NDCA vs. EDTX

Prior to the passage of the America Invents Act (AIA) many district courts were less than impressed with the lenghty pendencies of patent reexamination proceedings at the USPTO. 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. (There is a provision allowing for 18 month schedules in exceptional cases but the PTAB has yet to avail themselves of that exception). 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.

That said, there are still significant differences of opinion on the PTAB —across districts, and even across judges of a same district. 

Perhaps most pronounced, is the different attitudes of the EDTX and NDCA on the PTAB.In a recent Order of the NDCA staying Evolutionary Intelligence LLC, v. Sprint Nextel et al., (here) which was transferred out of the EDTX, the court explained with respect to improved speed:

The AIA requires a final determination by the PTO in an IPR proceeding within one year, which may be extended up to six months based upon a showing of good cause. Id. § 316(a)(11). “For comparison, the old reexamination proceeding averaged over thirty-seven months in the second quarter of fiscal year 2013.” Pi-Net Int’l, Inc. v. Focus Business Bank, C-12-4958 PSG, 2013 WL 4475940, at *2 (N.D. Cal. Aug. 16, 2013). In the Pi-Net case, the court noted that such a “promise” of shorter proceedings may convince even “skeptical” judges to exercise their inherent discretion to stay cases pending IPR proceedings at the PTO.

On the topic of the potential for simplification, the court recognized the likelihood of claim cancellation/amendment, explaining:

Defendants argue that a stay would simplify the issues before the court because the entire infringement dispute will become moot if the PTO invalidates the claims in the IPR proceeding. The parties cite statistics showing that: (1) the PTO has granted 81% of IPR petitions (and another 10% settled before the PTO decided on the petition) . . . and (2) in the context of the old inter partes reexamination proceeding, 42% of inter partes reexaminations (from 1999 through September 13, 2013) resulted in all claims being cancelled or disclaimed, Dkt. No. 106-10, McCrary Decl. Exh. G. These figures indicate that there is a high likelihood that at least one of the eight IPR petitions will simplify the issues for trial.

. . .In sum, while there is no guarantee that an IPR will eliminate all the claims at issue, the higher standard to initiate an IPR (“reasonable likelihood that the petitioner would prevail with respect to at least 1 of the claims challenged in the petition” as opposed to “substantial new question of patentability”) raises at least some likelihood that certain challenged claims will be struck down or amended if the PTO grants the petitions. In addition, the limited statistics available to the court indicate that the PTO will probably grant one of the IPR petitions, at least with respect to some of the asserted claims. The IPR proceedings will likely simplify the issues for trial, and thus this factor also favors granting a stay.

Contrast this policy level perspective with the fact intensive analysis of the EDTX in VirtualAgility Inc., v. Salesforce.com Inc., et al., which, interestingly enough, was denied a transfer to the NDCA. In the initial decision denying a stay pending a pending CBM (here) the court explained the expedited schedule of the PTAB was still prejudicial in some cases:

Defendants  . . . further argue that any prejudicial effect would be minimal because the CBM review occurs in an expedited 12-month time-frame. . .

While the Court is mindful that CBM review generally proceeds on an expedited twelve-month time-frame from the date the PTAB institutes review until it issues a final written decision,  . . . as opposed to inter-partes reexamination that could take up to twenty-four months, the Court is not persuaded that potential loss of market share and consumer goodwill during the intervening one year would necessarily impose only minimal prejudice on VirtualAgility.

Here the Court found that a 12 month delay was prejudicial for a direct competitor dispute. (The question of whether or not VirtualAgility was, in fact, a competitor was in dispute). As to the potential for simplification, the Court explained:

The first statutory factor requires the Court to consider whether a stay will simplify the issues in question and streamline the trial. Defendants argue that the CBM review will simplify the issues in this case because the review may result in some or all of the claims being cancelled. The Court, however, is not convinced that such a result is probable.

The court went on to conclude that based upon the lengthy prosecution and previous reexamination of this patent, and the fact that there were only two grounds of unpatentability in the CBM, that the challenger was unlikely to succeed. (despite the PTAB determination under the more likely than not standard).

While the Court seemed persuaded that the case presented unique facts, it is not at all uncommon for a business method patent application to remain pending at the PTO longer than most. Likewise, it is fairly common for a CBM or IPR to include art previously considered by the PTO, and less than 4 grounds of unpatentability due to page limits. I pointed out earlier this week that since this initial decision the patentee has presented a contingent amendment and  the denial of the stay is now on appeal to the CAFC.

