Tag Archives: IPR

Broadening and Narrowing Claims Post Issuance

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There is some amount of tension between the Federal Circuit’s 2012 en banc decision in Marine Polymer Tech. v. HemCon (Fed. Cir. 2012) and the court’s recent finding in ArcelorMittal v. AK Steel (Fed. Cir. 2015). Both cases involved post-issuance proceedings where a claim’s scope had changed even though the claim itself had not been amended.

The underlying issue in Marine Polymer was whether a would-be infringer could claim have intervening rights under 35 U.S.C. §§ 252 and 307(b) if the scope of an non-amended claim was substantially changed during a reexamination.  The en banc Federal Circuit held that the a claim whose scope is narrowed-by-argument during a reexamination did not impact statutory intervening rights because the language of 307(b) focused the intervening rights only on a “amended or new claim.”  Because the claim was not actually amended, the law was not triggered.

In ArcelorMittal, we had a similar framework – in reissue the patentee expanded the scope of its non-amended independent claim based upon an a change to a dependent claim.  In its decision, the Federal Circuit found that the changed scope should be seen as a broadening of the original claim — triggering the prohibition against a broadened reissue (more than two years after the original patent issuance).

The difference between these two cases seems to primarily stem from the statutory language — the reissue statute and broadening doctrine seemingly do not require an “amendment” in order to be triggered while the intervening rights statute does. (I should note that this distinction is on somewhat shaky grounds).

The new inter partes review statute appears to closely follow that of the reexamination statute — indicating that intervening rights will stem from an “amended or new claim.”  The statute also provides that amendments “may not enlarge the scope of the claims of the patent.” 35 U.S.C. § 316.  The one question left unclear is the impact of broadening-through-claim-construction during the inter partes review.

PTO vs the Courts

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Automated Merchandising v. Michelle Lee raises yet another separation of powers issue between the courts and the patent office.  Originally AMS sued Crane for infringing its U.S. Patent Nos. 6,384,402, 6,794,634, 7,191,915, and 7,343,220.  In response, Crane filed (pre-AIA) inter partes reexamination requests against the patents.  Then the lawsuit settled and the court issued a consent decree (final judgment) dismissing the case with prejudice and stating that the parties stipulate that the patent claims are valid.  AMS took that decree to the USPTO who refused to terminate the reexamination because the final judgment was not a “decision” on the merits of validity.  In response, AMS filed suit in the Eastern District of Virginia alleging violations of the Administrative Procedures Act (APA).  Section 704 of the APA provides for review of agency actions:

Agency action made reviewable by statute and final agency action for which there is no other adequate remedy in a court are subject to judicial review.

However, the statute is clear that a non-final agency action is not reviewable.

According to the court’s judgment here the PTO’s refusal-to-terminate was an interlocutory order.  Even though the PTO originally identified it as “final,” that designation alone is insufficient to meet the final action requirement of the statute.  On remand, the inter partes review will continue and, if the patentee loses on the merits, may then have a chance to appeal the refusal-to-terminate.

This case adds further weight to the argument that we need a more comprehensive approach to the various pathways for enforcing and challenging patent rights.

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In B&B, the Supreme Court held that decisions by the PTO can have preclusive effect when the same issue is raised in a parallel litigation. In dicta, the court also indicated that preclusion also operates in the opposite direction — federal court decisions also have preclusive impact on PTO decision making.  B&B is focused on the doctrine of issue preclusion that is also known as collateral estoppel.

Because issue preclusion requires that the issue be actually litigated, it does not apply to the AMS. However, the parallel doctrine of claim preclusion (res judicata) may indeed apply – that doctrine typically applies when a second dispute involves a a prior final judgment of a claim sharing a “common nucleus of operative fact” and (roughly) identical parties.

A complicating factor here is that – as to inter partes reexaminations – the Patent Act had a particular statute that could be seen as redefining the scope of issue and claim preclusion for patent cases.

Once a final decision has been entered against a party in a civil action arising in whole or in part under section 1338 of title 28, that the party has not sustained its burden of proving the invalidity of any patent claim in suit . . . , then neither that party nor its privies may thereafter request an inter partes reexamination of any such patent claim on the basis of issues which that party or its privies raised or could have raised in such civil action . . . , and an inter partes reexamination requested by that party or its privies on the basis of such issues may not thereafter be maintained by the Office . . . .

35 U.S.C. 317(b).  The major question for this statute is whether it reflects an alteration of traditional rules of preclusion or instead offer an additional layer of preclusion when the traditional rules do not apply.

 

Interlocutory Appeal on Stay Decisions for CBM/PGR

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Intellectual Ventures v. JPMorgan (Fed. Cir. 2015)

IV has asserted a set of computer security patents against JPMorgan, some of which are directly related to electronic transactions.  Within a month of the civil action filing, JPMorgan responded by filing petitions for post-grant Covered-Business-Method (CBM) review of two of the five asserted patents.  JPMorgan then immediately requested a stay of litigation (noting that the patents-in-suit are also undergoing inter partes review proceedings).

The district court rejected JPMorgan’s stay request and the company filed this interlocutory appeal.  On appeal, however, the Federal Circuit has dismissed the case – finding that it does not (yet) have jurisdiction over the interlocutory case.

Section 18 of the America Invents Act provides a four factor test for determining whether to stay a civil action pending the outcome of a CBM transitional proceeding.

(A) whether a stay, or the denial thereof, will simplify the issues in question and streamline the trial;

(B) whether discovery is complete and whether a trial date has been set;

(C) whether a stay, or the denial thereof, would unduly prejudice the nonmoving party or present a clear tactical advantage for the moving party; and

(D) whether a stay, or the denial thereof, will reduce the burden of litigation on the parties and on the court.

The statute goes on to provide for “immediate interlocutory appeal” of a district court decision on the motion for stay that is related to a CBM Proceeding and that the Federal Circuit will review the decision de novo.  Of course, that provision is an exception to the normal rule that the appellate courts only have jurisdiction to review final judgments of the district courts. 28 U.S.C. § 1295(a)(1) (2012). And further, judgments on motions to stay are normally considered interlocutory orders that are not subject to immediate appeal.

CBM Petition is not a CBM Proceeding: As I said, the statute provides for immediate appeal of district court stay decisions relating to CBM proceedings. Here, the Federal Circuit made a thin but important distinction by noting that the filing of a CBM petition is not itself a CBM proceeding. Rather, the CBM review only becomes a “proceeding” once the petition is granted.  Truthfully, the statute is not entirely clear on this point, but the court cobbled together is conclusion by noting: (1) the statute indicates that that the process is begun with the filing of a “petition for a [CBM] proceeding” which indicates that “a petition is a request for a CBM[] proceeding, not that the petition itself is part of the proceeding.”  The statute then indicates that it is the USPTO Director who “may institute a [CBM] proceeding” — an event that occurs after the filing of the petition.

Because the statute provides for no immediate appeal pre-CBM-proceeding, the Federal Circuit dismissed the case for lack of appellate jurisdiction.

