Modern Patent Troll Business Model Insulated from New Post Grant Challenges
Roughly two weeks ago the USPTO published the last of the Post Grant related rule packages established by the America Invents Act (AIA). The rule packages propose hefty filing fees for both Post Grant Review (PGR) and Inter Partes Review (IPR), $35,800 and $27,200 respectively. These filing fees attempt to capture the aggregate cost of conducting these proceedings as estimated by the Agency. Although the filing fee price levels were largely expected by the public, especially after the proposed increase in the filing fee for ex parte patent reexamination, the accompanying claim-count surcharge was not.
In accordance with the claim count surcharge, the filing fee for an IPR or PGR that includes more than 20 challenged claims will escalate in price for every 10 claims over the established 20 claim base line. The IPR & PGR fee schedule is reproduced to the left.
If implemented as proposed, the claim count surcharge will undermine the intent of Congress by providing a very clear road map for patent trolls to avoid these proceedings, at least with respect to their licensing assertions against small-to-medium sized companies.
For example, a patent with 20 claims could theoretically be made subject to an IPR that advances 20 different rejections against all 20 claims for a $27,200 filing fee (Request page limitations aside). On the other hand, if a patent having 51 claims is subject to a request advancing a single rejection against all 55 claims, the USPTO filing fee alone is $68,000. Aside from the fact that the Office is likely performing much more work in the lower cost, 20 claim example above, the proposed fee structure will be cost prohibitive for many targets of troll campaigns— not because of the cost in a general sense, but because of the economics of the patent troll game.
Currently, trolls will pursue 20-30 small companies in an infringement filing with the District Court. The troll will offer relatively low license fees to dismiss party from the law suit, perhaps $100-300K. (since the AIA prohibition against lumping defendants together they are now named in 20-30 individual suits as opposed to one).
As IPR and PGR must be pursued within a year of a the filing of a complaint for infringement, it would be uncommon for individual claims of a large subset to be identified at that time of the IPR/PGR filing. Thus, IPR and PGR Requesters are effectively forced to address all claims of a given patent and incur maximum filing fees.
If every IPR request for a patent with more than 20 claims would cost at least 150-200K to file (fees, plus atty costs), and a nuisance license fee is offered by a troll at 150-200K, the math just doesn’t add up for small to medium size companies to risk pursuing these new proceedings. Understanding this new reality, trolls will invariably add countless claims to pending applications to effectively insulate themselves from post grant challenges from all but the biggest of targets.
Certainly, ex parte reexamination would still remain an option to challenge such patents, but, with longer pendency as compared to the new proceedings, and historical results that favor Patentees, this “choice” is largely illusory.
To avoid these unintended consequences, the Office should consider a surcharge that is not based on claims (a factor out of control of the Requester), but instead on the number of proposed rejections. In this way, every patent could be challenged for the base line filing fee irregardless of the claim count.
Rejection Based Fee Structure
While the 20 separate rejection example above may seem extreme, it is not.
In fact, the vast majority of criticisms from the Office on current IPX practice is the number of rejections that are advanced by Requesters (driven by IPX estoppel concerns). To combat this practice, the Office proposed a “representative rejection” idea last Spring to cut down on the number of rejections the Office would need to consider during a given proceeding. The USPTO is now in a position to effectively force a representative rejection practice by linking the fee structure to the number of proposed rejections, not claims. In the vast majority of proceedings it is the number of rejections that tasks the Office’s resources, not the number of claims. Indeed, in the predictable arts where trolls are far more prevalent, high claim counts are largely just repetitive claims with minor variation in scope.
Using a real life example, several patents of the infamous NTP portfolio include several hundred claims. Take NTP patent 6,317,592, this patent issued with 664 claims in 2001. To challenge the ‘592 Patent in IPR next September would cost 1.6 million dollars in USPTO fees. That kind of price tag is not going to encourage litigants to use the new USPTO proceedings.
Under a rejection based fee structure a Requester can proceed with their best art/arguments on all claims, or, if overly cautious — pay more to advance additional arguments. This will enable challengers to use these proceedings as true alternative to litigation.