Districts allowing litigation to proceed in parallel with faster PTAB challenges might soon face a jarring re-calibration of perceptions in the months ahead.

Time to Adapt - Clock

Refusal to Stay Pending CBM Unusual

Last week I discussed the creation of a “Track B” docket by the Eastern District of Texas (EDTX) and explained how this docket could force some defendants away from the more cost effective alternatives of the USPTO’s Patent Trial & Appeal Board (PTAB). On the heels of the Track B announcement, the Court issued a second denial of a stay of the patent dispute between VirtualAgility Inc., v. Salesforce.com Inc., et al. (here) pending PTAB review. In this case, a Covered Business Method (CBM) challenge was filed against the patent at issue. By way of reminder, CBM is the proceeding created by Congress that does all but mandate a stay pending CBM…..at least outside of Texas. Continue Reading Is The Eastern District of Texas Thwarting the America Invents Act?

EDTX Judge Davis Announces New, Faster “Track B” for Patent Cases

Last week, Chief Judge Leonard Davis of the Eastern District of Texas (EDTX) issued an Order (here) creating a second, Track B for patent cases. Track B as the name implies establishes a different, accelerated track as compared to the typical EDTX schedule (Track A). Litigants may opt for Track B by agreement, or be selected for such by the court. Track B is designed to reduce costs by accelerating milestones and limiting certain filing and discovery practices. These same concepts are expressed in many of the proposals of the pending patent reform legislation. The judiciary has been rather vocal on opposing the various proposals floating around Congress on issues of district court case management. While the goal of Track B is to resolve disputes sooner with less cost to litigants, the timing also suggests a deliberate amplification of the judiciary’s position.

To be sure, the proactive efforts of the judiciary to reduce time and expense of litigation are greatly welcomed, and the EDTX effort is to be applauded for taking the lead. Yet, based upon the dynamics of what is going on in the world of patent assertion post America Invents Act (AIA), the EDTX Track B docket could aid certain non-practicing entities that were only recently left for dead.

A clear trend has emerged in patent assertion since the passage of the AIA— suits in the predictable arts are increasingly including larger numbers of patents. Since the enactment of the AIA, it is far more difficult to hold up an entire industry with a single patent. This is because the AIA provides USPTO patent challenge mechanisms such as Inter Partes Review (IPR) and Covered Business Method (CBM) that are faster, more cost effective, and more challenger friendly relative to litigation. As a result of the shift toward larger portfolios (which better insulate from such USPTO challenges due to increased cost, and impact motions to stay the costlier litigation proceeding) smallish trolls are far less attractive to law firms from a contingency investment perspective since such assertions are far less effective post-AIA.

Track B, if not adapted appropriately, may undo the progress of the AIA.

To be clear, I appreciate the initiative and thought leadership of Judge Davis and the EDTX and understand that Track B has only just started and will undoubtedly be adapted if unfairly balanced. What follows is my initial reaction on how the new EDTX docketing option could be beneficial to some NPEs. Track B is targeting smaller damage cases (relative to Track A). While such filtering makes perfect sense for cases including true market competitors, NPE cases have different dynamics. As the EDTX is a favorite haunt of such plaintiffs, such dynamics may quickly lead to abuse of Track B.

As noted above, smallish NPEs seeking 1 million or less from any one of a group of defendants are very vulnerable to AIA challenges (which already provide a faster and more cost effective resolution in many cases). By seeking out the faster Track B docket in the EDTX such trolls may effectively beat the defendant to the punch on a faster resolution for the purpose of insulating themselves from a stay. (The goal of the NPE is to maintain the litigation for settlement purposes). An EDTX judge is less likely to stay a fast track proceeding pending USPTO action. On the other hand, any defendant that fights Track B and opts for the longer, costlier timeline will be seen as a bully. Such a defendant that later argues for a stay pending USPTO review will be accused of gamesmanship.

Generally speaking NPEs favor the high cost and slower discovery timelines for settlement leverage. Likewise, Track B’s early delivery of infringement contentions and the like are not the least bit desirable for most NPEs. Still, smaller NPEs now being shut out from court by the AIA patent challenge mechanisms of the USPTO will be happy to be back in the game. Even with the Track B schedule, the cost of litigating will still far outpace the cost of settlement, which has always been the game for NPEs.

