trollSince the enactment of the America Invents Act (AIA) in September of 2011, the “patent reform” embodied by the AIA has been slowly rolling out. In fact, the bulk of the truly significant changes to patent law are only months old, some still weeks away. These changes include the change over to the first inventor to file model on March 16th, and the kick off of the new post grant patent proceedings 6 months back. With so much recent change it would seem premature to consider further changes to patent law until the last round has had time to take effect…but politicians disagree.

Evidently at least one Congressman feels that the AIA does not go far enough to combat patent “troll” lawsuits. Congressman Defazio of Oregon is sponsoring yet another bill entitled “Saving High-Tech Innovators From Egregious Legal Disputes Act.” The bill, like its 2012 predecessor, proposes that the costs (including attorney fees) of certain types of patent lawsuits should be recoverable from the Patentee once the court finds the patent invalid, or not infringed. The 2012 version of the bill was limited to software type inventions and mandated payment for only frivolous suits.  Continue Reading Loser Pays Patent Troll Legislation Flawed

11th Amendment Immunity from DJ Action Does Not Extend to USPTO

State university technology transfer programs enjoy immunity from declaratory judgment (DJ) actions of patent invalidity/non-infringement. This is because state entities qualify for 11th amendment immunity from suits in federal district courts. So, absent the rare waiver of 11th amendment immunity, licensing targets of state university technology transfer programs have no recourse to proactively challenge the subject patents in the federal district courts.

The immunity benefit enjoyed by such state-run technology transfer licensing programs was most recently made clear in Cyanotech Corp. v. Valensa Intl. & The Univ. of Ill. (D.Haw) (here) In Cyanotech, the DJ action against the Univ. of Illinois was dismissed based on 11th amendment grounds.

Yet, a DJ action in the district courts is not the only avenue to challenge the validity of an issued patent in a forum more favorable to potential licensees. As demonstrated by early filings at the USPTO’s Patent Trial & Appeal Board (PTAB) universities are increasingly the target of Inter Partes Review (IPR) Filings. 

Since September 16, 2012, IPR proceedings have been available to challenge issued patents of any vintage. IPR was specifically fashioned by Congress to improve upon and replace the old inter partes patent reexamination proceeding. Such patent reexamination proceedings had long existed prior to September 2012. Yet, IPR proceedings are quite  a bit different from a challenger perspective.

First, unlike inter partes patent reexamination, IPR proceedings must, by statute, conclude within a 12-18 month time frame. While inter partes patent reexaminations were accorded “special dispatch” within the USPTO it was not uncommon for such proceedings to span 5-7 years in length if fully contested. Thus, the increased speed of the new IPR proceedings allows the PTAB to serve as a true dispute resolution forum for real time business issues.

Second, IPR proceedings are not handled by patent examiners, but instead, technically trained judges. Directly accessing technically trained judges has the advantage of shortening the necessary processing times for these proceedings so that key claim interpretation and evidentiary requirements can be assessed a mere months after petition filing.

Not surprisingly, there is a growing minority of university patents at issue in IPR proceedings. Indeed some of the patents at issued at the PTAB are owned by the University of Illinois (although unrelated to the Cyanotech dispute). Other universities defending IPRs are The Board of Regents of the University of Michigan, and The Trustees of Colombia University.

For at least those licensing campaigns in the predictable arts, IPR is a significant new obstacle of state university tech transfer programs. Yet, as IPR is limited to patents and printed publications only, the licensing of Bio/Pharma portfolios may still proceed relatively unencumbered as 112 and 101 challenges still remain the best defenses in those disputes.

Patentability Trials of the PTAB

postgrantCLEFor those seeking CLE in the coming months, there are numerous upcoming options. The Spring Meeting of the Intellectual Property Section of the American Bar Association (ABA-IPl) will convene on April 3-5th in Arlington Virginia. On Thursday April 4th, the meeting will kick off with USPTO Director Teresa Stanek Rea introducing the program “Patentability Trials of the AIA: The First 120 Days.” I will participate in a plenary session with Trial Section Lead, Hon. Michael Tierney of the Patent Trial & Appeal Board. (PTAB)

The Practicing Law Institute’s USPTO Post Grant Trials- 2013 (now in its 4th year) will also be making stops across the country. This year’s program will coincide with the release of the new treatise entitled Post Grant Proceedings Before the Patent Trial & Appeal Board, the stops include:

I am pleased to be chairing the PLI program once again, see you there.

