Lack of Severability Could Doom IPR Petition

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 former 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. See ZOLL v. Philips, IPR2013-00609, Paper 15 (March 20, 2014) (here)

Given the proliferation of non-practicing entities (NPEs) lodging patent lawsuits against entire industries, it is not uncommon for groups of defendants to contemplate joint IPR filings. The goal is to present a united front to the district court (for motion to stay purposes) by pursuing a singular IPR petition as co-petitioners. When doing so, the complexities of corporate structures, litigation history of privies, indemnification obligations, and common interest agreements are compounded—creating petition vulnerability.

In such situations it may be that one co-petitioner of a given group could doom the petition for all involved.

Let’s take a simple case of co-petitioners A and B, which are usually competitors that are wary of each other, but, cooperating for the limited purpose of the IPR. Petitioner B is within their window and has named all necessary RPIs. Petitioner A also names all RPIs. Petitioner A is facially within the same window as a co-defendant (i.e., sued the same day), but has had previous litigation exposure to the patent via a customer suit.

Patentee’s preliminary response raises the fact that petitioner A was in privity with the customer and their window actually closed before the IPR was filed—making the petition untimely. Meanwhile, by the time of the patentee’s preliminary response, Petitioner B’s window has closed by the passage of time. Thereafter, the PTAB denies the petition as untimely solely on the circumstances surrounding Petitioner A’s privy.

What of petitioner B that timely filed?  Can petitioner B simply divorce petitioner A and move forward unaffected?

No. The plain “petition” language of 315(b) would preclude such severability. See Also Agilysys, Inc. v. Ameranth, Inc., CBM2014-00016, Paper 11 (Feb. 11, 2014) (here)(Multiple parties stand in the shoes of a single petitioner. Citing 37 C.F.R. § 42.2 as using singular “petitioner.”)  Also, given the joint filing of the IPR, Petitioner A became an RPI/privy with respect to B for purposes of the petition.

Had Petitioner B decided to go it alone from the start the IPR would have moved into trial phase (assuming viable art positions). At that time, petitioner A could have sought joinder by filing their own “copycat” petition (1 year bar is excused in the case of joinder. 35 U.S.C. § 315(c)). Should a similar standing issue be raised later in the trial, the separate, but joined, proceedings wuld seemingly insulate from collateral damage to other parties to the IPR.

Co-defendants considering a joint IPR effort should consider both joinder and co-petitioner options. There may be minimal value in presenting a unified front to the district court at the time of IPR filing as many courts defer stay determinations until the time of IPR institution. Given that, joinder provides less short term risk with the added benefit of seeing the institution decision before signing up for the trial result.

Expired Patents May Follow Shorter Trial Schedule

Some months back, I pointed out how the post-grant challenges of the USPTO’s Patent Trial & Appeal Board (PTAB) now follow a (7) month schedule. Given the 12-month statutory mandate to conclude such post-grant proceedings, the (7) month schedule allows for a (5) month back end for the Board to draft and issue the written decision. This (7) month schedule is down from the more generous (9) month schedule employed in many 2012-13 filings.

For those challenging/defending expired patents, prepare for an even shorter schedule.
Below is a typical scheduling Order for an IPR/CBM proceeding of an unexpired patent, which includes various amendment related scheduling shown in red:

Trial Order…………………………………………………………..February 12, 2014
DUE DATE 1……………………………………………………….March 12, 2014
Patent owner’s response to the petition
Patent owner’s motion to amend the patent
DUE DATE 2………………………………………………………June 12, 2014
Petitioner’s reply to patent owner response to petition
Petitioner’s opposition to motion to amend
DUE DATE 3……………………………………………………..July 11, 2014
Patent owner’s reply to petitioner opposition to motion to amend
DUE DATE 4……………………………………………………..August 1, 2014
Petitioner’s motion for observation regarding cross-examination of reply witness
Motion to exclude evidence
Request for oral argument
DUE DATE 5…………………………………………………….August 14, 2014
Patent owner’s response to observation
Opposition to motion to exclude
DUE DATE 6……………………………………………………August 21, 2014
Reply to opposition to motion to exclude
DUE DATE 7…………………………………………………..September 4, 2014
Oral argument (if requested)

It is well established that an expired patent cannot be amended. So, DUE DATE 3 of the above schedule becomes entirely expendable in such cases. The schedule below reflects the difference in schedule of an expired patent. This schedule is used in Cisco Systems Inc. v. AIP Acquisition LLC (IPR2014-00247), which involves an expired patent.

