Defendant abuse of the IPR and CBM system is not talked about enough, says senior SME IP counsel

Trading Technologies is a US business that designs and builds high performance financial trading software. The company has a portfolio of more than 500 US patents and, like many patent owners engaged in protecting their portfolios against alleged infringers, it has been forced to adapt to major recent changes in US case law and the impact of the new post-issuance proceedings, such as covered business method reviews.

Last month, I sat down with Steve Borsand the company’s executive vice president of IP, to talk about the patent climate in the US. He had plenty to say about proposed new patent legislation, the impact of recent Supreme Court decisions such as Alice and how the review procedures at the Patent Trial and Appeal Board (PTAB) are changing patent litigation. This is part one of the interview and tomorrow we’ll run part two.

Tell us a little bit more about Trading Technologies from the patent perspective - where your patents are focused, size of the portfolio, that sort of thing.

Right now we have something like 530 in the United States and we also have patents around the world. They are in the electronic trading space. To our knowledge it’s the largest portfolio of patents that relate to electronic trading that’s out there. They’re all related at some level to technologies used in trading, whether it’s the trading screens, the graphical user interfaces (GUIs), or some of the under-the-hood technology that deals with speed and connections, and reliability, and stuff like that.

How has the company’s view of the portfolio evolved? As you’ve developed the technology has your view moved from defensive to more offensive?

Yeah, well, I would say it has been both. Our original patents, which were filed back in the early 2000s, related to a particular interface tool which was a big deal in our product and turned out to be very successful for us. It was widely copied. Although we were not looking to be on the offensive, by the time the patents issued we had widespread infringement. So our original patents were used offensively but then the reason we were filing on various other things was for both.

Have all your patents developed in-house?  Do you ever buy your assets?

Almost all -- like 99% of them have come from people here at TT.  There have been a couple that we’ve purchased but for the most part our innovations have been developed in-house.

And as a pretty significant patent owner how have you seen the climate change or evolve within the US?

Going back to 2011 with the America Invents Act there’s been a series of changes and a lot of them have to do with concerns over non-practising entities and concerns over frivolous litigation. But for us, we’re practising our technology and we’ve had, patents - at least the ones that we’ve focused on enforcing - where we have a good grasp of the state of the art, a good grasp that it represents a true innovation worthy of patenting.  So we feel that these things that are going on have not really directly impacted our patents. But, generally, on a macro level, there’s more uncertainty. Maybe people out there that want to infringe a patent feel a little more emboldened by some of these changes or to use some of these avenues as litigation tactics that weren’t available before so it does increase the cost of protecting your patent.

So when you look at how the licensing dynamic has evolved for you, how does it compare now when you approach a company about taking a licence? 

We’ve recently done some more licensing deals. We seem to be on a pace that we’re doing more deals and I hope that will continue and we’ll avoid litigation.  In the early days, like when our first patents issued which was in 2004, our industry was kind of new to patents. The trading industry and financial industry didn’t have a lot of patents so it seemed like some people wouldn’t even talk to you, unless there was a lawsuit.  I think now the industry has matured and become more familiar with patents and I think in some respects it’s easier to sit down and talk to someone about a business deal without having to go down the litigation route.  But, we’ll see if that continues.

When the AIA was being discussed, it took six or seven years to take shape. Did you have concerns about it immediately and did they materialise at all as this process went on?

Frankly, we didn’t really become that focused or aware of all the details early on. But very late in the game when it was getting closer to being voted on we started hearing about things that concerned us.  For example, we objected to Section 18, which ultimately led to the covered business method (CBM) review process.  So we got focused on that because we felt - and I still to this day think it was pretty clear - that that provision was put into the law really under the radar, without debate, at the request of very specific special interests, the banking lobby. Most people didn’t really think it was a good idea to have special proceedings for certain types of patents, but with the horse trading that went on, it ultimately made it into the law because many parties did not think it directly affected them. That was the only part of the AIA that had a significant number of members of Congress vote against it because there was a proposed amendment to strike Section 18 and a significant number of members of Congress voted for that amendment, just not enough to pass. 

And you’ve seen a number of CBMs filed against your patents, right?

Yeah -- back in 2014 someone tried to file against five, four of them were instituted and then we ultimately settled with that party and those were all dismissed and now recently there’s been another set. At least another five and then two more so it’s been like 12 -- I don’t have the exact number. 

And how is it changing the dynamic for you? Do you now expect them to come?

