What every CIPO needs to know about the PTAB
A former administrative patent judge who has handled over 120 inter partes reviews and covered business method proceedings explains that the US Patent Trial and Appeal Board is here to stay – and affects every decision that a CIPO will make
Patent challengers have flocked to the Patent Trial and Appeal Board (PTAB) since it began inter partes review trials in September 2012. Although this is only the fourth full year of operation for the PTAB’s administrative trial system, it has already turned the US patent system on its head. Challengers use it to attack patent validity, in isolation from all other patent issues such as infringement and remedies. Filings have climbed steadily over the years to over 4,000 cases (Figure 1), although the number of new filings now appears to be levelling out at between 130 and 150 petitions a month (Figure 2). Cases arise in all areas of technology, with computers/electronics dominating but biopharma picking up steam recently (Figure 3).
A PTAB administrative trial proceeds in two phases. The preliminary phase takes up to six months, during which the PTAB makes a preliminary evaluation of the challenger’s case. This is followed by a trial phase lasting up to one year.
The proceedings conclude with a final written decision, which provides a ruling on the patentability of the claims on trial.
A challenger initiates the process by filing a petition with the PTAB to cancel a patent in whole or part. To win, the challenger must prove unpatentability by a preponderance of the evidence, which is less stringent than the ‘clear and convincing’ standard of proof required to prove invalidity in a traditional civil action. The patent owner participates fully in the case in order to defend its patent.
Several types of administrative trial are available at the PTAB:
- inter partes reviews;
- covered business method reviews;
- post-grant reviews; and
- derivation proceedings.
Inter partes reviews easily dominate, representing over 90% of all cases before the PTAB, with covered business method reviews a distant second (Figure 4). This article focuses on inter partes reviews, although most of the points made apply equally to the other trial types.
Challengers use inter partes reviews to attack patent validity on the basis of prior art. No other bases are allowed in inter partes reviews, such as insufficiency of disclosure. Covered business method reviews may be used to attack a patent on any basis of invalidity, as long as it concerns a financial product or service and the challenger has been charged with infringing it. All patents are subject to inter partes reviews, with the one exception that newer patents are eligible only from nine months after grant (those patents are vulnerable to attack on any basis of invalidity during their first nine months of term via post-grant review instead). Derivation proceedings are used to resolve priority disputes between an inventor and an alleged copyist. And, of course, infringement is never at issue in PTAB trials.
About 80% of inter partes reviews have co-pending related litigation. Most of these inter partes reviews were requested after the challenger had been sued for patent infringement, although some were filed before there was any litigation between the parties. This choice of tactic matters because there are time limits on when a challenger may file a petition. Where an infringement complaint has already been served, the challenger has until one year after service to file an inter partes review (35 USC §315(b)). If a challenger has already filed its own declaratory judgment action to invalidate the patent, it may not pursue an inter partes review (35 USC §315(a)(1)).
Good, fast and cheap
The inter partes review has attracted thousands of filings because it provides a fast decision on patent validity (18 months maximum) by science-versed judges for about one-tenth the cost of civil litigation.
Each inter partes review is conducted by a panel of three administrative patent judges. Of the roughly 260 of these at the PTAB, about 100 work on trial proceedings, most of them full time. The rest mostly handle appeals from denied patent applications. Every administrative patent judge has a degree in science or engineering, a law degree and many years of experience in patent law. Many, particularly in biotech, hold PhDs or other advanced degrees. The administrative patent judges’ collective expertise spans essentially all scientific and engineering disciplines.
Although any administrative patent judge may be assigned to any case before the PTAB, they tend to be clustered by technology, so there is a good chance that at least one judge on a panel, and often all three, will have technical expertise that is relevant to the patent’s subject matter.
A stripped-down trial schedule and a remarkably limited discovery process drive the speed of the proceedings. Each side must frame its entire case in a single, 60-page principal brief. Witness testimony is submitted in written declaration form, almost never live testimony. Each side may cross-examine the other’s witnesses – typically, just one or two experts – and submit that evidence in transcript form, again without live testimony. Beyond that, there is essentially no other discovery unless a party can persuade the PTAB to order it “in the interest of justice” (37 CFR §42.51(b)(2)). Such orders for additional discovery are rare; only a few dozen have been issued out of the thousands of proceedings before the PTAB.
