Key CBM Revision Unpopular with Bar Assoc’s

One of the more intriguing mechanisms of the America Invents Act (AIA) is the Transitional Program for Covered Business Method (CBM) Patents. To date, these speciailized post grant patent challenges have been pursued in relatively limited numbers as compared to the more generic Inter Partes Review (IPR) proceedings. The reason for the disparity between CBM and IPR filing rates is quite simple — IPR is available for any technology not just “business method patents.” Yet, the CBM proceding is far superior to IPR in many strategic respects.

Recognizing the potential of CBM filings to have a greater impact on the patent litigation landscape, Congress is actively considering alterations to the existing statutory framework that would encourage greater use of this powerful AIA mechanism. tle=”More…” src=”https://www.patentspostgrant.com/wp-includes/js/tinymce/plugins/wordpress/img/trans.gif” alt=”” />The proposal with the most momentum comes from Senator Schumer (D-NY) as Senate Bill S.866 or the “Patent Quality Improvement Act.” This bill was introduced some months back to amend Sec. 18 of the AIA, which pertains to CBM standing. The Bill proposes to remove the language “a financial product or” from the standing definition. In its place, the bill proposes “an enterprise, product, or.” The change would effectively make clear that any e-commerce patent, even if not related to finances per se, is subject to a CBM challenge. A carbon copy of this bill has been proposed in the House, leading many to belive that this initiative is poised to become law very quickly….but not if major bar associations have their way.

It seems that several bar associations take issue with the potential expansion of CBM jurisdiction as proposed in the Schumer Bill, perhaps favoring the watered down CBM modifications as embodied in the Goodlatte draft. In the Goodlatte “discussion draft” proposed by Congressman Goodlatte (R-Va). The primary modification of the CBM statute is codification of the decision made in SAP America, Inc. v. Versata Dev. Group, Inc., CBM2012–00001, Paper 36 (January 9, 2013). That is to say, Goodlatte proposes a similar clarification that a patent need not have a financial services component to qualify for CBM treatment, but omits the expansion to “enterprise products” as proposed by Schumer.

With the GAO report noting that most troll asserttions are in the software/computer implemented technology area (i.e., enterprise products), it is hard to imagine the bar associations being on the winning end of this fight.

Congress & USPTO Prepare for Busy Fall Season

As Congress turns back to patent reform efforts in the Fall there will also be a fair amount of activity at the USPTO. The “executive actions” released by the White House months ago were aimed primarily at the USPTO. In response, several proposed rule making packages and changes to examination practice are  expected in the coming months.

1. The USPTO is expected to issue strict guidelines requiring the identification of the real-party-in-interest for issued patents. 

The USPTO privately acknowledges that their expected RPI proposal will almost certainly spur outrage among large patent filers and require significant modification from their initital, overreaching form. But, the idea that the identification of the real-party-in-interest will somehow curtail abusive litigation practices was spawned in the executive branch. As such, the USPTO has no choice but to advance an idea that all major bar associations and stakeholders have dismissed as missing the mark. It is now up to stakeholders to insist that this anti-troll provision be watered down so that it doesn’t punish innovators.

2. Functional Claiming Addressed

Coming to an office action near you….although not a rule package, the USPTO is diligently re-training examiners to aggressively challenge functional claiming. Training materials (here).

3. The USPTO will issue a final rule package to calibrate Rule 56 to be consistent with Therasense.

Congress:

As to Congress, last week’s GAO Report was a kick to the groin for the anti-troll lobby. The suprisingly objective report pointed out that the real issue is patent quality, and the AIA is addressing that problem. Curiously, many of the biggest proponents of further reforms have yet to avail themselves in any meaningful manner of those provided by the AIA. Nevertheless, you can expect Congress to continue moving full-speed ahead. Recall that the AIA was touted as a “jobs bill.” With so few bills pending that can garner anything close to bipartisan support, politicians are not going to walk away from a chance to pass something…needed or not.

PTAB Braces For Increased AIA Hearings & Reexamination Surge

As we head to the end of the summer months, many of the first patentability trials of the AIA are maturing for decision. Going forward, the USPTO’s Patent Trial & Appeal Board (PTAB) will face a growing number of these oral hearings, also the surge of inter partes patent reexamination filings made last September will also be headed to the Board for decision. At last week’s Patent Public Advicory Committee (PPAC) meeting, the PTAB reported on the progress of their workload, and their plans for staffing up in anticipation of the coming reexamination surge.

