The changing face of inter partes reviews: strategy for practitioners

Not since 1952 has a new statutory regulation changed the landscape of patent law in the same way as the America Invents Act, which created the Patent Trial and Appeal Board (PTAB), as well as inter partes review proceedings. While the new process was expected to be more popular than the previous re-examination procedure, no one anticipated how quickly and extensively inter partes review proceedings would be embraced as a – if not the – preferred procedure for challenging the validity of patents.

This article examines several recent trends and developments in inter partes review practice and discusses how they might affect strategies for petitioners and patent owners. It also reviews the recently revised PTAB rules and the impact they might have on strategies.

Trends, institution decisions, PTAB discovery and rehearing requests

Since its inception four years ago, the PTAB has rapidly established itself as the go-to venue for patent validity challenges. As is well known, inter partes review filing rates enjoyed a steep upward trajectory after being introduced in September 2012. However, they now appear to be levelling off – current projections show filings down slightly in 2016. However, when viewed by quarter, it becomes apparent that this fall is attributable almost entirely to a sharp decrease in the first quarter of 2016 – this quarter saw the lowest level of filings in nearly two years. It is difficult to work out the reason for this dip which, as noted below, began in the fourth quarter of 2015. One possibility is that would-be petitioners were holding off filing while they waited for the US Supreme Court decision in Cuozzo Speed Technologies v Lee (136 S Ct 2131 (2016)), which was issued on June 20 2016, upheld use of the ‘broadest reasonable interpretation’ standard to interpret claims and determined that the PTAB’s decision on whether to institute an inter partes review is non-appealable.

In any case, filings rebounded in the second and third quarters of 2016. As of the time of writing, it is likely that 2016 will be the third year in a row with at least 1,500 inter partes review filings. With Cuozzo affirming two of the most attractive aspects of inter partes reviews for petitioners and Halo Elecs, Inc v Pulse Elecs, Inc (136 S Ct 1923, 1936 (2016)) making it easier for patent owners to obtain enhanced damages for wilful infringement, defendants should have more incentives than ever to challenge non-practising entity (NPE) owned patents by filing inter partes reviews. We therefore expect filings to continue at a strong and steady pace for the foreseeable future.

Institution decisions

Inter partes review institution rates are a closely watched statistic for parties considering whether to file one. While initially high, institution rates have been falling over the past four years. We examine factors which might affect institution rates, including preliminary responses and early settlement

Figure 1. Inter partes review filings by year

Figure 2. Inter partes review filings by quarter

Declining institution rates

Petitions filed in 2012 enjoyed a 93% institution rate. However, for petitions filed in 2013 – and despite the PTAB being referred to in the interim as the ‘patent death squad’ – the rate of institution fell sharply, to 83%. Since then, the rate at which inter partes review petitions are instituted has fallen steadily to 76% for petitions filed in 2014, 73% for petitions filed in 2015 and 74% for petitions filed in the first three quarters of 2016.

When institution rates are considered in view of challenged claims rather than petitions, they are even lower. Data from the US Patent and Trademark Office (USPTO) through October 2016 shows that of 3,770 terminated petitions, inter partes review trials were instituted for 26,752 out of 57,781 claims challenged in petitions – a 46% cumulative institution rate for challenged patent claims (see www.uspto.gov/sites/default/fi... at 12).

One explanation for this is the rates of pre-institution resolutions, illustrated in Figure 3. While the bar charts exclude pre-institution resolutions, the pie charts summarise the fates of all petitions up to and including institution – including cases which settled or which were procedurally dismissed.

Figure 3. Institution numbers by year – by bar chart and pie chart

For petitions filed in 2012, only 2% of inter partes reviews were resolved before the issuing of an institution decision (by a patent owner disclaiming the petitioned claims, procedural dismissal or settlement). For petitions filed in 2013, 16% were resolved before an institution decision. The rate of pre-institution resolutions continued to rise to 22% for petitions filed in 2014 and held steady at 22% for petitions filed in 2015. The first half of 2016 appears to be following the same trend: while only three-quarters of the petitions filed in 2016 had been tabulated at the time of writing, already 12% of petitions had been resolved by pre-institution resolution

The most prominent component of pre-institution resolution is settlement. For petitions filed in 2013 – one year after inter partes reviews became available and when the rates of institution took form – only 9% of cases were resolved by settlement. For petitions filed in 2014, 2015 and three-quarters of 2016, 16%, 15% and 9% of cases, respectively, were resolved by settlement. This may be because patent owners are assessing the strength of the petitions and settling the inter partes reviews which are relatively strong in order to avoid having an adverse institution decision. The remaining (presumptively weaker) inter partes review petitions would therefore result in a lower institution rate and a lower final decision invalidation rate.