According to the 2015 Report of the Economic Survey conducted by the American Intellectual Property Law Association, the median (self-reported) cost of an inter partes review is less than 10% of the cost of a fully litigated patent infringement trial in which at least $25 million is at risk (this report is discussed in greater detail at www.ptab-blog.com/2015/11/13/the-cost-effectiveness-of-ptab-proceedings). Inter partes reviews also have the potential of creating other cost savings, such as persuading the judge hearing a related infringement action to stay that case pending the inter partes review’s outcome.
The preliminary phase of an inter partes review kicks off when the challenger files its petition (Figure 5, top). The patent owner then has three months in which to file a preliminary response (a sort of free shot for it to try to stop the case before it starts). After this the PTAB has three months in which to decide whether to institute trial. In the case of inter partes reviews, the PTAB cannot institute trial unless it determines that the challenger has demonstrated a reasonable likelihood that at least one challenged claim is unpatentable (35 USC §314(a), 37 CFR §42.108(c)).
The trial phase proceeds in a similar back-and-forth process (Figure 5) and is punctuated by a number of due dates. For example, the patent owner has three months – culminating in due date one – in which to depose the petitioner’s witness(es), obtain its own expert declarations and draft its full response. The petitioner may submit its reply by due date two, along with the cross-examination testimony of the patent owner’s witnesses and any new reply declarations. The subsequent due dates, which are less critical to the process, lead into a hearing on due date seven, normally about nine months into the trial. The trial concludes with the issuance of a final written decision within 12 months of trial institution. Either party may request rehearing (rarely granted) within one month of the decision and can appeal to the Court of Appeals for the Federal Circuit (which rarely reverses) within two months of that.
Petitioner’s one and only shot
Lawyers generally do not like to lay out their entire case at the outset of litigation, preferring to hold back some arguments to see how their adversary responds. Yet a PTAB trial proceeding is one place where anything less than a full reveal could prove fatal.
The petition is the petitioner’s one and only shot to make the case for unpatentability. The fast-paced, multi-stage see-saw procedure that the PTAB uses for inter partes reviews sometimes obscures this basic fact. However, a petitioner that fails to appreciate it may face dire consequences for not laying out its full case in the petition. Hence the central quirk of PTAB litigation: the petitioner’s case does not begin with the petition – it ends with the petition.
The petitioner must thus seize and exploit its one opportunity to shape the proceedings. That means:
- identifying and decisively dealing with every possible issue upfront in the petition;
- shoring up weaknesses in the prior art with expert testimony;
- addressing the rationale to combine references with a compelling story in which the expert weaves together strands of knowledge existing at the time of invention; and
- advancing a claim construction supported with evidence to show that it is the broadest reasonable interpretation consistent with the specification, no broader.
Trial institution at PTAB’s discretion
The inter partes review statute does not require the US Patent and Trademark Office (USPTO) to institute trial if the petitioner satisfies the filing requirements. Rather, the statute prohibits institution unless requirements are met. The consequence of this arrangement is that the PTAB has essentially limitless discretion to deny trials. Even when the petitioner makes out a great case for unpatentability, the PTAB may exercise its discretion to deny institution for any reason or none at all. The institution stage thus presents the best opportunity for a patent owner to point out considerations of fundamental fairness or public policy that should sway the PTAB towards denial. Once trial is instituted, arguments not directed straight at the petitioner’s prior art challenges may be largely disregarded.
Patent owner’s two shots
Many patents owners fail to recognise – or exploit – the two shots they get to defeat a petition. The preliminary patent owner response and the full patent owner response, although similarly named, serve different functions and should be used in different ways.
The most important difference is that the goals of the two responses are different. The preliminary response is directed at showing that there is not a reasonable likelihood that the petitioner will prevail. This is a fairly high standard for a patent owner to satisfy and is further complicated by the fact that patent owners may not present new testimonial evidence with the preliminary response (37 CFR §42.107(c) – although a proposed rule pending before the PTAB may relax this).
