USPTO Post Grant & PTAB Updates

In recent weeks the USPTO has issued updates on various aspects of post grant patent practice and PTAB performance. The PTAB reports that their significant backlog has not only stopped growing, but will soon begin shrinking thanks to the increased hiring of administrative patent judges (APJs). With a typical ex parte application appeal pending 2-3 years in many cases, this is welcome news for appellants. (presentation here)

On the post grant side, an update was provided on patent reissue practice. The presentation mostly recapped recent case law developments and changes to oath practice. (presentation here)

An update was also provided from the PTAB Trial Section on the patentability trials of the America Invents Act (AIA). The PTAB reports that upward of 70% of Inter Partes Review (IPR) and Covered Business Method (CBM) filings are in the electrical/software arts. This is not surprising considering these proceedings are emerging as the preferred antidote to the patent troll problem. Other highlights include insight into the PTAB’s preferred claim construction and petition practices. (presentation here)

Demand for IPR Driven by Patent Troll Assertions

On September 16th, 2012 the new post grant patent proceedings of the America Invents Act (AIA) became available to patent challengers for the first time. These proceedings have only been available for a few months, but there has been a robust demand for these proceedings with over 120 petitions filed in the first few months—many of which target NPE portfolios. This filing rate is equal to about one IPR petition per business day. The USPTO is estimating that as many as 300 petitions will be filed in the first 12 months of availability. This filing rate would be consistent with the demand for the predecessor proceeding, inter partes patent reexamination.

As a reminder, IPR allows challenges to suspect patents of any vintage in a speedier, more cost effective, and challenger friendly manner relative to that of the federal district courts. That is to say, for the very first time, there is a true, accelerated alternative to patent litigation. The new post grant proceedings of the USPTO’s Patent Trial & Appeal Board (PTAB) will conclude in a fast enough time (12-18 months) to transform the existing litigation landscape in a manner that will significantly undermine the NPE patent litigation business model.

Breaking down the petitions to date, close to 50% target entities that are considered by most to fall into the “patent troll” category. The category “other” reflects filings made against the patents of more traditional research entities, such as universities. (Click to Enlarge)

troll stats

Patentability Trials of the PTAB

For those seeking CLE in the coming months, there are numerous upcoming options. The Practicing Law Institute’s USPTO Post Grant Trials- 2013 (now in its 4th year) will soon 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 program once again, see you there.

Stayed Litigations to Drive Joinder Practice

Inter partes reviews (IPRs) are now understood to be effective tools for parties defending against patent infringement suits filed by non-practicing entities, sometimes called “patent trolls.” Typically patent trolls launch suits against multiple entities and district courts commonly consolidate such cases for purposes of discovery. In some cases, this leads to the formation of joint defense groups, which provide various efficiencies and advantages on the litigation side of the fence. However, joint defense group members almost always have differing views when it comes to the decision whether and when to file an IPR.

In the typical situation, a “deep pocket” defendant with the most to lose will move forward in filing the IPR, then move to stay the costlier litigation proceeding. The Patentee will then oppose the motion, pointing out that the litigation is unlikely to be simplified by a stay because any potential estoppel stemming from the IPR is binding only with respect to the real party in interest (i.e. deep pocket filer). Faced with the prospect of the motion for stay being denied on this ground, the remaining defendants will begrudgingly stipulate to be bound by the same estoppel as that attaching to the real party in interest. Yet, this stipulation now places such defendants in the unenviable position of being bound by a proceeding they may not have wanted in the first instance.

In the past case of inter partes patent reexamination, such “me too’ defendants were forced to sit on the sideline and place their fate in the hands of the real party in interest; such situations proved quite problematic. For example, should the deep pocket defendant settle with the Patentee, the reexamination could then proceed unopposed and the inter partes reexamination would transform into a statistically less desirable, pseudo, ex parte reexamination proceeding. In other words there was no way for the other defendants to secure a right to participate along side the real party, or substitute themselves in the place of the real party should settlement occur— not so in IPR.

The joinder rule set forth in 35 U.S.C. 315 provides joint defense group members a degree of flexibility in that they may be permitted to join an IPR filed earlier by another member of the group, even if the joinder request is filed more than a year after the complaint was served.  As a reminder, Section 315(b) states that all IPRs must be filed within one year of service of a complaint alleging that the petitioner has infringed the patent.  However, that section also provides that this time limit “shall not apply to a request for joinder under subsection (c).”