101 Issue Fast Tracked to April Oral Argument at PTAB

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 is currently on appeal to the CAFC.

Back in January, the PTAB held that SAP’s CBM petition had demonstrated that it was more likely than not that the claims of the ‘350 patent were unpatentable under 35 U.S.C. §§ 101 and 102 (Trial Order here). The PTAB also set the original trial schedule, mandating that the oral hearing be conducted by October 1, 2013. (scheduling Order)

Last week, the PTAB agreed to expedite the trial schedule and move the oral hearing to April 17, 2013. (decision here) The six month acceleration in the proceeding was provided in exchange for SAP dropping the 102 defenses, and agreeing to move forward only on their 101 challenge to the Versata patent. Each side will be given 60 minutes for oral argument.

Settling IPROne of the more intriguing provisions of the new post grant patent proceedings of the America Invents Act (AIA) is the ability to settle these patentability disputes by agreement. Unlike existing patent reexamination practices, the USPTO will terminate an Inter Partes Review (IPR), Post Grant Review (PGR), or Transitional Proceeding for Covered Business Method Patents (CBM) upon joint request of the parties. (cf. terminating an inter partes patent reexamination by operation of estoppel).

At the time of writing, several such disputes have formally settled, some after trial institution (here), and some a mere weeks after petition filing (here). As of yet, I am unaware of a challenger that has simply walked away from the PTAB proceeding in the interests of maintaining the absolute confidentiality of their settlement agreement.

The USPTO greatly benefits from the ability to terminate post grant patent proceedings. This is because agency resources can be moved away from proceedings that are no longer commercially relevant (as to the present parties) to those newly initiated. In this way, the USPTO would operate in much the same way as a court, no longer being responsible for continuing the patentability proceeding on behalf of the public (as is the case in patent reexamination)

The practice of fixing a claim construction for key terms in the Order instituting the patentability trial is also a key driver for dispute settlements much the same way as a Markman Order. As such, it is not surprising that the PTAB has made claim construction a focus of early Orders.

uspto satelliteIn recent months there has been much discussion of the USPTO’s decision to open satellite offices in Dallas-Fort Worth, Denver, and Silicon Valley. The Detroit office opened in July 2012 and hosts about fifty examiners and ten administrative patent judges (APJs). A location has been selected for the Dallas-Fort Worth office and the site selection process is underway for the Silicon Valley Office.

As currently managed, the satellite offices are designed to process patent applications, i.e., ex parte prosecution and appeals therefrom. Post grant patent proceedings, save perhaps some patent reissue proceedings, will remain at the USPTO main campus in Alexandria Virginia. That is, the new patentability trials of the America Invents Act (AIA), patent reexamination, supplemental examination and derivation proceedings will be processed at the main campus in Alexandria. Patent reexamination and supplemental examination proceedings are handled at the Central Reexamination Unit (CRU) and the Trial Section of the Patent Trial & Appeal Board (PTAB) handle contested proceedings of the AIA.  There do not appear to be any current plans to migrate Contested Proceedings or CRU functionality to satellite offices.

President Decries Software Patent Extortionists

Last week during his YouTube broadcast, President Obama labeled software patent trolls as extortionists. In doing so, he also commented that the recent patent reform only went “half way” to solving the existing patent litigation explosion in this area. Shortly thereafter the Internet was abuzz that perhaps the Administration was considering a new legislative effort.

Perhaps most interesting is the President’s characterization of the previous reform effort as only going “half way.”  Can the Administration really be considering a second salvo?

It is worth noting that during the same conversation the president discussed whether or not it made sense to continue to mint pennies, raise the minimum wage, manage gun control, and a host of other “issues” lobbed his way from the Internet. While the ongoing patent troll dilemma is undoubtedly worthy of high level attention, with the current reform legislation only months old as law it seems a bit premature to announce it as halfway effective—especially considering it took near a decade to enact in the first place.

