Now that we have a growing body of statistics on the Inter Partes Review proceedings created by the America Invents Act, it is interesting to see how the proceedings are being resolved. With the significant attention given to Patent Trial and Appeal Board (PTAB) decisions, it may come as a surprise to learn that a significant majority of IPRs are terminated by settlement.

According to USPTO statistics, as of April 2014, about 1405 Inter Partes Review Petitions had been filed and 167 had been terminated.

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Source: http://www.uspto.gov/ip/boards/bpai/ptab_aia_trial_roundtables_2014.jsp

The four most common types of termination are:

  1. settlement before institution;
  2. settlement after institution;
  3. request for adverse judgment; and
  4. final written decision.

Of these, settlement is the most popular type of termination, representing 70% of the terminations. The number of settlement-based terminations before institution vs. after institution are similar, with 53% being settled before and 64% after. This begs the question: Why would a patent owner settle before an IPR even has been instituted?

The Incentives to Settle Early

Initially, it may seem surprising that so many settlements occur before the IPR has progressed to the point of institution. When the petitioner has yet to overcome the threshold burden of institution, it should not have much leverage in settlement negotiations. (The PTAB cannot institute an IPR unless the petitioner shows in its petition that it has a reasonable likelihood of prevailing on invalidating at least one of the challenged claims.)  However, there are sound reasons for early settlement.

First, the PTAB has the right to reject settlements and issue a final decision once the proceedings have advanced sufficiently, and it is unclear where or when the PTAB will draw that line. For example, in Blackberry Corporation and Blackberry Limited v. MobileMedia Ideas, LLC (IPR2013-00036, Paper 64), the PTAB determined that the proceedings had advanced enough to warrant a final decision after the petitioner filed a reply to the response and an oral hearing was held. Would the PTAB have accepted the settlement if it had been entered before the oral hearing? Before the substantive papers had been filed? 

Second, the statistics to date show that the PTAB has instituted the vast majority of IPR petitions where that decision point has been reached:

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Source: http://www.uspto.gov/ip/boards/bpai/ptab_aia_trial_roundtables_2014.jsp

Thus, a patent owner may believe that, at least statistically, the petition is likely to be granted.

Third, a patent owner may be concerned that any PTAB decision on the merits is likely to invalidate at least some of the challenged claims. Statistically speaking, the PTAB has earned its reputation as a “Patent Death Squad.”

Petitioners have a simple financial reason to settle before institution, since institution comes with a $14000 price tag. Moreover, because of the one-year statutory time period within which an instituted IPR must be decided, both parties are likely to incur significant costs early in an IPR proceeding, such that an early settlement may be the only way to avoid incurring those costs.

Choosing Certainty 

Both patent owners and petitioners may be opting for early settlement to avoid the uncertainty that surrounds any IPR proceeding. Since IPRs only have been available for two years, every PTAB decision charts new territory, and even procedural questions are unresolved. Moreover, the Federal Circuit and Supreme Court have yet to decide whether the PTAB’s interpretations and applications of the governing statutes are correct. Thus, even following PTAB precedent is an uncertain prospect. It will be interesting to see whether the settlement rate changes once some of these issues are resolved.