Top 10 Reasons Arbitration Will Benefit Parties More Than Litigating at the PTAB

Choosing arbitration to resolve Inter Partes Review proceedings can save parties cost and time—particularly post-SAS Institute v. Iancu and in light of new PTAB fees and procedures set to take hold.

Arbitration - to patent litigation are desirable now more than ever. Arbitration can help to resolve patent disputes more easily than the much more complex, expensive and timely endeavor of Patent Trial and Appeal Board (PTAB) proceedings. Patent litigators must deal with an overly complex Inter Partes Review (IPR) system as a result of the Supreme Court’s SAS Institute v. Iancu (138 S. Ct. 1348 2018) decision, new amendment process, and evolution of the “broadest reasonable interpretation” standard. Costly and complicated PTAB proceedings and a lengthy appellate process make arbitration an appealing option to obtain a patentability ruling in a streamlined manner. Below are the top 10 reasons that arbitration can be a better route to follow than an IPR or other PTAB proceeding.

1. Confidentiality Is Condition of Arbitration

Traditional arbitral awards and the proceedings leading up to the awards are completely confidential. Such confidentiality provides great advantages to the parties. Patent owners will not desire to have their patent publicly destroyed and patent challengers will avoid providing a road map to competitors to attack the arbitrated patent.

Careful planning of the arbitration’s proceedings will allow parties to maintain confidentiality despite the requirement to disclose the arbitration award to the USPTO under the patent rules (35 U.S.C. §294(d)). The parties may plan for the inevitability of the disclosure requirement of the award to the USPTO by restricting the arbitrator’s ability to provide reasoning for the arbitration award. A patentee may wish to avoid an award with a reasoned decision to prevent third parties from having a road map for invalidating a patent in a subsequent proceeding. An opposer/petitioner may wish to prevent its competitors from obtaining the fruits of the opposer’s labor, if it successfully invalidates the patent.

Litigants’ control over the content of the arbitration award is a strong benefit of an IPR arbitration. Parties to an IPR will not have such control over the format of a written ruling of a PTAB judge. The filings in an IPR proceeding are publicly available and can provide a competitor valuable information should they decide to bring a subsequent IPR (if the original opposer/petitioner is unsuccessful). The use of an IPR arbitration may be especially beneficial in cases where an initial IPR petition is unsuccessful and where parties want to file serial IPRs to supplement with newly located prior art and deny future IPR petitioners from having a road map of what worked and did not work in the prior IPR.

2. Streamlined and Condensed as Compared to IPR

Use of an arbitration process fashioned by the parties themselves may mirror a PTAB IPR. Parties may receive the benefits of a streamlined and condensed IPR arbitration process and obtain an arbitration award regarding validity of a patent(s) that must be recognized by the USPTO. In some cases, a compact IPR arbitration may be completed within six months.

The award issued by the arbitrators in such a proceeding would be enforceable just as any other arbitration award, as provided in 9 U.S.C. §9 (provided that proper notification of the award has been previously given to the Commissioner of Patents, as required by 35 U.S.C. §294(d)). An IPR arbitration lasting only six months would likely incur attorneys’ fees of less than $100,000 per party. Attorneys’ fees are likely to be less than $50,000 for a six-month arbitration. To the contrary, an IPR at the PTAB will last 18 months (one year following institution) plus at least two years on appeal and incur attorneys’ fees of more than $350,000 per party. (See M. Nayak, “2015 Report of the Economic Survey,” AM. INTELLECTUAL PROP. ASSOC. (August 10, 2017))

Below is a timeline of a PTAB IPR process compared to IPR arbitration to accomplish a similar validity ruling as at the PTAB.

Using an IPR arbitration process that mirrors an IPR proceeding at the PTAB, parties can take control of the process and institute measures to save costs and time. Using arbitrators with significant patent litigation experience, including former PTAB judges, allows for a carefully planned process and thoughtfully crafted award/ruling. Below is a more detailed timeline summary of a proposed IPR arbitration process:

The above timeline depicts a proposed schedule for completing an IPR arbitration within six months. The process includes opposer’s/petitioner’s disclosure of asserted prior art and a briefing schedule for patentee’s motion to amend (optional) and claim construction leading to a claim construction order; all within 90 days of the initiation of the IPR arbitration. In the final 90 days, the opposer files its final asserted claims, prior art and invalidity contentions leading up to the arbitration hearing and award. This compact schedule is open to modification upon agreement of the parties, but could be the default schedule where parties cannot agree.

It is useful to recognize the high level of complexity involved in the new procedures for claim amendments being introduced at the PTAB. Below is a chart depicting the new PTAB claim amendment procedures. (Reproduced from Federal Register Notice, 83 Fed. Reg. 54319, Oct. 29, 2018).

