Pilot Program to Limit APJ Review For IPR Institution

As promised in last week’s rule package, a second Federal Register Notice (here) has issued from the USPTO’s Patent Trial & Appeal Board (PTAB). This Notice, entitled: Request for Comments on a Proposed Pilot Program Exploring an Alternative Approach to Institution Decisions in Post Grant Administrative Reviews, proposes to select IPR petitions for inclusion in a pilot program whereby only a single Administrative Patent Judge (APJ) decides the petition (CBM and PGR are excluded). Currently, three APJs review IPR petitions prior to instituting an AIA trial. However, three judges are only statutorily required for trial, not institution.  So, the PTAB is exploring ways to become more efficient in view of its growing workload.

Before implementing the program, the PTAB has requested comments as follows, my preliminary comments are in red:

1. Should the USPTO conduct the single-APJ institution pilot program as proposed herein to explore changes to the current panel assignment practice in 
determining whether to institute review in a post grant proceeding?

Institution decisions are not reviewable by the CAFC outside of very limited circumstances See SAP v. Versata (CAFC 2015). As such, it would seem inevitable that pilot program decisions, would be disproportionately subject to requests for rehearing relative to three-judge panel decisions. Thus, any gain in efficiency would almost certainly be offset by the increased rehearing workload, especially if additional judges are offered for such rehearings (which probably should be the case to avoid inconsistent rulings).

Consistency is a growing concern given the expanding PTAB workload, relatively few precedential decisions, and utilization of newly hired judges.  Perhaps a better compromise would be to explore a two-judge pilot.  Where there is disagreement between the two-assigned judges, the case can be removed from the program for the traditional three judge track.  Of course, switching tracks will require earlier consideration of the petition, but such is already contemplated in the pilot proposal.   

Single-APJ review will be very unpopular with petitioners given the limited options for review. A two-judge, hybrid approach would be received more favorably. While efficiency gains would be less pronounced with the hybrid approach, the participation of a second conferee would serve as a necessary safeguard.

2. What are the advantages or disadvantages of the proposed single-APJ institution pilot program?

The obvious advantages are administrative efficiency and optics.  As to optics, patentees will feel like they have a better chance of convincing judges not “invested” in the institution decision.  While that fear is, of course, unfounded given the review of the CAFC of final written decision, it would be one less unfounded complaint the agency will need to hear about going forward.

Disadvantages are addressed above, namely, decreased petitioner confidence due to the increased likelihood of inconsistency across decisions, and an expanded rehearing docket. Another disadvantage might be decreased agency revenue.  That is, assuming that a single-APJ or hybrid pilot is advanced, the filing fees may need to be downwardly adjusted. These fees were calculated based on 100 hours of judge time (presumably across three judges). (here)  

It would seem to me that in order for a pilot to be effective:

  • Two APJs should be used for consistency and to decrease the likelihood of increased rehearing requests  (if a third is necessary the case exits the pilot)
  • Only senior judges would be eligible for pilot case review. (If going with a two-judge, hybrid, the second could be less senior to benefit from being teamed with the senior judge. Of course, the Board would need to consider the selection of the second judge carefully to avoid undue deference being shown to the more senior judge).
  • The PTAB might offer some incentives for voluntary participation to expand the program (e.g., decreased petition fee, modest page limit expansion (5-10 pages), or an institution decision within two months of any preliminary response, etc.).

3. How should the USPTO handle a request for rehearing of a decision on whether to institute trial made by a single APJ?

For consistency sake, in a single-APJ pilot, one additional judge would have to be assigned (perhaps a third in the case of disagreement).  As noted above, one downside of such expanded staffing on rehearing would be an increased likelihood of rehearing requests for pilot cases.  Dissatisfied parties would have nothing to lose in seeking additional APJ review on rehearing (i.e., a default, expanded panel in the case where additional judges are included).

4. What information should the USPTO include in reporting the outcome of the proposed single-APJ institution pilot program?

-Comparison of rehearing rate with non-pilot cases
-Statistical differences in grant/denial rate
-Average tenure of single-APJ panels (that is, newer judges should be excluded from any single-APJ pilot)
-PTAB efficiency gains

5. Are there any other suggestions for conservation and more efficient use of the judicial resources at the PTAB?

More on this later

Just my two cents, comments are due October 26, 2015

Kyle Bass & Friends Swing and Miss in First Two Attempts at IPR

Today, the Patent Trial & Appeal Board (PTAB) denied institution of IPR 2015-00720 and IPR2015-00817 (here and here). These IPR petitions, targeting U.S. Patents 8,663,685 and 8,007,826 of Accorda Therapeutics, were advanced by the so-called “Coalition For Affordable Drugs.”  The Coalition, more widely recognized as a creation of hedge fund manager Kyle Bass, has filed 20+ petitions in the past few months against various drug patents. 