As show in the overview below, the PTAB is well on their way to receiving 500 petitions for IPR and CBM by the close of the fiscal year. Based upon the number of trials in progress, the PTAB is the busiest patent court in the U.S. (by new filing rate they currently rank fourth).  (Although the chart below shows one PGR filing, this filing is actually an IPR that was filed incorrectly). Overview(CLICK TO ENLARGE).  As the above trial proceeding mature, they will head to oral hearing and written decision in the months to come, as show below.Workflow The PTAB is also gearing up for the influx of reexamination appeals that will result from the filers that rushed in prior to the switch over to the AIA proceedings. This reexamination bubble will hit the PTAB in 2014-2015.reexambubble At present, the PTAB has 169 judges. The goal is to raise that number to 200 by years end, which is necessary if the Board is going to process the growing workload as the busiest patent court in the U.S.

Preemptive Filing May Provide More Patentee Flexibilty in Amending

Prior to the AIA, some patentees would preemptively challenge their own patents in an ex parte reexamination proceeding in the hopes of staving off an imminent inter partes reexamination challenge. The thinking was that since the challenge was inevitable, it made more sense to choose the ex parte proceeding as statistically more favorable to patentees.  In essence the patent owner would rush in with art identified by an opponent so that a later presentation of the same art by the opponent in an inter partes reexamination filing would be deemed cumulative— and in some cases it worked. 

For patentees facing the imminent threat of a new AIA filing (IPR, PGR, or CBM) is this tactic still effective?

Preliminary indications are that the PTAB is nowhere near as strict on the concept of cumulativeness as the Central Reexamination Unit (CRU), and has stayed earlier filed ex parte proceedings in favor of later filed PTAB proceedings. Yet, there some fact patterns would that still warrant a first filed ex parte filing.

One such example would be where an opponent informs a patentee of certain art that may also be used as an inequitable conduct defense. In such a scenario, if the art could not be avoided under the USPTO’s more liberal standards absent amendment (i.e., a “but for” showing of materiality), prudent patentees will quickly avail themselves of a largely unused aspect of the AIA, supplemental examination (SE). 

SE is one of the new post grant mechanisms of the AIA that you don’t hear much about. SE was envisioned by Congress some years back as a way to effectively cure inequitable conduct via a USPTO proceeding (which was never before possible). In the years prior to Therasense, when inequitable conduct was alleged and entertained in almost every patent assertion, SE would have been a wildly popular option. Post-Therasense, courts require a near impossible intent showing as well as “but for” materiaility, and at a much higher transaction cost. For these reasons, absent egregious circumstances, patentees are foolish to even consider a SE. As no surprise, the demand for SE has been tepid and will remain so.

Still, for those few patentees faced with the rare scenario outlined above, a quick SE filing prior to an opponent’s inter partes challenege (IPR, PGR, CBM) will provide a significant benefit. That is, even if the PTAB stay of the earlier filed SE is inevitable, they are unlikley to do so prior to issuance of the SE certificate (statutorily mandated). Once issued, the patentee will have the freedom to amend their claims in the later filed IPR/PGR without fear of the demonstrated “but for” materiality of the alleged art (assuming certain exception do not apply, See 35 U.S.C. § 257 (c)). This is the value of the SE certificate that is issued within 90 days of filing.

While this scenario may seem far fetched, there is at least one example already on the books. 96/000,007; (IPR2013-0122, Invue Security Products Inc. v. Merchandising Technologies Inc.)

PTAB to Broadcast First IPR Hearing

With IPR proceedings limited, by statute, to a 12 month duration, many of the first IPRs pursued last fall will be concluding shortly. The first, IPR2012-00001 (Garmin Int’l, Inc. et al. v. Cuozzo Speed Techs. LLC) will go to oral hearing on August 16th. The PTAB has set up an audio feed of the hearing (here). The PTAB also broadcast the first CBM oral hearing last spring.

For those that have never practiced before the PTAB, the CBM oral hearing was a surprise. Many litigators were expecting/hoping for “trial-like” theatrics, witnesses, etc. Of course, the AIA trials at the PTAB are largely conducted on paper. The oral hearing at the end is more akin to a CAFC oral hearing in that the panel is very active, and the focus is on the claims and cited art (as opposed to the multitude of tangential distractions that bog down district court proceedings).

NPE Files Unsuccessful IPR Against Target

Over the years I have seen a handful of non-practicing entities (NPEs) pursue post grant challenges against the patents of their opponent. This “turning of the tables” by the NPE is an odd strategy since the patent of the innovator defendant is useless against an NPE (i.e., they don’t make or do anything to infringe). Clearly, the challenge is not to avoid infringement liability, or narrow a broad patent scope. Instead this tactic is an extension of the game NPEs play—that is, forcing cost and business uncertainty on their opponent to drive settlement.