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In the big picture, this means that the challenger will likely still move for a stay immediately following the filing of a CBM/PGR, but if that is denied will need to renew that motion once the proceeding is initiated in order to create appellate jurisdiction. Meanwhile, the patentee may be looking to delay the petition decision and push the civil action more quickly in order to shift the balance of factors in its direction (toward denying the stay).

Supreme Court: TTAB Decisions Create Issue Preclusion for Later Litigation

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by Dennis Crouch

In B&B Hardware v. Hargis Indus. (2015), the U.S. Supreme Court involved a trademark opposition running in parallel with a trademark infringement lawsuit over the mark SEALTITE/SEALTIGHT.  The general holding is that a final decision by the US Patent & Trademark Office’s Trademark Trial and Appeal Board (TTAB) can serve as issue preclusion to collaterally estop a court from re-judging already-decided issues.  The particular issue being precluded here is the likelihood-of-confusion between the two marks, and the Supreme Court held that the TTAB’s final decision on likelihood-of-confusion could preclude that issue from being later litigated in the collateral action between the parties.

A court should give preclusive effect to TTAB decisions if the ordinary elements of issue preclusion are met.

Here, the “ordinary elements” of issue preclusion are that “[w]hen an issue of fact or law is actually litigated and determined by a valid and final judgment, and the determination is essential to the judgment, the determination is conclusive in a subsequent action between the parties, whether on the same or a different claim.” Restatement (Second) of Judgments §27.

In its decision, the Supreme Court recognized (1) that the TTAB is an administrative agency and not an Article III court; (2) that a right to a jury trial would exist in the infringement action absent preclusion; (3) that the details and procedures associated with the TTAB judging likelihood-of-confusion were somewhat different (but not fundamentally different) than that applied in the 8th Circuit; and (4) that – had the TTAB decision been challenged – it was not appealed.

And it is undisputed that a civil action in district court would entail de novo review of the TTAB’s decision. Ante, at 5.

Going forward, the court is clear that many TTAB decisions will not have preclusive effective — but that is because they fail the ordinary elements of preclusion and not simply because the TTAB is an administrative agency or because the TTAB usually decides cases in a certain way.

The 7-2 decision was penned by Justice Alito with a concurring opinion by Justice Ginsburg.  Justice Thomas wrote in dissent and was joined by Justice Scalia.  The dissent argued that the court should not simply presume that Congress intended agency decision to have preclusive effect.

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For patent attorneys, the case will have an obvious impact on the interplay between the Patent Trial and Appeal Board (PTAB) and parallel district court litigation.  The same reasoning that led the Supreme Court to its decision in B&B will apply equally with determinations made during inter partes and post grant review proceedings.  Importantly, issue preclusion applies to individual decisions of fact or law and thus may be important for sub-issues such as claim construction, scope and content of the prior art, level of skill in the art, etc.

Although B&B focused on traditional mutual issue preclusion, there is should also apply to defensive non-mutual issue preclusion that might arise when the defendant in an infringement action was not one of the parties in the IPR/PGR.

An important caveat: The Supreme Court recognized that issue preclusion won’t apply to agency decision when Congress so indicates. Here, there is an argument that the estoppel provisions in the IPR/PGR statutes suggest that Congress has opted out of the issue preclusion arena for these decisions.

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One of the most interesting lines from the opinion: “federal law does not create trademarks.” For that line, the court cited Trade-Mark Cases, 100 U. S. 82, 92 (1879) (“This exclusive right was not created by the act of Congress, and does not now depend upon it for its enforcement. The whole system of trade-mark property and the civil remedies for its protection existed long anterior to that act, and have remained in full force since its passage.”).

 

The Rewards From Effective Reform Could Be Great

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A group of 51 intellectual property scholars have submitted the following letter to Congress with the conclusion that “a large body of evidence . . . indicates that the net effect of patent litigation is to raise the cost of innovation and inhibit technological progress.” – Dennis

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To Members of the United States Congress:

We, the undersigned, are economics and legal scholars who study innovation, intellectual property law, and policy. We write to respond to lobbyists and others who claim there is little empirical evidence available to assess the performance of the American patent system. In fact, a large and increasing body of evidence indicates that the net effect of patent litigation is to raise the cost of innovation and inhibit technological progress, subverting the very purpose of the patent system. As members of Congress debate reforms to improve the patent system we hope they appreciate the failings of the current system, and implement salutary reforms.

Over the last five years, academic researchers have published over two dozen empirical studies on patent litigation and its economic impacts (see the attached bibliography for a selection). These studies have been conducted by researchers with diverse views and using different methodologies.

The preponderant economic picture these studies present is that patent litigation now imposes substantial costs, particularly on small and innovative firms, and that these costs have tended overall to reduce R&D, venture capital investment, and firm startups. Not one study of the economic impact of current patent litigation concludes that the effects are negligible.

The number of defendants in patent lawsuits filed in 2009 was five times the annual number during the 1980s. By most tallies, the majority of lawsuits are now filed by so-called “patent assertion entities” (PAEs), popularly known as patent trolls. Estimates based on surveys, on firm 10-K filings, and on stock prices suggest that PAE litigation has been costing firms tens of billions of dollars per year since 2007. Startups and venture-backed firms, especially, report significant operational impacts from PAE lawsuits in survey-based studies. An econometric analysis finds that the more R&D a firm performs, the more likely it is to be hit with a patent lawsuit, all else equal. Another study associates lawsuits from PAEs with a decline of billions of dollars of venture capital investment; another found that extensive lawsuits caused small firms to sharply reduce R&D spending; and yet another 2 found that costly lawsuits caused publicly listed defendant firms to substantially curtail R&D spending.

Although each of these studies has limitations and none is conclusive by itself, a consistent picture emerges: the patent system provides strong protection without excessive litigation in some sectors such as pharmaceuticals, but substantial evidence highlights serious problems with patent litigation in many other industries. Even if the patent system on the whole promotes innovation, it does so despite the social costs that result from this litigation, not because of it.

Congress, the courts, and the Patent and Trademark Office have all made changes in recent years that help mitigate this problem. The Inter Partes Review and Covered Business Method proceedings established by the America Invents Act of 2011 have helped remove hundreds of invalid patents, many already involved in litigation. Supreme Court decisions have strengthened patentability standards and have somewhat lowered the hurdles to feeshifting in patent cases. Perhaps as a result, patent lawsuit filings declined modestly last year from the record setting level of 2013. While month-to-month comparisons are variable, 18% fewer patent lawsuits were filed last year than in 2013.

Nevertheless, patent litigation rates remain at detrimentally high levels. Indeed, much of the empirical research mentioned above covers periods prior to the last several recordbreaking years for patent litigation. That is, the research demonstrates that patent lawsuits were already harming innovation when litigation rates were significantly below current levels. In this light we are not surprised that a growing chorus of high-tech entrepreneurs and state attorneys general has stepped forward to urge that the patent system should work for innovators and not against them. Though we understand that crafting and implementing effective reform will be difficult, we write to emphasize the rewards from effective reform could be great.

