia is “commercial success,” rarely do broadly drafted patent claim elements so cleanly coincide with sales results.  Long-felt but unsolved need is a further secondary consideration that is less prevalent in the predictable arts as it is in more traditional, laboratory driven industries.  Nexus is a significant hurdle in the predictable arts.

On the other hand, patent claims in the unpredictable arts, such as new drug formulations can have an especially compelling nexus to market appeal and unfilled need.  Where a drug is an improvement over existing formulations, or an altogether new treatment, commercial success and long, unmet need are easily tied to the specific formulations of the claims.  For this reason, secondary indicia of non-obviousness is a far more compelling rebuttal to a patentability challenge of the USPTO’s Patent Trial & Appeal Board (PTAB).

Given the modest, but growing rate of PTAB challenges in the unpredictable arts, petitioners should be wary of challenging especially popular drug formulations.

Last week, in Phigenix Inc. v. Immunogen Inc. (IPR2014-00676), in finding for the Patentee, the Board explained (here):

. . . Patent Owner cites substantial evidence of objective indicia of non-obviousness in relation to claim 8, which is directed to the T-DM1/Kadcyla® commercial product. PO Resp. 34–60 (citing evidence regarding T-DM1 and unexpected superior results as compared to closest prior art compositions, fulfilling a long-felt and unmet need, praise in the field, and commercial success). For example, Patent Owner provides evidence that T-DM1 fulfilled a long-felt, unmet need for an immunoconjugate capable of targeting a solid tumor in patients without excessive toxicity. Id. at 46–57 (citing, for example, Ex. 2103 ¶¶ 24–48; see id. at ¶¶ 26–28 (citing exhibits including Ex. 2062) (discussing numerous clinical trials testing ability of immunoconjugates to treat solid tumors before March 2000, where “none of these immunoconjugates proved safe and effective for treating solid tumors”); Ex. 2134 ¶ 106 (citing exhibits). Patent Owner also provides evidence regarding the commercial success of T-DM1/Kadcyla® . PO. Resp. 57–60 (citing, for example, Ex. 2131 (testimony by Mr. Jarosz, analyzing sales and prescription data, and marketing and promotional efforts relating to Kadcyla® )). In view of the specific components recited in claim 8, i.e., a specific antibody, linker, and toxin, which are the same as those in T-DM1/Kadcyla® (PO. Resp. 35 (citing Ex. 2025, 14), we are persuaded that Patent Owner establishes a sufficient nexus in relation to the cited objective evidence of nonobviousness.

(emphasis added)

Given that it is not currently possible to provide a fulsome presentation of such evidence prior to PTAB institution, (i.e., due to current restraints on new testimonial evidence in Patentee preliminary response filings, soon to change) one would expect that the rate of claim cancellation in Bio/Pharma to be less pronounced as compared to the predictable arts.  This difference in ultimate success rates is already reflected in the lower institution for predictable (70%) vs. unpredictable arts (50%).  

Public Comment Period Extended until November 18th

The USPTO published a request for comments in the Federal Register on August 25, 2015, seeking public comment on a proposed pilot program exploring an alternative approach to institution decisions in post grant administrative reviews before the Patent Trial and Appeal Board. See Request for Comments on a Proposed Pilot Program Exploring an Alternative Approach to Institution Decisions in Post Grant Administrative Reviews, 80 Fed. Reg. 51,540–42 (Aug. 25, 2015).

The USPTO initially indicated that written comments must be received by today. In view of stakeholder requests for additional time to submit comments on the proposed amendments to the rules of practice for trials, the USPTO is now extending the period for public comment until November 18, 2015.

My comments on this proposal can be found (here)

Public Comment Period Extended until November

The USPTO published a notice of proposed rulemaking in the Federal Register on August 20, 2015, seeking public comment on proposed amendments to the rules of practice for trials before the Patent Trial and Appeal Board. See Amendments to the Rules of Practice for Trials Before the Patent Trial and Appeal Board, 80 Fed. Reg. 50,720–47 (Aug. 20, 2015).