The new procedures for claim amendment add at least five more briefs/sur-replies to the already complicated process. While this process may open the door for a patentee to find patentable claims, it assuredly will increase costs and resources needed to litigate at the PTAB. Using a more flexible and streamlined process, such as an IPR arbitration, will greatly reduce costs for both parties.

3.  Recognition of Arbitral Award by USPTO

The patent statute requires that the USPTO recognize arbitration awards. So, the effect of an arbitration could be similar to the result of an IPR, with respect to the parties of the arbitration. 35 U.S.C. §294 requires the parties to file the arbitration award with the USPTO and in turn the award is inserted in the prosecution history of the relevant patent(s). As between the parties to the arbitration, the award will have a binding affect—just like a PTAB ruling.

4.  Allows for the Flexibility of Converting the Proceeding to Mediation

Where parties have proceeded sufficiently through litigation to seriously consider settlement, an ADR proceeding such as arbitration may be easily converted to a mediation. Using the same neutral/ arbitrator to adjudicate the mediation or using a new neutral, the parties can agree to stay the arbitration in order to mediate a settlement. Especially where there are issues beyond the validity of the patent at stake, mediation of a global solution of the IP dispute may be a favorable option.

5. Panel Selection

Under an IPR arbitration, the arbitrator(s) that is selected will preside over the proceeding from start to finish. Since the arbitrator(s) will be selected by the parties after investigating the arbitrator’s background, the parties will be able to discern any bias of the arbitrator. As well, there is strong incentive for the arbitrator to avoid even an appearance of bias; as bias is the main grounds for appeal of an award. Unlike an IPR, where the PTAB judge is assigned to the case without party input, an IPR arbitration provides greater flexibility for selection of the adjudicator.

6.  Step of Filing Institution Petition is Alleviated

When parties agree to substitute arbitration for an IPR, the patent owner is agreeing to place the validity of its patent at issue in the arbitration. So, there is no need for the patent challenger to prepare or file an Institution Petition or wait for the PTAB to issue an institution order. Through an exchange of relevant information (e.g. prior art), the parties to an IPR arbitration may initiate the arbitration and negotiate the procedural aspects of the proceeding. As compared to a typical IPR, this may save at least $100,000 for the patent challenger, which will not have to have an Institution Petition drafted and filed.

7.  With End of Partial Institution at PTAB, Arbitration Can Provide for Partial Adjudication

In SAS Institute v. Iancu, 138 S. Ct. 1348 (2018), the Supreme Court held that all claims asserted by an IPR petitioner must receive adjudication through the full PTAB process, including a final ruling. The Court effectively ended the PTAB’s partial institution practice, which allowed only part of the claims originally challenged by a petitioner to be adjudicated. Many attorneys have predicted that SAS will increase the patent holder’s expenses resulting from the requirement to defend all the asserted patent claims. Some have even criticized SAS as creating a massive amount of needless work. The SAS ruling may have the practical effect of forcing the PTAB to institute fewer IPRs and potentially causing further backlog. The PTAB may attempt to preempt the inevitable overwork required from all claims being adjudicated in each IPR. Of course, no such restriction applies during an arbitration, where the parties can decide what issues will be on the table and what issues to avoid in order to streamline the arbitration process.

The where the PTAB judge is assigned to the case without party input that as a result of the SAS decision, fees for PTAB trials are to increase by roughly 25%. The USPTO acknowledged that, because the PTAB will no longer be able to institute an IPR on less than all claims challenged in a petition, there will be significant additional work for a given instituted IPR.

8. No Appeal in Most Cases

Attorneys’ fees for appeal will also increase. Between 2012 and 2015, appeals from the USPTO to the Court of Appeals for the Federal Circuit (CAFC) increased four times. The CAFC’s workload will likely increase further in light of SAS. The PTAB can no longer dispose of a subset of challenged claims at the institution phase because all challenged claims must be addressed in the final decision, providing additional appealable issues for the CAFC to decide. About 85% of IPR trials have co-pending district court litigation. As a result, petitioners will likely seek all asserted claims adjudicated through IPR, making a stay of any co-pending district court action nearly certain and increasing the complexity of IPRs at the PTAB and on appeal.

Small to midsize companies and start-ups that could have mustered the resources to participate in an IPR pre-SAS will now likely be unable to participate fully in an IPR due to the increased filing fees and attorneys’ fees required to withstand a more involved PTAB proceeding and even lengthier appeal.

Thus, the fact that an arbitration award may be appealed only where the award was procured by corruption, fraud or there was evident partiality or corruption in the arbitrators, is especially attractive.

9. Awards Have International Reach under the New York Convention

Most countries are signatories to the New York Convention that provides recognition of arbitral awards entered by courts of other countries. Thus, in the patent context, where disputes take on international scope, a single arbitration proceeding can resolve disputes around the globe. Instead of relying on a PTAB proceeding in the United States and then litigating corresponding patents in other countries throughout the world, U.S. arbitration can be the sole dispute resolution process that can be enforced around the globe in courts of New York Convention contracting countries.

