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The Promise of Reexamination: Fulfilled or Fizzled?

2011 AIPLA Annual MeetingWashington, D.C.

September 22, 2011

Marc HubbardGardere Wynne

Sewell, LLP

Try, try again - will we finally succeed with inter partes

review?

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Friends, patent lawyers, countrymen, lend me your ears; I come to bury inter

partes reexamination, not to praise it.

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• Reexamination policy

• Reexamination not sufficiently used, and fails to meet basic policy goals

• Inter partes review —

• how does it work?

• does it address the problems with reexamination, particularly inter partes reexam

• what issues remains?

Overview

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• According to House report in 1980 ex parte reexamination was to be an alternative to litigation for both patent owners and challengers

• Better -- validity determined by “experts”

• Be far more efficient; resolved in a “fraction of the time”

• At greatly reduced cost

• Resulting in certainty about validity of patents, and stronger patents, which will promote investment

Policy circa 1980: better, faster, cheaper

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Initial interest fades

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1999/2003 fix in response to waning interest

• Inter partes added in 1999, and right to appeal for inter partes requester added in 2003, due to “infrequent” use

• Inter partes reexamination touted as —

• an inexpensive way, as compared to litigation,

• for a third party who discovers new prior art to challenge the patent, and then participate in both the examination and appeal stages of proceeding

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IP reexam was a dud as of 2005

• PTO’s 2005 Report to Congress:

• PTO projected 400 inter partes requests in 2000 and 600 per year by 2004

• Reality:

• None as of 2000

• Only 27 such requests had been filed by 2004

• Over the 5-year period studied by the USPTO, it issued 900,000 patents and received only 53 requests for inter partes reexamination

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Like fine wine ... IP reexam better with age?

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What happened?

• Realization that it actually offered a lot of advantages for third party

• Less costly than district court litigation

• “Broadest reasonable interpretation” given

• No presumption of validity

• Intervening rights in case of amendments, which are frequent

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Kill/Wound Rates

Ex Parte (3rd Ex Parte (3rd party)party)

Ex parte Ex parte (patent owner)(patent owner) Inter Partes*Inter Partes*

All claims All claims confirmedconfirmed 24% 21% 13%

All cancelledAll cancelled 13% 9% 44%

AmendedAmended 63% 70% 43%

*Based on only 278 certificates out of 1097 requests granted

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Reexam clearly not an alternative to litigation

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Not a policy success from a system point of view

• Inter partes reexamination is frequently not being used to resolve validity issues outside of litigation (71% with patents in litigation)

• Concurrent litigation stayed only 50-60% cases; courts expressing concern about delay at PTO

• Reexams are not, compared to district court litigation, fast (averaging about 3 years for inter partes; only 278/1097 completed; pendency increasing). The examination model and current rules not working.

• Thus, from system perspective, inefficient; waste of resources, higher costs for everyone; possibly inconsistent results

• Why have 2 procedures when one should do?

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Litigation tactic, not litigation substitute

• A gambit to stay litigation and/or to drive up costs for plaintiff

• PTO more receptive forum for certain invalidity arguments

• Second bite at the apple (ex parte only)

• Defendant might be able to force narrowing of claims and create intervening rights if cancellation effort not successful

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Why is reexamination not being used more?

• Procedural limitations (no discovery or cross-examination)

• Vitality of other defenses (narrow claim construction, written description, etc.)

• Defendants often succeed in litigation

• Win rates for patentees in contested actions average only 25%

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Third time the charm? Inter partes review

• House report on AIA sounds a familiar refrain:

• Inter partes review will “remove disincentives to the current administrative process” by providing “quick and cost effective alternative” to litigation

• “Reexamination proceedings are also often costly, taking several years to complete, and are first conducted by examiners and, if the patent is rejected, then by Patent Board judges. Thus, many patents must go through two rounds of administrative review (one by the examiner, and a second by the Patent Board) adding to the length of the proceeding.”

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Key points• All patents subject to review, starting September 16, 2012

• Grounds for seeking cancellation limited to 102/103 based on patents and printed publications

• Adjudicative proceeding; not an examination

• Burden on petitioner to demonstrate claim should be cancelled by preponderance of evidence

• Speed: Must be concluded within 1 year of grant of petition of petition for review; but may be extended by 6 months for “good cause.” Time periods may be adjusted in case other parties are joined.

