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Tempest in a Teapot? An Evaluation of the Heightened Standard for Initiating Inter Partes Reexamination and Implications for Inter Partes Review

BNA’s Patent, Trademark & Copyright Journal
March 30, 2012

Raich Ph.D., William B.

Article

Authored by Marian T. Flattery and Willaim B. Raich, Ph.D.

I. Introduction

In enacting the Leahy-Smith America Invents Act, Congress sought to make post-grant proceedings at the Patent and Trademark Office affordable and efficient alternatives to litigation. See H.R. Rep. No. 112-98 (part 1), at 45-46 (2011). Towards this end, Congress fundamentally restructured inter partes reexamination, an examinational proceeding, and converted it to an adjudicative proceeding renamed inter partes review. Id. at 46-47.

One linchpin of this restructuring was the immediate adoption of a purportedly elevated threshold for initiating the process. Here, we review important differences in the inter partes reexamination and review procedures, evaluate the preliminary data resulting from the new standard, and analyze potential implications for parties considering these procedures.

II. A 'Heightened' Standard for Inter Partes Reexamination and Review

When the AIA was enacted on Sept. 16, the threshold for initiating inter partes reexamination was immediately elevated from a "substantial new question of patentability" ("SNQ") to a "reasonable likelihood" of successful challenge with respect to at least one claim. Leahy-Smith America Invents Act, Pub. L. No. 112-29, 125 Stat. 300 (2011), Sections 6(a) (35 U.S.C. §314(a)) and 6(c)(3); Revision of Standard for Granting an Inter Partes Reexamination Request, 76 Fed. Reg. 59055-58 (Sept. 23, 2011) (to be codified at 37 C.F.R. pt. 1).

The threshold was raised because the SNQ standard allowed 95 percent of all requests for inter partes reexamination to be granted, whereas the reasonable likelihood standard was perceived to effectively require the petitioner to present a prima facie case justifying a rejection of a claim in the patent. H.R. Rep. No. 112-98 (part 1), at 47 (2011); Cong. Rec. S1375 (Mar. 8, 2011) (statement of Sen. Jon. Kyl (D-Ariz)).

This elevated standard generated concern regarding a potential impact on the number of inter partes reexamination requests filed and granted. For example, in dissenting from the AIA's House Report, Reps. Howard L. Berman (D-Calif.), Melvin Watt (D-N.C.), and Zoe Lofgren (D-Calif.) wrote that the raised standard "creates a risk that the [PTO] will reject legitimate petitions at the outset of the procedure, without further inquiry." H.R. Rep. No. 112-98 (part 1), at 165. They argued that the SNQ standard should be maintained because the overwhelming majority (89 percent) of inter partes reexaminations that have occurred since 1999 resulted in the amendment or cancellation of at least one patent claim. Id. at 164-65.

Similarly, Rep. Judy Chu (D-Calif.) stated that the AIA "creates an unworkable standard for initiating inter partes reexamination proceedings making it more difficult for companies to weed out bad patents." Staff of H. Comm. on the Judiciary, 112th Cong., America Invents Act 89 (Apr. 14, 2011). Our preliminary review suggests that such concerns were unfounded. Indeed, as explained below, petitions for inter partes reexamination are being filed and granted at similar rates under the SNQ and reasonable likelihood standards.

To assess the effect of the changed standard, we compared the number of inter partes reexamination requests and grants from the fourth calendar quarter of 2011, which were decided under the new "reasonable likelihood standard," versus those from the corresponding period in 2010, decided under the SNQ standard.

For our analysis, we reviewed the inter partes reexamination requests that were accorded a filing date in 4Q 2010 or 4Q 2011. Thus, the numbers of filings referred to in this article are not identical to those published by the PTO, which are based on the initial filing date of a request for inter partes reexamination, regardless of whether the PTO accepts or rejects those initial filings. As discussed below, over 25 percent of the requests for inter partes reexamination accorded a filing date in 4Q 2011 were not accorded their initial filing date.

Consistent with historical trends, 95 percent of inter partes reexamination requests (88/93) filed in 4Q 2010 were ultimately granted. However, as of March 31, 2011, only 88 percent of the inter partes reexamination requests filed in 4Q 2010 had been granted. This resulted because six of these requests were initially denied, and were only later granted upon request for review of denial to the PTO director.

