USPTO Faces Public Policy Dilemma

The Patent Trial & Appeal Board (PTAB) has the power to terminate an Inter Partes Review (IPR), Post Grant Review (PGR), or Transitional Proceeding for Covered Business Method Patents (CBM) upon request of the parties. This discretionary power to terminate a patentability challenge by agreement (37 C.F.R. § 42.74) is a new concept for the USPTO. Historically reexamination proceedings could not be terminated by agreement. In reexaminations (inter partes) where the contesting parties settled their dispute, the challenging party would simply drop out of the inter partes reexamination, but the Office would continue with the reexamination in the interests of public policy.  (cf. terminating an inter partes patent reexamination by operation of estoppel).

The PTAB greatly benefits from the ability to terminate post grant patent proceedings. This is because Board resources can be moved away from post grant proceedings that are no longer commercially relevant (at least as to the present parties) to those newly initiated, and there are plenty of them. Likewise, the ability to settle seems to encourage resolution of disputes as roughly 30 IPRs and CBMs have settled to date. But, some would argue that the public is left holding the bag for suspect patents that escape cancellation by operation of a private settlement.

While it is true that another challenger could come along and pick up where the last left off, such would be at a significant cost— AND the public would essentially be paying the USPTO twice for the same proceeding. Yet, there is a far better solution to this problem already on the books, one that would still allow the Board to free up judicial bandwidth. 

Although rarely invoked in recent years, 37 C.F.R. 1.520 provides that an ex parte reexamination may initiated by the Director in limited circumstances, specifically:

The Director, at any time during the period of enforceability of a patent, may determine whether or not a substantial new question of patentability is raised by patents or printed publications which have been discovered by the Director or which have been brought to the Director’s attention, even though no request for reexamination has been filed in accordance with § 1.510 or § 1.913.

MPEP 2239 explains the duty of office employees in this regard.

If an Office employee becomes aware of an unusual fact situation in a patent which he or she considers to clearly warrant reexamination, a memorandum setting forth these facts (including a proposed rejection of all appropriate claims) along with the patent file (paper or electronic) and any prior art patents or printed publications should be forwarded to the Office of Patent Legal Administration (OPLA) through the Central Reexamination Unit (CRU) or Technology Center (TC) supervisory chain of command.

(emphasis added)

In the case of a PTAB proceeding that settled post-trial-Order, a director ordered reexamination would seem to be almost mandated by the USPTO’s own internal policies and guidelines. Indeed, all that is required to move forward (i.e., rejections, and threshold showing) is already in the record of the terminated PTAB proceeding. Moreover, now that inter partes reexamination and the corresponding workload of new requests are gone from the Central Reexamination Unit (CRU) docket it seems there is some available bandwidth to address this important public policy concern.

PTAB_Estoppel

CAFC Standard of Review Options Critical in Appeals From USPTO

The new patent challenge mechanisms of the America Invents Act (AIA) will greatly increase the number of CAFC appeal from the USPTO, as much as several hundred cases per year. This is because the patents subject to the new post grant proceedings (IPR, CBM, PGR) are almost always high-value assets involved in co-pending litigation, and these proceedings will conclude faster than any previous mechanism for challenging a U.S patent. At the time of this writing there are roughly 400 IPR and CBM proceedings pending, all of which will be ripe for appeal to the CAFC in 2014 absent settlement (rate of settlement is roughly 10% at present).

When evaluating the PTAB’s decisions on appeal, the CAFC employs either a de novo standard of review for questions of law or, the more deferential substantial evidence standard of review for questions of fact. Not surprisingly, appeals that employ the de novo standard provide a more significant opportunity for reversal. For this reason, it is important to understand the Court’s practice in applying one standard over the other. Continue Reading Hundreds of PTAB Appeals Headed to CAFC in 2014

Multitude of Anti Patent Troll Bills Before Congress

Yet another patent reform bill, H.R. 2639, was introduced last week by Rep. Hakeem Jeffries (D-NY). Like many of the bills introduced over the past few months, H.R. 2639 seeks to mandate more particuarity for pleading patent infringment, and seeks to stem the tide of infringment suits against “secondary parties” such as retailers, hotels, etc. The bill also proposes staying discovery until after the Markman Order.

While there is a tremendous amount of interest in patent reform on Capitol Hill, the multitude of competing bills (with more rumored to be on the way) may only serve to bog down the legislative process so that nothing is accomplished this year.

