September 9, 2014
Commercial Times
By Gary C. Ma
Two years ago, the U.S. Patent and Trademark Office (USPTO) began conducting new post-grant proceedings for challenging issued U.S. patents under the America Invents Act (AIA). The AIA created three types of new proceedings: inter partes review (IPR), covered business method patent review (CBM), and post-grant review (PGR). According to statistics published by the USPTO, as of July 24, 2014, the USPTO had received over 1,500 IPR petitions and close to 200 CBM petitions. Only one PGR had been filed as of July 24, but that is because PGRs are only available for patents that result from applications filed under the first-inventor-to-file provisions of the AIA that went into effect on March 16, 2013. Thus, the USPTO has only just started issuing patents that would qualify.
The new post-grant proceedings have been extremely popular. In the thirteen-year history of inter partes reexaminations (the predecessor to IPR proceedings under the AIA), a total of 1,919 requests were filed. The number of IPR petitions filed will likely exceed that total in just over two years, and it is very likely that the total number of AIA invalidation proceedings numbers will continue to grow. The new post-grant proceedings have been popular for several key reasons. First, the standard of proof to show a claim is invalid is lower than that in district courts. Second, post-grant proceedings cost significantly less than district court litigation. Third, instead of jurors, a panel of three judges of the Patent Trial and Appeals Board (PTAB), who are knowledgeable about patent law and often familiar with the relevant technology, makes the decision. Fourth, the post-grant proceedings take less time to reach completion than most district court cases, and a district court case may be stayed pending an IPR or CBM. Last, but not least, the success rate for challengers has been particularly high, especially in early decisions. The statistics for post-grant proceedings from the last two years suggest that while the success rate for these proceedings is declining, IPRs and CBMs remain cost-effective ways to challenge patents and defend against patent assertions. We discuss the statistics and trends in further detail below.
A Vast Majority of Patents Challenged Relate to Electrical and Computer Technologies
The USPTO website shows that about 72% of the post-grant proceedings filed to date have been for patents in the electrical and computer technologies. Patents in mechanical technologies take the second place, but account only for 15.3%. Chemical patents account for 7.1%, while Biotech/Pharmaceutical patents account for 5.3%. While these statistics generally follow the trend of which technologies are most often the subject of patent litigation, they are still disproportionately high for electrical and computer technologies. That being said, the number of patents in the electrical and computer technologies is also much higher than in any other technology, so it may not be that surprising that patents in these areas are more often the subject of the new post-grant proceedings.
The first decision that the PTAB makes after an IPR or CBM petition is filed is whether there is a substantial new question of patentability raised in the petition, such that the proceeding should be instituted. As the number of post-grant proceeding petitions continues to grow, the percentage of petitions that the PTAB denies appears to be increasing. In 2013, out of 203 decisions on institution, the PTAB denied only 26 (13%). Through July 2014, however, out of 585 decisions on institution, the PTAB has already denied 147 petitions (25%). While numerous factors could have contributed to this rise in the rate of petition denials, it is clear that the PTAB is now looking at petitions with a more critical eye. Those considering filing a petition, as well as those defending post-grant challenges should take heed and retain experienced counsel who keep up-to-date with the latest developments in post-grant proceedings. Because IPRs and CBMs are still relatively new proceedings, clarifications on procedures, new interpretations of applicable law, and new precedents are being created by virtually every decision from the PTAB. Thus, each new PTAB decision may provide insights that could significantly affect the outcome of future IPRs and CBMs.
In addition to seeing more petitions being denied, 2014 also saw the first claims survive IPRs and CBMs. Based on an internal analysis of USPTO statistics, as of July 2014, the PTAB has issued eleven decisions on CBMs, and in only one of those decisions did any claims survive. More and more claims, however, have survived IPRs. In fact, as of July 2014, 32% of 1,187 claims that have been the subject of instituted IPRs survived. Whether this signals the start of a correction in the rate of claims being cancelled in IPRs remains to be seen, but it was unrealistic to think that the small number of claims surviving IPRs would last. Nevertheless, as of July 2014, 82% of IPRs have resulted in the cancellation or amendment of at least some claims.
As mentioned above, one of the advantages of IPRs and CBMs is the possibility of staying any district court litigation involving the same patent while the IPR or CBM is pending. Statistics show that approximately 60-70% of motions to stay pending IPRs are granted, but this number is likely to increase with the U.S. Court of Appeals for the Federal Circuit’s recent decision in Virtual Agility Inc. v. Salesforce.com, particularly if that decision survives any further appeal. In Virtual Agility Inc., the Federal Circuit held that the district court erred in denying a motion to stay pending CBM review. In particular, the court determined that the district court misapplied a four-factor test set forth in the AIA. This four-factor test asks (1) whether the IPR/CBM would simplify issues in the litigation, (2) how far the litigation has proceeded at the time the motion for stay is filed, (3) whether the party resisting stay would suffer undue prejudice as a result of the stay, and (4) whether the IPR/CBM will reduce the burden of litigation. In this case, the court found that the first factor weighed heavily in favor of granting a stay because the PTAB “expressly determined that all of the claims are more likely than not unpatentable” when it instituted CBM review. With respect to the second factor, the court held that the district court correctly found that this factor favored a stay because the litigation was “still at its infancy.” Regarding the third factor, the court dismissed the plaintiff’s argument that it would suffer competitive harm because “the evidence of competition [between the parties] is weak and the patentee’s delays in pursuing suit and seeking preliminary injunctive relief belie its claims that it will be unduly prejudiced by a stay.” Finally, with respect to the fourth factor, the court found that this factor weighed heavily in favor of a stay because it would simplify the issues.
The manner in which the Federal Circuit panel majority evaluated the first and fourth factors is particularly helpful for parties seeking a stay after an IPR or CBM has been instituted. As Judge Newman noted in her dissenting opinion, the majority decision “effectively creates a rule that stays of district court litigation pending CBM review must always be granted.”
Both patent owners and those considering challenging patents under the new post-grant procedures should take note of the statistics and trends that have developed in 2014. Petitions for post-grant proceedings are increasingly at risk of being denied, while the success rate for cancelling claims is coming down. Nevertheless, the rate of IPRs resulting in at least some claims being cancelled or amended remains very high, and CBMs continue to see high success rates. Additionally, the recent Virtual Agility decision from the Federal Circuit indicates that stays pending IPR/CBM will be more likely granted. Thus, IPRs and CBMs continue to be a cost-effective way to defend against patent assertions in many situations.
For more information and continual updates on post-grant proceedings and the AIA, please visit Finnegan’s AIA blog.
Copyright © Finnegan, Henderson, Farabow, Garrett & Dunner, LLP. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm’s clients.
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