Sincerely,

Clark Asay (BYU); Carliss Baldwin (Harvard Business); James Bessen (BU); Jeremy Bock (Memphis); Michele Boldrin (Wash U Econ); Michael Burstein (Yeshiva); Andrew Chin (UNC); Lauren Cohen (Harvard Business); Wesley Cohen (Duke Business); Kevin Collins (Wash U); Jorge Contreras (Utah); Robert Cook-Deegan (Duke Public Policy); Ben Depoorter (Hastings); Samuel Ernst (Chapman); Robin Feldman (Hastings); Lee Fleming (Berkeley); Roger Ford (UNH); Brian Frye (Kentucky); William Gallagher (Golden Gate); Shubha Ghosh (Wisconsin); Eric Goldman (SCU); Umit Gurun (UT Dallas Business); Bronwyn Hall (Berkeley Econ); Christian Helmers (SCU Business); Joachim Henkel (Technische Business); Cynthia Ho (Loyola Chicago); Herbert Hovenkamp (Iowa); Ben Klemens (U.S. Census); Scott Kominers (Harvard Fellow); Amy Landers (Drexel); Mark Lemley (Stanford); David Levine (Wash U Econ); Yvette Liebesman (SLU); Brian Love (SCU); Phil Malone (Stanford); Michael Meurer (BU); Joseph Miller (Georgia); Ira Nathenson (St. Thomas); Jacob Rooksby (Duquesne); Pamela Samuelson (Berkeley); Sharon Sandeen (Hamline); F.M. Scherer (Harvard Gov’t); Roger Smeets (Rutgers Business); Talha Syed (Berkeley); Alexander Tabarrok (George Mason Econ); Toshiko Takenaka (UWash); John Turner (Georgia Econ); Ryan Vacca (Akron); Eric von Hippel (MIT Management); Jonathan Williams (Georgia Econ). 

Guest Post: Why Administrative Law Matters to Patent Attorneys—In re Cuozzo Speed Technologies LLC

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by David Boundy

Many patent attorneys—including me—went through law school thinking “Administrative law?  What do I care?”  Administrative law matters; it is as important to intra-PTO litigation and to Federal Circuit appeals as the Federal Rules of Civil Procedure are during district court proceedings.

Administrative law provides a rich set of tools to for a party to guide rational agency decision making while a proceeding is in progress, and to challenge adverse decisions on judicial review.  Administrative law tools can:

  • require the agency to follow its own regulations as written, without ad hoc “interpretation” or creation of on-the-fly rules,
  • require the agency to consider all relevant evidence and arguments,
  • establish jurisdiction for judicial review,
  • on judicial review, obtain favorable standards of review by slotting issues into exceptions to the high deference normally accorded agency action,
  • turn weak policy-based arguments into strong arguments based on statute and Supreme Court authority,
  • challenge the agency’s evidentiary and factual rulings on standards that are often far more favorable than the standard of review applied to Article III courts—indeed, the standard of review in some instances can be less deferential than the standard applicable to jury findings,
  • adduce new evidence on appeal,
  • limit the agency’s ability to wiggle out of a case by requesting remand, and instead force the issue to a binding judgment against the agency, and
  • confine the arguments that the agency can make to defend its action, and
  • require the agency to meet the requirements of the Administrative Procedure Act and other relevant laws when promulgating its regulations or guidelines.

Competence in administrative law is essential in complex patent prosecution, ex parte appeals, PTAB trials, and appeals to the Federal Circuit from PTO and ITC actions.

The Administrative Law Requires Courts to Accept Jurisdiction to Review Agency Non-Compliance with Their Own Regulations

For example, last Wednesday, the Federal Circuit in In re Cuozzo Speed Technologies, LLC ruled that the court has no jurisdiction to review decisions by the Patent Trial and Appeal Board (PTAB) whether to institute an Inter Partes Review (IPR). An argument based on administrative law would have established the Federal Circuit’s jurisdiction, but that argument was not raised.

The Federal Circuit’s holding was so broad as to oust the court of jurisdiction to review whether the PTAB’s decision was made on criteria contrary to statute or the regulations that the PTAB promulgated for itself.  The court read 35 U.S.C. § 314(b) so broadly as to insulate from judicial review all decisions to institute or not institute an IPR, in all circumstances.

But the administrative law requires a court to exercise jurisdiction to review agency compliance with the agency’s own regulations and guidance, and to set aside agency action issued “without observance of procedure required by law.”[1]  The Supreme Court has addressed the following fact pattern on about a dozen occasions.  An agency acts outside its procedures.  The aggrieved party sues.  The agency points to a statute that precludes review, and asks the court to deny jurisdiction on that basis.  In every such case, the Supreme Court holds that even if a statute purports to preclude review, jurisdiction remains to review the agency’s procedures, to assess whether the agency action was “without observance of procedure required by law.”  “Only in the rare—some say non-existent—case  … may review for ‘abuse’ be precluded.”[2]  The Court holds that preclusion statutes must be read narrowly, to preclude review only of the ultimate decision on the merits, leaving intact jurisdiction to review whether the agency departed from procedural requirements.  The Supreme Court has applied this principle to statutes even broader and clearer than § 314(b), and to government interests far more fundamental.  It is a very strong principle.

Had that administrative law argument been raised, the Federal Circuit would unquestionably have accepted jurisdiction in Cuozzo.

The Administrative Law Confines the Board’s Discretion to Deny Motions to Amend During IPR’s

Cuozzo’s brief argues that the Board erred in denying a motion to amend claims.   The argument cites no authority.  This argument could have been converted from a weak argument to a very strong one, by grounding it in the administrative law.

When an agency promulgates a regulation, it is required to explain the regulation in a Final Rule notice in the Federal Register.  Any gloss put on the regulation in that notice binds the public under Chevron[3] deference (though the many exceptions to Chevron are far less known).  This gloss is binding on the agency as well—an agency can’t twist its regulations like a nose of wax.  Nor can an agency move regulatory burden from one regulation to another, like a confidence man moving a pea from under one shell to another, by giving inconsistent rationales and interpretations for regulations.

In promulgating the IPR regulations, the PTO justified its choice of a “broadest reasonable interpretation” standard for claim construction by pointing to “a party’s ability to amend claims to avoid prior art—which exists in these proceedings (§ 42.221).”[4]  But the PTAB almost never grants these motions to amend.[5]  Thus, as a practical matter, the agency’s basis for adopting “broadest reasonable interpretation” is illusory.  The administrative law does not allow agencies to have things both ways—the PTO can’t both uniformly deny motions to amend and point to that “right” as justification for broadest reasonable interpretation.

The strong argument is based in administrative law.  While most “arbitrary and capricious” cases are hard, a few subcategories are easy.  PTAB decisions frequently raise issues that can be slotted into these easy subcategories for appeal.

The PTAB’s Trial Regulations Were Issued with Insufficient Attention to Rulemaking Procedure

Cuozzo also affirms the PTO’s choice of “broadest reasonable interpretation” as the standard for claim construction. However, the PTO’s “broadest reasonable interpretation” rule—like many of the PTO’s other regulations—is subject to challenge because the PTO was less than rigorous in following rulemaking procedure.

