Inter Partes Review and Post-Grant Review: New Options Under the America Invents Act to Challenge Patent Validity

Article written by: Bill Bunker
Publication: Orange County Business Journal
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Defending against a patent infringement action can be costly. The average cost of such a Federal Court action is usually several million dollars, a significant expense for small or even mid-size businesses. Such infringement actions typically involve patents whose validity has never been verified, other than being issued by the Patent and Trademark Office (“PTO”). Combined with the two to three years it takes to resolve just a single court action, and one to two years for an appeal, protecting against claims of infringement can be a lengthy and expensive process. Accordingly, the ability to economically verify a patent’s validity prior to litigation would be highly advantageous, both to litigants and the judiciary.

Under the America Invents Act (“AIA”), relief may be in sight. New, faster and cheaper options will become available which may serve as viable alternatives to preempt costly civil litigation. Infringement and associated remedies may still be litigated in Federal Court, but at least validity can be challenged and verified using these new procedures. These are administrative procedures brought exclusively in the PTO, rather than the courts. The question is: Will they be used by litigants?

Today’s Patent and Trademark Office Proceedings

Prior to the AIA, many options for challenging patent validity were available. These included protests, third party submissions of prior art, interference proceedings, ex parte reexaminations, and inter partes reexaminations.

Protests and third party submissions of prior art allow a patent challenger to send information or references to the USPTO early in the patent application process to demonstrate why an invention should not be patented. In comparison, interference proceedings are much more extensive. Only the patent applicant, the examiner, or a third party patent applicant may initiate interference proceedings. An interference proceeding determines whether a pending application is directed toward the same invention as another application or issued patent, and determines priority between the two.

Inter partes and ex parte reexaminations allow for challenges to patents that have already issued. Anyone, including the patent applicant, may request an ex parte reexamination; although, if the reexamination is requested by a party other than the patent owner, that party does not participate in the proceeding which follows. On the other hand, inter partes reexaminations are available for third party challenges to patent validity and are true adversarial proceedings. The challenger is allowed to participate throughout the reexamination process.

While these proceedings were intended to verify that only truly valid patents leave the PTO, they have fallen far short of that goal. Protests, submissions of prior art and interferences are so restrictive with their timing requirements that they are almost never implemented. Moreover, reexamination proceedings address limited issues and allow only a small amount of evidence to be considered, leaving the door open to future and often redundant patentability challenges. In addition, except for interference proceedings, these proceedings are conducted by PTO examiners, who are generally non-lawyers and definitely not judges used to adjudicating complex legal issues. From a strategy perspective, patent challengers rarely used these procedures because they are generally viewed as too favorable to patent owners. Defendants usually opted to take their chances in Federal Court, albeit at much greater expense.

On the other hand, inter partes and ex parte reexaminations have become slightly more utilized in the past decade. Still, the typical volume of reexamined patents is only about 0.5 percent of the number of patents granted each year. Additionally, further complications, uncertainty, and legal confusion arise when PTO proceedings and civil litigation occur concurrently, sometimes leading to opposite conclusions on patent validity.

Under the AIA, new options to challenge patent validity will become available. Among these options are post-grant review (“PGR”) and inter partes review (“IPR”). Meanwhile, inter partes reexamination will be discontinued after September 16, 2012, and interferences will be gradually phased out and eliminated. With these new “review” procedures, Congress hopes to reduce the cost and uncertainties surrounding patent validity challenges.

Post-Grant and Inter Partes Review

Unlike current reexamination proceedings, these new review procedures will be adjudicated by judges – specially trained, technically educated patent lawyers selected from the PTO’s Patent Trial and Appeal Board (the “Board”). Both PGR and IPR have litigation-like characteristics – they include a limited opportunity for discovery, a hearing before a three-judge panel of the Board, and the ability to address a wide variety of issues relating to patent validity. Perhaps even more importantly, they are fundamentally adversarial. These characteristics make the new review procedures robust options for challenging validity of patents.

