PTAB Claim Constructions Often Limited to Intrinsic Record

Yesterday, in Teva Pharmaceuticals USA, Inc., et al v. Sandoz, Inc. et al., (here) the U.S. Supreme Court reversed decades of CAFC precedent permitting de novo review of district court patent claim constructions. More specifically, the high court explained that when reviewing a district court’s resolution of subsidiary factual matters made in the course of its construction of a patent claim, the CAFC must apply a “clear error,” not a de novo, standard of review. This decision will also impact the CAFC’s previous practice of applying de novo review of Patent Trial & Appeal Board (PTAB) claim construction decisions….or will it?

Key to yesterday’s holding is the distinction between intrinsic versus extrinsic evidence. That is, when the district court/PTAB reviews only evidence intrinsic to the patent, the judge’s determination is solely a determination of law, and the CAFC will review that construction de novo. However, where the district court/PTAB needs to consult extrinsic evidence in order to understand, for example, the background science or the meaning of a term in the relevant art during the relevant time period, and where those subsidiary facts are in dispute, courts/PTAB will need to make subsidiary factual findings about the extrinsic evidence, such as expert reports/declarations.

While the PTAB will sometimes refer to dictionaries (extrinsic evidence) in supporting a plain meaning of a claim term, in most cases the broadest reasonable interpretation in light of the specification is based solely on the intrinsic record—especially for technical terminology. Thus, the vast majority of constructions coming out of the PTAB for Inter Partes Review (IPR) will very likely remain subject to de novo review at the CAFC. Perhaps less so for Covered Business Method (CBM) filings that employ more plain language claims (i.e., where dictionary support is often sought). While declarations on claim meaning are often submitted to the USPTO/PTAB, most often the agency identifies its own definition consistent with the specification rather than “picking a winner” between competing expert definitions.

For those claim terms amenable to interpretation via extrinsic evidence, one needs to consider whether or not the technical decision makers of the PTAB might provide the more favorable read for appeal purposes given the newly accorded deference to such findings. Conversely, given the lack of technical expertise in the district courts as compared to the PTAB, whethor or not the courts might resort to extrinsic evidence where the expert agency would not.

Finally, note that means-plus-function claims will necessarily invoke questions of fact (e.g., structural equivalence). Where competently drafted, such claims provide a mechanism for avoiding the full breadth of a broadest reasonable interpreation, and now, second guessing of structural equivalents on appeal. A strategic smattering of such claims across a portfolio serves as a helpful hedge for patentees in a post-grant challenge setting.

Early 2015 CLE Programs

The PatentsPostGrant.com free monthly webinar series will resume in a few weeks. For more comprehensive CLE programs, there are a number of marquee programs on the horizon.

First up is the The 10th Annual Advanced Patent Law Institute at the U.S. Patent and Trademark Office’s main campus in Alexandria Virginia, March 12-13th. This program provides a comprehensive view of USPTO practice, including application prosecution issues. Multiple segments are specifically directed to PTAB practice and include the participation of several current PTAB judges.
Register (here) 

Second, is the most widely attended post-grant program of the year, Practicing Law Institute’s USPTO Post-Grant Patent Trials 2015. 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. 26, 2015 New York, NY
Apr. 17, 2015 San Francisco, CA (webcast available)

Hope to see you at one of these upcoming programs. 

Spooking Financial Markets Via IPR

Over a year ago, I explained how “PTAB Trolls” were attempting to manipulate the new administrative trial system of the Patent Trial & Appeal Board (PTAB). PTAB Trolls attempt to extract settlements from patentees involved in high value litigation disputes. A PTAB troll operates as follows: (1) Identify a patentee that has been awarded a large damage verdict (not yet satisfied); (2) collect the prior art used in the litigation; (3) apply the same art in an Inter Partes Review (IPR) (with lower burdens of proof); (4) hope to leverage those burdens, and speed of the PTAB into forcing a settlement from the patentee. 

