Post-grant review procedures under the America Invents Act
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The new inter partes review and procedures created by the America Invents Act are fast becoming a defendant’s weapon of choice when accused of infringing a US patent. These proceedings, which became available on September 12 2012, provide efficient, streamlined avenues to invalidate a patent based on patents or other printed publications. The initial decisions of the Patent Trial and Appeal Board (PTAB) have consistently and methodically invalidated patent claims at a high rate – so much so that Judge Rader of the US Court of Appeals for the Federal Circuit, which has exclusive jurisdiction over patent cases, recently characterised the PTAB as a “death squad” for patents.
Practice before the PTAB
Rader’s depiction of the PTAB is certainly borne out by the early statistics. As of May 2014, the PTAB instituted trials in eight of every 10 cases filed. Once a trial is instituted, the likelihood of a patent claim surviving is extremely low. In the first 20 final decisions by the PTAB, only 13 of the 357 challenged claims survived – a success rate of slightly less than 4% of the claims for which trial was initiated. With such a low probability of patent holder success, companies accused of infringement are flocking to the PTAB in droves. In 2014 the PTAB has the second most active patent docket in the United States. Moreover, in light of the speed and ‘kill rate’ in such proceedings, district courts appear eager to stay their cases while the PTAB renders its decision. Given these dynamics, it is unsurprising that the PTAB is becoming the preferred venue for resolving patent validity issues.
There are several reasons for the high success rate for defendants in inter partes review and covered business method proceedings. First, the petitioner must show invalidity of a patent claim only by a mere preponderance of the evidence standard, rather than the higher – and more exacting – clear and convincing evidence standard used in federal district courts. Second, claim terms are construed more broadly – the PTAB construes claim terms using the “broadest reasonable construction”, rather than the more patent-centric methodology used in district court litigation. Third, the patent claims are not presumed valid as in district court litigation. The broadest reasonable construction tends to encompass more prior art than the more focused methodology used in district courts. Finally, each PTAB trial is heard before three technically trained administrative patent judges, who bring technical and legal expertise to bear on the patentability determination. As a result, slight technical distinctions over the prior art are rarely sufficient to satisfy the Supreme Court’s liberal obviousness standard.
Inter partes review and covered business method proceedings provide another benefit to a defendant: an enhanced likelihood of the underlying district court staying the litigation while the challenged claims are reviewed at the PTAB. Specifically, district courts have granted approximately 70% of the motions to stay pending inter partes review resolution and about 90% of the motions to stay pending covered business method resolution. Recently, a federal district court stayed a case even before the PTAB ruled on the pending petition to institute inter partes review, which takes approximately six months.
Filing an inter partes review
There are two primary restrictions on a party’s ability to institute an inter partes review. First, a petitioner (or real party in interest) may not have previously filed a declaratory judgment action challenging the validity of the patent. However, pleading counterclaims of invalidity does not preclude filing an inter partes review. Second, the petitioner must file its inter partes review challenging the validity of a patent within 12 months of the petitioner (or its privities or a real party in interest) being served with a complaint alleging infringement.
Assuming that none of these limitations bars the filing of an inter partes review, a petitioner can seek to invalidate a patent claim on only two grounds: anticipation (ie, lack of novelty) and obviousness (ie, inventive step). Moreover, such challenges can be based only on patents or printed publications. For example, a petitioner may not challenge a patent on the grounds that the patentee offered the invention for sale more than one year before filing the patent. The petitioner also may not challenge the claims on the grounds that the claims are indefinite, even though claim construction is a predicate step in the novelty/obviousness inquiry. This can present practical difficulties when attempting to challenge ambiguous claims because the petitioner may need to construe a claim to enable the PTAB to read the claims on the prior art. Failure to do so may result in the PTAB refusing to consider the invalidity grounds.
The requirements for an inter partes review petition are quite specific. Each inter partes review petition must:
- identify all real parties in interest;
- identify the grounds of standing asserted by the petitioner;
- identify all claims whose validity is challenged;
- provide claim constructions for each challenged claim;
- identify the grounds for unpatentability;
- explain the relevance of the evidence presented; and
- state that the petitioner is not barred or estopped from filing the petition.