How effective are preliminary responses?

Very, according to our data.

Patent owners file preliminary responses in the vast majority of cases. Over 3,500 inter partes review petitions have resulted in a decision from the PTAB on whether to institute. Patent owners filed a preliminary response in nearly 85% of those cases (2,961 cases out of 3,524 institution decisions).

While filing a preliminary response is optional, the data demonstrates that it is a wise move. There is a strong statistical correlation between the filing of a preliminary response and the institution rate. When patent owners do not file a preliminary response, 92% of inter partes reviews are instituted (wholly granted or partially granted). However, when they do file a preliminary response, only 73% of inter partes reviews are instituted – a reduction of nearly 20%.

The preliminary response is a patent owner’s only chance to provide counter-arguments to the petition before the PTAB issues a decision on institution. In some cases, patent owners can easily dispose of various grounds by:

• challenging the sufficiency and specific teachings of the prior art relied on by the petitioner;
• attacking the appropriateness of combining prior art cited in obviousness grounds; and/or
• challenging the legal status of asserted prior art (eg, for lack of authenticity or lack of public availability).

While patent owners are not required to set forth their claim construction in the preliminary response, failure to do so can have significant consequences. Where claim construction is essential to distinguish the claims from the cited prior art, a patent owner should be wary of remaining silent. The PTAB will construe the claims in the institution decision and, without a preliminary response, that prospect can be risky for the patent owner. Moreover, it will face an uphill battle trying to convince the PTAB that its construction is wrong after institution.

Revised rules for inter partes reviews and PTAB proceedings came into effect on May 2 2016. Under these, patent owners can submit new testimonial evidence, including expert testimony, in support of the preliminary response. Many commentators have welcomed the rule change, asserting that it levels the playing field between parties, encourages full disclosure of rebuttal evidence by patent owners and provides the PTAB with the best information to decide whether to institute a trial. Since the rule change came into effect, 36% of patent owners have submitted expert declarations in support of their preliminary responses.

Although the change is recent, the data shows that a significant proportion of patent owners are taking advantage of it in the belief that such expert testimony will help to thwart the institution of trial.

PTAB discovery – factors for success

The PTAB is a stringent gatekeeper when it comes to allowing additional discovery. A party seeking this must first ask for permission to file a motion for additional discovery. It can make such a request by means of a conference call with the PTAB and the non-moving party. This first hurdle is relatively easy to pass, as the PTAB has thus far granted 78% of requests for authorisation to file a motion for additional discovery.

Next, the movant must convince the PTAB that routine discovery is insufficient. Inter partes reviews are designed to be a quick and cost-effective alternative to district court litigation and the PTAB therefore takes a conservative approach to granting additional discovery. Routine discovery, which is available without PTAB authorisation, is limited to:

• the production of any exhibit cited in a paper or testimony;
• the cross-examination of the other side’s declarants; and
• relevant information which is inconsistent with a position advanced during the proceeding (37 CFR §42.51(b)(1)).

The parties can agree to additional discovery or either party can move for additional discovery. The moving party bears the burden of showing that additional discovery is in the interests of justice.

Our analysis of over 200 motions for additional discovery filed to date reveals that the PTAB rarely permits additional discovery. Approximately 57% of discovery motions were completely denied, while 24% were denied in part. Only 16% of motions for additional discovery were granted in their entirety.

We took a closer look at the types of discovery motion filed before the PTAB and found that success rates differ for different types of request, all of which are evaluated under a five-factor test, set out in Garmin Int’l v Cuozzo Speed Techs LLC (IPR2012-00001, Paper No 26 at 6–7, PTAB, March 5 2013). Requests for additional written discovery are granted more frequently than requests for deposition because routine inter partes reviews allows cross-examination of individuals who submit declarations. When a party proffers witness testimony in the form of a declaration, the witness must be made available for cross-examination or the PTAB will strike his or her declaration. Parties must bear this in mind when relying on third parties, former inventors and those outside the United States to provide declarations.

