Lechleiter: PTO improves adversarial procedures for challenging patents

April 22, 2015

By Dan Lechleiter

The U.S. Patent and Trademark Office issues thousands of patents each year – hundreds of thousands in recent years. It took just over 75 years for the PTO to grant the one-millionth patent in 1911. On April 7, 2015, the PTO issued U.S. Patent No. 9,000,000 just over 3 1/2 years after U.S. Patent No. 8,000,000. In the last 25 years, the PTO has experienced a 379-percent increase in patent applications filed annually and increased its examiner corps by 531 percent to accommodate the increase. In all likelihood, these numbers will only continue to grow.

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As the PTO issues more and more patents each year, inevitably many companies will find themselves named as defendants in patent-infringement litigation. Patents are an important part of our increasingly innovation-driven economy – they capture ideas in the form of property rights that can be monetized through licensing or litigation. And while the mere existence of a patent may be sufficient to deter some would-be infringers, only litigation permits true enforcement against the more recalcitrant.

Yet patent litigation is often extraordinarily expensive, typically costing anywhere from several hundred thousand to several million dollars. Once a patent case has been filed against you, it’s difficult to simply “get out of it” without incurring significant legal fees and, often, settlement expenses. Furthermore, invalidating a patent requires stronger, clear-and-convincing evidence than that required under the more-likely-than-not, preponderance-of-the-evidence standard used to prove infringement. All of this means that patent owners who take accused infringers to court typically go into the litigation with an edge, which often can be boiled down to economic leverage.

None of this is news to most patent holders, though. The business of patent litigation has boomed for much of the last decade, continuing relatively unabated even through the so-called “Great Recession” of 2007–2009. But with this boom came the recognition that some patent holders may be abusing the system, not necessarily just by using it too much, but rather by taking advantage of its inherent asymmetries to assert patents of questionable validity and extract nuisance-value settlements from accused infringers.

So, in 2011, Congress enacted the Leahy-Smith America Invents Act, the first comprehensive reform of U.S. patent law in nearly 60 years. According to the House of Representatives’ Final Report, the AIA addresses, at least in part, “a growing sense,” reflected in various judicial decisions, “that questionable patents are too easily obtained and are too difficult to challenge.” In the words of Sen. Patrick Leahy, the AIA establishes “a more efficient and streamlined patent system that will improve patent quality and limit unnecessary and counterproductive litigation costs.” In particular, as the House report notes, the AIA creates “a more efficient system for challenging patents that should not have issued.” A key aspect of this system is enhanced coordination between federal District courts and the PTO to reduce duplicated efforts and costs.

The AIA includes three new adversarial procedures for challenging patents within the PTO itself: inter partes review, or IPR; post-grant review, or PGR; and covered business method review, or CBMR. Each proceeding is heard by a panel of three technically trained administrative patent judges of the PTO’s Patent Trial and Appeal Board. The PTAB gives challenged patent claims their “broadest reasonable” interpretation – which can increase the chances that the claims will sweep in invalidating prior art – and finds patent claims invalid based on preponderance-of-the-evidence-like standards and not the more onerous clear-and-convincing standard. The losing party in any of these proceedings can appeal directly to the U.S. Court of Appeals for the Federal Circuit, which hears all appeals in patent cases nationwide. What’s more, if the party who initiates one of these proceedings, which typically last around 18 months, is also a defendant in concurrent infringement litigation, it can seek to stay the litigation while the PTAB proceeding plays out.

With limited exceptions, anyone who is not the owner of a patent can challenge the patent’s claims in an IPR based on prior art patents or printed publications. Someone who has been sued on the patent, however, has just one year to seek IPR after being served with the infringement complaint. Around six months after a patent challenger, or petitioner, files an IPR petition, the PTAB will institute an invalidity trial if it finds that “there is a reasonable likelihood that the petitioner would prevail” on at least one of the challenged claims. During the trial, both sides can submit evidence and argument, including expert testimony, in support of their positions. The patent owner can also attempt to amend challenged claims to avoid invalidity. Often the PTAB will hear arguments from the parties before issuing a final written decision, which it must do within 12 months after instituting the trial. Once the PTAB issues a final decision, the petitioner is estopped in subsequent PTAB or federal court proceedings from relying on any invalidity argument that it “raised or reasonably could have raised” during the IPR, which incentivizes petitioners to “take their best shot” at invalidating problematic claims.

PGR is similar to IPR in terms of who may challenge a patent, its overall procedures and its scope of estoppel, but PGR only may be used against patents filed on or after March 16, 2013. A challenger must file a PGR petition within nine months after the challenged patent issues.

Generally only someone who “has been sued for infringement of [a] patent or has been charged with infringement under that patent” can challenge the patent in a CBMR. In addition, a CBMR only can be used to challenge so-called covered business method patents – patents “for performing data processing or other operations used in the practice, administration, or management of a financial product or service.” The estoppel associated with a CBMR extends only to any invalidity argument that the petitioner actually raised during the CBMR.

Validity challenges in a PGR or CBMR can be based on prior art documents and other statutory grounds, such as claiming unpatentable subject matter, or having an insufficient written description or indefinite claims. Moreover, the standard for instituting a validity trial in a PGR or CBMR is different, but almost imperceptibly so, from that applied in an IPR: The petition must demonstrate “that it is more likely than not” that at least one of the challenged claims is “unpatentable.”

IPR, PGR and CBMR provide accused infringers with potent new tools to attack and eliminate patent claims of dubious validity. These proceedings will by no means eliminate patent litigation, or even abusive patent litigation, but in many ways they are becoming standard on, and helping to level, the playing field created by the PTO’s ever-increasing flow of newly issued patents and the asymmetries of traditional patent litigation.•


Dan Lechleiter is a partner in the intellectual property group of Faegre Baker Daniels LLP. His practice is focused on patent litigation, post-grant proceedings and counseling clients on avoiding and resolving patent-related disputes. The opinions expressed are those of the author.