Failure to address each of these issues may jeopardise the filing date of the petition, which may bar the petition if not corrected within the statutory 12-month filing period. In some cases this is easier said than done, given the number of substantive issues to be addressed and the strict page limits on petitions. Each petition is limited to 60 double-spaced pages using 14-point type font. As an exception to the double-space requirements, claim charts may be single spaced. While page extensions are technically possible, such requests are viewed dimly by the PTAB and rarely granted. As a result, petitioners must select their invalidity grounds carefully or consider filing multiple petitions.
Filing a covered business method petition
The new covered business method procedures are even more powerful, yet have more limited application. The covered business method is a more powerful tool because it allows the PTAB to consider additional grounds of invalidity besides anticipation and obviousness. In particular, the PTAB has interpreted its jurisdiction as extending to invalidity challenges for lack of patentable subject matter (eg, an abstract idea), although the PTAB’s interpretation is currently being challenged in an appeal from the first final written covered business method decision. Covered business methods are particularly effective in halting concurrent district court litigation because, unlike the inter partes review statute, the covered business method provisions include an explicit stay provision that includes an automatic interlocutory appeal of a denial of a motion to stay. While a stay is not automatic in a covered business method, the prospect of immediate appellate review tends to tip the balance strongly in favour of granting the stay, absent extenuating circumstances.
However, covered business methods are of more limited application for several reasons. First, unlike an inter partes review, in order to file a covered business method petition, a petitioner must have actually been sued or charged with infringement. This does not tend to be a significant difference, however, because most inter partes reviews are filed only after litigation has been commenced as well. Second, and more importantly, only covered business method patents may be challenged in a covered business method petition. A ‘covered business method patent’ is a patent that claims a method or corresponding apparatus for performing data processing or other operations used in the practice, administration or management of a “financial product or service”, excepting patents for technological inventions. Although not explicitly defined, a ‘technological invention’ is a claim that, as a whole recites a technological feature that is novel and unobvious over the prior art and solves a technical problem using a technical solution. A financial product or service relates to activities that are financial in nature, incidental to a financial activity or complementary to a financial activity. The PTAB has construed the scope of a financial product or service broadly, and to date few covered business method petitions have been denied based on the technological invention exclusion. Recently, the PTAB denied a covered business method petition on the ground that the patent in question did not claim a covered business method, even though the invention could be practised by a financial institution.
Inter partes review and covered business method timelines
One of the significant advantages of these new proceedings is the speed at which they are resolved. By statute, the PTAB must issue a final written decision within 12 months of when a trial is instituted. The major milestones in an review or covered business method case are shown below.
- Petition – the review proceeding begins with the filing of a petition, which should not provide a litany of all possible grounds of invalidity. Rather, it should provide a detailed analysis of a few strong grounds of invalidity. The petition should include supporting document evidence and expert testimony.
- Optional patent owner preliminary response – a patent owner may file an optional preliminary response within three months of filing the petition. Any preliminary response should focus on defective procedural issues (eg, exceeding the one-year bar for petition filing or failing to identify the real parties in interest and/or its privities) or substantive issues (eg, showing that the cited references are not prior art or the cited references lack material element(s)). According to the US Patent and Trademark Office (USPTO), patent owners waive preliminary responses in around one-third of cases.
- Decision on petition – the PTAB will decide whether to institute an investigation within three months of the deadline for the preliminary response. The PTAB will institute an investigation if it determines that there is a reasonable likelihood that the petitioner will prevail as to at least one of the challenged claims. In its decision instituting any investigation, the PTAB will identify the specific grounds relied on, including any non-redundant references supporting those grounds.
- Discovery – following institution of the trial, the parties may conduct discovery. Discovery in inter partes review and covered business method proceedings is exceedingly limited. For all intents and purposes, the only discovery permitted is the exchange of documents relied on by the parties in their pleadings and cross-examination of declarants. A party may seek “additional discovery”, but the PTAB will grant such discovery only if the party shows that permitting this discovery is “in the interest of justice”. Few parties have been able to satisfy this exacting standard. As a result, no additional discovery is the rule in these proceedings.