The USPTO initially indicated that written comments must be received on or before October 19, 2015. In view of stakeholder requests for additional time to submit comments on the proposed amendments to the rules of practice for trials, the USPTO is now extending the period for public comment until November 18, 2015.

As of yet, there is no change to the comment period for the Single-APJ Pilot (October 26, 2015)

October/November CLE & Beyond

Next Monday and Tuesday, the 15th Annual Sedona Conference on Patent Litigation will be held in Reston Virginia. This two-day event includes a variety of noteworthy topics, PTAB topics include: The Inter Partes Review (IPR) process: purpose, standing, 1 year time bar, assignor estoppel; Is the IPR process too restrictive – can the parties really litigate all the necessary issues?; and The impact of post-grant proceedings on patent enforcement and monetization. (Register here)

On November 17th, Intellectual Asset Management (IAM) will host, Patent Law and Policy: Courts, Congress and the Monetisation Landscape in Washington DC. The day-long event will include sessions analyzing recent changes in licensing case law and policy, key patent decisions from the Supreme Court, the impact that post-AIA reviews are having on the patent system and the view from investors on how the courts and policymakers are affecting their views of the patent market. Significant discussion will also focus on ongoing patent reform legislation efforts. (Register here)

Looking forward to 2016 is the most widely attended post-grant program of the year, Practicing Law Institute’s USPTO Post-Grant Patent Trials 2016. I am happy to return as chair of this program along with Rob Greene Sterne of Stern Kessler Goldstein & Fox. These programs are always the highlights of the CLE year.  (Register here)
Mar. 14, 2016 New York, NY
March 31, 2016 San Francisco, CA (webcast available)

I hope to speak to you at one of these upcoming programs.

New De Facto Precedent on Question of Issue Joinder

In Target Corp. v. Destination Maternity Corp (IPR2014-00508), the Board departed from previous PTAB practice on issue joinder for the first time. That is, up until Target, a same petitioner was able to join a first-filed petition with a later filed, second petition (i.e., “issue joinder). The first Target decision determined that issue joinder was outside of the statutory authority granted by 35 U.S.C. § 315(c). cf. Microsoft Corp. v. Proxyconn, Inc., (IPR2013-00109, Feb. 25, 2013). Thereafter, an expanded, but divided, panel, reversed, that finding on rehearing. Since that time, as the ultimate decision in Target  was not precedential, the question of whether or not issue joinder is permitted by statute has become panel dependent.

Now, based upon a recent decision of the Board (which tracks a recent brief filed by the USPTO with the CAFC), it appears the Board is moving toward a more consistent policy of accepting issue joinder.
In IPR2015-00762 Zhongshan Broad Ocean Motor Co., et al., v. Nidec Motor Corp., as in Target, the Board first found issue joinder was not supported by 35 U.S.C. § 315(c), then reversed on rehearing. (here) 

On rehearing, the petitioner emphasized the USPTO’s argument filed with the Federal Circuit this past June in the Intervenor Brief of Yissum Research Dev. Corp. v. Sony Corp., Appeal No. 2015-1342.  In that Brief, the Solicitor argued that issue joinder was a matter of discretion, but that the Board had been consistent in permitting issue joinder under the statute.  Brief at pg. 16; and footnote 4 (here) .  The brief distinguished cases where issue joinder was denied as a failure of the petitioner to seek rehearing. In it’s request for rehearing, Zhongshan pointed out the Solicitor’s argument to the PTAB:

[T]he Patent Office further told the Federal Circuit that by the Target Decision Granting Petitioner’s Request for Rehearing (by expanded panel), “[t]he USPTO thus has acted to ensure that its pronouncements remain consistent on this issue, which is the antithesis of Yissum’s suggestion that the USPTO ‘can’t make up its mind about the proper interpretation’ of §315(c).” 
                                                                     .                    .                 .                .               .
On June 25, 2015, the Patent Office publicly announced, via the Intervenor’s Brief, that §315(c) is to be broadly interpreted as set forth in Target. Indeed, the Patent Office told the Federal Circuit that it should defer to the Board’s broad interpretation of §315(c) set forth in Target, citing Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 842-43 (1984).