As pointed out here repeatedly, the new post grant patentability challenges of the America Invents Act (AIA) have been widely embraced as troll killers. In fact, the business model that permits business method and e-commerce patent holders to harass entire industries has been essentially destroyed. The problem is these patent trolls are now patent zombies; they don’t realize that they are dead yet. Until the change in the law trickles down to the pocketbook of the contingency firms that bring such cases, they will proliferate for a short time longer. But make no mistake, the ability to stop the high cost litigation as a matter of right will end this game for many on the software side.

Further, the impact of the AIA patentability challenges (now 5 months old) are only now beginning to impact the troll landscape. Stakeholders should not hold their breath that legislation will appear that magically outlaws all such suits. Instead, they should leverage the low cost options now available to undermine the existing settlement driven business models. Once the delays and losses begin piling up for contingency litigation firms future such investments will be far less attractive.

Ex Parte Patent Reexamination Filings Fall by 50% After AIA

Prior to September 16, 2012, ex parte patent reexamination was the only USPTO option for challenging the validity of patents that issued from patent applications filed before November 29, 1999. This is because the inter partes patent reexamination statutes excluded those patents that issued from applications of the pre-1999 vintage. So, for those patent challengers hoping to take advantage of the lower cost USPTO proceeding as an alternative to patent litigation, ex parte patent reexamination was the only show in town— albeit, statistically speaking, a less than ideal option for patent challengers.

Further, ex parte patent reexamination provided the only manner by which a patent challenger could remain anonymous. This feature was especially important for those challengers hoping to test the mettle of an issued patent without inviting a retaliatory law suit from the Patentee.

Of course, the post grant patent world changed forever on September 16th 2012. On this date inter partes patent reexamination was discontinued in favor of the more robust Inter Partes Review (IPR) proceeding. Unlike its predecessor proceeding, IPR proceedings may be used to challenge any patent, regardless of vintage. In addition to this important expansion in inter partes applicability, the USPTO fee to request an ex parte patent reexamination soared from $2520 to $17,750.

So, with the availability of the more robust IPR option, and the attendant price increase to ex parte reexamination, is there still value in pursuing an ex parte patent reexamination proceeding?

Let’s start by looking at the market reaction by comparing the current, steady state filing rate compared to that before September 16, 2012. To avoid any skew caused by the surge of filings made in the weeks before September 16th to avoid the price increase, I chose January 2012 as an exemplary steady state month under the old system. Likewise, January 2013 is significantly distanced from the September 2012 surge to serve as a current, steady state reference point. (Click to Enlarge)

expAlthough month-to-month samples will vary somewhat, it seems the current filings have dropped roughly 50% from 2012 numbers. This drop is likely due to the combination of the price increase and/or availability of IPR for older patents; still even with the more robust IPR option, some challengers are still opting for the Patentee friendly proceeding.

Why would any current patent challenger opt for this seemingly antiquated and Patentee friendly option?

First, this proceeding is still the only anonymous mechanism that may be employed at the USPTO to challenge an issued patent. Anonymity can be important, especially when the relative financial strength of the challenger is dwarfed by the resources of a much more powerful competitor.

Second, in some cases, where the technology is simple, and the prior art substantial, the ex parte option will enable the challenge to move forward with a minimum of investment in attorney and USPTO fees. While IPR is certainly far superior to ex parte patent reexamination in terms of ability to participate and demonstrate unpatentability, the cost of such participation is not insubstantial. Indeed, where a minor amendment or expansion of prosecution history could benefit the challenger in terms of a non-infringement defense, ex part patent reexamination can still serve as a wise investment.

Finally, as the Central Reexamination Unit (CRU) works through their current docket, the lower filing rates of ex parte proceedings may lead to significantly enhanced processing speeds, perhaps even rivaling that of the PTAB in the years to come.

For these reasons, ex parte patent reexamination will continue to serve a supporting role in the post grant challenge arsenal.

Estoppel Arising from Inter Partes Review (IPR) Will Have Minimal Practical Impact

The new patentability trial proceedings of the Patent Trial & Appeal Board (PTAB) have been met with great enthusiasm by many science and technology innovators as the first true alternative to patent litigation; especially those faced with costly “patent troll” assertions. Still, there are a small minority of patent challengers that look on these “new” proceedings with great fear and skepticism. These naysayers will often dismiss the speedier, lower cost PTAB proceeding as being too much of an estoppel risk.