These PTAB denials are likely the first in a long series of disappointments for the Coalition.

The ‘720 and ‘817 proceedings were denied as the petitions did not demonstrate sufficient evidence as to the publication of the underlying references (meeting posters). The Board explained:

Here, we agree with Patent Owner that Petitioner presents insufficient evidence as to how long the Hayes or Goodman poster was presented at any scientific meeting. Prelim. Resp. 16–17. The only credible evidence of record indicating that the posters were presented at all is in the form of IDSs stating that the posters were “presented.”

Similarly, Petitioner presents insufficient evidence in relation to “the expertise of the target audience,” i.e., anyone who actually saw either poster. Id. at 17. Petitioner likewise presents insufficient evidence in relation to any reasonable expectation that one could have copied the poster material, or evidence regarding the ease with which the poster material could have been copied. Id. at 18–19. Overall, evidence of record fails to demonstrate that the posters nonetheless were made sufficiently publicly accessible. For example, evidence of record does not indicate adequately how long the posters were presented to anyone, or to whom exactly, or what conversations anyone might have had with authors about the posters.

In addition, our review of the posters themselves indicates that they both present relatively dense material in a small space. Ex. 1031, 2; Ex. 1030, 2. As stated by the Federal Circuit, the “more complex a display, the more difficult it will be for members of the public to effectively capture its information.” Klopfenstein, 380 F.3d at 1351.

Given these decisions, and the outstanding sanction motions in the other Coalition petitions (for improper use of agency resources), perhaps Mr. Bass should set up a second fund that takes “long” positions in the patents he has targeted.  Just a suggestion, this is only going to get worse.

PTAB + Octane Fitness = Problem

Back in 2014, I explained that the recent shift in exceptional case analysis under Octane Fitness, LLC v. ICON Health & Fitness, Inc. and Highmark Inc. v. Allcare Health Mgmt. Sys., would provide opportunity for successful Patent Trial & Appeal Board (PTAB) petitioners. This is because accused infringers are universally embracing PTAB proceedings as an alternative to high cost litigation, and, are increasingly seeking fees after Octane.

Last week, the Southern District of California awarded fees of roughly $400k to a successful USPTO patent challenger in Deep Sky Software, Inc. v. Southwest Airlines Co., 3-10-cv-01234 (CASD).
In Deep Sky, (Order here) the parties jointly moved to stay the proceeding in 2011 pending inter partes patent reexamination. Once the reexamination concluded, cancelling all claims, the defendant moved to recover costs associated with the reexamination. In awarding fees, the Court explained:

The issue of whether a prevailing party in an exceptional case may recover fees for proceedings before the PTO, when the case was stayed due to the PTO proceedings, has received little attention. Several courts have awarded fees for PTO proceedings, others have not.

The Federal Circuit “interpret[s] attorney fees to include those sums that the prevailing party incurs in the preparation for and performance of legal services related to the suit.” Cent. Soya Co. v. Geo. A. Hormel & Co., 723 F.2d 1573, 1578 (Fed. Cir. 1983) (emphasis added). Here, the legal services counsel performed for defendant during reexamination of the ‘770 Patent were related to this suit. Reexamination was initiated during and in reaction to plaintiff’s action here. Further, the PTO’s cancellation of the asserted ‘770 Patent claims on grounds of invalidity disposed of plaintiff’s complaint here and made defendant the prevailing party. Thus, just as the parties envisioned when they jointly moved to stay this case, the reexamination proceedings essentially substituted for work that would otherwise have been done before this court. See PPG Indus., Inc., 840 F.2d at 1569 (the prevailing party was “entitled to reasonable attorney fees based upon the premise that the reissue proceedings substituted for the district court litigation on all issues considered by the PTO and the Board.”). Thus, under the unique circumstances of this case, defendant may recover fees for the reexamination proceedings.

While many courts may still be reluctant to find a case exceptional, actions of plaintiffs that have patents under PTAB review should alter the analysis.  For example, plaintiffs that are still pursuing new litigations against other defendants while their patents are under PTAB review would not seem to be especially prudent. Especially those that settle the PTAB trial only to force new defendants to restart the PTAB petition process. Another red flag may be a plaintiff suing on patent claims that are related to, or of broader scope to claims being reviewed by the PTAB.

