March/April 2014
IP Litigator
Authored by Jeffrey A. Freeman and Jason E. Stach
A defendant in patent litigation should decide early whether to challenge patent validity in the district court or at the U.S. Patent and Trademark Office (PTO). District courts often will stay a case based on a post-grant challenge at the PTO, effectively offering a choice between litigating validity in the district court or at the PTO. Many factors play into this decision, but in most cases, chief among them is the likelihood of successfully invalidating the patent claims. Recent decisions demonstrate that the PTO will invalidate claims on a variety of grounds, and so far it has done so at a rate exceeding the success rates typically seen in district court litigation. The sample size is small, however, so defendants should continue to evaluate this factor and the others discussed below to determine the best forum for challenging validity.
The America Invents Act (AIA) opened several new avenues for challenging patents, including inter partes review (IPR) and covered business method review (CBM). The PTO started accepting petitions for these proceedings on September 16, 2012, and they already have proven to be popular. Challengers have filed over 800 IPR petitions and over 100 CBM petitions. [Patent Trial and Appeal Board AIA Progress Report dated January 23, 2014] The PTO has acted on 384, of which they have instituted 309 IPR or CBM trials and rejected only 65. [Id.]
Only a handful of cases have been decided on the merits, but the decisions overwhelming favor the patent challenger. As of February 1, 2014, the Patent Trial and Appeal Board (Board) has canceled all claims at issue in its two final written decisions on the merits in IPR proceedings. [This number does not include judgments issued as a result of settlement or on request for adverse judgment.]
In Garmin International, Inc. v. Cuozzo Speed Technologies, LLC, [IPR2012 00001, Paper 59 (Nov. 13, 2013)] the Board instituted trial on three of the twenty claims challenged in the petition. The Board found the three claims obvious in view of the petitioner's two grounds of invalidity, including one three-reference combination and one four-reference combination. The Board also rejected the patent owner's efforts to amend the claims, finding that the proposed amendments failed to satisfy the written description requirements of 35 U.S.C. § 112 and would have improperly broadened the scope of the claims they were intended to replace.
In Idle Free Systems, Inc. v. Bergstrom, [IPR2012-00027, Paper 66 (Jan. 7, 2014)] the Board instituted trial on all 23 claims included in the original petition. The Board again found each of the claims invalid, relying on anticipation and a two-reference obviousness combination. The Board also denied the patent owner's attempt to amend the claims, finding that the patent owner failed to carry its burden of showing general patentability of the new claims over the prior art.
The Board has issued five final written decisions in its CBM proceedings, likewise finding the challenged claims in each case to be invalid as unpatentable subject matter under 35 U.S.C. § 101 [SAP America, Inc. v. Versata Development Group, Inc., CBM2012-0001, Paper 70 (June 11, 2013); CRS Advanced Techs., Inc. v. Frontline Techs., Inc., CBM2012-00005, Paper 66 (Jan. 21, 2014)] or based on prior art. [Liberty Mutual Insurance Co. v. Progressive Casualty Insurance Co., CBM2012-00002, Paper 66 (Jan. 23, 2014) (§ 103); Liberty Mutual Insurance Co. v. Progressive Casualty Insurance Co., CBM2012-00004, Paper 60 (Jan. 23, 2014) (§ 103); Interthinx, Inc. v. Corelogic, Inc., CBM2012-00007 Paper 58 (Jan. 30, 2014) (§§ 101, 102, and 103).]
Although the sample size is small, these decisions suggest that the PTO may be an especially friendly forum for patent challengers. The Board is not afraid to strike down patent claims it believes to be invalid. In contrast, recent statistics indicate that patent holders, not patent challengers, are having more success in the district courts. According to one study, from 2007-2012, patent holders succeeded in about 63 percent of cases tried to a district court judge, and succeeded in about 77 percent of cases tried to a jury. [PricewaterhouseCoopers, "2013 Patent Litigation Study: Big cases make headlines, while patent cases proliferate," at 9.]
A raft of IPR and CBM decisions is expected from the Board in the coming months, so one should revisit the success rates as more data becomes available.
Although the win rate is the driving factor in most cases, it is not the only factor to consider when choosing whether to litigate invalidity at the PTO or in a district court. There are many distinctions between the two venues, and those distinctions may weigh in favor of a venue with a lower invalidation rate in some cases. The distinctions discussed below focus on IPRs because those proceedings are more broadly available than CBMs, but many of the distinctions also apply to CBMs.
IPRs normally will conclude faster than district court litigation. The PTO generally must decide whether to institute an IPR within six months of filing, and it must issue a final written decision within one year of institution unless that deadline is extended up to six months under exceptional circumstances. [35 U.S.C. §§ 314(b), 316(a)(11).] The result is a final written decision in a year and a half, or up to two years in exceptional cases. In contrast, the average time to trial in a district court is about two and a half years, with post-trial activities often delaying the final decision for months after the close of trial.