Agency rulemaking is governed by a number of statutes, including the Administrative Procedure Act, Regulatory Flexibility Act, Paperwork Reduction Act, Information Quality Act, E-Government Act of 2002, Independent Offices Appropriations Act, regulations on Information Collections, guidelines on Information Quality, and Executive Order 12,866.  These laws require specific procedures, disclosures, and analyses.  For example, they require an agency to disclose its assumptions, factual and statistical information and models and their underlying support on the agency’s web site.  The agency must ask specific questions to seek comment.  The agency must show cost-benefit analyses to asses effect on small entities and overall economic effect, and must show that the agency has sought to minimize (not just reduce, but minimize) paperwork burdens.  The agency must show its work, and provide supporting evidence, similar to that required for a peer-reviewed journal article.

The Paperwork Reduction Act is especially interesting, because it is little known and exceptionally powerful.  As you may recall, the PTO had to stand down on its Appeal regulation on the morning it was to go into effect because the Office of Management and Budget withheld the PTO’s power to enforce those regulations, after a number of letters pointed out PTO violations of the PRA.  (I had a little influence in that outcome.)  Likewise, OMB directed PTO to stand down on the Continuations, 5/25 Claims, and IDS regulations (I also had something to do with that).

During the rulemaking process for the PTO’s AIA regulations, several of the comment letters noted procedural deficiencies in the PTO’s Notices of Proposed Rulemaking and its supporting materials.  The letters warned that these deficiencies would expose the PTAB’s decisions to challenge because the PTAB’s regulations were not validly promulgated.  The oversights were not corrected before the final regulations were published.

Many PTAB decisions present winnable issues for appeal based on faulty procedure during rulemaking.  Cuozzo likely could have been such a case, but administrative law opportunities were missed.

Conclusion

Some administrative law statutes permit issues to be raised at any time, and such issues have been successfully raised for the first time in courts of appeals.  Unfortunately, in Cuozzo, these administrative law arguments weren’t squarely raised.  The lesson of Cuozzo is that patent attorneys—especially those that practice in contested cases before the PTAB and in appeals to the Federal Circuit—need to know the administrative law as well as they know the patent law.

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David Boundy is a patent attorney in Cambridge Massachusetts, specializing at the intersection of administrative law and patent law.  While Vice President for Intellectual Property at Cantor Fitzgerald, in 2006-10 Mr. Boundy led teams that advocated with the Office of Management and Budget in the Executive Office of the President for the withdrawal by the PTO of the Continuations, 5/25 Claims, IDS, and Appeal rules.  Mr. Boundy consults and provides legal services on administrative law issues for intra-PTO trials and judicial review cases.

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[1] 5 U.S.C. § 706(2)(D).

[2] Bowen v. Michigan Academy of Family Physicians, 476 U.S. 667, 672 n.3 (1986)

[3] Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984).

[4]  Patent and Trademark Office, Changes to Implement Inter Partes Review Proceedings, Post-Grant Review Proceedings, and Transitional Program for Covered Business Method Patents; Final Rule, 77 Fed. Reg. 48680, 48693 (Aug. 14, 2012).

[5] Richard Neifeld, “Kill Rate of the Patent Death Squad, and the Elusory Right to Amend in Post-Grant Reviews,” Intellectual Property Today, (April 2014), at http://www.neifeld.com/pubs/Kill%20Rate%20of%20the%20Patent%20Death%20Squad%20-%20Part%20I.pdf

Patentee Loses First IPR Appeal on all Grounds

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by Dennis Crouch

The America Invents Act (AIA) was a major rewriting of U.S. patent law, but the statute includes a number of new provisions that need some amount of court interpretation.  Although the law is now 3 1/2 years old, cases involving the new provisions are only now reaching the courts.

The Federal Circuit’s decision of In re Cuozzo Speed Tech (Fed. Cir. 2015), is important as the first appeal of a written decision stemming from the new inter partes review proceedings.  Over 2000 IPR/CBM/PGR petitions have been filed during this time and so we can expect this to be the first appeal of many.  Garmin filed the IPR challenging Cuozzo’s navigation patent claims as obvious. See IPR 2012-00001; U.S. Patent No. 6,778,074.  The basic idea behind the invention is to link GPS navigators with a database of legal speed limits and provide driver colored speedometer warnings.

In its review, the Patent Trial and Appeal Board (PTAB) held trial and ruled that the challenged claims (10, 14, and 17) were unpatentable as obvious as compared to a set of prior art references.

On appeal, the Federal Circuit has affirmed with the following primary holdings:

  1. Under 35 U.S.C. 314(d), the Federal Circuit has no jurisdiction to consider whether the IPR was properly instituted. However, the court suggested that a mandamus action could potentially be available if the PTAB “clearly and indisputably exceeded its authority” in instituting an IPR.
  2. When conducting an IPR, the USPTO properly determined that claims-at-issue should be construed according to their broadest-reasonable-interpretation.  The appellate panel found that BRI is likely the correct standard and that regardless, the USPTO had been given substantial rulemaking authority in this area.
  3. Teva v. Sandoz altered the court’s approach to reviewing a PTO claim construction. In particular, under the new rule, factual conclusions concerning extrinsic evidence considered by the USPTO are reviewed for substantial evidence. However, because was no extrinsic evidence considered, this statement could be seen as mere dicta.
  4. The obviousness determination was appropriate and, in particular, the combination of references made sense because  “[a]pplying modern electronics to older mechanical devices has been commonplace in recent years.” quoting Leapfrog Enters., Inc. v. Fisher-Price, Inc., 485 F.3d 1157, 1161 (Fed. Cir. 2007). Further, it was fine for the PTO to rely upon prior art not identified in teh petition.
  5. Finally, the PTAB did not err in denying Cuozzo leave to amend its claims in a way that enlarged the scope of the patent – since the statute bars broadening amendments in IPRs. 35 U.S.C. 316(d)(3).

Writing in dissent, Judge Newman argued (1) that the claim construction in IPRs should be the same as that in district court; and (2) that the patent owner should be allowed to appeal PTAB decisions, including the decision to institute an IPR.

A Constitutional Challenge to Inter Partes Review

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by Dennis Crouch

The America Invents Act (AIA) created a set of new administrative review procedures (IPR, PGR, CPR) that allow third-parties to challenge already issued patents.  This new approach takes a power that was previously held by courts and gives it instead to the USPTO. From a separation-of-powers perspective, the new law shifts power from the Article III courts in favor of the Article I executive-controlled agency.

After losing on the merits of the inter partes review brought by HP, patentee MCM has now appealed to the Federal Circuit — asking the court to find the inter partes review statute unconstitutional for violation of the Seventh Amendment right to a jury trial.

Question Presented:

Whether actions to cancel or revoke a patent must be tried in Article III Courts with access to a jury under the Seventh Amendment to the United States Constitution.

Ned Heller, author of the brief, reaches back to Marbury v. Madison, 5 U.S. 137 (1803), for the standard and accepted principle that “the question whether a property right may be revoked lies within the exclusive province of the Courts.” In 1893 the court explained further that:

The only authority competent to set a patent aside, or to annul it, or to correct it for any reason whatever, is vested in the courts of the United States, and not in the department which issued the patent.

McCormick Harvesting Machine Co. v. Aultman, 169 U.S. 606 (1898).

