On May 2, 2016, the amendments to the Rules of Practice for Trials Before the Patent Trial and Appeal Board (USPTO) go into effect, and apply “to all AIA petitions filed on or after the effective date and to any ongoing AIA preliminary proceeding or trial before the Office.” The new rules apply to trial practice for inter partes review (IPR), post-grant review (PGR), covered business method patents (CBM), and derivation proceedings that implemented provisions of the AIA providing for trials before the USPTO.

The new rules follow months of the USPTO listening to and reading feedback from the public and patent professionals, and impact four primary matters:

  • Evidence submitted with a patent owner’s preliminary response
  • Certification by counsel
  • The claim construction standard for patents that will expire in 18 months or less
  • Word count limits for major briefs

The amendment permitting the patent owner to submit written testimony with the preliminary response seems to be the most anticipated of the amendments because it offers the patent owner an additional way to avoid institution of an AIA trial. With the high rate of invalidation at AIA trials, this could be a significant protection for patent owners.

Patent Owner’s Evidence With Preliminary Response

The IPR procedure was enacted by Congress as part of the AIA in 2012. The AIA was, in part, a response to the perception that low-quality patents were being used by non-practicing entities as a way to squeeze money out of manufacturers. IPRs quickly became a popular method for challenging a patent because a successful IPR often resulted in some or all of the claims of the patent being invalidated. As of the end of January, 2016, at least some claims were invalidated in approximately 86 percent of the completed IPRs (97 percent of CBMs resulted in at least some claims being found unpatentable). 

In August 2015, the USPTO Director’s Blog saw the large number of filings and the invalidation results as a positive thing:

Taken together, the demand for these new proceedings (as reflected by the large number of filings) and the results we are seeing at the CAFC appear to indicate that the PTAB proceedings are succeeding in their Congressional mandate to effectively and efficiently resolve patent validity disputes, while providing timely, low-cost alternatives to district court litigation.

Patent owners, however, saw it differently. Because of the high percentage of patents invalidated by IPRs, some referred to IPRs as the place where patents go to die. As Randall Rader, once chief judge of the Federal Circuit, put it, the judges of the PTAB are “acting as death squads, killing property rights.” Tony Dutra, Rader Regrets CLS Bank Impasse, Comments on Latest Patent Reform Bill, BNA Pat. Trademark & Copyright L. Daily, Oct. 29, 2013. And as stated by Senator Chris Coons, keynote speaker at a June 2015 event sponsored by Duke Law Center for Innovation Policy to examine the impact of the AIA review proceedings, the high percentage of claims invalidated by the AIA “should give us real pause” and could chill technology investment:

It seems hard to imagine that we would expect anyone but the wildest optimist to invest when a patent only has a 16 percent chance of being held valid post-grant review proceedings ... So my fear is that many investors, if this kill rate continues going forward, will lose trust in the strength of American patents.

Others saw it differently. Rochelle Cooper Dreyfuss, the Pauline Newman Professor of Law at New York University School of Law, saw the high invalidation rate as evidence of self-selection by those challenging patents and by the procedure used for decisions to institute IPR:

Selection effects must also be considered. Unauthorized users have three shots at retaining freedom to operate: it is possible that the patent holder will fail to sue; that if the patent holder does sue, the patent will be invalidated; or that in the suit, the user’s activity will be found noninfringing. At the PTAB, there is only one possibility: invalidation. Accordingly, challengers are likely to use these proceedings only when the case for invalidity is extremely strong.

Cooper Dreyfuss, Rochelle. Giving the Federal Circuit a Run for its Money: Challenging Patents in the PTAB, Notre Dame Law Review, p. 257, vol. 91, 2015, NYU School of Law.

Because the panel that decides whether to institute also decides the case on the merits, a strong correlation is to be expected. This is especially so because the institution decisions are far from pro forma: they are often as long as the merits decision, cover the same issues (claim construction is often central), and are as thoughtful and probing of the arguments as the decisions on the merits.

Id. at 252.

Regardless of the reason behind the high incidence of invalidity determinations by the PTAB in AIA proceedings, the amendment that permits the patent holder to file new testimonial evidence with its preliminary response is generally seen as helpful to patent owners, as it provides them with another way to avoid institution of an IPR. 