Other versions of this practice include PTAB Trolls that will take a “short” position in a penny stock having a market value closely tied to a patent litigation verdict. In such cases the mere filing of an IPR can spook investors, impacting trading volumes enough to cause a temporary, but significant, price drop (i.e., quick profit for a short seller). To date, these efforts have mostly failed, but not all. (See Patience Haggin’s informative article on PTAB Trolls here)

Next up, well financed hedge funds taking on key drug patents of the pharmaceutical industry?
Last week, the founder of Dallas-based Hayman Capital Management, L.P., Mr. Kyle Bass, announced to the world that he planned to attack 15 drug companies via IPR.

Mr. Bass has explained his rationale as follows:

We are going to challenge and invalidate patents through the IPR process … (and) we are not going to settle . . .The companies that are expanding patents by simply changing the dosage or the way they are packaging something are going to get knee capped.  ..This is going to lower drug prices for Medicare and for everyone.

Oh boy.

First, Mr. Bass is certainly not embarking on this multi-million dollar venture to help Medicare patients. Instead, he is simply hoping to spook financial markets to his benefit. It’s one thing to accuse the pharmaceutical industry of monopolization with “dosage patents” but, taking out key patents in the unpredictable arts is easier said then done—otherwise, the generic industry would have long since put ethical drug companies out of business.

Delusions of grandeur aside, given this brash pronouncement, are these investment-driven IPR filings something that the PTAB should even entertain?

When drafting the post-grant trial statutes of the America Invents Act (AIA) Congress empowered the USPTO with substantive rule making authority for implementing the trials of the AIA. This authorization is tempered by the interests outlined in 35 U.S.C. §326(b):

Considerations– In prescribing regulations under this section, the Director shall consider the effect of any such regulation on the economy, the integrity of the patent system, the efficient administration of the Office, and the ability of the Office to timely complete proceedings instituted under this chapter. 

Clearly, there are enough interested parties in the pharmaceutical industries that “bad patents” should be eliminated by interested competitors. In fact, generics are increasingly utilizing the PTAB to settle such disputes. In view of this, is accepting challenges from hedge funds for the purpose of degrading/spooking financial markets consistent with protecting the integrity of the patent system? Should PTAB resources be dedicated to efforts to manipulate financial markets?

Of course not.

The manipulation of financial markets through PTAB filings of investment professionals is entirely inconsistent with the guiding principles of §326(b). More importantly, the PTAB has the rule making authority to deny institution for IPR petitions that undermine the integrity of the patent system and unnecessarily tax the agency’s limited resources. While such rules cannot be inconsistent with the statute, which enables anyone to file an IPR, institution of an IPR is a matter of dsicretion. This is because the statute as to institution states the agency “may,” not must institute.

Mr. Bass may be the only one about to be “knee capped,” and rightfully so. 

PTAB Designates Decision as Informative on 315(b) Question 

Petitioners seeking Inter Partes Review (IPR) must be mindful of the statutory bar of 35 U.S.C. § 315(b). This provision precludes IPR on any patent once 12 months have elapsed after service of a complaint alleging infringement of that patent. The rationale for the statutory bar of 315(b) is straightforward. That is, IPR was designed to be a true alternative to patent litigation, not an adjunct process that was typical of the inter partes patent reexamination proceeding it replaced. By mandating that an IPR filing be brought earlier in the litigation timeline, Congress hoped to avoid duplicative proceedings, avoid patentee harassment, and enhance the ability of the Patent Trial & Appeal Board (PTAB) to provide a timely resolution to such business disputes.

Last summer, the PTAB considered 315(b) in relation to an amended complaint. That is, in cases where a party is added by amended complaint, when does the service become effective for purposes of 315(b), when the added party receives a copy of the proposed complaint, or when the proposed complaint is entered by the court? (via motion for leave to file) This question was answered in TRW Automotive US LLC v. Magna Electronics, Inc., IPR2014-00293 (Paper 18) (June 27, 2014) (here)

In explaining that the proposed complaint was ineffective for triggering the start of the 12 month window of 315(b) the Board emphasized:

“We do not believe that the Congress intended to have the [one-year] time period start before a petitioner is officially a defendant in a law suit.” Motorola Mobility LLC v. Arnouse, Case IPR2013-00010, slip op. at 5 (PTAB Jan. 30, 2013) (Paper 20). Moreover, as stated by the Supreme Court as “a bedrock principle,” an “entity named as a defendant is not obliged to engage in litigation unless notified of the action, and brought under a court’s authority, by formal process.” Murphy Bros. v. Michetti Pipe Stringing, 526 U.S. 344, 347 (1999). Here, by virtue of the filing of the Motion for Leave on December 20, 2012, Petitioner was not “brought under a court’s authority, by formal process,” i.e., was not officially a defendant, in relation to the ‘689 and ‘552 patents. Id. Patent Owner’s request for the court’s leave did not obligate Petitioner to engage in litigation in relation to those two patents until granted by the court. . . . . .The attachment to the Motion for Leave was merely a proposed complaint, not an actual “complaint” within the meaning of § 315(b)

The time lapse between the filing of the motion filing and entry of the amended complaint in this case was about five days. As this timeline arises from time to time in petition disputes, the PTAB designated TRW informative yesterday.
.

Amended Claims Survive IPR, Does Estoppel Follow?

Since the passage of the America Invents Act (AIA) the Patent Trial & Appeal Board (PTAB) has successfully fulfilled its charge as a speedy, cost effective alternative to patent litigation. But, that is not to say that the road has been completely bump-free. As discussed previously, there has been some controversy in the early going as patentees struggle to adapt to the motion requirements necessary for amending claims before the PTAB. That is, many patentees perceive the rigid motion requirements as an unfair hurdle, justifying their criticism on the fact that the PTAB has yet to permit a contested amendment….until last week, when the Board granted two.

In Riverbed Technology Inc. v. Silver Peak Systems Inc., IPR2013-00402 and IPR2013-00403 the PTAB considered U.S. Patents 8,370,583 and 8,312,226. As these two patents had only issued months before they were challenged in 2013, the patentee had little to lose by seeking amendment. The patentee cancelled all claims from each patent, and proposing entry of substitute claims. The PTAB granted the motion to amend in both IPRs, but only as to a subset of the newly proposed claims, finding others unnecessary. (‘583 decision) (‘226 decision)

Assuming the decision stands, the case presents an interesting question of estoppel for the district courts. That is, does the statutory estoppel of AIA trial proceeding apply to amended claims? Is it even equitable to apply such estoppel to the amended claims given the challenger is only accorded a 15-page, double spaced opposition to a Motion to Amend?

For example, 315(e)(2) codifies the estoppel as:

(2) Civil actions and other proceedings.— The petitioner in an inter partes review of a claim in a patent under this chapter that results in a final written decision under section 318 (a), or the real party in interest or privy of the petitioner, may not assert either in a civil action arising in whole or in part under section 1338 of title 28 or in a proceeding before the International Trade Commission under section 337 of the Tariff Act of 1930 that the claim is invalid on any ground that the petitioner raised or reasonably could have raised during that inter partes review.

(emphasis added)

One might argue that an amended claim is not “in a patent” until the final IPR certificate prints.  For example, the patentee could not sue on the amended claims until the IPR is finally concluded.

Suffice it to say that this issue will be litigated somewhere down the road.

Changes to PTAB Rules Expected Shortly

Back in June of 2014 the USPTO issued a Request for Information in the Federal Register entitled, Request for Comments on Trial Proceedings Under the America Invents Act Before the Patent Trial & Appeal Board. The notice posed 17 questions to the public. Since that time, the Office has considered the public feedback and has been working on two sets of changes to PTAB current trial practices.

The first set of changes is expected this month (January). These changes will liberalize current requirements, such as page limits. The January liberalizations will not restrict the present rights of the public in any way. As such, the first round of changes need not go through typical Notice and Comment Rule Making process. Instead, the changes will become final 30 days after they are announced. Expected changes include:

-identifying additional factors to consider for assessing the need for additional discovery in real-party-in-interest disputes
-Clarifying that RPI disputes can be raised at any time
-Switching to a word count system rather than maintaining the current page/margin limits
-Allowing a claim appendix for motions to amend

The second round of changes will be issued this spring through formal, Notice and Comment Rule Making. The second round of changes will address such issues as claim construction (e.g., when to switch from BRI interpretation for patents close to expiration) and when testimonial evidence might be permitted with a preliminary response. 

Should be an eventful year at the PTAB.