The PTAB takes the preliminary response into account when deciding whether to institute trial. The focus of the preliminary response then should be on reasons why trial cannot or should not be instituted. Any statutory bars should take centre stage here – typically prior litigation, failure to identify real parties in interest or the non-establishment of a reference as prior art. Patent owners can also argue for a different claim construction and can attack the merits of the petitioner’s case. However, these two strategies are often less successful at the preliminary stage, because they usually require the support of an expert witness’s testimony.
Despite a fairly dismal start for patent owners in 2013, when 87% of institution decisions favoured petitioners, the institution rate has been settling over time and stands at 62% for the current fiscal year starting October 2015 (Figure 6).
The full patent owner response, on the other hand, is directed at showing that a preponderance of the full evidentiary record does not support the petitioner’s patentability challenges. Although this is technically a lower burden, experience has shown that about three-quarters of all cases that are allowed to reach a final judgment result in the cancellation of all challenged claims (Figure 7).
*Data current as of December 31 2015
Settlements loom large
Why does the decision with the higher burden on petitioners favour petitioners? The answer appears to be settlement.
Comparatively rare at the dawn of the inter partes review system, settlements now figure prominently in these proceedings, occurring at a rate of 40% – roughly half before institution and half after institution.
The critical thing to remember about settlement is that the PTAB must approve any settlement before terminating an inter partes review. The parties must move jointly for settlement and must submit the settlement agreement (under seal) for PTAB review. The PTAB will want to see that the settlement agreement fully resolves the parties’ dispute, including the inter partes review itself.
In most instances, the PTAB will be happy to approve the settlement and terminate the case; the large docket of trial cases encourages this agreeableness. However, occasionally it will not approve a settlement or, worse, will release the petitioner, but not the patent owner. This might happen if settlement occurs late in the proceeding, once the PTAB already has made a decision in the case. It might also happen if the PTAB perceives some substantial public interest in continuing a case, such as one in which the patent appears especially vulnerable to the prior art attack against it.
Federal Circuit endorses PTAB
The Federal Circuit has emphatically refused to review PTAB decisions to institute inter partes reviews. It explained this plainly in St Jude Med, Cardiology Div, Inc v Volcano Corp (749 F 3d 1373 (Fed Cir 2014), dismissing appeal from instituted inter partes review) and In re Procter & Gamble Co (749 F 3d 1376 (Fed Cir 2014), denying mandamus from instituted inter partes review). The principal barrier is 35 USC §314(d), which specifies that institution decisions are final and non-appealable. Constitutional challenges to this provision have so far been unavailing.
The Federal Circuit has almost unswervingly affirmed PTAB final decisions in a steady stream of appeals since early 2015, starting with In re Cuozzo Speed Techs, LLC (778 F 3d 1271 (Fed Cir 2015)). The Federal Circuit has affirmed, or at least deferred to, essentially every aspect of practice and procedure that the PTAB has adopted. Even in the few instances in which the Federal Circuit has reversed or vacated the PTAB, it has taken the opportunity to speak approvingly of the PTAB’s authority to organise its own affairs and interpret its own rules (eg, Synopsys, Inc v Mentor Graphics Corp, No 14-1516, slip op at 11 (Fed Cir, February 10 2016), according Chevron deference to PTAB rule making).
The bottom line is that parties cannot easily recover from losses before the PTAB and should direct the bulk of their resources to developing strong initial positions in inter partes reviews, rather than hoping to get a PTAB decision reversed on appeal.
Surge in pre-filing settlements
Just as the high claim cancellation rate at final decision appears to be driving an increased settlement rate, it also appears to be the impetus behind the elusive practice of settling inter partes reviews before they are even filed. It is not uncommon for a patent owner to show a draft complaint for patent infringement to an accused infringer in order to prompt settlement. Accused infringers similarly may show a draft inter partes review petition to a patent owner for the same reason. However, an inter partes review petition can pack a lot more punch as a settlement tool than a draft complaint for patent infringement, because the petition lays out a complete case of unpatentability in all its gory detail. Patent owners that decline to settle accept that in doing so, the petition in all its particulars will be filed publicly for all to see, including other potential targets for infringement suits. It is impossible to quantify how many such ‘dark inter partes reviews’ there are; but it is reasonable to suppose that there are a great many, due to their low cost compared to even the initial stages of defending an infringement suit.
