Patents implicate divergent economic interests. Most new drugs would never be marketed without patent protection. Yet patent assertions by non-practicing entities are blamed with costing the electronics industry and consumers over $29 billion a year.

The America Invents Act (AIA) tries to balance these interests and harmonize with patent systems in other countries. Starting next month, these goals are in part to be achieved by new post-grant procedures for challenging patents in the Patent Office.

Although welcomed by the electronics and Internet industries, the prospect of a more active and effective regime for challenging patents is viewed with apprehension by some in biotechnology. Patents are often more valuable in biotechnology than in other industries because products may be covered by only a few patents and can be copied at a small fraction of the patentee’s cost to developing the original. The risk of losing patents post-grant appears to some only to aggravate the effect of recent court decisions making biotechnology patents more difficult to obtain in the first place.

Companies whose patents are challenged under the new regime will be caught up in a fast- moving procedure requiring significant resources, and facing a substantial risk of losing their patents. A small biotech receiving a challenge on a key patent on a potential drug far from yielding any revenues will be in an especially troubling position. However, the biotech community has diverse constituents and products, and others will find the new regime a welcome alternative to court litigation for preemptively revoking or defending against blocking patents.

The European opposition, which inspired the new U.S. procedures (see https://federalregister.gov/a/2012- 17906), is an effective and widely used procedure for challenging granted patents. About 8 percent of biotech patents and 5 percent of patents overall are opposed. In contrast, less than 2 percent of U.S. patents are litigated and only 0.3-0.5 percent are subject to reexamination. The opposition procedure is loosely-structured and slow-moving. Briefing is followed by an oral hearing before an Opposition Division and then a Board of Appeal. There is no discovery or rules of evidence and parties can supplement their positions as the proceedings progress. The filing fee is nominal. Legal costs over several years range from about $50,000 to $500,000 per side depending, for example, on whether a party attends oral proceedings or engages experts. An opposition has no estoppel effect. The most common outcomes are revocation in total or forced narrowing of the claims.

The new U.S. post-grant procedures are much faster and incorporate elements of U.S. litigation. They will be conducted before a newly-formed Patent Trial and Appeal Board (PTAB), and decisions may be directly appealed to the Federal Circuit. The new procedures lack the European opposition’s simplicity. Instead, strict rules govern the form and sequence of briefs, deadlines and discovery. Post-grant procedures require a high filing fee (at least $27,200 depending on the number of claims). Legal fees are likely to be higher than in oppositions, and incurred sooner, but are still much less than those typical in U.S. district court litigation.

Comparison of the new U.S. post-grant procedures with European oppositions and U.S. district courts provides indications that the new U.S. procedures will be effective to invalidate or narrow a patent. The patentee will have only one opportunity as of right to amend its claims. That, in combination with expectation that the PTAB will usually reach a decision in 12 months gives a patentee less opportunity to develop its case than it has in the more leisurely European opposition. Moreover, claims are to receive their broadest reasonable construction, not the most reasonable construction, as they would in European opposition or U.S. district court. The broadest construction makes the claims more susceptible to challenge based on prior art or lack of enablement. Invalidity need be shown only by preponderance, not clear and convincing evidence, as in district court. A district court is not the most hospitable forum for an invalidity challenge. Jurors tend to overestimate the rigorousness of the examination of patent applications in the USPTO and be disinclined to find a patent was issued in error. In contrast, the newlyappointed patent board judges are likely to be lawyers who have expertise in both substantive patent law and litigation and so may be inclined to evaluate invalidity theories from the judges’ own perspectives.

Entities wishing to challenge a patent’s validity will often have to choose strategically whether to present their best grounds for invalidating the patent to the PTAB or to a district court. One advantage of choosing the PTAB is that the challenger can do so without first having been charged with infringement. Speed is another advantage where a vulnerable patent is chilling companies from entering a lucrative market or obtaining investment to do so. In contrast, invalidating a patent in the district courts can take years. Another advantage is lower cost compared with court litigation. Although the fees are higher than many expected, the proceedings are also likely to be far less expensive than litigation in the district court, letting companies devote less resources to patent challenges and presumably more to their own research and development. The biggest downside of challenging patent validity under the new procedures is that if the challenge fails, the challenger will likely be estopped from asserting the same invalidity theory, or even different invalidity theories that it could have asserted, in the district court.

In sum, the new procedures are likely to increase the frequency of post-grant challenges in the biotechnology industry but not to the ubiquity of European oppositions because of the procedural complexity, higher costs and estoppel provisions. Individually, each additional legal action involves risk for one member of the biotechnology community as it does opportunity for another. Collectively, it remains to be seen whether facilitating challenge can provide sufficient economic benefit by removing restraints to competition without unacceptably diminishing the incentive for the large investment needed for many biotech products.

Originally published and extracted from the Daily Journal