New procedures for challenging patents that were instituted a little over a year ago under the America Invents Act are creating a shift in the way companies and their attorneys treat intellectual property.
One of these new procedures, inter partes review (IPR), has proven to be such a popular tool for companies and their lawyers that 486 petitions were filed in the first 12 months of its existence. In comparison, the more cumbersome predecessor to the IPR—inter partes reexamination—was a much less attractive option, with lawyers filing only about 280 such petitions in the full fiscal year before the AIA was implemented.
Moreover, lawyers do not appear to be losing their enthusiasm for the new IPRs: As of Oct. 3, the total number of petitions filed since Sept. 16, 2012, is 534, according to the PTO. That’s nearly an additional 50 petitions filed within three weeks.
“The volume of filings has exceeded expectations,” said Eleanor Yost, a partner at Goodwin Procter, which recently issued a guide entitled “PTAB Post Grant Proceedings: A Tactical Guide for Practitioners.” “This could really change the way IP cases are handled.”
IPR is a new trial proceeding conducted by the Patent Trial and Appeal Board (PTAB) to review the patentability of one or more claims for a patent based on prior art consisting of patents or printed publications. A third party—someone who does not own the patent—files a claim, and the PTAB institutes a review after it is convinced there is a reasonable likelihood that the petitioner would prevail with respect to at least one claim.
In the first year, the PTAB denied only 25 of the 486 IPR challenges, giving petitioners confidence that they now have another venue outside of the federal courts in which they can challenge patents.
Covered Business Method Patent reviews (CBM) have also caught on—even though the type of cases in which these can be applied is limited. In the first year of the program’s existence, the PTO said 54 CBM petitions were filed.
The CBM review is a new trial proceeding also conducted by the PTAB to review the patentability of one or more claims in a CBM patent. Most of these are connected to the financial industry, and only someone who has been sued or charged with infringement of a CBM patent can file a petition. As with IPR, a patent can be challenged for lacking novelty and being obvious, but it also can be challenged on any ground of patentability.
“No one knew how these changes in the AIA would play out,” Yost said. “But they’re faster and cheaper and proving more and more attractive—especially to in-house counsel.”
When the IPR and CBM proceedings were first launched in September 2012 with the implementation of the AIA, about eight or nine petitions were filed each week—perhaps 30 in a month, Yost said. But after the PTAB issued its first decision in a CBM case over the summer—invalidating the challenged patent—things really took off.
“After that, there was more than a 30 percent increase in filings, so now we’re seeing 60 petitions a month,” Yost said. “The number has doubled.”
The proceedings have grown in popularity in part because they are less costly and faster than a trial in federal court. An IPR, for example, is required to be completed, with a final written decision, within 16 to 18 months after the petition is filed. A case in district court takes on average three to five years.
Petitioners already involved in litigation also like the fact that most federal judges, while not obligated to do so, are granting stays of the litigation pending resolution of the IPR. With the older inter partes reexamination, which took years to complete, judges were less likely to issue a stay. The cost savings that result from a stay can be enormous—especially if a petitioner succeeds in invalidating a patent so that the district court litigation becomes moot.
Lawyers representing petitioners have liked what they’ve seen in PTAB trials. Discovery has been limited, fewer witnesses have been called, and courtroom theatrics have been non-existent. The process has generally been streamlined, they say. The judges sitting on the board are knowledgeable, tech-savvy, and active, interrupting counsel to pepper them with questions. “It’s like a Federal Circuit oral argument, a patent office appeal, and a summary judgment hearing in district court, all put in a blender,” Yost said of the process.
While IPR petitions have involved challenges to patents covering a wide range of technologies, software, e-commerce, and electrical engineering have so far made up most of the cases, lawyers say.
An overwhelming number of the petitions filed in the first year—more than 80 percent—were filed by entities that were defendants in patent litigation, according to Goodwin Procter’s analysis of the data. “And a large number of them were defendants in cases brought by patent trolls,” Yost said, using the term that refers to companies that exist primarily to buy and assert patents.
Indeed, one of the most well-known troll fighters—a company called Rackspace—is using the IPR proceeding to challenge the validity of a patent asserted by Rotatable Technologies, which claims it owns the patent covering the screen-rotation technology commonly found in smartphones. Rotatable has sued Rackspace and several other companies, including Apple Inc., Electronic Arts, Target, and Whole Foods, hoping they would pay to settle and make the case go away.
But Rackspace decided to fight. In April, general counsel Alan Schoenbaum described Rotatable in his company blog as an entity that “provides a textbook case of patent extortion,” and said it would use the IPR proceeding to try to knock out the patent.
“When it comes to fighting this particular troll, we believe an IPR is our best option to have this patent abolished at its source—eliminate the root, destroy the weed,” Schoenbaum wrote. http://www.rackspace.com/blog/abolish-the-patent-vanquish-the-troll/
Lawyers say the new proceedings, if used well, could be a deterrent to patent assertion entities that have come to expect their targets will agree to quick settlements. “Now, non-practicing entities asserting weak patents need to consider the possibility that an IPR challenge may be mounted,” said Haynes and Boone partner David McCombs, who represents Rackspace and filed the IPR petition [PDF]. “They may be looking for a settlement, and suddenly find themselves facing an IPR challenge.”
In addition, McCombs noted that many plaintiffs in troll cases hire lawyers who work on contingency. IPRs could serve as a deterrent for these non-practicing entities because their attorneys, who take on such cases with the expectation that they will reach quick settlements, are less likely to take on a case where the patent could face an IPR.
CBM reviews also may be useful troll fighters. Senator Charles Schumer (D-NY) has introduced legislation that would expand the types of cases that can be challenged in that proceeding—an effort to discourage patent assertion entities. And House Judiciary Committee Chairman Bob Goodlatte, who is drafting legislation [PDF] designed to address the problem of abusive patent litigation, has included a proposal to expand the CBM review.
So, are these new proceedings the answer to the problem of patent trolls? Not entirely. The reviews can still be costly, and there are no guarantees that the PTAB will throw out a patent. Although the first CBM decision was issued this summer, the first IPR decision has yet to be published. And even if the PTAB invalidates a patent, that decision can be appealed to the U.S. Court of Appeals for the Federal Circuit, possibly leading to a drawn-out appeal process.
In addition, there are risks: If the PTAB does not invalidate a patent, a defendant in district court cannot bring up prior art that was raised or could have been raised before the PTAB. “You have to thoroughly evaluate your position and consider whether you have the right case before you proceed with an IPR,” McCombs said.
There is one other proceeding instituted under the AIA that will likely have an impact on patent litigation: A post grant review (PGR) petition may be filed by a third party within nine months of a patent’s issuance. But since this patent challenge method applies only to patents issued from applications that are subject to the first-inventor-to-file provisions of the AIA, which took effect on March 16 of this year, PGRs have not yet come into play. “They’re not on the front page today,” Yost said. “But they will be.”