Whether through patent reexamination, or the more robust Inter Partes Review (IPR), the ploy is almost always an afterthought. Not surprisingly, since these types of filings are hastily assembled and typically prepared on the cheap, they are rarely effective. One example of this unsuccessful strategy can be found in the IPR of U.S. Patent No. 7,582,051 (Heart Failure Technologies, LLC v. CardioKinetix, Inc.) as reported yesterday by Patently-O.

In this dispute, HFT threatened IPR of the ‘051 as a last ditch effort to exact a license fee from Cardio as to their asserted patent. (letter here) When Cardio failed to respond, HFT prepared the IPR petition and filed it (paying a roughly $25K filing fee, and necessary attorney fees). Tellingly, no expert declaration was filed in support of the petition, a characteristic of 90% of IPR petition filings.

Cardio responded to the petition explaining the conclusory positions of the petition as to obviousness, and attaching the threat letter as an exhibit. The response likely cost Cardio about the same, perhaps even less, than the fees expended by HFT to pursue the petition. Last week, the PTAB denied the IPR as deficient with respect to the required 103 showings. (here)

While the asymmetrical discovery burden of district court litigations fuel NPE driven assertions and drive settlements, PTAB battles present a scenario where the cost burden is roughly equal for both sides. For smaller NPEs, this tactic seems like a very bad idea to say the least. On the other hand, larger, more sophisticated licensing entities (such as Intellectual Ventures) have pursued IPR against their licensing targets, not to inflict cost, but to force the targets into positions on prior art that may damage their own portfolio and complicate their defensive use of the same art.

Congress Winds Down to August Recess

It is highly likely that a new patent reform bill will be passed into law this fall given the intense congressional interest in the topic. Over the past few weeks, there has been an unprecedented flurry in the number of initiatives, executive actions, and bills proposed. Whether this political attention is truly responsive to the outcry of technology innovators being shaken down by “patent trolls” is unclear. Certainly there are some in Washington that simply recognize the existence of bipartisan support for legislation that can be spun during an election season as helping small businesses….needed or not. Whatever the motivation, something will almost certainly be passed into law…..but what? 

Rather than go through the details of each proposal being floated, there are concepts common to all. I provide an assessment of the likelihood of each to exit Congress as law in the coming months.

1. Real Party in Interest: Several bills note that it is often difficult to ascertain the true owner of a patent. It is explained that shell companies are created to assert the patent while the true owners remain hidden from the public. The proposed legislation/executive action would require a stricter idenitfication of owenership at the USPTO.
Impact on Abusive Litigation Practices: Insignificant — most trolls don’t need, or care about anonymity.
Likelihood of Becoming Law: High — few will oppose/lobby against this one.

2. Covered Business Methods: Schumer bill and complimentary House bill propose making this “transitional” program permanent and clarifying that a covered patent need not be related to a financial service. Bill also proposes clarification that covered patents may impact enterprise systems (i.e., e-commerce)
Impact on Abusive Litigation Practices: High — With enhanced provisions for staying costlier litigation, and limited estoppel, expansion would greatly aid patent challengers.
Likelihood of Becoming Law: High — Identical bills already in both Senate and House on same points, limited lobbying to oppose.

3. Loser Pays: The Shield Act of 2013 and other bills propose to impose sanctions on frivolous litigation by forcing a losing plaintiff (that goes through trial and exhausts appeals) to pay the legal fees of their opponent. As Judge Rader recently pointed out, courts already have this power and don’t exercise it.
Impact on Abusive Litigation Practices: Moderate — Small to medium size companies do not have the resources to fight through to appeal.
Likelihood of Becoming Law: Low  — Plaintiff bar has kept this control from personal injury suits for years, don’t see it happening here.

4. Heightened Pleading Standard for Patent Cases: Patent trolls notoriously abuse the pleading form practice of patent litigation to withold important information from their adversary for as long as possible, such as infringed claims, accused products, etc. Several proposals would get away from such “notice pleading” and require specific products be accused, claims identified, etc.
Impact on Abusive Litigation Practices: Moderate — Trolls will just work around it by filing 100 page complaints against smaller companies knowing full well most will settle.
Likelihood of Becoming Law: Moderate/Low — Also hurts legitimate high-tech industries that may need discovery for detailed assertions.

5. Stricter Requirements for Software Related Patents: Computer related inventions are often claimed functionally, which leads to a claim scope that is not enabled by most patents (i.e., every known process for implementing the function). The USPTO is already training examiners to reject such claims as lacking written description, and forcing applicants into means-plus-function claiming where possible.
Impact on Abusive Litigation Practices: Moderate/Low — The current inventory of patents will keep the troll machine going for another decade at least.
Likelihood of Becoming Law/USPTO Practice: High — USPTO is already working on this issue.