For those interested in a more in-depth analysis of current patent troll landscape, and the expected impact of the ongoing legislative effort, please join me on July 31st: Battling Patent Trolls: Leveraging New Executive Orders, AIA and Other Tools

PTAB Written Decision Cancelling Claims of Patent Does Not Give CAFC Pause

The CAFC denied SAP’s request to stay the further processing of their appeal (SAP is seeking en banc review) pending rehearing of the USPTO’s Patent Trial & Appeal Board’s (PTAB) recent written decision cancelling the claims of the patent-at-issue. The simple one page order (here) denies the requested relief without elaboration. Given the Court’s history with similar requests, the outcome is not surprising. Still as made clear in last week’s Baxter decision, until judgment is actually executed against SAP, the race to the finish will continue. That is to say, the CBM will makes its way onto the CAFC appeal docket in a matter of months while the pending district court appeal goes through the en banc and petition for certiorari stages.

SAP filed the very first petition for a Covered Business Method Patent Challenge (CBM) on September 16th (CBM2012-00001). The petition (here) challenged U.S. Patent 6,553,350 of Versata Development Group. In May of 2011, Versata secured a $391 million dollar verdict in the Eastern District of Texas against SAP. The verdict was upheld by the CAFC some weeks ago, but SAP is now seeking en banc review.

Patent Reexamination Short Circuits Decade Long Litigation

Post grant patent proceedings at the USPTO are often initiated in parallel with an infringement action in the district court. Prior to September 16, 2012, when the speedier and more robust post grant options of the America Invents Act (AIA) first became available, patent challengers relied solely on patent reexamination. As patent reexamination proceedings were notoriously slow, many courts would proceed in parallel despite the conflicting actions of the USPTO that often times would tend to demonstrate the unpatentability of the disputed patent claims.

Recognizing the long pendencies of patent litigation and patent reexamination proceedings, patent challengers may file a patent reexamination as an “insurance policy” to effectively undo the effect of an interim court judgment. Over the past few years, many of these reexaminations have been making their way to the Court of Appeals of the Federal Circuit (CAFC). Back in 2012 the Court considered this practice in both In re Construction Equipment and In re Baxter. Yesterday, the Baxter dispute was again at issue, and again, Judge Newman decried the potential undermining of previously settled court rulings via USPTO decision.

The majority opinion in yesterday’s Baxter decision (here) did not consider the merits of the reexamination, which concluded months earlier in a certificate cancelling all claims of the patents, but instead, the impact of the reexamination certificate on the pending district court appeal. In finding the appeal moot, the majority emphasized that the district court judgment was not truly “final.” Based upon this perceived lack of finality the Court found that the USPTO’s cancellation of the patent claims in patent reexamination rendered them void ab initio. Thus, the court concluded that Baxter had simply lost their cause of action on appeal.

In her dissent, Judge Newman mostly reiterated the points made in the previous decisions. She also pointed out the gamesmanship of pursuing such post grant challenges after an adverse court judgment as seemed to be the case here.

It is difficult to imagine a scenario in which a dilatory motive could be more apparent. . . . Fresenius should not have waited until it had had a trial, had litigated motions for judgment as a matter of law and for a new trial on the merits, and then had a favorable PTO action to request a stay. Any irreparable harm that Fresenius will suffer will be of its own making, attempting, as it did, to “game the system” by playing both fields simultaneously. . . . [T]o allow Fresenius to now derail this litigation would be to sanction the most blatant abuse of the reexamination process.

This commentary of the dissent emphasizes some of the controls built into the new AIA proceedings, which mandate that patent challengers must pursue Inter Partes Review (IPR) proceedings within 12 months of service of the complaint. This control, coupled with the speed of the new AIA proceedings, and increased  willingness of courts to stay their proceedings will result in relatively few if any such situations in the IPR context. Yet, covered business method challenges (CBM) have no such control. (and the court may see a similar argument  in the SAP CBM).


blatant abuse of the reexamination process.

Claim Cancellation is Not Always Necessary

A successful post grant patent challenge, whether it be through patent reexamination or a Patent Trial & Appeal Board (PTAB) review proceeding, does not always require a claim amendment or cancellation. In other words, even where claims are found patentable, statements in the reexamination record that are inconsistent with arguments made in a concurrent litigation may provide key evidence necessary to prevail during a Markman hearing, or offer new, non-infringement positions to defendants.