Under the allegedly "heightened" reasonable likelihood standard, 91 percent of inter partes reexamination requests (94/103) filed in 4Q 2011 have been granted. Technically, the percentage of requests initially granted is actually higher (91 percent v. 88 percent) under the "heightened" reasonable likelihood standard than occurred under the SNQ standard, and the grant percentage of requests filed in 4Q 2011, which could increase, is only slightly lower (91 percent v. 95 percent) than the final grant percentage of requests filed in 4Q 2010.

Thus, while the process is still in its early days, the preliminary evidence suggests that raising the threshold for inter partes reexamination from SNQ to a reasonable likelihood of prevailing has not had a dampening effect on the number of requests filed (4Q 2010 - 93; 4Q 2011 - 103) and has not significantly reduced the percentage of requests granted.

Our review of the requests for inter partes reexamination filed in 4Q 2011 unexpectedly revealed that over 25 percent (28/103) were not accorded their initial filing date. The majority of requests denied their initial filing date were found incomplete for failure to comply with 37 C.F.R. § 1.915(b)(3), which provides that a request for inter partes reexamination must include "[a] statement pointing out, based on the cited patents and publications, each showing of a reasonable likelihood that the requester will prevail with respect to at least one of the claims challenged in the request, and a detailed explanation of the pertinency and manner of applying the patents and printed publications to every claim for which reexamination is requested" (emphasis added).

Common reasons for finding an inter partes reexamination request incomplete are lumping together of multiple proposed rejections, lumping together of proposed combinations of references, and citing references that are not relied upon for a proposed rejection. For example, the PTO considers language such as "Claim 1 is unpatentable as being obvious over Reference X in view of Reference Y and/or Reference Z" and "Claim 1 is unpatentable as being obvious over at least one of References X, Y and Z" to be inappropriate and noncompliant with 37 C.F.R. § 1.915(b)(3).

Because the level of scrutiny by the PTO appears to be quite high, even to the point of rejecting a request based on a typographical error, we recommend careful proofing as well as iterative explanations for each claim and each combination of references asserted.

Under current inter partes reexamination practice, if a request does not meet the requirements of 37 C.F.R. § 1.915, the PTO issues a Notice of Failure to Comply and the requester is given 30 days to file a fully compliant response. Because there are no time limits within which to file a request for inter partes reexamination, failure to initially comply can be considered a "no harm, no foul" occurrence.

Such will not be the case with post-grant review and inter partes review under the AIA.

III. Advantages and Disadvantages of Inter Partes Review

Effective Sept. 16, 2012, the current inter partes reexamination procedure, conducted by examiners in the Central Reexamination Unit, will be replaced with "inter partes review," an adversarial proceeding conducted by the Patent Trial and Appeal Board. AIA, Sec. 6(a) (35 U.S.C. §316(c)).

Although inter partes review will also proceed under the "heightened" reasonable likelihood standard, there are significant differences between inter partes reexamination and inter partes review which may drive a strategic decision to seek reexamination before Sept. 16, 2012, or review after Sept. 16, 2012.

Inter partes reexamination is only available for patents that issue from an original application filed in the United States on or after Nov. 29, 1999. 37 C.F.R. § 1.913. However, once available, inter partes review will be available for any patent, regardless of filing date. AIA, Sec. 6(c)(2).

Institution of inter partes review will be more contentious than inter partes reexamination. Unlike for inter partes reexamination, the patent owner may file a preliminary response to the petition for review before the PTO decides whether or not to institute the inter partes review. AIA, Sec. 6(a) (35 U.S.C. § 313).

Although the patent owner may not amend the claims or submit new testimony in this preliminary response, the patent owner may disclaim one or more claims in the patent, and no inter partes review will be instituted based on disclaimed claims. While experience to date indicates that the Central Reexamination Unit is granting over 90 percent of inter partes reexamination requests under the reasonable likelihood standard, it remains to be seen how the PTAB will evaluate petitions for inter partes review, particularly given the right of patent owners to substantively respond.