- Patent owner response – the patent owner files a response and any motion to amend the challenged claims within three months of the PTAB decision to institute the investigation. The response should provide all bases for rebutting the invalidity grounds identified by the PTAB. In virtually all cases, the patent owner’s response is supported by a declaration of an expert, as well as any evidence elicited during cross-examination of the petitioner’s expert.
- Motion to amend – the patent owner also has the right to file one motion to amend the challenged claims. In any such motion to amend, the patent owner is typically limited to substituting no more than one claim for each challenged claim. Unless the patent owner cancels the claims which it chooses to amend, any motion to amend will be contingent on the PTAB finding the challenged claims invalid. A finding on validity will necessarily moot any such motion to amend those confirmed, valid claims. The PTAB subjects motions to amend to exacting standards. To date, the PTAB has denied all but one motions to amend.
- Petitioner reply to patent owner response and opposition to amendment – the petitioner files its reply to the patent owner’s response and any opposition to the patent owner’s motion to amend three months after the patent owner filed its patent owner response and motion to amend. Before filing its reply and opposition, the petitioner may take discovery, including deposing any expert whose testimony supports the patent owner’s response and motion to amend.
- Patent owner reply to opposition to amendment – the patent owner may file a reply to the petitioner’s opposition to any motion to amend. Before filing any such reply, the patent owner may take appropriate discovery.
- Oral hearing – the PTAB will generally hold an oral hearing if either the patent owner or the petitioner requests one. The hearing usually takes one to two hours, with the petitioner proceeding first, unless the only issue is the patent owner’s motion to amend. Before the hearing, the parties are required to exchange exhibits with each other.
Figure 1. Filing timeline for inter partes review or covered business method petition
As shown above, actions under these new procedures move rapidly from filing to final written decision within 18 months. Moreover, there is little additional ‘satellite’ litigation over discovery disputes, helping to keep costs under control. A party must seek prior authorisation from the PTAB before even filing a motion. More often than not, the PTAB denies these requests in a short conference call with the parties, further reducing costs.
This does not mean that the cost of these proceedings is insignificant. The filing fee is substantial ($24,000). In addition, expert testimony is essential for both sides. However, in comparison to district court litigation, an inter partes review or covered business method proceeding is still a fraction of the cost.
Estoppels from inter partes review and covered business method
There are some disadvantages to pursuing an inter partes review or covered business method. In order to minimise subsequent litigation, final written decisions have an estoppel effect on both the petitioner and the patent owner. Specifically, a petitioner may not make a request in any USPTO proceeding with respect to any claim or ground that was raised or reasonably could have been raised in the inter partes review or covered business method proceeding. Further, the petitioner may not assert in any subsequent district court or International Trade Commission (ITC) action that a claim is invalid on any ground that the petitioner raised or could have raised in the petition. Because the grounds on which these petitions may be based are limited, this does not prevent the petitioner from challenging the validity of the patent in district court or the ITC on other grounds such as the ‘on sale’ bar.
In addition to petitioner estoppel, a final written decision in inter partes review and covered business method proceedings will bar the patent owner from taking actions inconsistent with any adverse judgment, including obtaining through further prosecution a patent claim that is patentably indistinct from a finally refused or cancelled claim, or amending its specification or drawings in a way that it was not permitted to do during the proceeding.
Inter partes review and covered business method proceedings are becoming an important tool in the arsenal of patent infringement defence. The structural underpinnings for the proceedings are ideally suited for efficiently rendering invalidity findings, especially compared to district court litigation. As a result, the PTAB will continue to be the venue of choice for resolving validity challenges for the foreseeable future.
Lee & Hayes, PLLC
601 West Riverside Avenue
Suite 1400, Spokane WA 99201
Peter Ayers has considerable experience representing both petitioners and patent owners in post-grant review proceedings before the Patent Trial and Appeal Board. Mr Ayers also serves as trial and appellate counsel in patent infringement and other commercial litigation cases in US federal court.
John Shumaker focuses his practice on IP litigation matters. Mr Shumaker manages complex, multi-defendant patent litigation cases in federal, district and appellate courts and the US International Trade Commission. He also represents clients in inter partesreview proceedings before the Patent Trial and Appeal Board.