Motions to amend – do not bother, except as a last resort
Patent owners have had such a dismal record of success on motions to amend (only five motions have been granted in the entire existence of PTAB trials) that they have all but given up on them. And it is probably just as well. The judges are not equipped to conduct an examination of the claims and are unwilling to rely on petitioners to provide a comprehensive and unbiased review of the prior art. As a result, the PTAB places the burden of proving patentability of proposed amended claims on the patent owner. This amounts to proving a negative: that the prior art of record or known to the patent owner does not render the claim unpatentable. The Federal Circuit has steadfastly affirmed this burden assignment. Patent owners are better served by amending claims through a continuation or divisional application, a reissue application or a re-examination proceeding. In each of these settings, an ex parte examination is carried out by a patent examiner. The result of that proceeding well might be contested in another PTAB trial, but at least the patent owner will have had the opportunity to put its case to an examiner without a challenger filing opposing briefs at every turn.
Contours of estoppel still unknown
The PTAB trial statute imposes estoppel on unsuccessful petitioners: they may not maintain a proceeding at the USPTO or assert an argument of patent invalidity “on any ground that the petitioner raised or reasonably could have raised during” an inter partes review that results in a final written decision. What precisely this means is a question of statutory interpretation that the courts have not yet decided.
What is pretty clear is that for inter partes reviews, the estoppel applies only to prior-art arguments. Nothing bars the petitioner from advancing other invalidity defences permitted under 35 USC § 282(b), such as lack of written description, lack of enablement or indefiniteness.
What is not clear is the estoppel effect on discarded prior art challenges. If a petitioner holds back a prior art argument from the petition in the hopes of later presenting it in court, is it barred? It may be said that the petitioner “reasonably could have raised” that argument. But what if it was omitted due to the 60-page limit for petitions? It is likely that application of estoppel will involve a fact-intensive inquiry.
For a final twist of confusion, exactly what does the word ‘during’ mean in the statute? Some commentators have said that it limits estoppel only to those grounds that the PTAB actually instituted trial on, because the inter partes review does not actually commence until instituted. Thus, according to those commentators, arguments made in the petition but not instituted by the PTAB will not be estopped in later office or court proceedings.
All of this uncertainty about estoppel militates in favour of a conservative approach: assume that all prior art arguments known to the petitioner at the time of filing will be estopped and plan accordingly.
Best inter partes review counsel
When inter partes reviews first hit the scene, practitioners with interference experience were best positioned to market themselves for the new work because the rules governing inter partes review are modelled on the old interference rules. However, as the number of inter partes reviews has soared, they have far exceeded the capacity of the interference bar to handle them. The question then becomes: who, among traditional patent attorneys and patent trial lawyers, offers the best skill set for handling inter partes reviews?
The answer is that inter partes reviews are so different from regular patent prosecution and litigation that neither prosecutors nor litigators possess an optimal skill set. Even a team comprising both prosecutors and litigators working together does not necessarily add up to the skill set peculiar to inter partes reviews. Some skills are the natural province of litigators (eg, brief writing, cross-examination and oral argument). The principal difficulty for litigators is the lowered burden of proof in inter partes reviews. Litigators are internally tuned to the presumption of validity that patents enjoy and the clear and convincing burden of proof required to invalidate them in court. Patent prosecutors, in contrast, are tuned to the ‘preponderance’ standard, which is employed in inter partes reviews and regular patent prosecution, and the ‘broadest reasonable interpretation’, which is applied to claim construction in both settings. The ideal inter partes review practitioner can recalibrate the traditional litigation skills to the lower burden of proof in inter partes reviews.