6. Modification to PGR Estoppel Provision: CBM estoppel only applies to issues actually raised in the proceeding. PGR on the other hand applies to anything raised, or “reasonably could have been raised.” Since it is possible to file a PGR for any statutory ground of invalidity, the concern is that an unsuccessful PGR will destroy all invalidity defenses in a later litigation. It has been argued that this stricter estoppel was an scriveners error in the statute. The proposal is to adopt the CBM standard for estoppel.
Impact on Abusive Litigation Practices: Low — Practically speaking PGR, due to its 9 month window, is of little value in abusive litigation scenarios.
Likelihood of Becoming Law: Low — Bio/Pharma Lobby doesn’t want generics using PGR to challenge valued drug continuatons on 101/112 grounds.

7. Modification of USPTO Claim Construction: It is proposed that the USPTO apply the same claim construction and presumption of validity as applied in the distrcit courts in IPR, PGR and CBM proceedings.
Impact on Abusive Litigation Practices: Helps Trolls
Likelihood of Becoming Law: Low — Application of presumption of validity to USPTO post grant proceedings is a non-starter. Will not go anywhere in present form. Expect this concept to morph into provision requiring USPTO to uses Philips v. AWH for all post grant proceedings (including reexamination and reissue).

Look for an entirely new bill from Senator Leahy incorporating many of the more favored concepts, as well as more focused bills from others as we approach September.

 Trolls Face Expensive Legal Battle To Prove Inapplicability of State Laws

When a patent troll asserts a patent claim of questionable merit against a defendant, the defendant is faced with two options: 1) fight a very expensive and time consuming legal battle to prove the correctness of their invalidity/non-infringement position; or 2) fold up tents and go home— minus a significant license fee. In a case of poetic justice, state attorney general’s (AGs) are now playing the same game to stop this business model. That is, state AGs are suing trolls, or initiating investigation of their business practices under state consumer protection statutes. In doing so, the AGs are daring the trolls to wage an expensive legal battle against them to prove them wrong, or pay fines and go home. 

While there would seem to be some question as to the propriety of these state law actions in matters of exclusive federal law jurisdiction, interest is growing around the country as to this new anti-troll tactic.  See the new Vermont statute (here) and Nebraska investigation of a Texas plaintiff firm (here).

 

Congress Tinkers with Further Patent Reforms

It seems Congress has chosen to ignore the significant impact the America Invents Act (AIA) has had on pure patent enforcement entities. There is simply no other rationale to explain why a new patent reform bill is contemplated by Congress near every week. While there will always be fringe organizations clamoring to simply outlaw patent suits altogether, or make them impossibly difficult, Congress needs to balance the interests of legitimate innovators with the fanatical anti-patent lobby (i.e., those bellyaching the most have yet to file a single, patent reexamination, IPR or CBM).

In order to properly balance the needs of technology companies and the targets of abusive litigation practices, Congress might want to take a look at the significant impact of the AIA has had on the dreaded “patent troll.” The Patent Trial & Appeal Board (PTAB) proceedings of the AIA have not even been available for a full year. Given a bit more time, these post grant options will significantly degrade the non-practicing entity (NPE) contingency model.

To date, there have been over 400 post grant proceedings inititated with the Patent Trial & Appeal Board (PTAB). A significant number of these procedings have been initated against non-practicing entities.

PTAB

For more discussion on the current options and an update and forecast on pending legislative inititaives, check out Wednesday’s webinar on July 31st: Battling Patent Trolls: Leveraging New Executive Orders, AIA and Other Tools.

AIA Alternatives to Patent Litigation Prove Wildly Popular

It’s hard to believe that it has only been 10 months since September 16, 2012. On that date, the new patent challenge proceedings of the America Invents Act (AIA) first became available. Since that day 400+ petions for trial (IPR and CBM) have been filed with the USPTO Patent Trial & Appeal Board (PTAB) as an alternative to more costly district court litigation. As the current filing rate is expected to continue, if not accelerate, roughly 500 requests will be pursued within the first year (USPTO fiscal year 2013). With 80-90% of these filings proceeding through to a written decision (i.e., complete trial), the PTAB will be conducting as many as 400 trials per year. This is roughly 4 times that of the most popular patent jusisdiction in the U.S., the now infamous Eastern District of Texas (EDTX).

Indeed, when accounting for the fact that many district court filings are split amongst multiple defendants (as a result of the AIA joinder provision), the PTAB has been the busiest patent court in the U.S. for some time.

With the time to trial in the EDTX now approaching 3 years, and the time to decision in the PTAB roughly 17 months from petition filing, it seems that an antidote to the abusive patent litigation already exists. Still Congress is clamoring to pass additional patent reforms, while at the same time sequestering USPTO funding. Seems to me the most effective patent reform legislation would be to provide full funding to the solution already in place, and working.