The largest hurdle for MCM is that the Federal Circuit decided the parallel issue with regard to reexaminations in Patlex Corp. v. Mossinghoff, 758 F.2d 594 (Fed. Cir. 1985). In Patlex, the Federal Circuit found that rexaminations did not violate Seventh Amendment.  In response, MCM argues (1) Patlex is wrongly decided; and (2) Patlex was effectively overruled by the Supreme Court in Stern v. Marshall, 564 U.S. 2 (2011) (although bankruptcy judge had statutory authority, it lacked Constitutional authority).

Notes:

  • Read the Brief: MCMBrief
  • In the Alternative: MCM also argues its case on the merits of obviousness and that the case is time–barred under 35 U.S.C. 315(b) since one of HP’s affiliates (Pandigital) was served with an infringement complaint more than one year before the IPR request was filed. Thus, it is possible that the court will rule in MCM’s favor without reaching the Constitutional question.
  • The patent at issue is US Patent No. 7,162,549 that broadly claims a controller chip for interfacing with a flash memory card used in many devices, such as digital photo frames.  More than 100 companies have been sued for infringement over the past six years, but no court has yet found the claims invalid.

 

Obviousness: Cannot modify Prior Art a way that Disrupts the Reference’s Contribution to the Art

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by Dennis Crouch

Plas-Pak Indus v Sulzer Mixpac (Fed. Cir. 2015) (non-precedential)

In 2011, Plas-Pak requested an inter partes reexamination of Sulzer’s paint-mixing Patent No. 7,815,384.  After considering the prior art, the examiner refused to issue the proposed obviousness rejection and that determination was affirmed by the PTAB. The proposed obviousness rejection involved two prior patents: Fukuta and Morris (inter alia).  Although the two references taught all of the Sulzer claim limitations the USPTO found that it would be improper to combine the references in an obviousness rejection.  In particular, the PTO found that the central feature of Fukuta involved the prevention of back-flow and the proposed combination with Morris would eliminate that core feature.  That required “substantial reconstruction” that so greatly impacts the “principle of operation” led to the Board’s conclusion that the combination would not have been obvious to one of ordinary skill in the art.

In most cases USPTO does not appeal an adverse PTAB decision. Here, however, the third party requester has appellate standing.

Under the rules of administrative procedure, factual findings made by the PTAB are reviewed by the Federal Circuit for “substantial evidence.” Under that low standard, the Federal Circuit will affirm factual conclusions so long as the evidence is sufficient such that “a reasonable mind might accept” that the conclusion is supported by the evidence.  Legal conclusions, on the other hand, are reviewed de novo by the Federal Circuit.

As with many areas of patent law, obviousness involves mixed questions of law and fact. On point here, questions of fact include (1) what a reference teaches; and (2) whether a proposed combination of references would impact a reference’s “principle of operation” while the ultimate conclusion as to whether an invention is obvious is seen as a question of law.  Of course another fundamental question of law is interpretation of the statute and precedent.

At first cut, the Federal Circuit appeared to follow these rules of review and gave deference to the PTAB’s principle of operation ruling. And, as a consequence affirmed the refusal to reject.

I see some error in the Federal Circuit’s approach.  In particular, the challenger’s argument here was not simply that the PTAB erred in reading the prior art to discover its principle of operation.  Rather, Plas-Pak argued that the PTAB erred by ruling that a prior art’s principle of operation should be limited to its innovative contribution to the art.  That general question of “how do we define a principle of operation” is a question of law and should be reviewed de novo by the court.  In its brief, Plas-Pak argued this particular point – that the appeal is focused on whether the Board applied the correct legal definition of a “principle of operation” — particularly “that a reference’s principle of operation is not equivalent or limited to its alleged contribution to the art.”

The decision here was authored by Judge Lourie and joined by Judges Moore and Reyna. However, because it was non-precedential, the standard operating procedures of the Federal Circuit do not require that it be first distributed to the other appellate judges prior to release.

Upcoming Conferences and Workshops

Patent, , , , , , ,
By Jason Rantanen
Three upcoming conferences that may be of interest to readers:
This Friday and Saturday, January 16 and 17, the University of San Diego School of Law’s Center for Intellectual Property Law & Markets is holding its 5th Annual Patent Law Conference.  This year’s topic is “Patent Invalidity after the America Invents Act.”  Speakers include Judges Bencivengo, Bartick & Chen.  I attended last year as part of PatCon and thought it was a great event.  More details here: http://www.sandiego.edu/law/centers/ciplm/detail.php?_focus=49377#overview
Hal Wegner’s 3rd Annual Naples Patent Law Experts Conference will be held February 9 and 10.   This beachfront Conference in Naples, Florida, will involve  an interactive discussion by more than thirty faculty members.  Topics to be covered include recent and pending Supreme Court patent law decisions, potential legislative activity, issues of international law, and more. Further information from the sponsoring organization, the University of Akron, is available here: http://www.uakron.edu/law/ip/naples-midwinter.dot
On March 5-6, Don Chisum and Janice Mueller will conduct a two-day patent roundtable seminar.  The program is limited to a total of ten participants to maximize opportunities for interactive discussion and debate.  All sessions are led by treatise authors and educators Don Chisum and Janice Mueller. Coverage focuses on recent significant patent decisions of the Federal Circuit and U.S. Supreme Court. Topics currently planned for discussion include:
  • The Supreme Court’s Alice Corp. decision on patent-eligible subject matter and subsequent Federal Circuit decisions applying Alice; 
  • The Supreme Court’s grant of certiorari in Commil USA concerning the intent requirement for inducing infringement;
  • The Supreme Court’s grant of certiorari in Kimble v. Marvel concerning the propriety of post-patent expiration royalties;
  • The Supreme Court’s pending decision in Teva v. Sandoz on review of patent claim construction;
  • The Federal Circuit’s grant of en banc review in SCA Hygiene to determine whether the Supreme Court’s Petrella decision changed the law of laches as a defense to patent infringement;
  • Patent Practice Gone Wrong: Lessons from Patent Malpractice, Exceptional Case and Rule 11 Sanctions, and Inequitable Conduct Cases;
  • Patent Claim Construction and Definiteness in the Wake of Nautilus (and Anticipating Teva); and
  • Inter Partes Review: Two-Year Snapshot and Lessons from Case Studies.
No advance preparation is expected or required. The Supreme Court of Ohio Commission on Continuing Legal Education has approved the seminar for 12.0 hours of CLE instruction. For additional details on the venue, topics, and registration form, see http://chisum-patent-academy.com/upcoming-patent-law-seminars/advanced-patent-law-seminars-cincinnati-oh/ or e-mail info@chisum.com.

 

Patent Cases Pending as of January 1, 2015

Patent, ,

By Jason Rantanen

In November, I wrote about a decline in patent suits pending in district court.  Using Lex Machina, I recently put together an updated set of data that includes patent cases pending as of December 1 and January 1.  The figure below shows a continued drop in cases through November, followed by no real change in December.   The lack of movement for December is the result of a modest increase in new case filings and a substantial drop in terminations relative to the previous month.  (Keep in mind that the underlying data is highly dynamic: in December, for example, there were about 380 new case filings and about 400 terminations of existing cases.)