(internal citations omitted)

In reversing the earlier decision, as it also did in Target, the Board concluded:

Upon consideration of the arguments asserted by Petitioner and Patent Owner, and for the reasons explained by several majority opinions in prior decisions of the Board, we conclude that § 315(c) permits the joinder of any person who properly files a petition under § 311, including a petitioner who is already a party to the earlier instituted inter partes review. We also conclude that § 315(c) encompasses both party joinder and issue joinder, and, as such, permits joinder of issues, including new grounds of unpatentability, presented in the petition that accompanies the request for joinder.

Although unstated in the decision, the position taken by the USPTO before the CAFC seems to indicate a, new, de facto precedent finding issue joinder statutory.  Likewise, as explained last week, the USPTO has asked Congress to clarify the joinder statute in this regard as well. Thus, while issue joinder may still be denied as a matter of discretion on a case-by-case basis, for example, where gamesmanship is present, outright denials based upon statutory interpretation would seem foreclosed going forward.

While reasonable minds may differ on statutory interpretation, consistency is a good thing.

 

PTAB Finds IPR Filing of Hedge Fund Has Merit

Today, in IPR2015-00988, the Patent Trial & Appeal Board (PTAB) instituted review of Cosmo Technologies patent 7,773,720. The patent is directed to controlled release oral pharmaceutical compositions containing 5-amino salicylic acid, also known as mesalazine or 5-ASA, as an active ingredient. Mesalazine is used to treat Crohn’s disease and ulcerative colitis, which involve inflammation of the intestines. (decision) This brings the Bass IPR petition record to 1-3, with several more decisions due this month (Celgene, Biogen, Jazz Pharma, NPS Pharma, Pharmacyclics Inc.)  filings.

The petition filing proposed three grounds of unpatentability directed to claims 1-4 of the ‘720 patent, only one of which was accepted by the Board. Of course, at this point, Cosmo has yet to submit any evidence of its own, with the full administrative trial proceeding ahead.

Whether or not claims 1-4 of this patent are ultimately cancelled remains to be seen as challenging patents in the unpredictable arts is, well, unpredictable. The continued viability of this investment model will likely depend on the outcome of the remaining petitions, (9) of which are due to be decided in the next month.  If the majority of those are declined, it would seem unlikely that the market will continue to take such filings seriously. On the other hand, if a majority are instituted this month, patent reform will be thrust back to center stage.  

Strafford Legal Webinar This Thursday

This Thursday October 8th, I, along with former USPTO Commissioner for Patents Peggy Focarino, will host the Strafford Legal webinar Proactive Patent Procurement and Prosecution Strategies: Minimizing the Threat of Post-Grant Challenges. The program will assess the changing assertion and procurement landscapes with a particular focus on strategies that account for the growing prominence of the USPTO’s Patent Trial & Appeal Board (PTAB). CLE credit is provided, 1.5hrs. (register here)

USPTO AIA Implementation Report Explains Progress, Recommends Changes

Two weeks back, the USPTO provided a report to Congress on the implementation of the America Invents Act (AIA) (as required by the legislation). The 65 page report (here) explains the administrative effort to implement the mechanisms of the AIA, as well as four years of statistics. Of particular interest to me are the recommendations to Congress on adjusting IPR/PGR mechanisms, as well as some of the statistics on such procedures as third party submissions and (the all but forgotten) supplemental examination. 