A party seeking additional discovery should expect an uphill battle before the PTAB. Successful motions for additional discovery are narrowly tailored and ask only for what the moving party needs. To maximise its chance of success, the moving party must include a thorough analysis of each of the five Garmin factors on which the PTAB relies to determine whether a motion for additional discovery has any merit.

Requests for rehearing

Under Rule 37 CFR §42.71, a party to a PTAB proceeding may file a request for rehearing within 14 days of a non-final decision or a decision to institute a trial, or within 30 days of a final decision or a decision not to institute a trial. The PTAB aims to decide such requests within one month, although there is no mandated period in which it must decide and thus it can take longer. Decisions over whether to institute trial and rehearing decisions affirming this are not appealable (35 USC §§314(d), 324(e)).

Overall outcomes

We examined nearly 800 requests for rehearing filed since 2012 and found that 87% of these were denied completely, 9% were granted and about 4% were granted in part and denied in part.

Unlike some PTAB statistics (eg, institution rates) which have fallen over time, the high denial rate for motions for rehearing has held firm at nearly 90% from 2012 to date.

Subject matter of rehearing requests

Of the requests for rehearing we examined, 74% involved institution decisions while 13% were directed to final written decisions. A full breakdown of the subject matter is set out is set out in Table 2.

The data sends a clear message that rehearing requests are rarely successful when challenging an institution decision or final written decision. However, those directed to non-substantive issues – such as motions for supplemental information or motions to exclude or expunge – have a 50% success rate.

Revised inter partes review rules

Another significant change in inter partes review practices over the past four years is the revised rules which came into effect on May 2 2016 (81 Fed Reg 18750 et seq (April 1 2016) (codified at 37 CFR §42)). These introduced significant changes which all parties should bear in mind, including the following:

• Patent owners may now use new testimonial evidence, including depositions, to support their preliminary responses;
• Page limits for papers have been replaced with limits on word count;
• Phillips-type claim construction is now permitted when a challenged patent will expire during an inter partes review; and
• Parties are now required to make a Rule 11-like certification that all papers filed with the PTAB comply with the USPTO’s duty of candour.

New testimonial evidence

Perhaps most significant is the revision of Rule 37 CFR §42.108(c), which allows a patent owner to use new testimonial evidence to support a preliminary response. This change addressed longstanding concerns that patent owners were disadvantaged by their inability to submit pre-institution evidence to rebut the arguments set out in inter partes review petitions. The revised rule also allows a petitioner to file a reply to the patent owner’s preliminary response, upon a showing of good cause.

Effect of patent owner preliminary responses on institution: Patent owners regularly use preliminary responses to rebut grounds set forth in inter partes review petitions, often leading to grounds being denied institution. The rule change allowing new testimonial evidence is expected to lead to a further fall in institution rates now that patent owners can use experts to rebut arguments in the petition.

Expert testimony to rebut obviousness: New testimonial evidence is well suited to help patent owners rebut obviousness grounds proposed in a petition. An expert declaration filed with a patent owner’s preliminary response will counterbalance a petitioner’s expert declaration on multiple issues, including:

• the state of the art;
• the teaching, suggestion and motivation to combine the cited prior art (or lack thereof); or
• errors on the part of the petitioner’s expert in a way which shows that the asserted prior art references should not be combined for purposes of an obviousness analysis.

The PTAB often scrutinises the appropriateness of combining prior art references which comprise an obviousness ground and has denied institution on the merits when the petitioner’s showing fell short in this regard. A patent owner’s expert declaration can be well suited to calling into question the petitioner’s rationale for combining references, which in turn can provide strong support to its argument not to institute trial. Similarly, an expert declaration can help the patent owner to address objective indicia of non-obviousness.

Additional information and increased risks: The prospect of using expert rebuttal testimony to thwart institution and nip an inter partes review in the bud will be attractive to patent owners, but may also be a double-edged sword. In many instances, a rebuttal expert declaration will provide the petitioner with an early and fuller view of the patent owner’s case than it might otherwise have. The petitioner might then be able to use this in the inter partes review or in co-pending PTAB proceedings or litigation. It might also devote additional time to investigate the patent owner’s expert and to develop counterarguments and responsive evidence for possible use post-institution or in other proceedings.