Pending Patent Cases 1-1-2015

Some folks have asked about the effect of co-pending PTO proceedings.  Lex Machina doesn’t presently offer a way to easily determine whether a proceeding is stayed pending an administrative proceeding at the PTO, so I can’t directly count these stays in the graph.  But my intuition is that they aren’t going to make an enormous difference.  Love & Ambwani report that between September 2012 and September 2014, courts granted litigation stays in 140 suits where there was a co-pending instituted inter partes review.  For comparison, the drop in pending I just don’t see these stays making a significant impact on the above graph regardless of whether they are counted as open cases or terminated cases.

Thanks to my research assistant, Alex Lodge, for collecting the data for the above chart. 

Comment policy: At the suggestion of a few folks, I will try an active moderation policy on this post.  Posts containing name calling, character attacks, or an unnecessarily aggressive tone will be deleted, as will excessive commenting.

Looking at Inter Partes Reviews

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Since the new procedure launched in 2011, third parties have filed more than two thousand requests for Inter Partes Review.

IPR Filings

In their new University of Chicago Law Review essay, Professor Brian Love and Shawn Ambwani explore some of the results from these past two years. See Inter Partes Review: An Early Look at the Numbers, 81 U Chi L Rev Dialogue 93 (2014) [Essay].

Love, who tends to favor a strong post-issuance review regime, suggests that (based upon the initial numbers) the regime is doing its job:

Though it would be premature to make sweeping claims about IPR at this time, so far IPR appears to be a powerful shield for those accused of patent infringement (and those who anticipate that they may soon be). Compared to requests for inter partes reexamination, petitions for IPR are currently granted at a similar rate, but once instituted, they result in the elimination of every challenged claim about twice as often, reach a final decision almost twice as quickly, and make accused infringers almost twice as likely to win motions to stay co-pending litigation. In its attempt to create a formidable avenue for administratively challenging issued patents, Congress appears to have hit the mark—but only time will tell for sure.

Looking particularly at NPEs, the article reports that IPR-challenges of patents being elsewhere asserted by NPE are more likely to be instituted (as compared with the population), but less likely to result in cancellation of claims.

Over the next year, the number of results will grow tremendously and we will have a better understanding of the process and its merits. In addition, I suspect that the results will vary over time as Office hones its approach and the composition and leadership of the PTAB changes.

 

Pending Patent Cases in Decline

Patent,

By Jason Rantanen

Over the past few months, I have heard numerous comments from folks about the perception that patents – or at least, enforcement of patents – is in decline.  Major substantive decisions by the Supreme Court – in Mayo, Alice, Nautilus, and Octane Fitness – have provided new tools for patent challengers to draw upon in infringement suits, and inter partes review has become an almost automatic procedure.   So far, the empirical evidence has supported this perception.  Last month, Dennis wrote about Lex Machina recent report on numbers of new patent case filings, which revealed a substantial drop in patent case filings over the past few months and a 40% decrease in numbers of filings in September 2014 as compared to September 2013.  Edit: yesterday Brian Howard of Lex Machina posted an update with October data showing a slight uptick over September.

Case filings tend to be highly stochastic, however, and a case that’s filed one day could be terminated the next or live on for quite a while.  To take another look at the state of patent litigation, I wanted to see whether there are changes in numbers of pending cases.  If cases are terminating faster than new cases are being filed, then the number of pending cases would drop.  On the other hand, if despite the drop in new filings the termination rate is also down, then the number of pending cases would remain stable or even go up.  My methodology is at the end of this post, but the bottom line is that the below chart reports the number of patent cases that are pending as of the first of each month using Lex Machina as my database.

Patent Cases PendingThe below chart shows the deltas from the above chart; in other words, how big the positive or negative change was from the previous month.

Pending Case DeltasThese charts are consistent with the conclusion that the number of patent litigations is indeed in a declining state, although it’s worth observing that the number of pending cases is still well above what it was as of October 2010.  Of course, one important piece of context is the anti-joinder provisions of the AIA, which led to at least some of the increase after September 2011.  If anyone has ideas for parsing these out (short of manual review), I’d be interested in hearing them. And this data doesn’t tell us anything about the quality of the patent litigation.

In addition to the decline in pending cases, I also thought it would be interesting to consider these numbers in contrast with the numbers of new applications, which, as the below chart indicates, do not exhibit a similar decline.  (Note that I set the vertical axis to start at 20,000 in order to improve readability).  One explanation is that it takes longer to shift out of application filing mode than it does to shut down a litigation.  That said, it’s also possible that companies continue to file patents based on the belief that patent law is like a pendulum and perhaps it will swing back in the other direction.  A third possibility is that the real value of patents lies not in their enforcement value, but in other areas: in signalling, in incentivizing employees, or in defensive publication. Apps

Methodology: For the first two charts, go to the “Cases” tab on Lex Machina.  Select “Patent” under “Case Type.”  Under “Filed On,” choose FROM 2000-01-01 TO YEAR-MONTH-01.  Run the search on a monthly basis (i.e.: as of the first of the month).  In addition, run a second search adding the TERMINATED “TO” field using the same YEAR-MONTH-01 dates.  Record those numbers as well.  To obtain the numbers of open cases as of each date, subtract the “Terminated” cases from the cases filed to that date.

For the second charts, the data is obtained from the Patent Dashboard (which appears to be very unstable at the present time and works only intermittently for me).  I used the downloadable excel file.  Also, as Chris Cotropia pointed out to me, pure continuations are included in the “new application” portion, and these are more like RCEs than new applications, or divisionals or CIPs.

Thanks to my research assistant, Alex Lodge, for help in collecting the Lex Machina data.

Edit: Anon observed that RCEs looked fairly constant and asked about a flipped graph.  Here is the graph with RCEs on the bottom. RCEs on bottom

The New Role for Post Grant Review Proceedings (PGR)

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by Dennis Crouch

It has now been just over 18-months since we started filing patent applications under the new first-to-file patent system mandated by the America Invents Act (AIA) of 2011.  And, slowly but surely, FTF patents are now beginning to issue.  Those new patents also bring us into a new era of Post-Grant-Review-Proceedings (PGR).

My expectation is that PGR will quickly prove itself as an incredibly powerful tool for challenging patents. Importantly, PGR proceedings allow a third party to challenge the validity of a patent on any of the validity grounds that could be raised in court as a defense under 35 U.S.C. 282 – these include novelty, obviousness, written description, enablement, indefiniteness, utility, and subject matter eligibility. This list represents a major expansion of challenge-justifications over inter partes review (IPR) proceedings or reexaminations. These same doctrines have already been available for covered-business-method review (CBM) proceedings and have been used successfully if only on a narrow class of patents (those covering financial business methods).

Two recent PGR proceedings have been filed.  In one case, LaRose Indus. has challenged Patent No. 8,684,420 that covers the popular children’s “Rainbow Loom.”  Although the patent claims a 2010 priority date, the particular application was filed as a continuation in July 2013 and, at least according to the petitioner, added new mater to the claims at that point.  The second case PGR case involves Patent No. 8,598,291 that covers a liquid formulation of a particular nausea control drug used by chemotherapy patients. The petition argues that the claims fail the requirements of written description, enablement, and definiteness.