• Decision on petition likely 4 to 6 months from filing, depending on time given to patent owners to respond to petition

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Basic procedure

• Conducted before3 APJs at PTAB; no internal appeal

• Limited discovery of experts submitting declarations, and “as otherwise necessary in the interest of justice”

• Substantial amount of discretion given to the Director on formulating regulations for conduct of proceeding

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The petition

• Petition for review must —

• Identify all real parties in interest

• Particularly identify each claim sought to be cancelled and grounds relied upon;

• Include evidence relied upon, including declarations and supporting evidence from experts

• Can only be filed after 1 year from the date of grant or after termination of any post-grant review

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Patent owner’s preliminary statement

• Patentee’s preliminary statement

• Optional

• Must be made within time limit set by Director

• Must explain why petition does not comply with any requirement of the chapter

• No statutory requirement for submitting evidence

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Institution

• May only authorize review if petition and the evidence submitted with it, and the preliminary statement of owner, if any, “shows a reasonable likelihood that the petitioner will prevail on canceling at least 1 of the claims challenged in the petition.”

• Must be decided within 3 months of patent owner’s preliminary statement or, if not filed, the last date on on which it was due

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Less likelihood of concurrent litigation

• 3rd party cannot petition if it has already filed suit

• Must file petition first, and then may file DJ

• 3rd party must petition for review within 1year of being sued for infringement

• DJ actions automatically stayed unless patent owners files counterclaim for infringement or requests lift

• Although courts still have unfettered discretion to proceed with action once stay lifted, likely would stay with assurance that review must be completed within 2 years

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What we know about conduct of review (details

await rules)• Patent owner will be required to file a response after review instituted, with evidence and declarations to be relied upon

• Petitioner will have at least 1 opportunity to file written comments

• Supplemental information may be permitted after institution

• Discovery must be limited to deposition of declarants/affiants and as otherwise “necessary in the interests of justice”

• Protective orders available for confidential information

• Either party has right to oral hearing

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Amendments

• Patentees must be given at least one opportunity to move to amend by proposing a “reasonable number” of substitute claims or canceling claims

• Additional motions to amend permitted upon joint request of parties that would materially “advance the proceeding”

• No standards given on granting motion

• Cannot broaden claim or introduce new matter

• No indication as to when patentee may exercise right

• Amendments subject to §252 intervening rights

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Settlements

• Review will be terminated with respect to a petitioner if (i) patent owner and petitioner so request and (ii) no determination on merits has been made

• No estoppel as to that petitioner

• If no petitioners left, Board may, at its option, terminate or continue to final decision

• Written settlement agreement must be filed, but will be treated as confidential upon request (but remains available to governmental agencies)

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Successful implementation should address systemic

problems• If implementation and execution are effective

• Courts more likely to stay due to guaranteed time periods for review and requirements for early institution

• Means that more parties likely to use review and reduces dual tracks and litigation abuse

• Will likely provide a reasonably effective, though limited, alternative to litigation

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Does it address 3rd party concerns?

• On balance, should be more appealing to 3rd parties

• But, estoppel remains, and has been extended, which may dampen interest

• All PTO proceedings (including ex parte)

• Any civil action under 28 USC §1338 and ITC

• But, attaches only upon “final determination” by the board

• Will higher threshold mean lower grant rate?

• Congress expects lower than current 95% in IP reexams

• Limited to paper prior art

• Limited scope of discovery

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Concerns for patent owners

• Being forced to defend a review when there is no intention of enforcing or licensing

• High cost of defending in a highly compressed time frame

• Discovery (higher costs)

• Use as a “tool for harassment” and “means to prevent market entry through repeated litigation and administrative attack”

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Success depends in large part on PTO implementation

and execution• Rules need to limit motions, petitions, amendments,

ability to supplement information, etc., to meet deadlines, without exorbitant burdens and costs, or sacrificing fairness

• PTAB needs to be given discretion to move cases along quickly

• Carefully managed discovery

• Effective and fair consolidation of multiple proceedings

• Grant rates on petitions need to reflect higher threshold; must guard against harassment of small entities

• Need predictable, consistent and fair results

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Let the PTO know your thoughts before it

publishes proposed rules (targeted for late

December)

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Offices

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Marc A. Hubbard1601 Elm St, Suite 3000Dallas, Texas 75201(214) 999-4880mhubbard@gardere.com

Marc Hubbard | Partner Gardere Wynne Sewell LLP

1601 Elm Street, Suite 3000 | Dallas, TX 75201214.999.4880 direct214.208.2601 cell214.999.3880 faxmhubbard@gardere.com

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