Since the passage of the America Invents Act (“AIA”) in 2011, Inter Partes Reviews (“IPRs”) before the Patent Trial and Appeal Board (“PTAB”) have assumed growing importance in patent litigation in federal district courts. Until recently, IPRs have not played a significant role in International Trade Commission (“ITC”) Section 337 investigations. While the ITC is unlikely to stay a Section 337 investigation, pending IPRs will likely have an increasing impact at the ITC, especially when an IPR proceeding reaches an advanced stage before or during the pendency of a Section 337 investigation. This article examines the limited interplay to date between IPRs and Section 337 proceedings and discusses potential implications for future investigations.
IPRs under the AIA
Pursuant to the AIA, defendants accused of patent infringement and third parties may challenge the validity of patents before the PTAB. An accused infringer must file an IPR petition within one year of being served with a complaint alleging patent infringement in district court. However, the one-year time limit does not apply to Section 337 investigations because they are not “civil actions” for patent infringement. As a practical matter, because complaints in Section 337 cases are often accompanied by parallel district court complaints, the one-year time limit on filing IPRs will frequently apply.
The AIA narrowed the bases on which an alleged infringer or third party can challenge patent validity in IPRs as compared to those available in district court or at the ITC. A party through an IPR can challenge validity based on anticipation (35 U.S.C. § 102) and on obviousness (35 U.S.C. § 103) grounds. However, an IPR can be based only on prior art patents or printed publications; IPRs cannot be based on a commercial device or system. Therefore, a party accused of infringement cannot use IPRs to challenge patent validity on other bases, such as indefiniteness (35 U.S.C. § 112) or patentability (35 U.S.C. § 101).
The standards of proof in IPR proceedings are also different from validity challenges in federal district court or at the ITC. For example, the standard for institution of an IPR proceeding is a “reasonable likelihood . . . petitioner would prevail.” This standard has led to a fairly high rate for institution of IPRs. Also, with respect to claim construction, the PTAB generally uses the “broadest reasonable interpretation” standard rather than the Phillips standard of how a person of ordinary skill in the art would interpret claims in light of the claim language, the patent specification and the prosecution history, which is used in federal district court and the ITC. Importantly, the standard for showing invalidity in an IPR is a “preponderance of the evidence” instead of the higher “clear and convincing standard” used in district court.
The different standards of proof used in IPR proceedings has resulted in validity challenges having a higher success rate in comparison to district court proceedings. For example, according to the PTO’s most recent statistics, of the IPRs reaching final written decision, 67 percent have resulted in all claims cancelled, 16 percent resulted in a partial finding of invalidity, and 17 percent resulted in no finding of invalidity.
Stays in District Court versus the ITC
A significant advantage of IPRs for an accused infringer is that defendants can often obtain a stay of a district court infringement case based upon filing or institution of an IPR. Although the success of motions to stay varies based upon the particular district and judge, district courts as a whole have granted approximately 58-81 percent of stay requests based on IPRs. Moreover, even if stays are denied preliminarily they are denied without prejudice and later may be granted. District courts are more likely to grant stays after an IPR has been instituted.
By contrast with the district courts, the ITC to date has not granted a single stay of a Section 337 investigation based on a pending IPR. There are a number of reasons for this difference. Perhaps the most important reason, and one frequently cited by the ITC Judges when stays are denied, is the statutory language of Section 337, which requires the ITC to conclude investigations “at the earliest practicable time.”
Another important fact is the typical timeline of an IPR proceeding compared to that of a Section 337 investigation. The normal timeline for an IPR proceeding is roughly 18 months, with institution often occurring approximately six months after the petition is filed. The PTAB’s Final Written Decision is due no later than one year after institution (unless extended by six months), meaning that the typical IPR may take 18 months from filing to complete (excluding any Federal Circuit appeal). In contrast, ITC Judges in Section 337 investigations commonly set target dates of 16 months from institution for the ITC to issue a final determination. Indeed, if an ITC Judge sets or extends a target date beyond 16 months, such a decision must be certified for review by the Commission. Thus, in most cases, the ITC will complete its investigation within 16 months. By comparison, it may take several years for a patent infringement case to reach final judgment in district court.
The ITC uses a multi-factor test in assessing whether to grant a stay, including at least the following factors:
- the state of discovery and hearing date;
- whether a stay will simplify the issues;
- undue prejudice to any party;
- the stage of PTO proceedings; and
- efficient use of Commission resources.
In Semiconductor Chips, the Commission reversed the decision of an ITC Judge who granted a stay based on near final ex parte reexaminations. The Commission emphasized its statutory mandate to complete 337 investigations “as soon as practicable.” The Commission also noted that stays pending PTO proceedings are especially disfavored if the subject patent is relatively near its expiration date to avoid unfair prejudice to patent holders seeking to enforce their rights. Regarding factor 5 (efficient use of Commission resources), the Commission found that, while this factor will almost always weigh in favor of granting a stay, this factor is not determinative, and its weight is diminished once an investigation reaches a “relatively advanced stage.”