The PTO's proposed rules for inter partes review, published Feb. 10, provide little insight into the factors the PTAB will use in determining whether a petitioner has a reasonable likelihood of success of prevailing with respect to at least one challenged claim 77 Fed. Reg. 7, 041 (83 PTCJ 518, 2/17/12). The proposed rules do not provide any substantive explanation, nor do they reference the case law related to preliminary injunctions, which are based in part on a similar "likelihood of success" standard.

Instead, the discussion of proposed 37 C.F.R. § 42.108(c) states only that "[a] reasonable likelihood standard is a somewhat flexible standard that allows the judge room for the exercise of judgment." Changes to Implement Inter Partes Review Proceedings, 77 Fed. Reg. 7,046 (Feb. 10, 2012) (proposed rules)). Notably, the PTAB's decision whether to institute an inter partes review will be final and non-appealable. AIA, Sec. 6(a) (35 U.S.C. § 314(d)).

Under current 35 U.S.C. § 311, a request for inter partes reexamination must be based on patents or printed publications. However, there is no explicit restriction that the grounds for challenge be limited to lack of novelty and obviousness over these patents or publications, and thus the challenger can assert invalidity theories such as obviousness-type double patenting. M.P.E.P. § 2658 (8th ed., 8th rev.). In contrast, inter partes review will be limited to grounds that "could be raised under section 102 [novelty] or section 103 [non-obviousness] and only on the basis of prior art consisting of patents or printed publications." AIA, Sec. 6(a) (35 U.S.C. § 311(b)).

There are several important filing constraints for inter partes review that differ from inter partes reexamination. If a party is challenging the validity of a patent claim in a civil action, either affirmatively in a declaratory judgment suit or defensively as a counterclaim, that party can request inter partes reexamination any time before a final decision that the challenging party has not proved invalidity of any patent claim in suit. 35 U.S.C. §317(b).

However, an inter partes review cannot be instituted if the petitioner or real party in interest has filed a civil action challenging the validity of a claim of the patent. AIA, Sec. 6(a) (35 U.S.C. §315(a)(1)).1 Further, an inter partes review will not be instituted if the petition is filed more than one year after the date on which the petitioner, real party in interest, or privy of the petitioner is served with a complaint alleging infringement of the patent. Id. (35 U.S.C. §315(b)).

Thus, to secure inter partes review by the PTAB, where the challenged patent claims enjoy no presumption of validity and will be given their broadest reasonable interpretation, care must be taken to ensure that a complete, fully compliant petition is filed before the filing of a declaratory judgment action challenging the patent or within one year of being served with a complaint for patent infringement.

A petition for inter partes review can only be filed after the later of: (1) the date that is nine months after the grant of a patent or issuance of a reissue of a patent; or (2) if a post-grant review is instituted, the date of the termination of such post-grant review. Id. (35 U.S.C. §311(c)). There is no provision in the statute or proposed rules for waiving this nine—month waiting period for patents which are not subject to post-grant review.

With the exception of certain business method patents, only patents granted on applications with an effective filing date on or after March 16, 2013 can be challenged by post grant review. This means that patents granted on or after Sept. 16, 2012 with an effective filing date before March 16, 2013 will not be subject to any type of inter partes challenge in the PTO until nine months after grant.

Unlike inter partes reexamination, discovery is available to the patent owner and the petitioner after institution of an inter partes review, but that discovery is limited to depositions of fact and expert witnesses providing declarations and "what is otherwise necessary in the interest of justice." Id. (35 U.S.C. § 316(a)(5)). The proposed rules provide for routine discovery of exhibits cited in a paper or testimony and provide for cross examination of affidavit testimony by deposition. Rules of Practice for Trials Before the Patent Trial and Appeal Board and Judicial Review of Patent Trial and Appeal Board Decisions, 77 Fed. Reg. 6887 (Feb. 9, 2012) (proposed 37 C.F.R. §42.51(b)(1) and (b)(2)).

Under these rules, parties and individuals associated with the parties are required to provide information that is inconsistent with a position advanced by the patent owner or petitioner during the course of the inter partes review. Id. (proposed 37 C.F.R. §42.51(b)(3)). Notably, the PTO explicitly recognizes that some parties may be hesitant to use the new proceedings because of this requirement. Id.