Section 315(c) states that “the Director, in his or her discretion, may join as a party to [a previously instituted] inter partes review any person who properly files a petition under section 311 that the Director . . . determines warrants institution of an inter partes review. . . .”  The comments made by Senator Kyle during the AIA debates suggest that the legislature and the Office were contemplating that additional parties could, for instance, file the identical petition on which trial was instituted and thereby be permitted to participate in the proceeding:

The Office anticipates that joinder will be allowed as of right—if an inter partes review is instituted on the basis of a petition, for example, a party that files an identical petition will be joined to that proceeding, and thus allowed to file its own briefs and make its own arguments. If a party seeking joinder also presents additional challenges to validity that satisfy the threshold for instituting a proceeding, the Office will either join that party and its new arguments to the existing proceeding, or institute a second proceeding for the patent. (157 Cong. Rec. S1376)

The congressional record is also clear, however, that the Office would consider the totality of the circumstances in deciding whether to permit joinder in a particular case. (Id.)  Senator Kyle commented that the Patent Office would exercise this discretion to “discourage late requests” for joinder. (Id.)

The foregoing suggests that prompt requests for joinder which do not raise substantial issues beyond those presented in the previous petition may receive favorable consideration by the PTAB.   That, in turn, will provide individual joint defense group members greater flexibility in determining whether to participate in an IPR they would otherwise have no control over, or no recourse should the real party in interest decide to settle. To the extent that agreement cannot be reached in the first instance, there exists an avenue by which other joint defense group members may be permitted to join the IPR after trial is instituted, albeit only after the payment of an additional – and considerable – petition filing fee.

The availability of joinder after the one year deadline may also create circumstances which militate strongly in favor of a stay. Because section 315(b) enables joint defense group members to join an IPR instituted at the request of another joint defense group, more joint defense group members may be willing to agree to bound by the estoppel provisions on the condition the litigation is stayed…especially after they have seen the trial instituted with favorable claim constructions/unpatentability determinations.

First IPRs Advancing at Light Speed

The PTAB has now issued several decisions instituting trials. The initial decisions suggest that post-grant practitioners may in many instances receive a final written decision in about a year from petition filing (rather than about 18 months as initially projected) and that the PTAB decisions instituting trials will provide useful findings regarding claim construction roughly 4-5 months from the time of petition filing.

For instance, the PTAB granted the IPR petition filed by Garmin in early January and has the oral hearing set for August 16th.  That should yield a final written decision in 12-13 months from the filing date of the petition. In that case the patent owner waived its right to file a preliminary response but waited almost the full three months before it did so. If the patent owner had promptly filed a waiver of the preliminary response that would have sped up the entire process by about three months.

This suggests that the PTAB intends to remain true to its stated intention of moving these patentability trials along at a brisk pace (even faster than that required by the controlling statute, 12-18 months from institution). The PTAB is well aware that it is intended by Congress to provide an efficient and relatively quick alternative to litigation and, consistent with that directive, the PTAB is outpacing the statutory 18 month timeline (link to earlier post) by a substantial margin.

Just as significantly, the decision instituting trial (here) included a detailed analysis and interpretation of the claims. In the decision to institute, the PTAB interpreted the claims in a manner that may refute a broader stance being advocated by the Patentee in a co-pending litigation. That denial may aid the petitioner in presenting their claim construction positions in the upcoming Markman hearing, especially given that the PTAB was giving the terms their broadest reasonable interpretation.

The Garmin case provides cause for optimism that the PTAB in fact will prove to be both a speedy and an effective forum. In upcoming post-grant proceedings we hope to see similar schedules and thorough decisions which provide the parties substantial guidance on the Patent Office’s view concerning the broadest reasonable claim interpretation.

This would substantially simplify litigation by causing patent owners to abandon unduly broad claim constructions and promptly providing district courts with a final written decision concerning validity. The former will drive many early settlements. The latter will enable district court litigants to focus discovery on the issues which survive post-grant trial scrutiny. Especially where the district court stays litigation pending the PTAB proceeding, this will go a long way toward ensuring that district court and ITC litigation is confined to those issues which require extensive discovery or trial.

ptabOver the years, the PTAB has shed it’s “super-examiner” role to more of that of an umpire— calling balls and strikes. That is to say, the PTAB has drifted toward a relatively narrower view of the scope of issues it will substantively review on appeal, perhaps as a matter of necessity in dealing with the crushing weight of the growing appeal backlog.

Yesterday, in Rexnord Industries v. Kappos (2011-1434), the Federal Circuit shifted the focus of the PTAB away from their recent umpire-like practices toward a more traditional judicial review model.