IPRs generally are less expensive than district court litigation. IPRs tend to cost from hundreds of thousands of dollars to over $1 million, depending on complexity. A recent American Intellectual Property Law Association (AIPLA) survey, in contrast, found a median cost of $700,000 in a district court litigation with less than $1 million at issue, and a median cost of $5.5 million when over $25 million is at issue. [AIPLA, Report of the Economic Survey 2013 at 34 (July 2013).]
IPR validity challenges must be based on prior art patents or printed publications. [35 U.S.C. § 311(b).] District courts, however, allow for all manner of invalidity and unenforceability challenges, including prior use or sale; indefiniteness, written description, and enablement; and inequitable conduct. The district court also adjudicates infringement, so if an invalidity theory is based on or strengthened by the patentee's broad reading of the claims for infringement, a district court may be the best forum for highlighting this issue.
A patent challenger in an IPR also is at the mercy of the Board concerning which particular arguments ultimately will proceed to trial. Though most IPR petitions are granted, they rarely are granted on all proposed grounds. In general, the Board is only instituting IPRs on the proposed rejections it finds most compelling. It often declines to pursue rejections that it views as duplicative of other rejections, even if those rejections are based on different prior art. In contrast, district courts often allow patent challengers to raise any issues the challenger would like, limited only by the allotted number of trial hours.
Discovery is available in an IPR, but it is much more limited than in a district court. While district court discovery follows the Federal Rules of Civil Procedure, which permit a wide variety of discovery, IPR discovery generally is limited to cross-examining declarants and other discovery "necessary in the interest of justice." [35 U.S.C. § 316(a)(5).] Whether this distinction is a benefit or detriment depends on whether a patent challenger wants to rely on discovery to support its case. If so, district court may be the better venue. If not, the limited discovery in an IPR could represent a significant cost savings over litigating invalidity in the district court. District court discovery can be one of the most time and cost intensive components of litigation, estimated to constitute over half of the entire cost, [AIPLA, Report of the Economic Survey 2013 at 34 (July 2013)] so many litigants will prefer to move the fight to the PTO as a less expensive forum.
The burden of proof required to establish invalidity in an IPR is lower than required in district court. In an IPR, the patent challenger must establish invalidity by a preponderance of the evidence, but in a district court the same challenger must provide clear and convincing evidence. This distinction may prove particularly significant when a challenger relies on prior art previously cited or considered during prosecution, as the Board may give that art more weight than a judge or jury in district court.
In an IPR, the Board gives a claim its "broadest reasonable construction in light of the specification of the patent in which it appears," [37 C.F.R. § 42.100(b)] which is broader than the traditional Phillips-based claim construction principles employed by district courts. Broader claim constructions generally make it easier to invalidate claims, but patent challengers also should consider how statements concerning claim construction might be interpreted if later presented to a court in an infringement proceeding. Although a district court is not bound by the Board's claim construction, a patent challenger's IPR statements may be taken into consideration, especially if they pertain to factual matters that do not depend on the claim construction standard. The same statements that helped while arguing invalidity could come back to haunt the challenger in an infringement analysis.
The patent owner has a limited ability to amend claims in an IPR, but this is not an option in a district court. The early IPR decisions discussed above demonstrate that the Board does not freely grant the ability to amend claims. The patent owner must establish that the proposed claim amendments are not broadening, comply with the requirements of 35 U.S.C. § 112, and that the amendments establish patentability over the prior art. Still, in the right case with the amendments properly presented, this option could make the difference between leaving a patentee with no valid claims and the patentee walking away with slightly narrower but much stronger claims. The challenger may be able to take advantage of intervening rights, [35 U.S.C. § 318(c)] but this could be small consolation if the patent remains in force for years and the narrowed claims still cover the challenger's accused products.
IPRs take place before a panel of at least three administrative patent judges, each possessing a technical background and expertise in patent law. In contrast, district court judges typically do not possess technical backgrounds, and only some have extensive experience in patent law. Juries rarely have either. Deciding which venue is more appropriate will depend on the facts of the case. If the invalidity positions are based on highly technical arguments or a large number of references, a challenger may prefer an IPR. On the other hand, if the patent challenger has a great story to tell and the technology is relatively straightforward, a judge or jury may be preferred.
If the PTO issues a final written decision in an IPR, the challenger is precluded from challenging validity at the PTO, in a district court, or before the ITC, regarding any ground that the challenger "raised or reasonably could have raised" in the IPR. [35 U.S.C. § 315(e).] Open questions remain regarding the full scope of this estoppel, but this much is clear: A challenger who has not conducted a thorough prior art search before starting an IPR runs the risk of being precluded from using any later-discovered art in a future proceeding. Given the broad potential reach of the estoppel, a challenger should be confident that it is aware of the best prior art patents and printed publications before filing an IPR.
The PTO has not been shy about taking down patents, as the early IPR and CBM decisions demonstrate. But these proceedings are still young, and it remains to be seen whether the challenger success rate will continue to top the success rate in district court. A number of other factors also are at play, and a litigant will need to carefully evaluate each factor to determine the best venue for challenging validity.
Reprinted with permission from the IP Litigator, published by Aspen Law and Business. 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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