The most important limitation on the PGR process is the relatively short 9-month window for filing a PGR petition. Namely, the petition must be filed within 9-months of the patent issuance.  This puts some pressure on parties to monitor competitor patents and patent families.  It also provides patent owners at least some incentive to hold-off asserting their patent until after that window has closed (unless the patentee would welcome the review).  I suspect that the set-up in the LaRose Rainbow Loom market will be fairly common. The patentee (Choon) had previously sued LaRose on a previous patent and so LaRose has been closely monitoring the continuation applications.

= = = = =

In thinking about how soon the AIA cases will come on-board, I created the chart below. The chart provides some information on the timing of patent issuance — showing the percentage of patents issued with 18-months of filing and 36-months of filing respectively.  A big caveat for this particular chart is that it looks at the actual application filing date and does not consider the priority date that will typically control whether a patent will be examined under the AIA. Thus, even at the three-year date (March 2015), I would expect that significantly less than half of the recently issued patents would be FTF patents.

You’ll note the trend beginning in FY2011 of issuing more patents more quickly.  I largely attribute the change to two initiatives pushed by David Kappos during his term as PTO Director that resulted in (1) more funding to hire more examiners; and (2) a greater allowance rate.  Those factors have continued through the succeeding interim leadership terms of Terry Rea, Peggy Focarino, and now  Michelle Lee.

TimingOfPatentIssuance

Update: Using IPR to Manipulate the Stock Price of Patentees Which Won in District Court

Ethics, Patent, , , ,

The creativity of American lawyers never ceases to amaze.  I’ve heard of variations on this theme:  using an IPR to coerce payment, a license, or something from the patentee.  Variation on the theme:

A third party sees that a patentee has won a big judgment, defending its patent against a charge of invalidity.  The third party then cobbles together an IPR petition based upon the arguments that failed in the district court, relying upon the lower burden of proof and broader claim construction that will apply in IPR, and sends it to the patentee with a note:  “pay us or we’ll file this.”  This was discussed a few months back here.

A third party uses IPR as a tool to manipulate stock price:  sell the stock short and then file the IPR.  Or, it sees the patentee is in litigation and says, “give us a license (which we’ll turn around and use to license the defendants) or we’ll file an IPR.”  A story about that allegedly happening is here.

Gotta love America.

The ethics of this are fascinating:  it may be that the OED could be brought in to show that the IPR was filed for an improper purpose and nip it in the bud.  But that’s probably a long shot, given the right to petition and what-not.  Perhaps Congress limiting standing in IPRs to competitors?  It’s too early for me to think in depth about a creative solution to this creative problem.

What would you ask a District Judge?

Patent, ,

By Jason Rantanen

On Friday, October 3, I will be moderating a panel of three district court judges at the Iowa Intellectual Property Law Association annual conference.  This gives me a great opportunity to seek the collective wisdom of the new, higher quality commenting section!  So if there’s a question that you’re dying to pose to a typical district court judge about intellectual property law, or even practice before the court generally, I’d love to hear it.

Other speakers at the conference include: Tom Irving of Finnegan on Section 101 and 112 issues, Chris McKee of Banner and Witcoff on inter partes review, Alan Datri of the Office of the Deputy Director General at WIPO on the International Design System, Jim Voegeli, Assistant Chief Intellectual Property Counsel at 3M on trademark policing programs, and John White of PLI and Berepato & White on post-AIA Sections 102 and 103 at the PTAB.

More information available here: http://www.iipla.com/announcements/2014-annual-conference-registration

Accelerating ex parte PTAB Appeals: For a Fee

Patent,

By Dennis Crouch

The Patent Trial and Appeal Board (PTAB) is burdened with a statutory mandate to quickly reach final determination in its post-issuance review trials. To meet that requirement, the PTAB has put tremendous resources into its trial teams to ensure sufficient bandwidth to handle the hundreds of inter partes trials. At the same time, a 25,000 case backlog of pending ex parte appeals persists at the Patent Trial and Appeal Board.  Those cases do not have as clear of a statutory-mandate for rapid processing and, as a result, have clearly languished as the Board developed its post-issuance review trial program with most cases now waiting more than three years for a decision from the Board. (Notice-of-Appeal to Board Decision).  Rather than dealing with its poor statistics, the PTAB appears to have simply stopped publishing them.

For many patent applicants (though certainly not all), the appeal delay is costly because it extends a period of ambiguity and it delays issuance of the patent rights.  Certainly, the vast majority of long-pendency patent applications (those that issue more than 7 years after filing) spent considerable time in the appeal queue awaiting a reversal of an examiner rejection. Those late-issued patents have the potentially of being disruptive to marketplaces that have developed and grown in the absence of an issued patent.

A few months ago, I conducted what I called a “10-second”survey on Patently-O regarding the potential market for accelerated PTAB decisions in ex parte cases.  I asked:

Would you pay an extra $5,000 for accelerated PTAB decisions in ex parte cases that issue[] within nine months rather than waiting the standard 2 1/2 years?

I should note that the 2 ½ year figure had increased. The results are instructive and somewhat fit the model seen with the $4,000 fee for prioritized “track one” examination, although the market for accelerated appeals seems somewhat greater.  The vast majority of the 614 responses indicated that they would use the fast track in at least some cases – with most indicating that the fast track would be used in >5% of cases.

AcceleratedAppeals

Although not any final word on the market for accelerated appeals, the chart is indicative of a demand for accelerated appeals.  And, although not a solution to the docket problem, acceleration of a subset of appeals offers the potential of alieviating the most some of the more pointed needs.

I should note here that a subset of accelerated examination cases (“made special”) are also accelerated when pending before the PTAB. However, those do not include prioritized examination cases under the pay-for-speed program.  I do not have any statistics on how that acceleration impacts the timing of appeals.

Myriad Patents Now Challenged at the PTO

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Myriad v. Gene Dx, Inc.

In 2013, the US Supreme Court invalidated Myriad’s patent claims covering isolated DNA coding for the cancer causing BRCA1/BRCA2 by ruling that those isolated genes were unpatentable products of nature. However, the Supreme Court also ruled that the ‘created’ cDNA versions of the genes were patent eligible – or at least not excluded by the product-of-nature exception to subject matter eligibility.

Following that decision, a number of companies indicated that they would enter the market and begin BRCA1/BRCA2 diagnostic genetic testing in violation of the patents. Myriad responded aggressively by filing lawsuits against several companies, including Gene Dx for patent infringement. The case against Gene DX alleges infringement of sixteen different Myriad patents and is still pending in Federal Court in Utah where the parties have jointly agreed that settlement prospects are “low.” The case has been centralized before a multidistrict panel that is handling parallel cases against Gene DX, Quest Diagnostics, Ambry, and Counsyl.

In a bold move, Gene DX has now filed a set of inter partes review (IPR) requests – challenging 11 of the Myriad (or Myriad Licensed) patents. I should note, these challenged patents are different from the ones ruled-upon by the Supreme Court. In the IPR regime, patents can only be challenged on prior art grounds. Here, each of these patents have been challenged on either 103 (obviousness) or 102 (novelty) grounds.