The Federal Circuit reversed the PTAB for failing to consider all theories raised by an appellee in support of an examiner’s decision in an inter partes patent reexamination irrespective of whether the theory or ground was adopted by the examiner. Rexnord, the third party requester, had proposed rejections based on a combination of references with the added rationale that a certain claimed feature – a gap of less than 10 mm – was merely an obvious design choice. The examiner rejected the claims on the proposed combination of references but did not adopt the design choice theory, instead, opting to substitute his own reasoning. Namely, the examiner’s rejection was premised on an interpretation of the claims which permitted the gap to be 0 mm, or nonexistent.

The PTAB reversed the examiner but refused to consider Rexnord’s “obvious design choice” argument as an alternative basis for affirming the examiner. The PTAB reasoned that its role on appeal  Continue Reading CAFC Finds PTAB More Than Mere Umpire

Mandatory Disclosure Option Disregarded

Now that over one hundred inter partes reviews (IPRs) and covered business method proceedings (CBMs) have been filed, the parties to those proceedings are actively considering their rights and duties with respect to the limited discovery available at the Patent Trial & Appeal Board (PTAB). PTAB Trial Practice and Procedure Rule 51 provides for two options for “mandatory initial disclosures.” The options are akin to initial disclosures provided by the Federal Rules of Civil Procedure.

As a reminder, the major bar associations lobbied for the USPTO to include the option in the final rules.

Perhaps, not surprisingly, parties are not agreeing to voluntarily participate in discovery for trials that are yet to be instituted. Likewise, as discovery is “limited” if and when a trial begins, there is little motivation to volunteer information that an adversary may not be entitled to in the first instance. To date, the mandatory initial disclosure option has been largely ignored in IPR filings, but may be worth a closer look for those involved in a CBM.

Rule 51(a) provides the option, and generally tracks Rule 26(a)(1) of the Federal Rules of Civil Procedure.   PTAB Trial Practice and Procedure Rule 51(a) provides that the parties may, at their discretion, agree to “initial disclosures” and upon institution of the trial the parties “may automatically take discovery of the information identified in the initial disclosures.” The Patent Trial Practice Guide indicates that these agreed upon initial disclosures should conform to one of two options, namely:

(1) the name and, if known, the address and telephone number of each individual likely to have discoverable information—along with the subjects of that information—that the disclosing party may use to support its claims or defenses, unless the use would be solely for impeachment; and

(2) a copy—or a description by category and location—of all documents, electronically stored information, and tangible things that the disclosing party has in its possession, custody, or control and may use to support its claims or defenses, unless the use would be solely for impeachment. (77 Fed.Reg. 48762)

The second option is described as being “more extensive” and further includes the identification of the persons knowledgeable about and documents and things relating to the secondary indicia of non-obviousness or any alleged public use to the extent corresponding challenges are made in the petition.   (Id.)

These initial disclosures may still be pursued even if the parties fail to reach an agreement as described above. Rule 51(a)(2) provides that the parties “may seek the mandatory discovery set forth in paragraph (a)(1) . . . by motion” where the parties “fail to agree to [that] mandatory discovery.” While a  motion is possible once trial begins, it seems highly unlikely that the movant would be entitled to a laundry list of information sources for a typical IPR (based on patents and printed publications only). As to CBM, if relying on “on-sale bar” or “public use” defenses, which are likely to involve some discovery, it may be worthwhile to pre-plan for the inevitable.

Based on filings to date, it seems that mandatory initial disclosures will be relatively uncommon outside of CBM and PGR proceedings.

USPTO Exercises Fee Setting Authority to Decrease Patent Reexamination and Post Grant  Trial Fees

Based upon the fee setting authority provided in Section 10 of the America Invents Act (AIA), the USPTO has now issued final rules to reduce fees for patent reexamination and post grant proceedings of the Patent Trial & Appeal Board (PTAB). The new fees are discounted from existing rates, and take effect on March 19, 2013. (final rules here)

The fees for PTAB proceedings will be broken up into petition and trial phases. The apportionment enables the office to more precisely calibrate costs so that refunds may be provided, where appropriate. The petition portion of the fees correspond to the cost of considering the petition filing. The trial portion of the fees corresponds to the cost of conducting the trial.

A more detailed explanation of the fee changes is provided below.

The filing fee for patent reexamination will decreases from the $17,750 (effective today) to $12,000. This decrease is even greater than that originally proposed ($15,000). Corresponding changes are made for small entity and micro entities. The filing fees for supplemental examination is likewise decreased.