Figure 4. Inter partes review – preliminary responses

Inter partes reviews with preliminary responses filed	%	2,961	Inter partes reviews with no preliminary responses filed	%	563
Instituted	73%	2,163	Instituted	92%	518
Denied	27%	798	Denied	8%	45

Further, a declarant that provides testimonial evidence will be subject to cross-examination if the inter partes review is instituted. The patent owner’s limited window of time to prepare and file a preliminary response – much less find an expert and develop a declaration – could result in a hastily prepared declaration with incomplete supporting information. As a result, a rebuttal declaration could provide the petitioner with good fodder for cross-examination, as well as for undermining the expert’s credibility.

Genuine issues of material fact: The revised Rule 37 CFR §42.108(c) provides that “a genuine issue of material fact created by such testimonial evidence will be viewed in the light most favorable to the petitioner solely for purposes of deciding whether to institute an [inter partes review].” However, a mere difference between expert opinions does not necessarily give rise to a genuine issue of material fact. When faced with conflicting expert testimony, the Federal Circuit has examined the record in detail to determine whether a genuine issue of material fact exists (see In re Gabapentin Patent Litigation, 503 F3d 1254, 84 USPQ2d 1651 (2007) – which noted a difference in expert opinions and thoroughly examined the evidence to determine whether there was a genuine issue of material fact).

Patent owners should consider this presumption in favour of the petitioner when assessing whether an expert declaration is sufficiently strong to overcome the presumption and outweigh the costs and risks associated with submitting rebuttal testimonial evidence. In this regard, patent owners should also keep in mind that the USPTO draws no negative inference from the patent owner’s choice not to submit expert testimony.

Figure 5. Motions for leave to file motions for additional discovery

Rebuttal testimony can counter previous prior art and arguments: Under Section 325(d) of USC Title 35, the PTAB may decline to institute an inter partes review trial where a petition presents the same, or substantially the same, prior art or arguments as those previously presented to the USPTO (eg, in prosecution). However, the PTAB has instituted trial in numerous cases despite the patent owner urging it to deny institution under Section 325(d). In cases where the patent owner feels it has a strong argument that an inter partes review trial should not be instituted under Section 325(d), rebuttal expert testimony might help to show that the prior art or grounds are not substantially different from the prior art or arguments previously presented to the USPTO.

Figure 6. Motions for additional discovery

Petitioner may still get the last word: The revised Rule 37 CFR §42.108(c) states: “A petitioner may seek leave to file a reply to the preliminary response” and “[a]ny such request must make a showing of good cause”. The USPTO’s comments to this revision state in relevant part: “The Office believes that although submission of patent owner testimonial evidence at the preliminary stage may warrant granting petitioner a reply to such evidence, the decision concerning whether petitioner will be afforded a reply and the appropriate scope of such a reply rests best with the panel deciding the proceeding to take into account the specific facts of the particular case” (81 Fed Reg 18757). Thus, patent owners that file a preliminary response supported by rebuttal testimonial evidence risk providing justification for the petitioner to file a pre-institution reply, which would give the petitioner the final say before the PTAB decides whether to institute.

Figure 7. Motions for additional discovery – by type

A petitioner considering a pre-institution reply should assess whether the points to be made in a reply were previously addressed in the petition and, if not, whether it reasonably could have been expected to make these points in the petition. If filed, the reply should be narrowly tailored to address specific issues raised in the patent owner’s preliminary response and nothing more.

Word count limits replace page limits

The original rules for PTAB proceedings set page limits for major papers. For inter partes reviews, petitions – as well as the patent owner’s preliminary response and post-institution response – were limited to 60 pages each, while the petitioner’s reply was limited to 15 pages.

As revised, Rule 37 CFR §42.24 substitutes the following word limits for page limits and notes these other factors:

• An inter partes review petition is limited to 14,000 words.
• A patent owner’s preliminary response or post-institution response is limited to 14,000 words, while a reply to this is limited to 5,600 words.
• Crucially, the word count “does not include a table of contents, a table of authorities, mandatory notices under §42.8, a certificate of service or word count, or appendix of exhibits or claim listing” or “a listing of facts which are admitted, denied or cannot be admitted or denied”.
• The revised rule also allows a party to file a motion to waive the word counts.