Top 5 Practice Changing PTAB Decisions of 2014

Since the start of the administrative patent trials of the America Invents Act (AIA) on September 16, 2012, much has changed at the Patent Trial & Appeal Board (PTAB). The number of AIA trial petitions has exploded. This increased workload has diminished the Board’s appetite for hand-holding, telephone conferences, and has arguably driven changes to once accepted procedural practices. Some might also argue that the ability to get a trial initiated has also become more difficult.

The coming months will bring further changes in the way of notice-and-comment rule making as well as a liberalization of current discovery and filing requirements. Before moving to that topic next week, let’s review the five most noteworthy decisions of 2014 for PTAB practitioners.

1.  Issue Joinder: 
Target Corp. v. Destination Maternity Corp (IPR2014-00508)
In September, the PTAB issued a rare expanded panel Order in Target Corp. v. Destination Maternity Corp., (here). In the Order, a divided panel denied issue joinder under 35 U.S.C. § 315(c) as a matter of law (i.e., the joining of two petitions of a same petitioning party). The decision was especially surprising given the fact that 315(c) had been previously interpreted by the PTAB as permitting such joinder practices to date. In fact, a previous decision with the exact opposite holding remains listed as a representative decision on the USPTO web site, Microsoft Corp. v. Proxyconn, Inc., (IPR2013-00109, Feb. 25, 2013)

In Target, as in Microsoft, the petitioner filed a second petition outside of their 12-month window to attack a claim that was excluded from the Trial Order of an earlier, timely filed petition (argued as being caused by the patentee’s failure to provide requested materials in litigation discovery). Since joinder is a codified exception to the 12-month window, absent joinder, the claim could not be attacked with a second “stand-alone” petition. The Target majority denied joinder in view of their statutory construction, and found the petition to be time barred under 35 U.S.C. § 315(b). This was a departure from earlier cases on point, and remains a point of inconsistency across PTAB panels.

Further discussion on this important case can be found (here). (A motion for rehearing remains outstanding)

2.  Real Party in Interest 35 U.S.C 312(a)(2): 
ZOLL Lifecor Corp. v. Philips Electronics North America Corp. (IPR2013-00609)
When considering Inter Partes Review (IPR) as an alternative to a recently initiated patent litigation, a threshold consideration for defendants is the timing and notice requirements of the IPR statutes: 35 U.S.C. §§ 312(a)(2); 315(b). The later (discussed in (3) below) is familiar to most, that is, to be timely filed with the Patent Trial & Appeal Board (PTAB), the IPR petition must occur within the 1-year window of 35 U.S.C. §315(b). (within 1 year of the service of a complaint for infringement of the subject patent on the petitioner, real party in interest, or privy of the petitioner). 

The latter notice requirement of 312(a)(2) is easily overlooked, and complicated by modern corporate structures. In ZOLL v. Philips, (March 20, 2014) (here), the PTAB determined that ZOLL Medical, the parent corporation of Petitioner ZOLL Lifecor, was both a real party-in-interest and a privy of the Petitioner. ZOLL.  The PTAB identified factors for determining whether a non-party, corporate affiliate is a real party-in-interest, including (1) the “existence of a financially controlling interest,” (2) the “non-party’s relationship with the petitioner,” (3) the “non-party’s relationship to the petition itself, including the nature and/or degree of involvement in the filing,” and (4) the nature of the entity filing the petition. 

Recently Zoll has filed petition for certiorari with the Supreme Court. Of course, review by the Court is highly unlikely, and, in the meantime, the PTAB has denied quite a few filings on similar grounds.
  
3.  315(a) Bar: 
Apple Inc. v. Rensselaer Polytechnic Institute et al., (IPR2014-00320)
As noted above, Petitioners seeking Inter Partes Review (IPR) must be mindful of the statutory bar of 35 U.S.C. § 315(b). This provision precludes IPR on any patent once 12 months have elapsed after service of a complaint alleging infringement of that patent. The rationale for the statutory bar of 315(b) is straightforward. That is, IPR was designed to be a true alternative to patent litigation, not an adjunct process that was typical of the inter partes patent reexamination proceeding it replaced. By mandating that an IPR filing be brought earlier in the litigation timeline, Congress hoped to avoid duplicative proceedings, avoid patentee harassment, and enhance the ability of the Patent Trial & Appeal Board (PTAB) to provide a timely resolution to such business disputes.