Years ago when the law was being looked at, we were concerned about defendants using the Patent Office reviews as a litigation tactic to throw up more expense for the patent owner, burden them and delay resolution typically because defendants just like to delay and win a war of attrition.  And so we were worried that that would happen.  The purpose of these proceedings is they’re supposed to be a way of more efficiently and quickly resolving matters than can be done in court. And they’re designed to bring things to the Patent Office’s attention that are really legitimate like if, during the original prosecution of the patent, the examiner didn’t have a complete picture of the prior art. Our concern was that what’s going to happen is some defendants are just going to pick some argument that’s weak, that’s not their best argument, raise it in a review, hope they can get an institution and then use that to delay the case. The reason they would want to bring weaker arguments is: number one, a perception on their part that it’s a more favourable forum; number two, they may bring arguments there that they’ve already lost on in court so it’s the second bite at the apple; and then, number three, there are estoppel provisions in the law, but they’re very limited.  You’re only estopped to specifically what you’re arguing. So what we’re seeing is people using it as a litigation tactic and that’s a concern. 

There are a number of proposals around changing reviews. What changes appeal to you or what do you think strikes you as sensible?

So several things. I know there have been discussions about conforming the Patent Office to the same claim construction standard as district courts and that seems to make sense. We think there should be a higher burden of proof, like a clear and convincing burden to match what’s in the courts. The statute already says that the Patent Office should not institute unless the petitioner can show that it’s more likely than not they will prevail. Re-exams, which had existed for many years before, had a lower standard.  They institute if there was a “substantial question of patentability” which was interpreted to be a very low bar and so 90% of re-exam requests got granted for institution. When they put in the more likely than not language that was supposed to be a higher bar.  The petitioners are supposed to show that they are truly presenting something that merits you re-looking at this.  The purpose of this is not to second-guess an examiner on information that he or she already looked at because two different examiners may have different views.  Rather, it’s supposed to re-open when the examiner didn’t have the best information. It seems that to date the PTAB has been applying the more likely than not standard more liberally than some thought they would and I think a helpful reform, whether it be through more legislation or the PTAB itself adjusting its approach, would be to be stricter with the more likely than not standard.  That would hold petitioners to a higher bar. Another complaint that I hear about is when the PTAB issues their institution decisions, you read the decision and it’s like they may have already made up their mind. I think it would be a good idea to have the PTAB back away from doing that and just say yes or no on whether they’re instituting, not delve too much into the merits because ultimately if there’s going to be a trial you want them to have an open mind so both sides can be heard.

We’ve seen huge numbers of reviews, particularly IPRs, fewer CBMs, obviously, but do you get the sense from what you have seen that there is widespread abuse in the way that petitioners are treating post-issuance proceedings?

Again, I haven’t studied all of it but the sense anecdotally is that there is a problem.  How widespread it is, I don’t know, but it’s a thing I talk about a lot. We hear a lot in this reform discussion about abuse of patent owners, patent trolls or NPEs and frivolous claims, and I’m sure, as in any type of litigation, there are bad actors. But what we haven’t heard a lot about is the bad actors on the other side, and I certainly know that there’s a big problem of defendants abusing the system, both in the courts and at the PTAB. I have to admit this is anecdotal but I believe the problem of abuse is larger on the defence/infringer side than the patent owner side.

Where do you think that stems from?  Why are companies abusing the system?

Because the rules are set up, the whole system is set up where they are motivated to try to stretch these proceedings as long as possible with the hope of draining the patent owner or wearing them down.  So I think that outside counsel just see that as a tactic and so then if there’s any avenue that will let them delay or take shot after shot they will do that.  Also, outside counsel makes more money the more that these proceedings drag out.  And many people do not realise the way our patent system is set up -- the patent owner needs to prevail on almost every issue. So a defendant can try to make a non-infringement argument or a technical defence under different parts of the statute or 101 or prior art arguments and if they win on one of those they win. So a patent owner can win against 10 straight defendants and then the 11th one still gets a shot to make all the arguments and if they win, then the patent owner is done from that point on. People miss that when they’re focused on some anecdotes of abusive plaintiffs. Those patent owners that have legitimate rights, that they’ve relied on as a business, they face incredible hurdles in litigation. Patent owners face a very expensive and daunting prospect to prevail and I think that’s forgotten in a lot of these reform discussions.  I think it’s now starting to be raised.

In the second half of the interview, published tomorrow, Borsand speaks about the debate around section 101 of the US patent statute governing patent eligible subject matter and how uncertainty in the patent market impacts his company.

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