Software Partnership Meeting October 21st

The United States Patent and Trademark Office (USPTO) has announced that the Software Partnership has joined with Partnering in Patents for the next meeting on October 21, 2015 at the main USPTO campus in Alexandria, VA  (register). The meeting is an all-day event including a morning interactive focus session and an afternoon lecture program/discussion session. The morning focus session will be held from 9:00 am – 11:00 am and will feature an interactive group discussion on tools for quality enhancements. The afternoon program will run from 12:00 pm – 4:00 pm with discussion topics including USPTO initiatives, functional claiming, 35 U.S.C. § 101 and patent quality.

The afternoon session will be available via WebEx. The program is free, those seeking CLE will need to pay an administrative fee.

Given that 101 and functional claiming have become moving targets of late, the afternoon session is especially appealing for all practitioners.

Customers of a Defendant Supplier Do Not Have CBM Standing

The Patent Trial & Appeal Board (PTAB) denied institution of a CBM review of Phoenix Licensing, LLC’s (“Phoenix”) 8,352,317 patent in CBM2015-00068, determining that the only remaining Petitioner, Acxiom Corp. (“Acxiom”), lacked standing under § 18(a)(1)(B) of the AIA. (here)

By way of background, the Petition was originally filed by four entities, but the proceeding was terminated with respect to AT&T Mobility LLC, AT&T Services, Inc., and Ford Motor Company (“Ford”), leaving only Acxiom. Under § 18(a)(1)(B), a person may not file a CBM unless the person or the person’s real party in interest or privy has been sued for infringement of the patent or otherwise charged with infringement of the patent. As such, CBM petitions are required to establish that the petitioner meets the standing requirements with sufficient proof. In this case, the Petition merely stated that Acxiom is one of the “real parties-in-interest to and/or privies of one or more parties who have been sued…” without providing any additional explanation or evidence.

The PTAB explained that the allegation that Acxiom is a privy of one or more parties who have been sued for infringement would be insufficient even if supported by evidence. Specifically, under the law, one of the parties sued would have to be a privy of Acxiom, rather than vice versa as Acxiom alleged. The PTAB explained that the fact that Ford had been sued by Patentee does not mean that every privy or customer of Ford has standing to file a request for a CBM. Therefore, since the Petition provided no explanation or evidence that a privy of Acxiom’s had been sued, the PTAB declined to institute trial.

While an interesting decision, in the typical case a supplier steps in to protect its customers from a lawsuit by filing a CBM.  This was the “privity” specifically contemplated in the legislative history. As to the converse, customers that are not sued rarely pick a fight that upstream entities are battling. This appears to be a bit of a corner case.

Expected Changes to Patentee Preliminary Response Among Noteworthy Changes

The USPTO has now published its promised Patent Trial & Appeal Board (PTAB) Rule Package (advance copy here). The proposed changes are largely expected given the discussion coming out of the agency for months on these issues.  The proposals are as follows:

  •  Allow patent owners to include, with their opposition to a petition to institute a proceeding, new testimonial evidence such as expert declaration. This change responds to commentary raising concerns that patent owners are disadvantaged by current rules that let petitioners’ evidence go unanswered before a trial is instituted.
  • Add a new requirement on practitioners before the PTAB, akin to the Rule 11 requirements in federal courts, to give the USPTO a more robust means with which to police misconduct.
  • Clarify that the PTAB will use the claim construction standard used by district courts for patents that will expire during proceedings and therefore cannot be amended, while confirming the use of broadest reasonable interpretation (BRI) for all other cases.
  • Explains that the PTAB’s development of motions-to-amend practice through its own body of decisions, including a recent decision that clarified what prior art a patent owner must address to meet its burden of proof. 
  • Changes the page limit system for petitions and preliminary response to account for word count (i.e., IPR petition 14,000 words or 60 pages). New word count would permit argument to be added to claim charts.
  • Require demonstratives be submitted 7 days before oral argument (currently 5 days).

Obviously, the clarification of the claim construction used for soon-to-be-expired patents, and the ability to file testimonial evidence in a preliminary response are the most noteworthy changes. Given that disputed facts are construed in favor of the petitioner, I would not expect the new testimony to advance the needle much for patentees. But, this change will dispense with yet another “unfairness”criticism that has little practical impact in most cases.