Early on, there were some open questions as to the flexibility of the 12 month window. How would repeated assertions of the same patent be treated by the PTAB, that is, did the window reset? The PTAB answered this in the affirmative in MacAuto USA v. BOS gmbH & Co. KG (IPR2012-00004). In MacAuto, the PTAB made clear that an earlier complaint that was dismissed without prejudice, was treated consistent with the F.R.C.P, that is, as if it never existed. So, in the case of such a dismissal, the window would effectively reset. This bright line rule stood until 2014, with Apple Inc. v. Rensselaer Polytechnic Institute et al. 

In Apple, (here) the Board explained that service of a first complaint on October 23, 2012, rather than service of the second complaint on June 6, 2013, controlled for purposes of determining whether the requested inter partes review was time-barred under 35 U.S.C. § 315(b). This was despite the dismissal of the first complaint without prejudice. To reach such a conclusion, the Board relied on the district court’s consolidation order under Fed. R. Civ. P. 42, and the continuous treatment of the dispute as “live” by the court and parties. Currently, the Board is applying this decision to other “re-filing” fact patterns where the second complaint is filed close in time. Apple is not restricted to Rule 42 consolidations scenarios, although it probably should be. 


4.  Amendments: 
Corning Optical Communications RF, LLC v. PPC Broadband, Inc., (IPR2014-00441)
While unremarkable in most respects, the October 30th Order in this case (here) is noteworthy as signal to practitioners on a softening stance toward amendment formalities. In this Order, the Board authorized the patent owner to place its substitute claims in an appendix. Such requests were repeatedly denied by panels prior to this Order. Placing claims in an appendix excludes them from being counted toward the very tight 15-page limit for motions to amend claims. The Order was listed as “representative” on the PTO website, signaling to practitioner that, going forward, those patentees attempting amendment might want to seek similar relief.

In January the Board is expected to issue a series of rule changes that will liberalize such formalities.

5.  Claim Construction:
Cisco Systems Inc. v. AIP Acquisition LLC (IPR2014-00247)

Since the passage of the America Invents Act (AIA) some patentees have been advancing the notion that BRI should not be employed by the PTAB. Instead, they argue that BRI claim construction should be replaced with the claim construction practices of the district court (i.e., Phillips v. AWH). Complicating this debate is the fact that expired patents are accorded a Phillips construction, and that many patents expire during AIA trial proceedings. 

The BRI analysis focuses the meaning of a claim term on the supporting specification, as would be understood by one of skill in the art — Phillips does the same. A BRI analysis accords claim terms their plain meaning, as would be determined by one of skill in the art — Phillips does the same. To the extent that there is any demarcation in the two analyses it is the fact that a pure BRI analysis arguably places less weight on prosecution history (intrinsic record). Yet, as emphasized recently in Tempo Lighting Inc.,v.Tivoli LLC., (CAFC 2014), the USPTO must also consider prosecution history (at least for previously closed records). Thus, at the end of the day, the analyses are practically the same.

Illustrating this point, the PTAB recently has had multiple occasions in 2014 to analyze the same claims under both BRI and Phillips, and has yet to find a difference. In the most recent, Cisco Systems Inc. v. AIP Acquisition LLC (here), the PTAB determined that the subject patent needed to be reconsidered under Phillips due to imminent expiration. Upon initial consideration of the claim terms under the BRI, and subsequent reconsideration of the same terms under Phillips, the PTAB found the very same meaning. Going forward, it is expected that the PTAB will require dual constructions for patents that are within a certain time frame of expiration.

2015 will certainly bring more filings to the PTAB, and an increased output of orders and Final Written Decisions from the administrative patent judges. Together with the promised rule changes, 2015 will undoubtedly bring another year of significant practice changes. 

