Final Rules Released for Post-Issuance Inter Partes Disputes Before the USPTO - What You Need To Know

The United States Patent and Trademark Office (USPTO) recently issued final rules for three post-issuance inter partes proceedings for challenging the patentability of one or more claims in an issued patent: Inter Partes Review (IPR), Post-Grant Review (PGR), and the Transitional Program for Covered Business Method (CBM) patents. Each of these proceedings takes effect September 16, 2012. A fourth inter partes proceeding, the derivation proceeding, takes effect March 16, 2013. The USPTO will release final rules for derivation proceedings at a later date. With the implementation of these new proceedings, inter partes reexamination will no longer be available. Patent interferences round out the remaining inter partes proceedings before the USPTO.

Trial Proceedings Overview

The USPTO calls these new proceedings “trials”, and each proceeding will be conducted before the Trial Section of the Patent Trial and Appeal Board (PTAB) (formerly the Board of Patent Appeals and Interferences). By statute, these proceedings must conclude within 12 months of initiation, although for good cause the proceedings can extend to 18 months from initiation.

The trial proceedings include many litigation-like features, such as discovery (albeit more limited), motion practice, protective orders, and settlement procedures. The USPTO’s rules set forth the framework for implementing these litigation-like features, which in many respects have been closely modeled after the Board’s long-standing patent interference rules. While the rules do allow flexibility regarding the timing for each procedure, the rules also include specific provisions directed to, for example, filing of documents, discovery, settlement discussions, and motion practice. Due to the statutorily-mandated timing for concluding the trial, the timeline for each step in these proceedings will be very short.

Potential Advantages of Trial Proceedings vs. Litigation

One of Congress’ objectives in passing the AIA was to disincentivize parallel litigation and USPTO challenges, which have become commonplace (and expensive) in patent disputes. Another objective was to shift patent challenges from the U.S. District Courts to the USPTO, and the Board’s rules effectively encourage patent challengers to choose their path wisely. While the USPTO cannot adjudicate many of the issues that can be raised in litigation (e.g., patent infringement), there are several potential advantages that favor choosing the USPTO path to challenge a patent’s validity. For example: (1) the Board applies the “preponderance of the evidence” standard to patentability challenges, rather than the higher “clear and convincing evidence” standard; (2) the costs of the proceeding are expected to be substantially lower, given the more limited discovery, fewer ancillary “battles” unrelated to the merits, and ready access to the Administrative Patent Judges (APJs) via teleconference to resolve disagreements; (3) the dispute will be resolved on an effective fast track, usually in about a year; and (4) the decision makers are APJs with considerable training in both the relevant technology and in patent law. Thus, the new trial proceedings can present attractive options for challenging a patent’s validity.

Inter Partes Review

IPR is a trial proceeding to review the patentability (validity) of one or more claims of an issued patent. IPR is available for all patents, regardless of priority date. IPR proceedings replace inter partes reexamination. As with inter partes reexamination, estoppel applies to the petitioner with respect to any grounds of unpatentability that were raised or reasonably could have been raised during the trial. Estoppel also applies to the patent owner: the patent owner cannot obtain a patent having a claim that is not patentably distinct from a claim that was canceled or finally refused in the IPR. However, if the parties settle prior to the conclusion of the trial, estoppel will not apply.

In IPR proceedings, a petitioner may only raise anticipation and obviousness challenges in view of patents or printed publications. To initiate an IPR proceeding, the petitioner must demonstrate a reasonable likelihood of prevailing as to at least one of the challenged patent claims. Filing an invalidity action in civil court (e.g., a declaratory judgment action) will bar the petitioner from filing an IPR petition; therefore, the petitioner must file an IPR petition before filing an invalidity action. In addition, if a party is sued for infringement, the party has one year from the date of service of the complaint to petition for IPR. Further, to file an IPR petition, a petitioner must wait until the later of (1) nine months after the patent issues, or (2) the date a PGR of the patent is terminated.

Filing fees begin at $27,200.

Post-Grant Review

PGR also allows a petitioner to challenge the patentability (validity) of one or more claims of an issued patent. PGR is primarily limited to patents that have a priority date later than March 15, 2013. Unlike IPR, PGR is not limited to unpatentability grounds based on prior art patents and printed publications. PGR can also be based on evidence of public use, on-sale activity, or other public disclosures. Moreover, PGR can be sought based on an alleged lack of compliance with written description, enablement, or subject-matter eligibility rules.

Most other aspects of PGR and IPR proceedings are the same, with a few notable differences. For example, a PGR petition must be filed within nine-months after a patent issues. The burden of proof necessary to support a PGR petition is “more likely than not” that one of the challenged patent claims is unpatentable, which the USPTO considers to be a slightly higher standard than the “reasonable likelihood” standard for IPR. In addition, because estoppel applies to the petitioner with respect to any grounds of unpatentability that were raised or reasonably could have been raised during PGR, the scope of estoppel created by PGR is significantly broader than the estoppel created by IPR.

The filing fees for PGR begin at $35,800.

Transitional Program for Covered Business Method Patents

The transitional program for CBM patents is a trial proceeding to review the patentability (validity) of one or more claims in a CBM patent. CBM review is available for all CBM patents, regardless of priority date.

CBM proceedings closely parallel PGR procedures, with a few exceptions. For example, a person may not file a petition for a CBM review unless that person has been charged with infringement of the patent. For CBM patents with a priority date later than March 15, 2013, CBM review may be requested at any time except during the period in which a petition for PGR could be filed. For patents with an earlier priority date, CBM review is available at any time after the patent has issued. In addition, limited prior art is available for anticipation and obviousness challenges of CBM patents. Finally, the scope of estoppel is limited only to grounds that were raised and does not include grounds that reasonably could have been raised in a CBM patent proceeding.

What Is a CBM Patent?

The final rules define a CBM patent as 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, excluding “technological inventions” (discussed below). The rules indicate that the term “financial product or service” should be interpreted broadly, and is not limited to the products or services of the financial services industry. Examples of a CBM patent include: (a) a patent that claims a method for hedging risk in the field of commodities trading; and (b) a patent that claims a method for verifying validity of a credit card transaction.

What Patents Qualify Under the “Technological Invention” Exception?

Patents for “technological inventions” are excluded from the definition of a CBM patent. According to the USPTO’s rules, determination of a “technological invention” is based on whether the claimed subject matter as a whole recites a technological feature that is novel and nonobvious over the prior art and solves a technical problem using a technical solution. Examples of a technological invention include: (a) a patent that claims a novel and nonobvious hedging machine for hedging risk in the field of commodities trading; and (b) a patent that claims a novel and nonobvious credit card reader for verifying the validity of credit card transactions. Examples of a non-technological invention include: (a) mere recitation of known technologies, such as computer hardware, communication or computer networks, software, memory, computer-readable storage medium, scanners, display devices or databases, or specialized machines, such as an ATM or point of sale device; (b) reciting the use of known prior art technology to accomplish a process or method, even if that process or method is novel and nonobvious; and (c) combining prior art structures to achieve the normal, expected, or predictable result of that combination.

The filing fees for PGR review begin at $35,800.

Derivation Proceedings

A derivation proceeding determines whether an inventor named in an earlier application derived a claimed invention from an inventor named in the petitioner’s application, and the earlier application was filed without authorization. Derivation proceedings do not take effect until March 16, 2013, and the final rules have not yet been released.

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