Turning now to the apportionment of post grant fees, currently, the base post grant fees are all inclusive, $27,200 for Inter Partes review (IPR) and $35,800 for Post Grant Review (PGR) and Covered Business Method Patent Challenges (CBM). These all inclusive fees are non-refundable (excess claim fees may also apply). The USPTO will, in March, begin allocating the specific costs of post grant proceedings into four discrete fees.

Using IPR as an example, the first fee component is the cost of filing an IPR petition, which is set to a flat $9000 (for up to 20 claims). If the IPR is not instituted, this fee is not returned. The second fee component is a $200 surcharge per claim for each claim in excess of 20. The second fee component is refundable if an IPR is not instituted. The third and fourth fee components are trial institution fees. The third is $15000 for an IPR trial of up to 15 claims. This fee is refundable if the trial is not instituted. The fourth fee is a $400 surcharge per claim for each claim over 15.  This fee would be returned if the IPR is not instituted.

Following the above guidelines, the USPTO has provided an example for an IPR seeking a trial on 52 claims. The petitioner would pay $44,200 ($9,000 plus 32 (52-20) x $200= $15,400); this is the first and second fee components. The third and fourth fee components would be calculated as ($14,00 plus (52-15) x $400=$28,800.  $15,400+$28,800 = $44,200

The USPTO reasons that 25% of petitioned claims will not be reviewed for trial (hence the 20 claim and 15 claim difference in fee calculations). Under the current all inclusive fee structure the same IPR would cost $46,400. ($27,200 + (32 x $600))

Those considering filing a post grant patent challenge in the coming weeks might want to delay the filing to fall under the new, discounted fee structure, if possible.

Failure to Focus Means Plus Function Debate in Patent Reexamination

Last week in In re Avid Identification Systems Inc., the CAFC affirmed the USPTO’s rejection of certain claims of U.S. Patent 5,499,017 in ex parte patent reexamination. Of particular note in the appeal was the proper construction of  “means for storing.” The Patentee argued that the “means for storing” language invoked 35 U.S.C. § 112 6th paragraph (now known as 35 U.S.C. § 112(f)), and as such, required particular structure of the specification. The USPTO took the position that, since this claim construction position was not seasonably raised in the briefing to the PTAB, nor was the required claim mapping presented in the opening brief as required by 37 C.F.R. § 41.37(c)(1)(v), that the argument was waived for purposes of appeal.

In a stinging dissent, Judge Clevenger found the PTAB’s practice to be “random” as it relates to the proper examination of means-plus-function (MPF) claims. He was particularly disappointed that the PTO chose to “hide behind” 37 C.F.R. § 41.37(c)(1)(v), labeling such behavior a public detriment. (decision here)

The fact pattern in Avid is troubling on many levels. Not only is such a practice a public detriment as to predictability, but interpreting MPF claims to have a broader scope is arguably an ultra vires action in the context of patent reexamination. And, above all else, a simple rule change would avoid most such issues from reaching the appellate level.

As explained by Judge Clevenger,

The term “a means for permanently storing data” is undeniably a means-plus-function limitation. The question in this case is whether the Patent Office (“PTO”) may use an unaltered broadest reasonable interpretation standard in examining means-plus-function claims, or if these claims must always be interpreted in accordance with 35 U.S.C. § 112, ¶ 6. The answer is easy. 35 U.S.C. § 112, our en banc decision In re Donaldson, the Manual of Patent Examining Procedure (“MPEP”), and past PTO practice are all in agreement: under § 112, ¶ 6, “the broadest reasonable interpretation that an examiner may give means-plus-function language is that statutorily mandated in paragraph six.” In re Donaldson, 16 F.3d 1189 (Fed. Cir. 1189) (en banc).

(emphasis added)

Judge Clevenger highlighted the impact on the public in adopting a broader read of such a claim, explaining:

In this case, the Examiner allowed claim 13 without explicitly interpreting the claim under § 112, ¶ 6. Meanwhile, a district court found that there was no support in the specification for the limitation “means for decoding a password…” in the same claim. Allflex USA Inc., v. AVID Identification Systems, Inc., Case No. 5:06-cv-1109, ECF No. 469 at 15 (C.D.Ca. Feb. 17, 2010) (Claim Construction Order). Had the Examiner properly considered the requirement that the specification disclose structure corresponding to the “means” claimed, this inconsistent result could have been avoided.

