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Patent reform law withstanding challenges

December 16, 2015

A battle between two tech companies put a key provision of the recent patent reform law on the firing line. But intellectual property attorneys were not surprised the patent holder attempted to knock out the administrative review process or that the attempt failed.

In early December, the Federal Circuit Court of Appeals upheld the constitutionality of the inter partes review process, which is similar to a trial, in MCM Portfolio LLC v. Hewlett-Packard Co., 15-1091. Congress established the review process as part of the comprehensive patent reform bill, Leahy-Smith America Invents Act, passed in 2011. The new system was heralded as providing a cheaper and faster way to examine the validity of patents.

Congress created the U.S. Patent and Trademark Office and authorized the agency to issue patents. Consequently, attorneys say it is hard to believe that the courts would find Capitol Hill stepped on the Constitution in trying to fix the patent system.

Hamilton Hamilton

“I think this was probably doomed (from the start) but I think (MCM Portfolio) did a pretty decent job of putting their best foot forward,” said Amy Hamilton, counsel at Faegre Baker Daniels LLP.

MCM found itself before an inter partes review panel in 2013 when Hewlett Packard Co. challenged four claims in MCM’s patent covering a mechanism for linking a computer with a flash memory storage system. After Hewlett Packard was successful in convincing the panel to toss all four claims, MCM appealed to the Federal Circuit Court of Appeals.

On appeal, MCM asserted the inter partes review process violates Article III and the Seventh Amendment of the U.S. Constitution. The tech company argued the Patent Trial and Appeal Board that carries out the review procedure does not have the authority to revoke a patent. The inter partes review oversteps because only a federal court can declare a patent invalid, the company claimed, and because it denies the right of a trial by jury.

The Federal Circuit Court of Appeals rejected both arguments. In a 20-page opinion, Judge Timothy Dyk pointed to precedent set by the Supreme Court of the United States as far back as the 19th century and the history of the patent process in finding the new review system did not violate the Constitution.

Michael Marston, a mechanical engineer and senior associate at Botkin & Hall LLP, said the decision makes perfect sense. The inter partes review provides a method for reversing decisions made by the patent office.

“If the review process was found to be unconstitutional,” Marston said, “then it would be difficult for the government to correct mistakes in granting patent rights that never should have been granted in the first place.”

Cheaper and faster

The inter partes review process is similar to a trial with briefing, limited discovery and use of experts, but it comes without the price tag of litigation. Even though the filing fees alone for an IPR can reach $15,000 or more, the cost of challenging the validity of a patent in district court can quickly swell to seven figures.

Moreover, while patent litigation can continue for years, the review process is held to a strict one-year deadline for examining the patent, hearing the arguments and issuing a decision.

According to the patent office, a total of 2,664 petitions for IPR were filed between September 2012 and March 2015. Decisions from the IPR typically do not cancel a patent outright but, as it did in MCM Portfolio, the review will limit the claims and narrow the scope of the patent.

Houdek Houdek

“It is definitely working in the sense that more high-tech issues of patent validity are being addressed by patent experts who have technical expertise,” said Jason A. Houdek, partner at Taft Stettinius & Hollister LLP.

From the inter partes review, the parties can appeal directly to the Federal Circuit. Hamilton, for one, said she is thankful the federal bench can review the decision of the patent office.

She noted her concern that the standard of proof for an IPR is “preponderance of evidence” rather than the higher bar of “clear and convincing evidence” in district court. And the experts at the patent office can get bogged down in the science and technology instead of looking closely at the law.

The patent office can be overbroad in issuing patents but the Federal Circuit serves as a balance, knocking out patents or reducing the claims. “In my view, they usually get it right,” Hamilton said of the Federal Circuit.

Teflon coating

In MCM Portfolio, the Federal Circuit held precedent from the U.S. Supreme Court underscores Congress has the authority to delegate to the patent office the power to issue and cancel patents. Therefore, it “would be odd indeed” if Congress did not have the ability to authorize the patent office to reconsider its own decisions.

The legislative body has long exercised this authority, the court noted, through the creation of review panels. It started with the ex parte re-examination proceeding in 1980 that led to the inter partes re-examination process in 1999 before arriving at the current inter partes review.

MCM’s argument that the IPR violated the company’s right to a trial by jury as guaranteed by the Seventh Amendment also was rejected by the Federal Circuit. The court ruled that patent rights are public rights and their validity can be reviewed by an administrative agency.

Other cases have challenged other sections of the patent reform law, most notably MadStad Engineering v. U.S. Patent and Trademark Office, 13-1511, -1512 (Fed. Cir. July 2014) which was the first attack on the first-to-file provision.

gallagher-douglas-mug Gallagher

However, like MCM Portfolio, the attempts so far have been unsuccessful. The Teflon coating that seemingly surrounds the America Invents Act is a reflection of the way Congress worked on the law, said Douglas Gallagher, partner at Bingham Greenebaum Doll LLP. The revamp of the patent system was crafted over a period of many years with the work on the law starting and stopping. This allowed Congress to get feedback and carefully consider the changes.

The resulting AIA is a “different way of doing business,” Gallagher said, “but nothing that flies in the face of sanity.”

IP attorneys anticipate that MCM will continue to push but they do not expect the company will be able to advance its arguments. It could request an en banc hearing from the Federal Circuit or petition for writ of certiorari with the Supreme Court.

Despite the difficulty to toppling parts of the America Invents Act, lawyers are confident more challenges to patent reform will be coming.

“I would never say this is the end because this is patent law and because there is so much money at stake people will always find things to fight about,” Hamilton said.•

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