One of the more recent decisions denying a stay based on IPRs illustrates the reasons why ITC Judges are hesitant to grant such stays. As in other denials, the ITC Judge emphasized the statutory mandate to complete Section 337 investigations “at the earliest practicable time.” The Judge also noted that the PTAB’s decision would not necessarily simplify the investigation because the invalidity issues, including indefiniteness under Section 112, were broader than those in the pending IPR. The ITC Judge also reasoned that, although the IPR in this case was filed 15 days before the ITC complaint, it would not become final (excluding any Federal Circuit appeal) until approximately the Judge’s Initial Determination and thus the any “insights that emerge” from the IPR decision could be incorporated into the investigation. Finally, the Judge concluded that granting the requested stay may prejudice the patent holder by allowing continued imports of potentially infringing products for a period of years.
Another earlier decision also highlights the difficulties that an IPR petitioner may have in obtaining a stay at the ITC. In MEMs Devices, Inv. No. 337-TA-876, IPR petitions were filed approximately one week before and one week after the investigation was instituted, and three ex parte reexaminations were underway but not yet in advanced stages. Moreover, a prior district court action involving the same patents asserted in the ITC was stayed based on the PTO proceedings. The ITC Judge concluded that factors 1 (the state of discovery and hearing date) and 2 (whether a stay will simplify the issues) supported a stay because the respondent “filed promptly for a stay—approximately two weeks after institution” and that there was a danger of duplication of efforts if the asserted patents were altered or invalidated. But the Judge concluded that it was “unlikely that a resolution for all five asserted patents will be reached prior to the end of the 16 month period allotted for this Investigation,” given the average length of the PTO proceedings, and therefore denied the stay. In denying the stay, however, the ITC Judge did request periodic updates on the status of PTO proceedings.
Most recently, in Hybrid Vehicles, Inv. No. 337-TA-1042, the ITC was presented with a complaint involving five asserted patents, with the majority (but not all) of the asserted claims subject to several pending IPRs. A parallel district court action filed in 2014, alleging infringement of the same patents, was stayed based on the pending IPRs. Many of the asserted claims of these patents had been rejected in final determinations by PTAB. Several of the PTAB decisions were subject to appeals that had been argued before the Federal Circuit. Respondent Ford Motor Co. requested that the ITC suspend or delay institution based on the near final IPRs; however, the ITC proceeded to institute the investigation. Therefore, absent circumstances where appeals of IPRs concerning all of the asserted claims are nearly completed, the ITC seems unlikely to stay or withhold institution of an investigation.
Potential for IPRs to Affect ITC Remedy Decisions
In a recent decision, the ITC has acknowledged that it may be appropriate for IPRs to be given some weight in remedy determinations. In Three Dimensional Cinema Systems, Inv. No. 337-TA-939, the ITC gave weight to a final PTAB decision, issued after the Judge’s Initial Determination, rejecting two claims (claims 1 and 6) of the one of the asserted patents that the Commission had found infringed. The Commission held that, “[i]n light of the advanced posture of the IPR proceeding . . . the Commission has determined to exercise its discretion and suspend enforcement of the remedial orders as to the asserted claims of the ’934 patent” pending Federal Circuit appeal of the PTAB decision. Interestingly, the ITC suspended remedy enforcement not only as to the two claims rejected in the PTAB decision, but also as to a third claim that was not subject to the PTAB decision. The ITC took that action because the finding of violation as to the subject patent was premised in part on satisfaction of the technical prong of the domestic industry requirement based solely on claim 1, which the PTAB rejected.
The determination on remedy in Three-Dimensional Cinema Systems reflects the Commission’s recognition that, in the right circumstances – i.e. an “advanced posture” IPR – it may be appropriate for the ITC to exercise discretion to withhold or suspend a remedy based on rejected claims.
Implications for the Future
Barring a final Federal Circuit appeal of an IPR that completely invalidates all asserted claims occurring during the pendency of a Section 337 investigation, a stay of a Section 337 investigation remains unlikely. However, recent decisions indicate that IPR proceedings are having an increasing impact at the ITC. Given the high percentage of district court cases stayed in view of IPRs, patent owners are increasingly turning to the ITC as an alternative forum to assert their patents in parallel to IPR proceedings. Thus, there is an increasing likelihood that the ITC will see more complaints where IPR proceedings are already underway and where PTAB decisions may have issued. In view of this development, the Commission and Judges have recognized the interplay between pending investigations and IPRs and have begun to accord some evidentiary weight to the PTAB’s decisions.
In Certain Composite Aerogel Insulation Materials, Inv. No. 337-TA-1003, the presiding ITC Judge recently reopened the evidentiary record after the hearing to receive two PTAB decisions denying institution of the respondents’ IPRs. While noting that the PTAB decisions were not final and based on a different evidentiary standard and record, the Judge recognized the relevance of the PTAB’s decisions, which “discuss at length multiple pieces of prior art that Respondents have relied upon in this Investigation, including Respondents’ primary reference.”
In another recent order, the presiding ITC Judge struck an inequitable conduct defense based on a PTAB final decision finding the subject evidence was not material. The Judge held that, even though “it may be atypical at this stage in a proceeding [approximately four months into the investigation] to make a finding of fact,” based on the PTAB’s finding, the respondent would be unable to prove the “but for materiality” prong of inequitable conduct.
Thus, it appears likely that the Commission and the ITC Judges will be required to increasingly consider parallel IPR proceedings in ongoing Section 337 investigations, particularly where IPRs are at “advanced” stages.
Appreciation to the Federal Circuit Bar Association April 2017 Newsletter, a publication of the Federal Circuit Bar Association, for this limited use.