In the Notice the Office also explains that:

  • The Trial practice Guide is being updated/revised
  • Oral testimony will remain a case-by-case decision
  • The Office may issue a request for comment on the use of one-judge panels on institution (pilot program)
  • The Garmin factors remain, although when seeking discovery on RPI and privy, the timing of the request will also weigh heavily
  • A fulsome nexus showing is not required for discovery on secondary indicia, but some explanation of nexus is necessary
  • Decisions on how to manage related reissues and reexaminations will be case-by-case

As will all Notice and Comment Rule making, these changes will not go into effect until the Final rules publish some months from now, likely early 2016. (Comments will be due from the public in October).

Functional Aspect of Structural Term Overlooked

Yesterday, in Power Integrations, Inc., v. Lee (CAFC 2015) the Court considered the rejection of claims 1, and 17-19 of  U.S Patent 6,249,876. Reexamination of the ‘876 patent was initiated by the USPTO in 2006 at the request of Fairchild Semiconductor. At issue in the reexamination (and in a parallel infringement action) was the meaning of the claim terminology  “coupled to.” The Patentee insisted that this terminology had both a functional and structural meaning. On appeal to the Board of Patent Appeals and Interferences (BPAI — Now the PTAB), affirmed the examiner’s rejection of the claims. In doing so, the Board appeared to focus only on the structural aspect of the disputed claim terminology.

The CAFC reversed and remanded finding that the Board’s focus on the structural aspects of the disputed claim terminology to be “red herring.”  
The Board stated that Patentee “appear[ed] to argue that one of ordinary skill in the art would understand the term ‘coupled to’ to restrict device connections to exclude intervening components.”  The Board concluded, however, that the term meant simply to “join[] devices into a single circuit,” and did not preclude the presence of intervening components.  In addition, the Board rejected Patente’s argument “that the respective counters in [the cited art] are not coupled to the respective digital to analog converters because all [have intervening components]  Patentee requested the Board’s reconsideration prior to appeal to the CAFC. Patentee asserted the Board misapprehended their argument regarding their construction of “coupled to” explaining that it had never contended that the term precluded the presence of intermediate circuit elements between the counter and the digital to analog converter.  The Board denied rehearing and dismissed Patentee’s argument

The CAFC noted that Patentee had consistently argued before every tribunal that claim 1, when read in light of the specification and surrounding claim language, requires that the counter itself – not an intervening element – control the digital to analog converter’s output to vary the switching frequency. The Court described the Board’s structural focus to be a red herring, and opined that it failed to adequately evaluate Patentee’s  primary argument (i.e., the aforementioned control aspect).

The Court reminded the Board that while the district court claim construction was not binding on it, full consideration of the earlier construction may have proved enlightening. That is, the Court felt “the board had an obligation, in these circumstances, to evaluate that [district court] construction and determine whether it was consistent with the broadest reasonable construction of the term.” However, the court expressly noted they were not creating a new requirement that the Board must in all cases assess a previous judicial interpretation of a disputed claim term. Rather, the court remanded the case so that the Board may fully assess the functional aspect of the claim and set forth its “reasoning in sufficient detail to permit meaningful appellate review.”

How Patentee will fare on remand remains to be seen. The Court mentions that the Solicitor briefing provided an alternative explanation to affirm that the Board may simply adopt on remand. 

While it is one thing to say that the Board did not fully address the functional issue, “coupled to” would not seem to denote exclusive control on its own. Also, had the litigation construction not been before the Court in 2013, it is not clear that the Court would have faulted the Board’s analysis. The takeaway here is to clearly present all arguments to the Board.

Improved Speed For Overlooked Post-Grant Patent Options

Once upon a time, patent reexamination was the only mechanism to challenge a U.S. patent at the USPTO.  First introduced as an ex parte proceeding in the 1980s, patent reexamination was expanded to include an inter partes option in 1999.  Thereafter, patent reexamination became a popular adjunct to patent litigation. Yet, increased popularity of patent reexamination led to significant delays and increased pendency. The expanding timelines, among other shortcomings, prevented inter partes patent reexamination from serving as a true alternative to patent litigation. Not until the patentability trial mechanisms of the America Invents Act (AIA) did Congress finally succeed in providing a true alternative to patent litigation at the USPTO. 