As to proposed changes for IPR and PGR, the report recommends that the joinder statute be clarified to expressely permit not just party joinder, but issue joinder.  The USPTO explains that:

Section 6 permits the PTAB to join as a party to an IPR any person who properly files a petition that the Director, after receiving a preliminary response or the expiration of the time for filing such a response, determines warrants the institution of an IPR. Section 6 does not state explicitly that a party can join an ongoing trial where the party is already a participant. The USPTO recommends clarifying the joinder provisions to state that same party joinder is permitted. A statutory change would confirm that a party may join claims to an ongoing trial where the party is already a participant. Absent the change, a party could potentially be precluded from challenging newly-asserted claims from related district court litigation. Making the change would encourage efficiency by enabling one proceeding to include more issues, which would be less burdensome on the parties and the USPTO.

This recommendation makes sense given the lack of controlling precedent at the PTAB. (Note: a proposal in the pending Senate legislation suggests altering the 315(b) bar for amended complaints to address the same problem). A change that would greatly simplify joinder would be to omit the aspect of the statute that requires the party seeking party joinder to file an actual copycat petition. A simple paper expressly adopting the positions of the first filer is far more sensible, at least for party joinder. 

Another change relates to issues of real-party-in-interest and privity. 

Additionally, section 6 requires a petition for an IPR to identify all real parties in interest. The USPTO recommends that the statute be amended to allow for timely correction of real party in interest identification where an error in identification arose without deceptive intent. Real party in interest determinations are highly fact-dependent. Courts have avoided rigid definitions or recitation of necessary factors and take the facts into account on a case-by case basis. Errors in identifying real parties in interest sometimes occur without deceptive intent and currently are not correctable. A statutory change is necessary to avoid situations where petitions are denied based on good-faith, inadvertent errors in identifying all real parties in interest.

The PTAB , like most stakeholders, was caught off guard by the focus of this seemingly innocent statutory requirement in many early filings. Given the potential to terminate a proceeding by proving an improper RPI listing (outside of the 12 month window, thus preventing refiling), this issue is pursued in a surprising number of filings.  In some early cases improper RPI listings were simple oversights. But, since that time, petitioners have learned to be wary of this issue. As such, I’m not sure the suggested change is necessary at this point.

The recommendations to change PGR practice mirror those for IPR.

With respect to CBM, the agency points out that the Alice decision is enabling many patents to be defeated under 101 grounds in the district courts. Therefore, the USPTO does not see the continued need for CBM beyond the 2020 sunset date, explaining:

The purpose of the CBM provision was to enable third parties to challenge covered business method patents issued under pre-AIA law for subject matter ineligibility. Since enactment of the AIA, U.S. law has been evolving in the courts. Notably, U.S. judicial practice has evolved in the wake of the Supreme Court decision in Bilski v. Kappos, 561 U.S. 593 (2010), which addressed the subject matter eligibility of business methods and has helped prevent ineligible business methods from being patented. This change in case law renders the need for the CBM provision unnecessary.

While it is true that courts have been especially receptive to 101 challenges since Alice, that is not the case in all districts. Moreover, a CBM challenge under 101 is likely to be far more cost effective at the PTAB. That said, the reason for the original sunset, namely, that few if any patents will exist in 2020 that issued prior to Bilski, remains true.

Finally, some interesting statistics on third party submissions:
Pages from Report on Implementation of the AIA September2015-2 
As can be seen from the statistics above, third party submissions, while far from common, have been filed in a modest number of applications. (It would have been interesting to know how many of these submissions were filed anonymously, I’m guessing most). Whether or not such submissions are a prudent use of invalidating art remains to be seen.

The report also demonstrates the unpopularity of supplemental examination.

Pages from Report on Implementation of the AIA September2015
As a reminder the primary goal of SE was to provide a mechanism to cure potential inequitable conduct issues via a post-grant proceeding. However, the Therasense decision, coupled with the uniquely complex formal requirements of SE filings have rendered such filings unattractive in most circumstances.