Even with the opportunity for discovery, inter partes review under the new rules is expected to take less than two years, making it significantly faster than the more than three-year current average for inter partes reexamination. See USPTO Operational Statistics for Quarter Ending 12/31/2011, available at www.uspto.gov/patents/stats/Reexamination_Information.jsp.

Both inter partes reexamination and inter partes review create estoppel against the challenging party, but the scope of the estoppel differs. A third party whose request for inter partes reexamination is granted is estopped from later asserting, in any civil action for patent infringement action, the invalidity of any claim finally determined to be valid and patentable on any ground the requester raised or could have raised during the reexamination proceedings. 35 U.S.C. § 315(c).

If a final decision in an inter partes reexamination proceeding is favorable to the patentability of any claim of the patent, then the third-party requester may not later request an inter partes reexamination on the basis of issues raised or that could have been raised in the earlier inter partes reexamination. 35 U.S.C. § 317(b). Inter partes reexamination does not create an estoppel against the requester in a Section 337 proceeding before the ITC.

The petitioner in an inter partes review of a patent claim that results in a final written decision may not request or maintain a proceeding in the PTO with respect to that claim on any ground the petitioner raised or reasonably could have raised during that inter partes review. AIA, Sec. 6(a) ((35 U.S.C. §315(e)(1)). That patent challenger also may not assert either in a civil action or in an ITC Section 337 proceeding that the claim is invalid on any ground that the petitioner raised or reasonably could have raised during inter partes review. Id. (35 U.S.C. §315(e)(2)).

No comparative discussion of inter partes reexamination and inter partes review would be complete without addressing the relative costs. The PTO fee for filing a request for inter partes reexamination is $ 8,800, of which $ 7,970 is refunded if the request if denied. 37 C.F.R. § 1.26(c); USPTO Fee Schedule, Effective Sept. 26, 2011 (Last Revised on Jan. 10, 2012), available at www.uspto.gov/web/offices/ac/qs/ope/fee092611.htm.

The proposed PTO fee for filing a petition for inter partes review of 20 or fewer claims is $ 27,200, increasing incrementally for each additional 10 claims to $ 68,000 for 51-60 claims. Over 60 claims, the proposed cost of each additional group of 10 claims is $27,200. Changes to Implement Inter Partes Review Proceedings, 77 Fed. Reg. 7,050 (Feb. 10, 2012) (proposed rules).

Unlike for inter partes reexamination, there is no refund of any part of the fee when review is not initiated. Id. at 77 Fed. Reg. 7,053. The PTO "invite[s] feedback and recommendations from the public" regarding this proposed fee structure. USPTO Press Release, 12-09, available at www.uspto.gov/news/pr/2012/12-09.jsp.

Those interested in pursuing inter partes review should file promptly. The AIA allows the PTO to cap the number of requests granted during each of the first four fiscal years after institution at 224, far less than the number of inter partes reexamination requests expected in this fiscal year (about 400). See Sec. 6(c)(2)(B); see USPTO Operational Statistics for Quarter Ending 12/31/2011, available at www.uspto.gov/patents/stats/Reexamination_Information.jsp.

IV. Conclusion

Raising the threshold from SNQ to reasonable likelihood of prevailing has not decreased the likelihood of inter partes reexamination being granted. However, inter partes review is not simply inter partes reexamination by a different name, and it remains to be seen how the PTAB will evaluate petitions for inter partes review given the right of patent owners to respond.

In view of the many differences between these procedural avenues, those considering challenging a third party's patent in the PTO, especially a patent currently in litigation, should carefully evaluate the availability and suitability of inter partes reexamination and inter partes review before proceeding.

Endnotes
1 A counterclaim challenging the validity of a patent claim does not preclude filing of a petition for inter partes review. AIA, Sec. 6(a) (35 U.S.C . §315(a)(3)).

Reproduced with permission form BNA’s Patent, Trademark & Copyright Journal. Copyright © 2012 The Bureau of National Affairs, Inc. (800-372-1033) www.bna.com. 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.