Trail Order………………………………………………………………………………….. May 27, 2014
DUE DATE 1……………………………………………………………………………….August 18, 2014 (corrected 6/26, Paper 17) 
Patent owner’s response to the petition
DUE DATE 2……………………………………………………………………………….November 14, 2014
Petitioner’s reply to patent owner response to petition
DUE DATE 3…………………………………………………………………………………………..N/A
DUE DATE 4………………………………………………………………………………December 6, 2014
Petitioner’s motion for observation regarding cross-examination of reply witness
Motion to exclude evidence Request for oral argument
DUE DATE 5……………………………………………………………………………..December 19, 2014
Patent owner’s response to observation Opposition to motion to exclude
DUE DATE 6……………………………………………………………………………..December 26, 2014
Reply to opposition to motion to exclude
DUE DATE 7…………………………………………………………………………….January 7, 2015 Oral argument (if requested)

By eliminating the (1) month allocation for preparation of a response to a (non-existent) amendment, the trial schedule is accelerated by a full month.

First PGR Petition Argues Patent is FITF Based on 112 Deficiency

Last week, the first petition for Post-Grant Review was filed with the Patent Trial & Appeal Board (PTAB) (PGR2014-00008). The petition targets U.S. Patent 8,684,420, which is directed to a craft kit for making linked bracelets out of colored elastic bands.The ‘420 patent, as well as related patents are asserted against the petitioner (LaRose Industries) as well as Toys-R-Us.

As a reminder a PGR petition may only be pursued for First Inventor to File (FITF) (i.e., those filed as applications on or after March 16, 2013). The continuation application underlying the ‘420 patent claims priority to earlier continuations and a provisional application that were filed before March, 16, 2013.  So, in order to pursue PGR of the ‘420 patent, the petitioner urges that the recently issued claims are not entitled to the priority of the earlier filings for lack of written support. The petitioner does not point to a claim element per se that it urges is unsupported, but instead, to an interpretation of the claim as lacking support. (petition here)

This argument may be an especially challenging sell given the proposed construction is arguably narrower than the Broadest Reaonable Intrepetation (BRI) that will be applied by the PTAB.

As background, the petitioner explains that the previously asserted claims of this patent family required an intervening element (i.e., a pin bar). That is, the claims recited pins mounted on the pin bar, which is in turn mounted to the base or —pins/bar/base. Since none of the defendants employed such a pin bar, the claims of the ‘420 patent were crafted to omit that element, now —pins/base. Specifically, the newly isued claims of the ‘420 patent recite pins that are “supported on the base” without an intervening pin bar element. The ‘420 patent was recently added to the ongoing litigation by amended complaint.

The plain language of “supported on” would seem to broadly encompass both direct support (i.e., pins directly connected to the base), and indirect support (i.e., intervening elements between the pins and base, such as the pin bar). Yet, the petitioner urges the PTAB construe “supported on” as supported in contact with a surface of the base — a direct connection (which it claims is not supported by the specification of the priority filings, hence PGR is proper). The petitioner heavily relies on the petitioner’s alleged litigation motivations and the removal of the pin bar from the claims to justify their direct connection read.

As acknowledged by the petitioner, the problem with this construction is that it excludes the pin bar (i.e., indirect connection) of the specification. The petitioner attempts to rebut this issue by referencing the use of “supported on” in different claims and patents as consistent with their defintiion, and supported by CAFC precedent. Whether or not tools of the district court will trump a straight forward BRI analysis remains to be seen. Seems to me that the PTAB could easily dispatch the whole petition by finding the claims broad enough to cover the indirect embodiment supported by the priority chain. In that case, the hairier issue of support for the direct connection is readily side-stepped along with the remainder of the petition.

One additional argument that caught my eye pertained to patentee estoppel. That is, the petioner noted that claims of a related patent (claims directed to pins/bar/base) were disclaimed in IPR2014-00218. Based on the operation of 37 C.F.R. § 42.73(d)(3), petitioner argues that the patentee should not be allowed to defend the ‘420 claims in the PGR. The policy behind 42.73 (inspired by interference practices) is to prevent a patentee from walking away from the PTAB only to secure the same claims in another PTO proceeding. But, the claims of the ‘420 patent here “were obtained” prior to completion of the IPR. Moreover, given the claims of the ‘420 are broader— pins/base— such an amendment could not have been raised in the IPR (no broadening allowed). Interesting issue to watch should the trial proceed.  