Federal Circuit Orders District Court to Stay Litigation to Await Conclusion of Later-Filed Post-Issuance Review (CBM) Proceeding

Patent, , , ,

By Dennis Crouch

VirtualAgility Inc., v. Salesforce.com, Dell, Dr. Pepper, et al. (Fed. Cir. 2014)

The America-Invents-Act (AIA) created set of new and powerful administrative proceedings that allow third parties to challenge issued patents. These include post-grant review (PGR), covered business method review (CBM), and inter partes review (IPR). Congress maintained the less-powerful but still important third-party requested ex parte reexamination. In the coming months, the Federal Circuit will be challenged with reviewing various aspects of the new proceedings. Perhaps most importantly, the court will be challenged with determining how much deference and leeway to give the USPTO in developing its own procedures and interpretation of the law.

Apart from the agency deference issue, a second major issue whose steam continues to build involves the rising number of conflicts between federal courts and the patent office. Traditionally, post-issuance challenges have been handled by the courts, but the new procedures have shifted the balance of power. It turns out that most patents involved in post-issuance administrative challenges are also involved in parallel challenges in federal district court. These parallel proceedings will often have somewhat different results, and many remain confused over the potential result of such a conflict. In the extreme, the issue raises constitutional questions of separation of powers between the executive (the PTO) and the courts.

One solution to the conflict is to have the decision-makers take turns and apply principles of estoppel, preclusion, and comity to resolve the delayed process in a way that avoids conflict with the first-decided case. The PTO has generally refused to stay its proceedings and many district court judges have difficulty ordering stays – especially in cases such as this where the review request is filed several months after the infringement lawsuit. It is important to recognize that post-issuance review requests are limited by law to only challenge issues that can also be challenged in court. Thus, for a judge, the post-issuance review request serves as a transparent statement that the defendant does not trust the judge or jury to make the call.

The Timeline Here: In January 2013, VA sued the defendants in the Eastern District of Texas, alleging infringement of its U.S. Patent No. 8,095,413. Five months later (May 2013) one of the defendants (Salesforce.Com) filed a covered business method review (CBM) petition alleging that that the claim of the patent were all invalid under Sections 101, 102, and 103 of the Patent Act. In November 2013, the PTAB partially granted the CBM petition and ordered review of the claims under Sections 101 and 102 (but not 103) and setting a July 2014 PTAB trial date with a final decision expected by November 2014. At that point, the district court was made-aware of the PTAB’s late-start but rapid progress. However, the district court refused to stay the litigation pending outcome of the PTAB case and continued moving forward with claim construction hearing set for April 2014 and trial also set for November 2014.

One aspect of the new CBM process is that the statute allows for interlocutory appeal of a district court’s decision to grant or deny a stay of litigation pending CBM review. Thus, after the district court refused to grant the stay, Salesforce appealed. The Federal Circuit quickly granted a stay of the district court litigation pending appeal and has now ordered that the district court to stay its proceedings pending the CBM review. The majority decision here is written by Judge Moore and joined by Judge Chen. Judge Newman wrote in dissent arguing that the decision here removes the discretion given to district courts.

The statute provides four factors that a district court must consider when determining whether or not to grant a stay of a late-filed CBM review.

[T]he court shall decide whether to enter a stay based on—

(A) whether a stay, or the denial thereof, will simplify the issues in question and streamline the trial;

(B) whether discovery is complete and whether a trial date has been set;

(C) whether a stay, or the denial thereof, would unduly prejudice the nonmoving party or present a clear tactical advantage for the moving party; and

(D) whether a stay, or the denial thereof, will reduce the burden of litigation on the parties and on the court.

AIA §18(b)(1). Regarding appeals, the statute indicates that the Federal Circuit’s “shall review the district court’s decision to ensure consistent application of established precedent, and such review may be de novo.” AIA §18(b)(2). Thus, Judge Newman’s call for deference is likely misplaced. For its part, the majority refused to determine whether any deference is required and instead held that reversal was warranted even under an abuse of discretion standard.

The result here provides a strong suggestion to district courts that they should stay litigation once the PTAB has indicated that it will review the identical claims being litigated in court.

Federal Circuit: In order to appeal USPTO post-grant decision, third party requestor must show “injury in fact”

Patent, ,

By Dennis Crouch

Consumer Watchdog v. WARF and USPTO (Fed. Cir. 2014)

The Patent Act provides for a variety of administrative review proceedings that can be filed by any third party wanting to challenge the validity of an issued patent. The statute also provides the third-party requester with a right to appeal any adverse judgment to the Court of Appeal for the Federal Circuit. Following these statutory guidelines, Consumer Watchdog requested review (inter partes reexamination) of WARF’s patents covering human embryonic stem cells. When the USPTO sided with WARF, Consumer Watchdog appealed. But Consumer Watchdog has a major problem with its appeal – standing. Consumer Watchdog is a public interest group who is not being directly impacted by WARFs patents other than the general indignity felt by all of us.

As the appeal was pending, the Supreme Court decided Already v. Nike and reminded courts that, under the Constitution, they only have power over actual cases and controversies. At Patently-O, we used that case as a springboard for questioning whether the statutory appellate authority was sufficient to satisfy the demands of the Constitution, and the Court immediately called for Consumer Watchdog and WARF to brief the question of standing.

Now, the Federal Circuit has dismissed the appeal – holding that Consumer Watchdog’s appeal cannot stand because the non-profit “has not established an injury in fact sufficient to confer Article III standing.” In essence, the court rules that the right of appeal granted by statute is unconstitutionally broad and the cure is to narrow the right in order to conform with Constitutional requirements of standing.

Regarding injury-in-fact, all parties agreed that the standing requirements mandate such injury. [T]he “requirement of injury in fact is a hard floor of Article III jurisdiction that cannot be removed by statute.” Summers v. Earth Island Inst., 555 U.S. 488 (2009). Consumer Watchdog argued that its injury was cemented and particularized after it filed for inter partes reexamination and had its case rejected by the USPTO. However, the Federal Circuit has rejected that argument:

Here, the Board’s disagreement with Consumer Watchdog did not invade any legal right conferred by the inter partes reexamination statute. The statute at issue here allowed any third party to request reexamination, and, where granted, allowed the third party to participate. The statute did not guarantee a particular outcome favorable to the requester. Consequently, the Board’s denial of Consumer Watchdog’s request did not invade any legal right conferred upon Consumer Watchdog.

For this reason, Consumer Watchdog’s analogy to the Freedom of Information Act (FOIA) and the Federal Election Campaign Act (FECA) are unpersuasive. These acts create substantive legal rights – access to certain government records – the denial of which inflicts a concrete and particularized injury in fact. . . [Here,] Consumer Watchdog was not denied anything to which it was entitled.

One result here is another set of USPTO actions for which there is no appeal.

Dan Ravicher is the key individual behind the Consumer Watchdog case. It was Ravicher who also pushed forward the Myriad case. In similar fashion, it appears to me that he has a good shot at having this case now heard by the Supreme Court.