Last week, in In re Transdata, Inc. Smart MetersPatent Litigation (OKWD), the Court cited to statements made by a Patentee during patent reexamination (90/011,432) of U.S. Patent 6,181,294 that were deemed inconsistent with an earlier Markman Order. The court expained the original Order, noting:

The Court ultimately determined the proper construction of the phrase “electric meter circuitry” was circuitry capable of manipulating, storing, displaying, or gathering electric meter data. The Court specifically rejected the proposed construction submitted by Plaintiff which would have required the use of a digital electric meter.

In explaining the change in circumstances that resulted from the additional post grant prosecution history the court explained,

. . .Plaintiff notes that during the recent reexamination proceedings, it submitted an express disclaimer which stated, “A person of ordinary skill in the art in 1997 . . . would have understood that the electric meter circuitry disclosed and claimed . . . measures voltage or current and determines metering data by implementing digital circuitry. . . .A person of ordnary skill in the art would have understood that ‘electric meter circuitry’ does not include a  conventional electricity meter utilizing a rotating disc. 00649927-28 (emphasis added).) Plaintiff then directs the Court to the Patent Office’s confirmation, wherein it determined the patents were indeed valid, stating: “Examiner agrees with patent owner’s argument that the claimed ‘electric meter circuitry’ as described in the ‘294 patent is distinguishable from the prior art because it requires the use of digital circuitry and excludes electromechanical meters from the claimed ‘electric meter circuitry .’”

[D]uring the re-examination proceedings, Plaintiff made a clear and unambiguous statement that its patents required digital meters and that the Patent Office adopted that clear and unequivocal statement in determining that the patents were, in fact, valid.

As can be appreciated, a successful post grant patent challenge does not necessarily require that a Patentee cancel or amend claims. The creation of additional prosecution history, post patent  issuance, is a significant benefit to accused infringers.  Indeed, the new PTAB post grant patent challenge proceedings provide express claim constructions in a mere 4-5 months from petition filing (Trial Order). This accelerated focus on claim construction issues has been one of the many game changing features of the new proceedings of the America Invents Act.

This case was brought to my attention by the great Docket Navigator.

Supreme Court Review in CLS Bank to Create Perfect Storm for CBM Filings

Patent Holders in the business method patent space received a sobering dose of reality a few weeks back when the USPTO Patent Trial & Appeal Board (PTAB) cancelled the claims of the very first Covered Business Method (CBM) patent challenge. The petition (here) challenged U.S. Patent  6,553,350 of Versata Development Group. In May of 2011, Versata secured a $391 million dollar verdict in the Eastern District of Texas against CBM challenger SAP. Aside from the speed at which the USPTO acted on the petition, perhaps the most noteworthy aspect of the decision was the basis for the cancellation.

The PTAB expedited the typical 12 month CBM duration to 9 months since the only challenge to patentability was based on 35 U.S.C. § 101 (i.e., whether or not the claims were directed to subject matter that was eligible for patenting in the first instance). The PTAB found that the claims were not patentable under 101, and cancelled the challenged claims as being directed to an abstract idea. (Written Decision here)

The PTAB’s decision is this case was an eye opener to many business method patent litigants that had become accustomed to the “too slow to matter” world of USPTO patent reexamination. The SAP CBM decision made clear that the new post grant patent proceedings of the America Invents Act (AIA) can truly serve as a faster and cost effective alternative to patent litigation.

With the CAFC’s decision in CLS Bank v. Alice Corp (considering computer implemented business method claims) seemingly destined for Supreme Court Review, the PTAB may very quickly become the 101 court of choice going forward.

Of course not every CBM filer will be a late stage litigant, such as SAP, that needs to expedite a 12 month proceeding to 9 months. Still, the SAP proceeding illustrates one of the unique components of a CBM challenge—estoppel is only based on grounds actually raised. As a result, a CBM filer can choose to forego challenges on art based grounds of unpatentability for later use. (i.e., a later court battle if the CBM is unsuccessful).

One benefit of a “101 only” filing is the avoidance of taking a position on the art that may complicate non-infringment positions/claim construction, and to limit potential additional discovery under the “good cause” CBM threshold. In the case of a 101 only challenge, should the Supreme Court’s decision in CLS further restrict these types of patents going forward, patent challengers would be foolish not to take the “free shot” CBM filing. In addition to being  alow risk, low cost strategic option, such a filing will almost certainly stay any copending litigation for the duration of the CBM proceeding.