Which legal background do the judges prefer? Of course, they do not state a preference publicly, insisting only that the lead counsel be registered to practise before the USPTO. They readily grant motions for pro hac vice recognition of patent litigators as back-up counsel and do not mind at all if that back-up counsel conducts the case, so long as the lead counsel is present. It is unquestionable, though, that judges prefer to work with lawyers who demonstrate familiarity with and fidelity to the PTAB’s rules, a nimble knowledge of the record and a willingness to answer questions directly. The issue is not so much which sort of lawyer the judges like best, but rather which sort of lawyer can present a case in the strongest possible way consonant with the laws and regulations governing inter partes reviews.
Practice tips: patent owners
Although CIPOs are unlikely to be handling inter partes reviews personally, some high-level strategic considerations are worth bearing in mind while interacting with inter partes review counsel.
Reassert good preliminary response arguments
As noted above, the preliminary response is best used to address threshold issues in inter partes reviews. It is a sub-optimal vehicle for addressing the merits, because patent owners cannot supplement it with new testimonial evidence as a matter of right. However, this does not mean that patent owners should not use the preliminary response to audition merits arguments. The trouble is that once the PTAB institutes trial anyway, patent owners often interpret that decision as a denial of the merits arguments. They then omit those arguments from the full patent owner response. That is often an over-reaction.
The key here is to pay attention to the reason the PTAB gives for why the argument is not persuasive. Specifically, pay attention to whether the PTAB is critical of the argument itself or the evidence supporting it. If the PTAB says that an argument is not persuasive because, say, it is not commensurate with the scope of the claims or is unresponsive to the challenge as the petitioners have framed it, then the patent owner should reconsider whether to maintain these arguments in the full patent owner response.
On the other hand, if the PTAB says that an argument is unpersuasive because it lacks the support of sufficient evidence, it well may mean that the argument could still prevail at trial if the patent owner can marshal sufficient evidence.
Try to get deposition testimony in with preliminary response
Although the rules prohibit the introduction of new testimonial evidence with the preliminary response, they do state “except as authorized by the Board”. This means that new testimonial evidence is allowed with permission. Patent owners should seek to introduce new testimonial evidence at the preliminary stage much more often.
The real question is: what kind of new testimonial evidence? Patent owners which have attempted this have mostly tried to do so through witness declarations. This approach is unlikely to succeed, because direct testimony is untested. In theory, any statement of fact or opinion expressed in direct testimony could be undermined in cross-examination. So although the PTAB is comfortable deciding whether the petitioner’s expert direct testimony provides sufficient evidence to institute a trial, that decision is necessarily a preliminary one and the weight that the PTAB ultimately accords the petitioner witness’s testimony remains undecided until after the patent owner has had the chance to test that evidence in cross-examination. However, an institution decision in favour of the patent owner is a final decision that deprives the petitioner of the relief requested. The PTAB will not deny the petitioner relief solely on the basis of the untested direct testimony of a patent owner witness, because the petitioner could in theory demolish that evidence in cross-examination. So why not allow cross-examination of the patent owner’s preliminary response witness in a pre-institution reply? That would simply compress the trial into the preliminary phase and increase the burden on the PTAB to issue institution decisions within three months.
A better alternative would be to persuade the PTAB to authorise a limited deposition of the petitioner’s witness in the preliminary stage. It might do this if it were persuaded, say, that the petitioner’s case depends largely on a single factual assertion which appears credible, but which is likely to be negated in cross-examination. In such a situation, the patent owner could argue that an entire trial might be avoided by permitting a brief cross-examination focused on that one particular fact issue. The patent owner would then be authorised to submit new testimonial evidence with the preliminary response, in the form of the petitioner witness’s deposition testimony.
The PTAB then can evaluate the petitioner’s witness declaration testimony in light of the deposition testimony. It can make a full credibility determination and decide whether the deposition testimony undermines the weight accorded to the witness’s evidence. Used selectively and narrowly, this technique can help patent owners to avoid or limit issues for trial.