The estoppel concern is almost always distilled down to two unenlightened propositions. That is, a fear of a “new, untested and unpredictable” proceeding, and the belief that the USPTO may somehow give short shrift to the submitted prior art.

Both criticisms are easily demonstrated as misguided.

Practitioners will certainly recall the parade of horribles that was feared to arise from the estoppel in inter partes reexamination proceedings. Countless attorneys cautioned against the use of inter partes reexamination because of the dreaded “estoppel” that would attach to a failed proceeding; some going as far to argue that such a recommendation was tantamount to malpractice. Those fears were debunked as practitioners learned that the right to participate (and appeal to the CAFC) provided reasonable assurances that the challenger’s positions would be given due consideration. In fact, the overwhelming success of such reexamination filings for patent challengers is statistically staggering (89% of filings resulting in claim cancellation or amendment). Practitioners also began to appreciate that the USPTO was in many ways a superior forum to district courts for adjudication of validity issues given the lower burden of proof, lack of presumption of validity, broader claim construction, and the technical expertise of the specialized reexamination examiners and judges.

This truism applies with equal force to post-grant proceedings before the PTAB. In other words, if you’re not going to win at the PTAB you’re certainly not going to win on the same art at the district court. As to the “could have raised” aspect of the previous reexamination estoppel provision, this language has even been liberalized to “reasonably could have raised” for the new proceedings. Clearly, the concern that prior art will be lost or “wasted” at the PTAB is nonsensical, especially considering the alternative is to save such for a jury of laypersons.

Given the choice of three administrative patent judges and the lower challenger burdens on one hand, and a plaintiff friendly, Texas jury with much higher burdens for the challenger on the other, spending several million dollars to explain complex technology to a hodgepodge of Texas plumbers, cosmetologists, and retail sales reps is more than a bit foolhardy.

Further, the new PTAB proceedings are not new in any material function, but in name only. The “new” PTAB proceedings are in many ways a hybrid of traditional USPTO reexamination appeal, and patent interference trial practices. The lead PTAB judges have decades’ worth of experience in such adversarial proceedings. There is no material aspect of an inter partes review proceeding which does not find a direct ancestor, and ample precedent, in either patent interference or patent reexamination appeal proceedings. It is also worth noting that patent examiners, the traditional whipping boys of these “don’t trust the PTO” arguments, are not involved at all in these new PTAB proceedings.

Another practical reality is that inter partes review petitioners usually have a number of independent and discrete defenses that can be raised in litigation in the event that the patentability trial is concluded in a manner favorable to the patent owner. Such auxiliary defenses often include written description, enablement, subject matter eligibility, public use, on sale bars, prior invention and the like. In the typical case there are ample auxiliary defenses for counsel to provide a suitable “plan B” in the event the petition is unsuccessful.

In this connection it is also worth noting that the PTAB orders instituting IPR proceedings have been providing substantial guidance on claim construction. The same is expected for final written decisions issued after completion of the trial. The parties to an IPR are thus likely to have, at a bare minimum, substantial guidance from a panel of three APJs concerning the broadest reasonable scope of the claims, which in some cases could drive settlement within 4-6 months of petition filing. On the other hand, Markman orders are typically years, and millions of dollars into a litigation docket.

CBM challengeTroll Assertions to be Stayed Instantly Upon Filing of CBM

The new post grant patentability trials of the America Invents Act (AIA) are designed to serve as alternatives to costly patent litigation. One of the new post grant options is the very specialized, Transitional Program for Covered Business Method Patents, or “CBM” proceeding. This proceeding, like Inter Partes Review (IPR), is conducted before the administrative patent judges of the USPTO’s Patent Trial & Appeal Board.

The CBM option is noteworthy in several respects, but perhaps of greatest interest to patent challengers is the degree to which courts must defer to the USPTO. That is to say, when faced with the decision to stay or proceed to trial on a qualifying business method/e-commerce patent, the court is left with little choice but to halt proceedings.

As recently demonstrated by the district court in Markets-Alert Pty Ltd. v. Bloomberg Finance LP, et. al (DED), a stay is even warranted for CBM petitions still awaiting initial disposition by the PTAB. (here) Continue Reading Business Method/E-Commerce Patent Trolls Pronounced Dead