The danger in ignoring the required construction is clear. That is to say, the public would undoubtedly follow the guidance of Donaldson in interpreting such a text book MPF element, perhaps believing themselves free of liability based on such an analysis. Thereafter, the scope of the claim may be treated in patent reexamination quite differently; lending weight to a Patentee assertion of a broader scope. Yet, broadening of an originally issued claim is precluded by statute in patent reexamination. 35 U.S.C. § 305. I am not sure the PTO can ignore such a fundamental issue of claim construction without running afoul of 305.

In this case it may be that the Patentee deliberately ignored the requirement of Rule 41.37 during appeal, preferring a broader interpretation for infringement purposes. Once losing at the PTAB, the interpretation was switched to the narrower read at the time of rehearing in an attempt to save the patent. It is entirely understandable that the PTO would choose to deny this argument so late in the game. The fault lies not with the PTAB, but in allowing such claims to be presented in a request for patent reexamination in the first instance without a counterpart rule akin to 41.37. This oversight was corrected for the new post grant trial proceedings of the AIA, which require such a mapping in the petition. In this case, the reexamination requester provided no such mapping or explanation as to the “means for” language. As a result, the issue was raised for the first time in the request for rehearing.

While means plus function claiming has fallen in popularity in recent years, many older patents are now the subject to patent reexamination. Also, it appears the USPTO is attempting to encourage means-plus-function claim drafting for software related patents. This problem is ongoing and not at all insignificant.

As I have suggested previously, a simple rule requiring the same claim mapping from patent reexamination requests as required on appeal (and now, the new post grant petitions) would focus the issue at the outset of the process. The majority in Avid noted that the presumption triggered by the “means for” language is only triggered when raised by the Patentee, yet, it is also a presumption relied upon by the public.

The EDTex Conundrum Presented by Inter Partes Review

The Eastern District of Texas is a favorite forum of patent trolls in substantial part because its judges have demonstrated a substantial disinclination to stay litigation pending reexamination. Many presume that this historical bias will translate into a similar disinclination to stay litigation pending pending inter partes review. However, refusing to stay a case pending inter partes review will give rise to various case management conundrums.

The practical reality is that the petitioner (usually the defendant in the lawsuit) will be estopped from pursuing at trial any validity defense which reasonably could have been raised in the inter partes review. The time to trial in the Eastern District of Texas is around 25 months, which is about seven months after an inter partes review filed contemporaneously with the complaint should result in a final written decision. (assuming the maximum six month “front end” and assuming further that the PTAB does not extend the one year period in which the trial is to be completed by statute). Under the new inter partes review model, estoppel attaches at the time of the written decision. In most cases this would be amount to a 5-6 years acceleration of estoppel as compared to the old, inter partes reexamination system. Unless the parties settle the inter partes review (in which case they will likely also settle the lawsuit) the defendant will be estopped from pursuing any defenses at trial which could have been raised in the inter partes review proceeding.

That in turn creates a conundrum:   Should the court’s and the parties’ resources be spent on issues which are in all likelihood going to be rendered moot before trial?  Even if the district court is not substantially concerned with the parties’ expenditures, judicial economy weighs heavily against dedicating the court’s limited resources to adjudication of the substantial motion practice which arises from fact and expert discovery relating to soon-to-be-moot issues.

Perhaps the judges in the Eastern District of Texas will consider staying only that portion of a case which is directly implicated by an inter partes review.  But that too is fraught with difficulties.  How does one logically separate and silo, for discovery purposes and otherwise, defenses which are based on patents and printed publications from those which are based on public uses, offers for sale and other defenses which are not subject to inter partes review?  Often times the latter set of defenses relate to the commercial versions of the systems and processes set forth in patents and printed publications at issue in the inter partes review.  The subject matter of the two groups of defenses usually overlaps to a significant degree.

In many, perhaps most, cases there may not be any practical way to effectively and efficiently bifurcate discovery and the associated motion practice in a way that prevents expenditure of the court’s and the parties’ resources on issues which will necessarily be rendered moot by the inter partes review while still allowing the case to proceed on issues to which the inter partes review estoppel will not apply.  It may be that even the Eastern District of Texas finds that most cases should be stayed pending inter partes review.

To date, roughly half of inter partes review filings have been directed at patent trolls, likely for the purpose of transferring the dispute to the lower cost forum. The chart below classifies, to the extent clear from the public filings, patent owners into NPEs and industry. Those patentees that do not fall neatly into either category are classified as “other.” (Click to Enlarge)

troll stats

Texas courts may take a “wait and see'” approach as to the efficacy and speed of the new PTAB proceedings. However, based upon the volume of filings to date, the public seems convinced that there is a new sheriff in town.