Timing likely drove the decision to file a PGR here instead of IPR—this is a dilema that will face many in the years ahead. That is, when sued at the time of issuance, waiting 9 months for the PGR window to close so that an IPR can be pursued may not be realistic. (for avoiding the broader PGR estoppel). Waiting 9 months for IPR may be construed as gamesmanship should a stay be pursued, and (2) adding in the 6 month wait for an IPR Order may push the date out for a grantable motion to stay some 15 months (9 months + 6 months), which may be problematic for faster district court dockets.   

USPTO Explains Interim Policy After CLS Bank

Last week, Acting Deputy Director of the USPTO Michelle K. Lee appeared before the House Judiciary Committee. While largely an uneventful visit to report on agency progress, a few interesting questions were posed with regard to treatment of current patent applications under Alice Corp. v. CLS Bank. At the hearing, Director Lee was asked about reports that the USPTO was pulling allowances for a reassessment of claims under, CLS. (Back on June 25th the USPTO issued interim examination guidelines for assessing the statutory nature of patent claims in view of the landmark decision.) To this question Director Lee explained:

We wouldn’t want to issue patents that are not in compliance with the current case law,. . .What we have in our pipeline is a number of cases that may be or are affected by the changes in law by the Alice-CLS case. . .  ..In that instance, before a patent number has been provided, it’s incumbent on us, before the patent leaves the office, to apply the current law.

Perhaps spooking stakeholders with these statements, this past Monday, the PTO issued a further clarification, explaining:

. . .the USPTO has applications that were indicated as allowable prior to Alice Corp., but that have not yet issued as patents. Given our duty to issue patents in compliance with existing case law, we have taken steps to avoid granting patents on those applications containing patent ineligible claims in view of Alice Corp. To this end, our primary examiners and supervisory patent examiners (SPEs) promptly reviewed the small group of such applications that were most likely to be affected by the Alice Corp. ruling.

We withdrew notice of allowances for some of these applications due to the presence of at least one claim having an abstract idea and no more than a generic computer to perform generic computer functions. After withdrawal, the applications were returned to the originally assigned examiner for further prosecution. Over the past several days, our examiners have proactively notified those applicants whose applications were withdrawn. (Applicants who had already paid the issue fee for applications withdrawn from allowance may request a refund, a credit to a deposit account, or reapplication of the fee if the applications return to allowed status.)

This limited action was closely-tailored and taken specifically in reaction to the Alice Corp. decision. We do not anticipate further review of any applications indicated as allowable under this process, as examiners are currently following the Alice Corp. preliminary instructions during examination (i.e., prior to allowance).

Third, as we continue to study Alice Corp. in the context of existing and developing precedent, public feedback will assist us in formulating further guidance for our examiners. On June 30th, a Federal Register Notice was published to solicit written comments from the public on the preliminary examination instructions. The period for submitting those comments ended July 31, 2014. We appreciate the comments we have received to date. All input will be carefully considered as we work to develop further examination guidance, which we anticipate issuing this coming fall.

Court Finds Clear & Convincing Invalidity Despite Previous USPTO Review

The USPTO applies the preponderance of the evidence standard in post-grant patent proceedings to assess patentability relative to applied prior art. For at least this reason, it is far easier to demonstrate unpatentability of a patent claim at the USPTO as compared to invalidity in the district court, which applies the clear and convincing evidentiary standard. As pointed out last week, art failing the lower threshold of the USPTO may even result in summary judgment of no invalidity in the district court. 

Applying the above logic then, it would seem imprudent to argue invalidity in the district court based upon art explicitly considered, and rejected by the USPTO in a post-grant proceeding. That is, unless you can convince the court that the earlier USPTO proceeding was incompetent.

In Kyle Broussard et al., v. Go-Devil Manufacturing Co.(LAMD, Order July 10, 2014), the court considered the validity of two, related patents for shallow water boat motors (mud motors). (Lousiana, not being a hot bed of patent litigation, is arguably, a hot bed of those skilled in the art of this particular technology). During the litigation, Defendants sought ex parte reexamination of the patents, however, the Patentee was successful in demonstrating patentability of the claims before the USPTO.

At issue in the reexamination proceedings, and the litigation proceeding, was a common reference known as “Saito.” The Court found this reference critical in its invalidity determination despite the fact that the reexaminations concluded that the claims were non-obvious over this very same reference. In justifying the seeming inconsistency the Court explained: 

The PTO’s opinion regarding the validity of the ‘340 Patent loses much of its persuasive force in light of the evidence presented at trial. The PTO’s Statement of Reasons for Patentability and/or Confirmation indicates that the examiner relied heavily on “paragraphs 11- 15” of [the declaration].