Board to Host Overview of Operations

Wednesday, February 26th, the USPTO will host a program entitled “State of the PTAB” at their new Silicon Valley location. The program will cover an overview of the PTAB, Board growth — past and planned, day in the life of a judge, and training for new judges. While primarily a recruiting event for new judges, the program is sure to provide some interesting insight (flyer here)

The event will be webcast 6-8PM (PST) http://www.uspto.gov/ip/boards/bpai/index.jsp

New Executive Actions Largely Political Props

With little progress being made in Washington DC these days on hot button issues such as immigration, health care, or debt control, the White House is once again going back to the patent reform well. The latest round of political theater occurred last Thursday when the White House announced yet another round of “executive actions.” Like the earlier round, these also recycle ongoing PTO programs and initiatives as “new ideas” of the administration.

The latest initiatives include providing a web page of resources for those facing patent troll suits, a program to encourage the USPTO to “crowdsource” for prior art, and additional seminars for patent examiners to keep them up to date on changes in technology and functional claiming. Of course, the PTO has been cooperating with industry on technology seminars for years, and the peer-to-patent program was introduced in 2007 to leverage crowdsourcing.

As an aside, the PTO now has a page of PTAB decisions on functional claiming, which I find useful.

Patentees Fail to Adjust to Motion Practice

As final written decisions in Inter Partes Review (IPR) and Covered Business Method (CBM) proceedings begin to issue from the USPTO’s Patent Trial & Appeal Board (PTAB), it is clear that patentees have yet to master the process of amending their patents in these new proceedings. The primary disconnect appears to be the failure of patentees to recognize that an amendment in a PTAB proceeding is proposed by motion; an amendment is not entered as a matter of right.

Unless prosecution has been closed in the examination of a patent application or patent reexamination, a patent applicant/patentee is free to present virtually any number and character of claim amendments supported by their specification. Outside of the prohibition against broadening, or amendments relating to a patentably distinct inventions, a patent applicant/patentee is not required to do much else but present their new claims for examination. On the other hand, a motion to amend before the PTAB requires the movant (i.e., patentee) to demonstrate entitlement to the requested relief. This demonstration requires more than most patentees are accustomed to providing the USPTO.

The PTAB requires some similar showings in a motion to amend as would be provided in a prosecution context. For example, the claims must have support in the patent specification and must arguably distinguish over the art of record. But, these components of motions to amend are not at all controversial. Instead, the requirements that a patentee “set forth what it [knows] about the level of ordinary skill in the art, and what was previously known, regarding each feature it relies and focuses on for establishing patentability of its proposed substitute claims” are quite surprising to patentees. Idle Free Systems, Inc. v. Bergstrom, Inc., Case IPR2012-00027 (PTAB, Jan. 7, 2014).

These PTAB motion requirements put patentees in an altogether unfamiliar and uncomfortable position. That is, PTAB amendment practice is the polar opposite of patent examination/reexamination amendment practices. Rather than presenting claims to the Office for examination where the burden falls on the USPTO to deny the claims as unpatentable, the patentee must first advocate for a pseudo-presumption of non-obviousness just to have their amendment entered.

For those interested in amendment proceedings before the PTAB, I will be participating in a mock IPR oral argument (including such issues) this afternoon in Crystal City, VA. The workshop is the second day of the International Intellectual Property Institute (IIPI) program entitled AIA Post-Grant Practice Conference. The mock arguments will be heard by actual Administrative Patent Judges (APJs) of the PTAB.

I hope to see you there.

The Applicability of Prosecution History in a BRI Analysis

Whether in a new patent application or in an issued patent being subject to a post grant review proceeding, the USPTO utilizes a Broadest Reasonable Interpretation (BRI) standard for all patent claims. Under this one-size-fits-all standard a patent claim is construed consistent with the accompanying patent specification from the perspective of one skilled in the relevant art.

Although applied in post grant proceedings, BRI was developed as an examination expedient for patent examiners to protect the public notice function of newly minted patent claims. That is, since no property rights exist at the time of patent application, a pure BRI analysis properly ignores the developing intrinsic record as a guide to claim meaning (i.e., prosecution history) in favor of claim amendment practices. However, once an issued patent returns to the USPTO for a post grant analysis, consideration of prosecution history as intrinsic evidence is more of a mixed bag—especially when before examiners steeped in traditional BRI practices (e.g., reexamination, reissue, supplemental examination).

Recently, the Court of Appeals for the Federal Circuit (CAFC) has sent the USPTO Patent Trial & Appeal Board (PTAB) seemingly conflicting messages on the use of prosecution history during post grant proceedings.