And they are coming soon! IPR will become available on September 16, 2012, and may be used for challenges to any issued patent after the nine-month PGR window or following the resolution of a PGR. PGR will be available to challenge patents filed under the new first-inventor-to-file system (March 16, 2013), and will create a nine-month window following issuance during which a third party may challenge the validity of a patent for almost any reason.

To avoid inconsistencies between the PTO and the courts, PGR and IPR both trigger automatic stays of civil litigation if the procedures are already pending when the civil action is filed. Likewise, these proceedings cannot be initiated if the same patent is already being challenged in a pending civil action. Likewise, both PGR and IPR include expansive estoppel provisions preventing a challenger from raising an issue in later proceedings or litigation if they raised or reasonably could have raised it during a PGR or IPR proceeding. Board decisions can be appealed directly to the Court of Appeals for the Federal Circuit – the exclusive appellate court for patent cases. Thus, patent validity can be fully vetted through appeal to the Federal Circuit before litigants engage in the costly battle which is Federal Court patent litigation.

Choosing Between Civil Litigation and PTO Review Proceedings

As mentioned, current PTO proceedings are rarely considered part of the arsenal of tools available to patent litigation strategists. Although PGR and IPR represent an opportunity to change that trend, there is still doubt as to whether patent infringement defendants will put their trust in the PTO. But for small business owners, for whom the cost and risk of civil litigation can be substantial, the possibilities are compelling.

First, PGR and IPR provide more certainty in the final outcome of patent validity. Claim construction – the critical standard of the enforceable scope of a patent – by district court judges is reviewed de novo at the appellate level. Statistics show that the Federal Circuit reverses about fifty percent of claim construction decisions appealed from the district courts below, resulting in uncertainty and costly re-litigation of many issues. A decision by the Board, on the other hand, may not be reversed by the Federal Circuit with such regularity. First, the decision is made by three judges as opposed to a single federal court judge. Moreover, unlike most federal district court judges, the three judge panel of the Board is comprised of specially trained patent lawyers, most or all of whom will have some form of scientific or engineering education. Their previous patent experience and familiarity with the axioms of claim construction may enable the Board to be correct on claim construction more often. At a minimum, the time and cost of getting to the Federal Circuit are much reduced with these PTO procedures as compared to federal court litigation. Finally, the estoppel provisions of the new proceedings provide further assurance that a settled issue will not come up in later litigation.

Second, the cost of PGR or IPR is projected to be substantially less than the cost of civil litigation. Although these new proceedings will likely be more expensive than current reexaminations, they are still expected to cost a fraction of civil litigation. The PTO estimates that the average cost will range between $250,000 and $350,000 per party. This is much less than the estimated average costs of patent infringement litigation in the district courts.

Third, the time necessary for PGR or IPR promises to be much shorter than the time necessary for the civil litigation process. A district court case typically lasts two to three years before a final disposition. Then, if a party appeals to the Federal Circuit, a final decision could take another year or more. With the extensive motion practice and discovery to be expected from civil litigation, a great deal of time and money are expended at the district court level alone. In comparison, PGR and IPR must usually be completed within one year of receiving a challenger’s petition. The entire process, including a possible appeal to the Federal Circuit, should last an average of two years with these new proceedings, greatly reducing the time for analysis of patentability.

What This Means for Businesses

For small businesses, PGR and IPR appear to present strong alternatives to civil litigation. In disputes where there is a mismatch between the resources of the litigants, the smaller entity may consider initiating a PGR or IPR before civil litigation begins. Even large companies, who are frequently sued on patents of unproven validity, may be drawn to the allure of less time, energy, and money spent before a final resolution on patent validity. Nevertheless, civil courts may continue to hold sway over validity challenges. The ineffectiveness of previous PTO procedures and the newness of PGR and IPR may give litigants pause. The economies of scale of current patent litigation are also persuasive. That is, if infringement and damages must still be litigated in civil courts, why not litigate validity as well? Certainly, where large sums of money and possible injunctions are at stake, we will likely continue to see validity litigated in the Federal Courts rather than the PTO.

Thus, it is difficult to predict how often these new review proceedings will be used. Overall, however, PGR and IPR have the potential to make patent validity challenges much cheaper and faster.