As was predicted in Patent Office Litigation, much is going on in the world of contested proceedings at the United States Patent and Trademark Office. What no one could have predicted, however, was how broadly and rapidly the new challenges to the patentability of issued U.S. patents would become the standard defense tactic in U.S. patent litigation in all areas of technology. Indeed, 74% of the new contested proceedings are in the electronics/communications/method of doing business technology space, while 13% are in the mechanical space, and 13% are in the biotechnology, chemical, pharmaceutical space.
Brand name pharmaceutical giants are starting to realize that administrative patent trials at the Patent Trial and Appeal Board (PTAB) will present an unanticipated avenue for generic drug manufacturers to challenge blockbuster drugs. No commercially viable patent is safe it seems.
Approximately 80% of the claims challenged in petitions are instituted for trial on at least one proposed ground of unpatentability, but the dire statistics from the patent owner perspective do not stop there. As of the beginning of March, the Board had issued Final Written Decisions after the completion of the trial process in 19 proceedings – 11 IPRs and 8 CBMs. In all but three of these proceedings, the Board cancelled ALL claims for which trial was instituted! The Board cancelled 95.2% of all claims for which trial was instituted, and cancelled 82.9% of all claims that were initially challenged by the petitioner. These are draconian statistics for patent owners!
These bleak statistics have lead Federal Circuit Chief Judge Randall Rader to at the AIPLA annual meeting in October 2013 call the PTAB “death squads killing property rights.” Then again on Friday, March 21, 2014, at a conference hosted by the George Mason University School of Law, Chief Judge Rader said he was “troubled” by the many differences between proceedings at the PTAB and in the district courts, particularly pointing to the disparities in the treatment of the same evidence concerning the same claims. Rader mentioned that his recent comments about the Board being a “death squad” for patents in contested proceedings may be more accurate than some originally thought, considering the dismal track record for survivability of challenged claims in the first wave of final written decisions.
Ultimately, if the PTAB continues on this path, the raison d’etre of the Patent Office and the entire patent system will be called into question, as a former top USPTO official recently told us while discussing these statistics about the low success rate for patent owners in contested proceedings. He characterized the current situation in this way: We have an enterprise (i.e., the USPTO) that has 8,000 employees creating a product (i.e., patents) and has 300 employees destroying the same product in contested proceedings. His question: “How long can this “business model” last?” If a private sector company were engaged in the same behavior they would quickly be out of business. The stakes are very high.
While we can debate what the future will hold for the patent system, patent owners really need to start to pay particular attention to post grant challenges because they are extremely popular, and really should start to engage in strategies during patent prosecution to strengthen patents and provide a bit of post grant challenge insurance if you will. See How to Protect Your Patent from Post Grant Challenges. The popularity of these new patent challenges demands such action.
As of March 20, 2014, there are 954 petitions for IPR filed and 136 petitions for CBM filed. There are no public derivation proceedings yet, but we are aware of several derivation proceedings that remain confidential. The Office has not set a limit on the number of IPRs and CBMs for the current fiscal year, and although they have the ability to do that under the explicit terms of the America Invents Act (AIA), they have announced that they will not enforce a cap. This is significant because so far in fiscal year 2014 we are already nearing 500 proceedings and the statutory cap was set at a mere 281 proceedings. See Patent Litigation Declines, PTO Administrative Trials Increase.
Furthermore, Inter partes review, for example, has been offers a set of rules that are severely tilted in favor of the challenger, at least compared with patent litigation in the district courts. Recently Scott McKeown who is a partner at Oblon Spivak and co-chair of the Oblon post grant practice group wrote on his blog that the Patent Trial and Appeals Board (PTAB) “offers unprecedented speed with none of the patentee safeguards of the district court.” The biggest safeguard that a patentee enjoys at the district court is a presumption of validity, which is not present to protect the patentee in proceedings before the PTAB.
Whenever the Patent Office considers an issued patent the presumption of validity vanishes and the challenger need only meet a preponderance of the evidence standard, which is a substantially lower threshold to than a defendant would face in district court. In fact, in a patent litigation in district court the challenger would have to prove invalidity by clear and convincing evidence. Thus, validity determinations are stacked in favor of the patent owner during litigation, but are stacked in favor of the challenger in an administrative trial at the USPTO. Administrative trials at the USPTO have substantial shift in the play field.
The differing standard to challenge a patent claim is not the only advantage offered challengers. Many patent defendants prefer to fight a war of attrition and engage in multiple forums in serial fashion. This strategy is facilitated with the filing of an post grant patent challenge, particularly where the stay motion is filed before discovery begins, the contested proceeding has been instituted for PTAB trial on all of the overlapping claims, and the patent owner is not a direct competitor. In fact, if these conditions are met the chances of the stay being granted is very high. Even without these conditions being satisfied a district court is still quite likely to stay a patent litigation if a parallel contested proceeding has been filed. While the court has broad discretion in granting a stay, the percentage of stay grants is over 50% nationally.
More problematic for patent owners, the Board is completely focused on meeting the statutory deadlines for completion of the IPRs and CBMs, which seems like a very good thing from an administrative standpoint. As a practical matter, however, there are no extensions of time. Counsel new to this world often do not appreciate this rigidity, which can unfortunately translate to the patent owner being ill prepared for the speed of the fight. The challenger was able to take their time and methodically prepare a petition and set up a strategy for the proceedings. For that reason it is absolutely essential that patent owners come up to speed as quickly as possible once a post grant patent challenge is filed. Effective representation in these contested proceedings requires a total commitment to meeting these rigid time deadlines. Planning accordingly it critical, as is getting out of the gate to a fast start.
Against this backdrop, on March 27, 2014, the Practising Law Institute will hold a one-day conference in New York titled PLI’s USPTO Post-Grant Patent Trials 2014. This is the only conference dedicated to addressing the new contested proceedings and their impact on the overall patent environment. The faculty is truly outstanding and includes a former top USPTO official, federal judges, savvy in-house counsel, and leading practitioners in contested proceedings. Speaking at the event will be Federal Circuit Judge Raymond Chen, former Acting Director of the USPTO Teresa Rea, Scott McKeown from Oblon, Rob Sterne from Sterne Kessler and many others. See here for full conference details. With contested proceedings so enormously challenging to patent rights in the United States, and their practical impact is profound and expanding, anyone involved in the enforcement, licensing, sale, or monetization of U.S. patents should consider attending. The event will also be held on April 28, 2014, in San Francisco, and the program will be webcast from the San Francisco location for those unable to attend.