10.  Arbitration Under a Post-Dispute Submission Agreement Will Allow Multiple Defendants to Participate

Typically, an arbitration is initiated as a result of an arbitration clause placed in an agreement between the parties. Such a pre-dispute clause triggers patent arbitration to occur when a dispute arises under a license agreement or joint development agreement. These types of agreements have arbitration clauses that are drafted prior to a dispute. In other words, the dispute can arise many months or years after drafting of the agreement and involving multiple defendants/ licensees.

Cryptic arbitration clauses based on a “form” drafted many years prior to a dispute may not be suitable for resolution of a modern dispute. Under an IPR arbitration initiated contemporaneous to the dispute or post-dispute, the parties may enter into a submission agreement or arbitration agreement tailored to the legal nature of the dispute. For example, where a patent infringement suit has been filed in the district court, the parties will likely have had discussions regarding the patent infringement dispute. In such a scenario, the parties can enter into a submission agreement/arbitration agreement that is contemporaneous to the dispute in order to institute the IPR arbitration; with full knowledge of the most ideal arbitration procedures to invoke. Such an arbitration agreement could be between multiple defendants to a litigation and a patent owner in a single arbitration—resulting in greatly reduced costs for the patent challengers.

More Than 10

Use of IPR at the PTAB is a good option for well-funded parties who are involved in “bet the company-type” patent litigation. But for situations where a settlement is a likely outcome or the parties are not willing to risk $250,000 – $500,000 each for an IPR at the PTAB, then an IPR arbitration is much more efficient for both petitioner and patentee. While this article provides the top 10 reasons for IPR arbitration over PTAB proceedings, there are additional reasons. For example, a settlement under a PTAB proceeding must be approved by the PTAB judges, serial IPRs may be avoided and amendment of claims is not necessary.

For more on this topic, join us for “The Future of ADR & PTAB Litigation on September 13 in Chicago or online.


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Join the Discussion

3 comments so far.

  • [Avatar for Bemused]
    August 15, 2019 10:33 am

    David Newman, do you live in the real world or in some fantasy world where arbitration is fair, inexpensive and just? In the real world, arbitration is a joke and a death trap for unwary participants.

    As Paul Morinville noted above, arbitration could work if the arbitrator is unbiased. However, arbitrators make their money by being appointed for arbitrations. Who do you think these arbitrators are going to rule in favor of? The independent inventor who may appear once or twice in their lifetime before them or the big tech companies that are in arbitration all the time and who regularly appoint arbitrators?

    Have a little more respect for the knowledge of the readership of this blog and don’t push that nonsense that arbitration would be a good forum to resolve patent disputes.

  • [Avatar for Curious]
    August 14, 2019 07:46 pm

    That said, the kill rate is so high at the PTAB, it doesn’t really matter
    This is very similar to the point I was going to make. Why bother with arbitration when deck is stacked so much in favor of the patent challenger at the PTAB?

    But for situations where a settlement is a likely outcome or the parties are not willing to risk $250,000 – $500,000 each for an IPR at the PTAB, then an IPR arbitration is much more efficient for both petitioner and patentee
    Petitioners don’t believe that settlements are likely outcomes these days. Between IPRs and the application of 35 USC 101 at the District Court level, the likely outcome for most patents these days are that they’ll be killed dead.

    I’ve written this before, but it is worth writing here again. I am a patent professional who makes his living getting patents for people. However, with that in mind, my recommendation for most solo inventors/solo companies these days who might come through my doors asking for my help is “Don’t bother. Between the cost of acquiring patents and then asserting them (to the extent you can get an issued patent) only to have your patent subsequently invalidated, obtaining a patent is far more likely to be a money-losing endeavor than it will be a benefit to your company”

    The patent system is so unfairly tilted towards big companies (and particularly big-tech companies) that I would be ashamed to take their money knowing how small the chances are that something good will come of obtaining a patent. I might refer them to another law firm if they really want to try for patent protection, but considering how broken the system is these days, I cannot in good conscious take their money.

  • [Avatar for Paul Morinville]
    Paul Morinville
    August 14, 2019 12:46 pm

    The entire premise of arbitration is that the arbitrator is unbiased. But the way it works, the arbitrator cannot be unbiased and they are not unbiased. Arbitrators make their living by arbitrating. Big companies continually recommend and hire arbitrators. If an arbitrator is going to build a business they have to be on the big company list, but if they find against the big company, they will not be on the list. Arbitration favors the big over the small as a result.

    That said, the kill rate is so high at the PTAB, it doesn’t really matter, so getting a biased arbitrator at a lower cost than biased PTAB judges makes sense.

    Therefore, since there is no longer a fair system for any small entity, I agree that arbitration is the best option. A better option is to abandon the US patent system altogether and go to China where small patent holders get a fair shake.