The evidence submitted at this early stage relates to whether or not a trial should be instituted. In part because there is generally no discovery prior to the decision on institution, the amendments provide that any genuine issue of material fact created by testimonial evidence will be resolved in favor of the petitioner for the purpose of determining whether to institute a trial. Noting that not every factual contradiction rises to the level of a genuine issue of material fact that would preclude a decision on the factual issue of whether the petitioner has met the threshold burden for institution of a trial, the PTO stated that the presumption in favor of the petitioner only applies when a genuine issue of material fact related to the determination of whether to institute is created by the patent owner’s testimonial evidence:

If a genuine issue of material fact is created by testimonial evidence, the issue will be resolved in favor of petitioner solely for institution purposes so that petitioner will have an opportunity to cross-examine the declarant during the trial.

There is no limit placed on the number of declarations that may be submitted, and there is no adverse inference drawn if the patent owner does not submit such a declaration. The testimonial evidence submitted by the patent owner with its preliminary response is not restricted by scope. Additionally, because it is filed before the decision on institution is made, it is generally not subject to cross-examination. However, in some circumstances, the panel is able to exercise its discretion to authorize some limited discovery, including cross-examination of witnesses, prior to a decision on institution. Similarly, when the patent owner introduces testimony prior to institution, the panel may exercise its discretion to permit the filing of a reply, where that is appropriate considering the specific facts of the case. 

The testimony used for the institution decision will not always relate to the issues present once the trial is instituted. If the patent owner chooses to withdraw the pre-institution testimony at the trial stage, the use of cross-examination will only be permitted if the cross-examination falls within the scope of permitted additional discovery.

Certification by Counsel

The amendments provide a Fed. R. Civ. P. 11-type certification for all papers filed in PTAB proceedings. The certification confirms that:

  • The paper was not filed for an improper purpose
  • The legal contentions in the paper are supported by existing law or a non-frivolous argument for a modification of existing law
  • The allegations and denials in the paper have, or are likely to have, evidentiary support

These amendments relate to the duty of candor owed to the PTO, and provide more detail on the PTO’s expectations for counsel and parties participating in AIA trials. The amendments, also provide a procedure for sanctions that did not exist prior to the amendments. Under the new rules, sanctions can be requested by the opposing party, or initiated by the PTAB. 
Where requested by a party, the amendment requires service of a proposed motion on the other party before seeking authorization to file a motion for sanctions, and provides 21 days to take corrective action. The receiving party then has an opportunity to remedy the actions underlying the motion, or to challenge the motion. 

While a party can plead or aver a right to sanctions based on contentions or denials likely to have evidentiary support after a reasonable opportunity for further investigation or discovery, that is considered an exception to the requirement that the petition include a full statement of the reasons for the relief requested, including a detailed explanation of the significance of f the evidence including material facts, and the governing law, rules and precedent. 

These amendments also eliminate sanctions against law firms, but keep them in place against practitioners and parties. Whether or not sanctions are to be imposed is to be determined on a case-by-case basis, and future published decisions will provide guidance in this regard.

Claim Construction Standard

The claim construction standard for PTAB trials remains “the broadest reasonable interpretation” for most proceedings. However, when the patent at issue expires within 18 months from the entry of the Notice of Filing Date Accorded to Petition, either party may request, by motion, a Phillips-type (Phillips v. AWH Corp., 415 F.3d 1303 (Fed. Cir. 2005)(en banc) ) construction. This triggers a conference call with the panel to discuss the request to resolve whether such a motion is appropriate under the circumstances, and whether briefing is needed for the parties to address the proposed construction standard. It is left to the discretion of the panel to determine whether or not the Phillips-type construction should apply. That determination should be made prior to institution, and ideally, before the patent owner preliminary response deadline has passed. 

The PTO acknowledges that this provides different standards for claim construction in different situations, but the different standards are appropriate. The use of the broadest reasonable interpretation claim construction standard assures patent quality, and is proper where there is an ability to clarify claim scope and amend the claims. The use of the Phillips-type claim construction is appropriate where there is no opportunity to amend the claims so that the claims can be construed to preserve validity, if possible.

Word Count Limits

It has been said that a picture is worth a thousand words. With the amendment to the rules that provides an option of a page limit or a word count limit, parties no longer need to decide whether or not to include a drawing or picture in a brief, or to use that space for words. This is seen as a way to encourage parties to use helpful drawings and diagrams. The new word count limits apply to petitions, patent owner preliminary responses, patent owner responses, and petitioner’s replies.