Petition Must Establish Grounds of Unpatentability

The reason for presenting a declaration in support of an AIA trial petition is simple — evidence is superior to attorney argument. Likewise, the Patentee will invariably respond with their own declaration once trial is ordered. Indeed, not filing a declaration together with the petition will likely foreclose rebuttal opportunity. Furthermore, as the patentee may not introduce new testimonial evidence at the time of the preliminary response, the petition declaration (if properly developed) should insulate the petition from being denied by the PTAB. For these reasons, most every IPR, PGR or CBM petition filed to date has been accompanied by a supporting declaration of one of skill in the art.

Declarations do not have page limits. On the other hand, the page limit on petitions is tight (60 pgs. IPR; 80 pgs. PGR/CBM). As a result, some have begun relying a bit too much on declarations in an attempt to side-step the petition limits. Last week, the PTAB designated an order from last summer “informational” to inform the public that such “incorporation by reference” strategies will result in petition denial.    In Cisco Systems, Inc. v. C-Cation Techs., LLC (Paper 12. August 29, 2014) the Board explained:

It is improper to incorporate by reference arguments from one document into another document. 37 C.F.R. § 42.6(a)(3). One purpose of the prohibition against incorporation by reference is to eliminate abuses that arise from incorporation. Rules of Practice for Trials Before The Patent Trial and Appeal Board and Judicial Review of Patent Trial and Appeal Board Decisions; Final Rule, 77 Fed. Reg. 48,612, 48,617 (Aug. 14, 2012); see also DeSilva v. DiLeonardi, 181 F.3d 865, 866-67 (7th Cir. 1999) (Incorporation “by reference amounts to a self-help increase in the length of the [] brief[,]” and “is a pointless imposition on the court’s time. A brief must make all arguments accessible to the judges, rather than ask them to play archeologist with the record.”). In the Petition before us, incorporation by reference of numerous arguments from [Declarant’s] 250-page Declaration into the Petition serves to circumvent the page limits imposed on petitions for inter partes review, while imposing on our time by asking us to sift through over 250 pages of [Declarant’s] Declaration (including numerous pages of claim charts) to locate the specific arguments corresponding to the numerous paragraphs cited to support Petitioner’s assertions.
Accordingly, we will not consider arguments that are not made in the Petition, but are instead incorporated by reference to the cited paragraphs and claims charts of Dr. Roy’s Declaration.

While citation to a declaration (i.e., testimony) is appropriate to reference evidence supporting a petition ground, the petition must tell the story of unpatentabiity. Aggravating the situation in this case was an unrealistic number of proposed grounds presented as an index of sorts to a much longer declaration document.

Stays Pending IPR Granted in Most Cases

Prior to the passage of the America Invents Act (AIA) many district courts were less than impressed with the lengthy pendencies of USPTO patent reexamination proceedings. For this reason, motions to stay a litigation pending patent reexamination were often denied based upon the perceived prejudice of a 5-6 year delay (typical of reexaminations through appeal). The patent challenge proceedings of the AIA (IPR, CBM and PGR) were specifically designed, at least in part, to remedy the pendency issue.

The new patent challenge proceedings of the AIA are conducted before the USPTO’s Patent Trial & Appeal Board (PTAB) and must conclude, by statute, within 12 months of trial order. Many districts across the country have recognized the improved speed of the PTAB. Not surprisingly, the success rate for staying cases pending USPTO review has significantly improved.

IPRstay

stayiprddel

The first chart above, accurate through December 9, 2014, show the overall outcomes for Motions to Stay pending IPR. The second chart is specific to the District of Delaware, also accurate as of 12/9/14. As can be seen, stays are granted, granted-in-part, or granted with stipulations in roughly 75% of the motions to date. (The stipulations are largely co-defendants agreeing to be bound by the estoppel of a failed IPR effort). Also, some of the initial denials were later granted once the PTAB instituted trial (i.e., the motion was initially considered after filing, but before institution)

Given this outcome, and petitioner friendly IPR results to date, it is not surprising that the PTAB continues to experience record filing rates.

New Guidelines Follow Alice & Ultramercial Decisions

Today the USPTO will publish their new subject matter eligibility guidelines (35 U.S.C. § 101). A copy from the advanced reading room is available (here). While directed to examination procedures, the guidelines will  also be applicable to Inter Partes Review (IPR) and Covered Business Method (CBM) Challenge Proceedings. These guidelines supersede the controversial guidelines that were issued in the wake of the Prometheus decision.