Use defence witnesses to best effect
Patent owners use expert witnesses for one basic purpose: to undermine the petitioner’s case for unpatentability. Expert witnesses can do this in two ways: by refuting the petitioner’s evidence and by introducing new evidence that dilutes the petitioner’s evidence for unpatentability to less than a preponderance. Patent owners do too little of the former. Although witnesses for patent owners often gainsay petitioner witnesses – especially with regard to the meaning of a piece of prior art in the eyes of one of ordinary skill – too often they fail to explain why the petitioner witness’s analysis is incorrect. It is not necessarily unreasonable for two experts to disagree on the interpretation of a reference and the PTAB will often be forced to look elsewhere in the evidence to reach a disposition if the experts appear simply to be reaching different conclusions without explaining why the opponent’s conclusion is in error. A better approach is to have the witness show, with specific examples, that an opponent’s witness has based a conclusion on incorrect facts or unwarranted assumptions. The PTAB is then armed with a reason to credit one witness’s interpretation over the other’s.
Practice tips: petitioners
Power of settlement
Petitioners should employ the dark inter partes review phenomenon described above. It is likely that that the petitioner has its greatest bargaining power before the patentability challenges have been made public – it is at this stage that suppressing them is of the greatest value to the patent owner. Once the challenges have been filed with the PTAB, they are freely accessible by the public and can be exploited by other challengers. Petitioners therefore should consider showing a draft inter partes review to the patent owner before filing, in the hopes of opening a private dialogue before the public fight. A pre-filing settlement can also result in the patent in question being licensed to the petitioner, but still enforceable against other parties.
Avoid challenge depth mismatch
Consider a practical example: a petitioner presents six grounds of challenge in its petition. It will have devoted about nine pages per ground on average (the rest of the brief is taken up with required other matter). If the PTAB then institutes on one or two of those grounds, the patent owner will have 30 or even 60 pages of response available to attack the petitioner’s case. What petitioner would want to give the patent owner such an advantage?
With only 60 pages in which to present a thorough treatment of every issue, the petitioner must balance depth of analysis against the number of challenges. The fear of estoppel often drives petitioners to present many challenges with a shallow analysis supported by a perfunctory expert declaration rehashing the petition. The PTAB often institutes on only a handful of such challenges, with the result that the patent owner can devote its 60 pages to a much deeper analysis of many fewer issues. That deep analysis can expose gaps in the petition evidence and trap the petitioner between the reasonable likelihood it demonstrated and the preponderance of evidence it seeks. (In post-grant reviews and covered business method reviews, the standard for institution is somewhat higher and requires a showing that at least one challenged claim more likely than not is unpatentable, if the petitioner’s challenge were to go unrebutted.) Petitioners should take this potential mismatch into account when weighing the risk of estoppel over the risk of losing the inter partes review outright.
Hearing really does matter – for both parties
It should be clear to most litigants at the PTAB that the judges often come into the hearing without a clear idea of who will win the case. The judges confer before the hearing and at least the judge assigned to write the opinion will have studied the record exhaustively. However, the record is large and some evidence can come in after briefing is complete. So the hearing is the first moment in the case in which the parties can gather together all the strands of accumulated evidence and synthesise them into a tight, unitary, coherent story. Some evidence, seemingly trivial at first, may have gained importance in view of later-developing evidence. The hearing really is the first opportunity for the PTAB to examine the entire body of evidence, both macroscopically and microscopically. Leave plenty of room in the inter partes review budget for counsel to prepare for oral argument. It often is said that cases are seldom won but often lost at hearing. In PTAB trials, it is probably fairer to say that the parties have an even shot at hearing.
Despite early fears and some ongoing court challenges to the procedure, inter partes reviews have settled nicely into the landscape of US patent law. Discussions about the system focus less on whether the system should be retained and instead on how it should be fine tuned. The system is administered by a large and respected group of judges whose decisions are overwhelmingly affirmed by their reviewing court. Inter partes reviews are here to stay.
Some inter partes review tips for CIPOs from a former US Patent Trial and Appeal Board judge:
- Challenger CIPOs should consider inter partes reviews as a fast and low-cost way to attack a patent, but must be wary of tight deadlines.
- Patent owner CIPOs must take the risk of inter partes reviews into account when enforcing patents and should begin planning defensive strategy early.
- All CIPOs should select inter partes reviews counsel for their ability to recalibrate litigation skills to the lower burden of proof in inter partes reviews.