With Congress now actively considering expanding the CBM proceeding to make a clearer case for its application against e-commerce related patents, the golden age of such business method patent trolls is clearly drawing to a close.

Attorney Work Product in Unsuccessful IPR Challenges

Inter Partes Review (IPR) includes a statutory estoppel provision designed to prevent harassment of a patentee. The statute provides that an IPR challenger that fails to secure cancellation of a challenged patent claim would not only be estopped from making their failed arguments in a later litigation proceeding, but also any arguments that “reasonably could have been raised” in the IPR. The legislative history of the America Invents Act (AIA) indicates that this “reasonably could have raised” standard was fashioned to impart some degree of practicality to the scope of potential estoppel.

Patentees that later face a failed IPR challenger in a litigation proceeding will invariably seek an expansive read of the “reasonably could have raised” aspect of the estoppel provision for patent/publication based grounds of invalidity. In doing so they will seek discovery of challenger search strategies, breadth of prior art knowledge, and the relative timing of such knowledge as compared to the petition filing. In such situations the applicability of work product immunity to such pre-filing materials will be considered.

Most courts adhere to the view that the work-product doctrine does not ordinarily apply to materials routinely created in the preparation of a patent application for prosecution due to the non-adversarial nature of patent prosecution. Yet, it is fairly well established that work product immunity is available for USPTO proceedings that are adversarial in nature. See McCook Metals, 192 F.R.D. at 260-262 (citing Oak Indus. v. Zenith Electronics Corp., 687 F.Supp. 369, 375 and Applied Telematics,Inc. v. Sprint Communications Co., 1996 WL 539595 at *4.); see also In re Natta, 410 F.2d 187, 192 (3d Cir.), cert. denied, 396 U.S. 836, 90 S.Ct. 95, 24 L.Ed.2d 87 (1969); Natta v. Zletz, 418 F.2d 633, 637–38, 163 U.S.P.Q. 675 (7th Cir. 1969).

In McCook, the court states as follows:

In these cases, the court reasoned that, regardless of whether the reexamination proceeding was initiated by a competitor or the patent holder, “the reexamination proceeding is an adversarial proceeding, similar to ‘litigation’, to which the work product doctrine applies.” Applied Telematics, Inc. at *4. Documents prepared for an interference proceeding were also held to be protected. Electronic Memories & Magnetics Corp. v. Control Data Corp., 188 U.S.P.Q. 449 (N.D.Ill.1975).

McCook Metals, 192 F.R.D. at 260.

In Zletz, the court held that notes and memoranda prepared by in-house counsel and outside counsel in connection with an interference proceeding and addressed to a file or limited intra-office circulation, which contained summaries of conferences between various counsel, legal research, and comments upon technical information, constituted attorney’s work product. Zletz, 418 F.2d at 637–638. Likewise, intra-office memoranda and correspondence prepared by in-house counsel relating to the drafting of motions or other papers to be filed in an interference proceeding were held to be work product and privileged. Id. at 638.

As the new AIA proceedings expand upon the patent reexamination model, and are in fact “contested proceedings” (unlike patent reexaminations), it would seem likely that the above logic would apply with even greater force to the new post grant proceedings of the PTAB.

Of course in circumstances where the pre-filing search and prior art assessment was not especially thorough, challengers may have a great incentive to waive any immunity for such materials. Furthermore, as the only potential source for such “reasonably could have raised” information, it would seem likely that at least some courts would find substantial cause to permit at least some limited discovery of this pre-filing work product.

There is likely to be a far stronger basis for work product immunity for post-petition filing documents. That said, there will also be little strategic value in such given the failed outcome of the IPR.

Not All of the New Patent Reform Ideas are Good Ones

A few weeks back House Judiciary Committee Chair Bob Goodlatte (R-VA), released a “discussion draft” of further patent reform ideas. The Draft is a collection of adjustments to the U.S. patent system designed to encourage a dialogue on these important reform issues. In particular the abusive litigation tactics of so called “patent trolls” are the driving force behind the legislative effort. For this reason, the bulk of the proposals of the Goodlatte Draft are squarely aimed at preventing the abusive behaviors and practices of patent trolls. Yet, there is one proposal of the Draft that stands out as a glaring exception. This troll-friendly provision, if enacted into law, would virtually ensure the continued success of the patent troll business model.