The court took issue with the declarant’s (perceived) limited analysis of the Saito reference. That is, the court believed that the declarant analyzed Saito too narrowly, labeling the review a “blinders on” approach to the art. For this reason, the Court found that the USPTO did not have all of the requisite facts before it. (and presumably, the expert agency was incapable of figuring it out for themselves)

To repeat: “if the PTO did not have all material facts before it, its 

considered judgment may lose significant force. And, concomitantly, the 

challenger’s burden to persuade the [factfinder] of its invalidity defense by clear and 

convincing evidence may be easier to sustain.” Microsoft Corp., 131 S. Ct. at 2251.
Next, the court faults the PTO analysis as failing to consider KSR:
 

 

Finally, there is little in the ‘340 Patent’s prosecution and reexamination history to convince the Court that the PTO Examiner applied the proper legal standard in its determination that the material disclosed in the ‘340 Patent is not obvious-specifically. the standard reiterated by the Supreme Court in KSR. . . . the PTO’s Statement of Reasons for confirmation of the ‘340 Patent fails to reference any legal standard, relying instead on the “patent owner’s response of August 26, 2010 and paragraphs 5-16 of the [declaration], neither of which discusses KSR. . . . In sum, based on the evidence received at trial, the Court finds that the PTO’s confirmation of the ‘340 Patent was based on incomplete evidence. Further, the Court lacks any assurance that the PTO’s obviousness determination was made according the controlling legal standard. Accordingly, because the PTO lacked the “material facts” required to make its validity determination in light of KSR, the Court finds that “its considered judgment … lose[s] significant force” and will not prevent Defendants from proving their “invalidity defense by clear and convincing evidence.”
(Emphasis added)
 
The court seemed to pay particular interest to the lack of reference to KSR in USPTO communications, probably because the defendants played this non-event up in their briefing. Basically, the Court found that the examiner took the word of the declarant without performing any independent factual or legal analysis. It will be interesting to see whether the Federal Circuit agrees with the Court’s second guessing of the expert agency— given 

the presumption of validity is grounded in the basic proposition that the USPTO is presumed to do its job. 

 
Patent reexamination is the least preferred route for challenging a patent in litigation now that Inter Partes Review (IPR), Covered Business Method (CBM) Challenge, or Post-Grant Review (PGR) are available. This is because inter partes challenges are far more effective. Still, Patentees should be mindful of the above outcome especially those seeking reissue, reexamination, or supplemental examination of a patent immediately prior to litigation.

Technical Difficulties, Sorry for the Inconvenience

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Board Emphasizes DJ of Invalidity Prevents Later CBM Filing

The Patent Trial & Appeal Board (PTAB) issues three (3) types of opinions, routine, informative and precedential. The vast majority of PTAB decisions are routine, that is, decisions that are simply publicly available. These decisions may be cited for whatever persuasive value they may have but, as a general matter, routine opinions should be cited sparingly.

Informative decisions are those are not binding, but illustrate norms of Board decision-making for the public, the patent examining corps, and future Board panels. Informative opinions may explain best practices, address recurring problems, identify developing areas of the law, exemplify types of decisions under-represented in commercial case reporting services, or report cases of public interest. Going forward, most designations from the PTAB Trial Section are likely to fall into this category.

Finally, precedential decisions are those that bind all PTAB judges unless the decision supported by the opinion is (1) modified by the Court of Appeals for the Federal Circuit, (2) inconsistent with a decision of the Supreme Court or the Court of Appeals for the Federal Circuit, (3) overruled by a subsequent expanded panel, or (4) overturned by statute. These decisions are relatively speaking, rare.

To date, while the trial section of the PTAB has processed hundreds of AIA opinions and orders, they had yet to designate one precedential, until today.

The Board has now designated SecureBuy LLC. v. CardinalCommerce Corp. (CBM2014-00035, Order April 25, 2014, Paper 12) as precedential. The case is a very short, straightforward read of 35 U.S.C. § 325(a)(1). That is, if you file a DJ of invalidity, CBM options are foreclosed thereafter. (decision here)

The designation of a decision as precedential can take some time given the internal review and voting process followed by the judges.

Stretching Prior Art Grounds Fatal to Petitioners

 
In district court, 102 grounds are highly preferred to even the strongest 103 ground. This is because of the uphill battle in demonstrating invalidity in a forum that not only applies a presumption of patent validity, but also requires clear and convincing evidence of invalidity. Obviousness just does not resonate with non-technical fact finders as well as anticipation. For this reason, patent challengers in the district court will often creatively argue 102 grounds on the basis of “inherency.”
 