Once the AIA patentability trials were introduced, inter partes patent reexamination was discontinued.  Still ex parte patent reexamination remains an option.  Not surprisingly, reexamination decreased in popularity post-AIA.  The reasons for the decrease in popularity is straightforward.  First, an inter partes AIA challenge option will almost always be preferred over an ex parte option for high-value disputes (where available).  Second, a large number of ex parte reexaminations were pursued, pre-AIA, out of necessity.  That is, older patents were not date-eligible for inter partes reexamination.  Of course, all issued patents are date-eligible for AIA review.  For at least these reasons, the current filing rate of  ex parte reexamination is roughly 50% of the 2008 filing numbers.

The falling numbers for ex parte reexaminations, coupled with the elimination of inter partes patent reexamination has, in limited respects, made ex parte reexamination a more attractive option as compared to 2008.

in 2008, the time from filing of a request for ex parte patent reexamination until receiving a First Action on the Merits (FAOM) was 12 months. Now, the time from filing of a reexamination request to a FAOM is roughly 5 months.  That is, within 5 months of filing a request for ex parte patent reexamination, the USPTO will issue both a determination, and an office action rejecting/allowing the claims.  Similar advances in speed are reported across all aspects of ex parte reexamination processing. The increased speed is a natural consequence of the reduced workload of the Central Reexamination Unit (CRU) (i.e., no more inter partes patent reexaminaiton and a 50% drop in ex parte filings).  

This new found speed, which shaves about a year off of reexamination processing, is helpful to both patentees and potential challengers.

As to patentees, post-AIA, addressing claim over breadth prior to litigation has become critical since almost every patent litigation is now accompanied by a Patent Trial & Appeal Board (PTAB) challenge. The patentability determinations of the PTAB will occur prior to trial in all but the fastest district court venues and the ITC.  Since PTAB determinations, assess patentability and not invalidity, patentees cannot seek refuge in a presumption of validity, or clear and convincing evidentiary standard to save over broad claims. Patentees looking to adjust their claim scope, or diversify claim coverage prior to suit — a clear trend given the current assertion climate— can do so in a patent owner initiated patent reexamination. Given the enhanced speed of post-AIA patent reexamination, if amending, patentees can usually conclude the reexamination proceeding in a few months’ time. This allows the patentee to exit the proceeding quickly, with (theoreteically speaking) an stronger claim set for assertion.

Further options for patentees include Supplemental Examination (SE), which are also processed by the CRU on a similar schedule to ex parte patent reexaminations (although unnecessarily complex due to rules for accompanying information submissions) . A further option is patent reissue, also now assigned to the CRU. While public data on patent reissue is not available, I have also seen marked improvement to the speed at which patent reissue filings are processed.

On the other hand, patent challengers still seek out ex parte reexamination for a variety of strategic purposes the most common of which is to maintain anonymity.  Ex parte patent reexamination is the only patent challenge mechanism that permits anonymity. These challengers will also see results faster, at least on the examination side of the house (appeal processing remains largely unchanged, absent expediting). While patent reexamination will not rival the aggressive timeline of AIA proceedings, it is also free of statutory estoppel risks. For these reasons, in the months ahead, I would expect the filing rate to trend upward.

Finally, the new PTAB rule package is expected to address the management of co-pending PTAB, reissue, SE, and reexamination proceedings. Depending upon these changes, additional strategic uses of patent reissue, SE, and reexamination may emerge in the months ahead.  

 

Motion for Sanctions Details True Hedge Fund Motives

Hours ago, Celgene filed its Motion for Sanctions against the Coalition for Affordable Drugs in IPR2015-01092, 1096, 1002, and 1103. The Patent Trial and Appeal Board (PTAB) now has until October 28th to decide the issue. As I have maintained all along, these filings will be bounced. The system is already strained under the intense demand for PTAB trial proceedings. The limited resources of the agency can’t be wasted on stock trading schemes.  

A copy of the motion is found (here).

Upcoming Program To Include Live IPR Oral Hearing

Over the next few weeks, the PTAB in cooperation with the AIPLA and others, will be conducting several “road shows.” These programs will discuss the forthcoming PTAB rule package (assuming it issues in time) and will include an overview of AIA trial proceedings.  Of particular note, at least for the Santa Clara stop, there will be an actual hearing conducted for an existing IPR dispute (Biotechnology arts). 

​Santa Clara, CA
August 24, 2015
University of Santa Clara Law School

(co-sponsored by the High Tech Law Institute of Santa Clara Law)

 Dallas, TX
August 26, 2015
    The Belo Mansion

 (co-sponsored by the IP Section of the Dallas Bar Association) ​                   

 Alexandria, VA
August 28, 2015
USPTO, Madison Auditorium​