One of the most formidable weapons against abusive patent litigation practicesis the ability to remove the high cost litigation from the courts by forcing the patentability determination of suspect patents back to the USPTO. In the 9 months since the passage of the post grant challenge provisions of the America Invents Act (AIA), roughly 300 patent disputes have been sent to the Patent Trial & Appeal Board (PTAB). In many cases the low cost PTAB proceeding forces a complete shut down of the higher cost litigation proceeding. 

The benefits of PTAB proceedings as compared to traditional district court style litigation are well known. That is, the judges at the PTAB are engineers and scientists; the patentability determination performed at the PTAB does not require the “clear and convincing standard” of evidence to prove unpatentability; PTAB proceedings must be completed within 12 months; there is no presumption of validity at the USPTO, and patent claims are not construed to preserve validity, but instead, are given a broadest reasonable interpretation. It is these standards that greatly enhances the efficacy and affordability of PTAB challenges to patent trolls relative to court-based options…..which is why it is so strange for the Goodlatte Draft to propose changing some of these standards to make them consistent with court practices.

Specifically, the Draft proposes introducing the presumption of validity of 35 U.S.C. § 282 to PTAB claim construction:

‘‘(14) providing that for all purposes under this chapter, each claim of a patent shall be construed as such claim has been or would be in a civil action to invalidate a patent under section 282, including construing each claim of the patent in accordance with the ordinary and customary meaning of such claim as understood by one of ordinary skill in the art, the prosecution history pertaining to the patent, and prior judicial determinations and stipulations relating to the patent.’’

(red text shows newly proposed duties of the PTAB)

Let’s take this new standard step-by-step.

First, when filing a patent challenge with the PTAB the proceeding will only go forward if, based on the showing of a challenger’s petition, there is a likelihood that the patent is unpatentable. So under the above proposal, once the PTAB determines that the patent is suspect, they would be asked to construe the claims in accordance with 35 U.S.C. § 282…. in which the claims are presumed valid and construed to preserve validity…HUH?

Perhaps even stranger the proposal seeks to employ judicial determinations to influence PTAB claim constructions.
Let’s think about this one for a minute. For example, Patent Troll A files suit in 2011 against a 5 small companies—4 settle out, but the 5th fights through to a Markman Hearing with inadequate counsel due to cost (where the claims are construed). The Markman Order is bad for the 5th company, so they also settle shortly thereafter.

In 2013, a new round of litigation is pursued against a larger swath of technology companies. Rather than settling, the new companies decide to challenge the patent at the PTAB. Under the last part of the proposal above the PTAB’s technically trained judges are to look to this poorly litigated claim construction order for guidance? Indeed, since the court previously applied § 282 the PTAB may even be bound by the decision.

Lastly, the proposal would result in the PTAB performing a construction that has never before been performed by the agency for Inter Partes Review (IPR) and Post Grant Review (PGR) on one hand, while on the other hand, the PTAB would use the existing challenger friendly standards for patent reexamination proceedings; perhaps even at the same time on a patent. This would force challengers away from the robust contested proceedings of the AIA, which were crafted to overcome the well known failings of the ex parte reexamination system, back to the patent reexamination system of the 1980s.

Clearly there are aspects of the Goodlatte Draft that will never see the light of day, this provision should be one of them.

PTAB Delivers on Congressional Mandate

As discussed previously, the very first petition for a Covered Business Method Patent Challenge (CBM) was filed on September 16th by SAP (CBM2012-00001). The petition (here) challenged U.S. Patent  6,553,350 of Versata Development Group. In May of 2011, Versata secured a $391 million dollar verdict in the Eastern District of Texas against SAP. The verdict was upheld by the CAFC some weeks ago.

The PTAB expedited the parallel CBM proceeding to oral argument as the issues were narrowed to 101 grounds only. Yesterday, the PTAB cancelled the challenged claims. (here)

The PTAB’s 9 month turnaround in this matter is an impressive feat that should not be lost on Congress as they deliberate further patent reforms. The patentability challenges of the America Invents Act (AIA) are significantly impacting the patent litigation landscape, and it is expected that the second round of proposed reforms will increasingly focus on enhancing these valued litigation alternatives.