Now that patent validity disputes are increasingly heading to the Patent Trial & Appeal Board (PTAB), challengers find themselves in a difficult situation. That is, where a 102 ground has been “stretched” in the co-pending litigation, for consistency, the same position is being advanced at the PTAB. This practice has led to some unfortunate results for those allowing their district court case to drive their PTAB strategy.
Flawed inherency arguments are a favorite target of petition denials. Whether a result of attorneys seeking to track their preliminary invalidity contentions, or just hoping to present a 102 rejection, the end result can be quite significant as recently demonstrated in The Procter & Gamble Company v. Team Technologies, Inc. et al, 1-12-cv-00552 (OHSD July 3, 2014, Order) (Black, J.). In this case, after filing invalidity contentions with the court, the defendant pursued the same argument before the PTAB. On the basis of the PTAB’s denial of inherency based challenges, the Court granted partial summary judgement of no invalidity, explaining:
 
As further evidence that Defendants cannot meet their burden of showing that claims 1-3 and 7 of the ’017 patent and claims 2-3, 6-9, 11 and 18 of the ’453 patent are invalid, the PTAB recently rejected the same inherency arguments, with respect to the same references, under a lower standard of proof. . .
 
In this litigation, Defendants bear the burden of establishing invalidity by clear and convincing evidence. (Id.) In order to show that the challenged claims are invalid in the IPR proceeding, however, [defendant] must only meet a preponderance of the evidence standard. 35 U.S.C. § 316(e). Further, for the PTAB to institute proceedings in the first place, [Defendant] needed only to show a reasonable likelihood that it would ultimately succeed under the lower “preponderance of the evidence” burden. 35 U.S.C. § 314(a). Nevertheless, under this “reasonable likelihood” standard, which is significantly lower than the “clear and convincing” burden in this litigation, the PTAB found that [defendant and same expert evidence] inherency arguments were insufficient. . . .
 
The PTAB rejected [defendant’s] inherency arguments, under a lower standard of proof, not once, but twice. On January 23, 2014, [defendant] requested rehearing of the PTAB’s institution decisions in IPR2013-00438 and IPR2013- 00448. (Doc. 88-1 at 33).
 
(Order, here)
 
In explaining the weight accorded to the PTAB decisions, the court explained that opinions from administrative agencies may be properly considered as evidence under Fed. R. Evid. 803(8) if the findings are trustworthy and probative of the issues —the Court took judicial notice of the PTAB’s findings.
 
This case was brought to my attention by the great Docket Navigator.
 

Briefing to Review Federal Register Notice Concerns

The Patent Trial and Appeal Board (PTAB) is hosting a free lunchtime webinar tomorrow from noon to 1 pm(EST) to discuss AIA trial proceedings. At the webinar, Acting Vice Chief Judge Scott Boalick, who heads the Trial Section of the Board, will discuss non-rule recommendations received from stakeholders during the recent round tables.  Judge Boalick also will address the 17 questions that the Board posed in the Federal Register Request for Comments.  There will be time for questions and comments during the webinar.

Webinar Access Information

Past Three Months of PTAB Statistics Tell A Different Story

Last week, I explained that the institution rate of PTAB trials in Inter Partes Review (IPR) and Covered Business Method (CBM) proceedings had dropped, on average, by roughly 10 percentage points in the past year. However, the averaging of 2012-14 proceedings does not tell the current story. Whether you agree with my explanation of this recent phenomena as a reflection of poor petition quality or not, there is clearly a heightened focus on the preliminary proceeding (i.e., petition stage).

What was left out of last week’s post was a snap shot of what is actually going on at the PTAB  today— the effective institution rate right now.

Below is an overall chart of institution decisions from January 2013. As you can see, the uptick in petition denials over the past few months is quite pronounced.

PTAB trend

Taking a closer look at decisions from April 20, 2014 — July 20, 2014 (below), institution denials have risen dramatically. Of course, as also shown by the above chart the number of total institution decisions being issued by the PTAB has tripled since the beginning of 2013, and will double, and even triple from current numbers in the months ahead. Perhaps an indication of the steady-state to come is the snapshot of the last 3 months.

PTAB numbers

As you can see, over the past 3 months, 42% of petitions were granted as to all claims, coupled with the 26% partial grant rate, yielding a 68% overall grant rate.

Over the past 3 months 32% of all petitions were denied outright, and 58% included at least one denied claim.

PTAB numbers July
This is a far cry from the 85%+ institution rate decried by PTAB critics in months past.