Last week in Tempo Lighting Inc.,v. Tivoli LLC. (here) the Court agreed with the PTAB’s claim construction of a patent claim in inter partes reexamination. In affirming the construction, the court pointed out the consistency of the Board’s determination with that of the original (i.e., application history) patent prosecution history, noting:

In claim construction, this court gives primacy to the language of the claims, followed by the specification. Additionally, the prosecution history, while not literally within the patent document, serves as intrinsic evidence for purposes of claim construction. This remains true in construing patent claims before the PTO. See In re Morris, 127 F.3d 1048, 1056 (Fed. Cir. 1997). Here, the prosecution history shows that [patentee] meant for material that is [claim term]. . . This intrinsic evidence support the Board’s decision.

Contrast this statement on the use of prosecution history with that of Marine Polymer (also a patent reexamination case):

If, in reexamination, an examiner determines that particular claims are invalid and need amendment to be allowable, one would expect an examiner to require amendment rather than accept argument alone.  . .

In Marine Polymer, the Court was sensitized to the potential abuses of prosecution history as a tool to avoid intervening rights in a post grant proceeding. As a result, one might reconcile the statements of these two cases as distinguishing between types of prosecution history. That is, consideration of closed record prosecution history (i.e., original application prosecution) is generally more reliable as to claim meaning when compared to open and ongoing records (i.e., reexamination, reissue, supplemental examination). So, once a patent proceeding is concluded and the patent issued, confirmed, or reissued, the history is closed and the public relies on that history.

Once a patent exits a USPTO proceeding there is often times some form of disclaimer/estoppel made in the concluded record. It would be manifestly unjust to ignore the terms of that previously negotiated bargain in a subsequent post grant proceeding. Yet, such concessions are routinely sought in may post grant proceedings under a strict BRI analysis.

Use of prosecution history in post grant proceedings should be limited to reviewing the deal made between the patentee and the office while excluding the self serving and carefully crafted statements of open, post grant records.

Hearings End, Leahy Bill to Reemerge on Fast Track

Last Friday, the Senate Judiciary Committee concluded a round of additional staff hearings on pending Senate Bills S.1720 (Leahy) entitled Patent Transparency & Improvement Act. The hearings focused on the concerns of universities, small inventors, and restauranteurs/retailers with the currently proposed legislation. At the same time, the Committee considered refinements to the Bill, including the value in adopting one or more of the concepts expressed in related Senate Bills 1612 (Hatch), 1013 (Cornyn) and 866 (Schumer).

At the forefront of these deliberations is the concern to balance “unintended consequences” with the goal of eliminating frivolous patent suits, especially those targeting downstream users of off-the-shelf products. With the legislative effort completed in the House by the passage of the Goodlatte Bill, and the Senate coming down the home stretch with their companion bill, president Obama took the bold step of calling on Congress to reform patent law in his recent State of the Union address….you see where this is going.

Upcoming Post Grant CLE

For attorneys seeking post grant patent CLE over the next few months, there are a number of high quality programs scheduled between February and April.

Next Wednesday, February 12th, the Practicing Law Institute presents the one hour briefing entitled: PTAB Roadblock to Patent Monetization. The program will explore the impact of PTAB patent challenges on the patent assertion landscape.

Thursday February 13th, week, Strafford legal presents Proactive Patent Procurement & Prosecution Strategies: Minimizing the Threat of Post Grant Challenges. This one hour webinar will cover the impact of PTAB patent challenges on patent portfolio development strategies.

February 19th-20th, the International Intellectual Property Institute (IIPI) will conduct a two day seminar in Arlington, VA entitled AIA Post-Grant Practice Conference. This two day program is directed entirely to post grant practice, the second day including mock hearings an oral arguments.

In March the return of the highly acclaimed Practicing Law Institute program entitled USPTO Post-Grant Patent Trials 2014. This program, dedicated entirely to post grant practice will be held on March 27, 2014 in New York, and again on April 28, 2014 in San Francisco. A live webcast is available for the San Francisco location.

Heading into April, Post-Grant Patent Practice:  Review and Reexamination is offered  March 30-April 1 in Bonita Springs, Florida

Post-Grant Patent Practice:  Reissue, Owner-Request Reexamination, and Supplemental Examination is offered the next day, April 2, in Bonita Springs, Florida.

On April 3rd, the American Bar Association (ABL) Spring Meeting in Arlington Virginia will host Game Over: The Game Changing Impact of the Patent Trial & Appeal Board on Non-Practicing Entities (NPEs).

I hope you can join me and my colleagues at one of these upcoming events.