Figure 8. Requests for rehearing – overall outcomes

Before the revised rules, the PTAB prohibited practices which it perceived as an attempt to circumvent these strict page limits. For example, it prohibited parties from putting arguments in claim charts, as these may be single spaced, while the other parts of the body of petitions must be double spaced. The PTAB’s arguably pedantic approach to enforcing page limits led to many papers being rejected for non-compliance. In light of the new limits on word counts, the PTAB stated: “petitions will no longer be reviewed to determine if any claim charts contain argument, thereby streamlining administrative review of petitions and reducing the number of non-compliant petitions that require correction” (81 Fed Reg 18761-62).

On a substantive and practical level, these changes allow “the parties to structure arguments in briefing in any way that the party deems best for presenting its case to the [USPTO], including using analysis and arguments in claim charts” (80 Fed Reg 50743). Parties now have more flexibility when it comes to tailoring their papers to present their positions in the clearest, most meaningful way possible.

Figure 9. Subject matter of rehearing requests

Phillips-type claim construction for expiring patents

The revised Rule 37 CFR §42.100(b) reads in relevant part: “A claim in an unexpired patent that will not expire before a final written decision is issued shall be given its broadest reasonable construction in light of the specification of the patent in which it appears. A party may request a district court-type claim construction approach to be applied if a party certifies that the involved patent will expire within 18 months from the entry of the Notice of Filing Date Accorded to Petition.”

The revised rule allows any party to request a Phillips-type claim construction if a patent expires during the inter partes review proceedings (37 CFR §42.100(b); 81 Fed Reg 18752): “The request, accompanied by a party’s certification, must be made in the form of a motion under §42.20, within 30 days from the filing of the petition” (id).

Often, claim construction will be the same under the Phillips and broadest reasonable interpretation standards. However, in cases where the different claim construction approaches might yield different outcomes, the patent owner could benefit in an inter partes review by requesting a Phillips-type claim construction and advocating one that is narrower than the broadest reasonable interpretation (and therefore more likely to avoid prior art). In contrast, the petitioner is likely to argue that the claim construction should be the same under both approaches or that any difference in claim construction should not change the disclosure of the claim element by the prior art.

Strategically, a party should move for Phillips-type claim construction when it believes that the weight of extrinsic evidence will yield a more favourable result than broadest reasonable interpretation construction.

Parties must certify their compliance with candour

Finally, the revised rules include a Rule 11-type certification requirement for PTAB papers, which is similar to the requirements of the Federal Rule of Civil Procedure 11. Specifically, Rule 37 CFR §42.11 now provides that “every petition, response, written motion, and other paper filed in a proceeding must comply with the signature requirements set forth in § 11.18(a) of this chapter”.

This revision was intended to provide “greater detail on the [USPTO]’s expectations for counsel and parties participating in post grant proceedings and also [to provide] a procedure for sanctions motions that does not appear in the current rule” (81 Fed Reg 18760). A party must now make the following representations from Rule 37 CFR §11.18(b)(2) when presenting a paper to the USPTO:

(i) The paper is not being presented for any improper purpose, such as to harass someone or to cause unnecessary delay or needless increase in the cost of any proceeding before the Office;

(ii) The other legal contentions therein are warranted by existing law or by a nonfrivolous argument for the extension, modification or reversal of existing law or the establishment of new law;

(iii) The allegations and other factual contentions have evidentiary support or, if specifically so identified, are likely to have evidentiary support after a reasonable opportunity for further investigation or discovery; and

(iv) The denials of factual contentions are warranted on the evidence, or if specifically so identified, are reasonably based on a lack of information or belief.

While these revisions do not change the substantive obligations of parties to inter partes reviews under the duty of candour and good faith, the PTAB revised Rule 37 CFR §42.11 because “the deterrent effect of having such a rule has been recognized” (id). Thus, the PTAB has put parties on notice that it is paying attention to this issue and parties should make every effort to ensure that their inter partes review filings comply with this duty of candour.