Patent litigation can be analogized to a game of chess. In chess each player has six distinct pieces – the king, queen, rook, bishop, knight, and pawn – each with its own strengths and weaknesses. In patent litigation, parties similarly have distinct “pieces,” such as civil litigation, reexamination in the U.S. Patent and Trademark Office (“PTO”), and International Trade Commission proceedings. The Leahy-Smith America Invents Act (“AIA”) adds new options in a way that would be roughly analogous to adding new pieces to a chess board, the new pieces including such procedures as post-grant review, derivation proceedings, and supplemental examination. As might be expected, the options for effective new strategies multiply exponentially with the addition of each piece.
Some litigation-related changes brought about by the AIA came into effect immediately upon its enactment on September 16, 2011, and are already in play. Others will take effect at various stages between now and 2015. Because the AIA includes ambiguities that will need to be resolved by the courts, a period of turmoil and uncertainty will exist until at least 2015 as users of the patent system argue the applicability of the new law and courts interpret the law to resolve disputes. Companies that make or use new technology need to be increasingly diligent during this period, and increased diligence will likely yield competitive advantages.
The following are the more significant changes in the new law that will effect patent litigation, along with dates on which the changes will take effect:
Heightened Standard for PTO's Inter Partes Reexamination of Issued Patents (in force now)
Reexamination of issued patents by the PTO has been available under U.S. patent law for several decades. To initiate reexamination, a challenger has been required to cite prior art that establishes, to the satisfaction of the PTO examining corps, that the challenger has raised a "substantial new question of patentability." If so, the PTO has proceeded to reassess whether or not the patent in question claimed an invention that was novel and unobvious over the prior art. Effective immediately with respect to any inter partes reexamination proceedings filed on or after September 16, 2011, the standard for initiating reexamination proceedings has been heightened. After advent of the AIA, such proceedings will be instituted only where "there is a reasonable likelihood that the petitioner would prevail with respect to at least one of the claims challenged." The change in language is expected to make it somewhat more difficult for patent challengers to satisfy the PTO threshold for review.
New Limitations on the Ability to Sue Multiple Defendants (in force now)
Beginning in the late 1990s, courts saw an increasing number of patent infringement lawsuits brought by non-practicing entities, variously referred to as "NPEs” or "trolls." An NPE has been able to sue a large number of accused corporate infringers with a single complaint by alleging that each defendant sold a product that infringed the patent in suit. Several high-profile lawsuits brought by NPEs have been criticized as frivolous and harmful to competition. The new law is intended to decrease the number of such lawsuits by requiring that all named defendants be involved in some common infringing conduct. This change will mean that courts will likely deny joinder of multiple defendants where each defendant independently acted on its own to infringe. This will in turn drive up the cost of litigation for some plaintiffs, who may find it necessary to sue different defendants in different courts. Such a plaintiff will furthermore be put at risk of inconsistent claim construction and invalidity determinations from different courts, any one of which, if unfavorable, could put an end to the plaintiff's enforcement activity.
Expanded Defense of Prior Commercial Use (in force now, applicable to patents issued on or after September 16, 2011)
The prior commercial use defense to infringement is greatly expanded under the AIA. Previously, if charged with infringement of a business method patent, the accused infringer could defend on grounds that he or she commercially used the accused business method more than one year prior to the effective filing date of the patent. In other words, the accused infringer enjoyed immunity from patent infringement. Under the AIA, this defense is greatly expanded to cover any method or process, not just a business method.1 In addition, the defense applies when the accused subject matter is a machine, manufacture, or composition of matter used in the accused method or process. There are some limitations on the defense – it is "personal," meaning that it cannot be licensed or transferred unless the entire business associated with the method or process is transferred, and the accused infringer cannot expand the prior use to plant sites other than those where the method or process was actually being used on the critical date. Finally, the defense does not apply if the patented subject matter is owned by a university or related tech transfer organization. Despite the limitations, the expanded defense will provide very effective protection against infringement accusations in some circumstances.
Relaxation of Best Mode Requirement (in force now)
The AIA relaxes certain requirements attendant to the filing of a new patent application, and as a corollary, a patent challenger will lose the opportunity to challenge the validity of the resulting patent for failure to meet those requirements. For example, effective upon the AIA’s enactment, an accused infringer may no longer challenge the sufficiency of the disclosure of the patent at issue on grounds that it failed to describe the “best mode” for putting the invention into practice. A patent applicant is still required to recite the best mode for practicing the claimed invention, but as a result of the AIA, the consequences for failing to do so are left unstated, and it is uncertain whether any consequences will attach. In addition, effective on September 16, 2012, a patent will no longer be subject to invalidation on grounds of incorrectly stated inventorship. As a practical matter, patents have very seldom been invalidated for a failure to satisfy best mode or to name the correct inventors. Nevertheless, the relaxation of the requirements can preclude a challenger from raising the issues, and this can help simplify pleading and discovery issues.
Restrictions on Claims of False Patent Marking (in force now)
Since the decision of Forest Group, Inc. v. Bon Tool Co., 590 F.3d 1295, 1303 (Fed. Cir. 2009), there has been a spate of false patent marking cases. The surge in such cases arose because, in Forest Group, the Federal Circuit interpreted the false marking statute (35 U.S.C. Section 292) in a way that increased the monetary penalty for false marking, one half of which was payable to the party who filed the false marking complaint. With substantial awards as an incentive, a small cottage industry sprung up to identify and seek penalties for products that were falsely marked. Under the AIA, the false marking statute is amended to prohibit any person other than the United States from claiming false marking, unless the false marking caused the person competitive injury. In addition, the AIA requires that the up-to-$500 peroffense penalty now goes to the federal government, and that persons suffering competitive injury only recover actual damages. Finally, alleged false patent marking is no longer actionable when the marking merely involves the marking of products with an expired patent number. One effect of these changes may be more liberal marking of products by patent owners, and more marking will facilitate maximum damages awards. Damages are unavailable to a patentee who fails to mark a patented product, unless the patentee can prove that the infringer was put on notice of the infringement and continued to infringe after receiving notice.
Enhanced Right to Cite Prior Art Against Pending Applications (effective September 16, 2012)
Patent challengers have for many years had a right to submit prior art for consideration by the PTO in the examination of pending patent applications. However, the effectiveness of such submissions has been compromised by the inability of the challenger to comment on the prior art and apply it to the claims under examination. The inability to comment has dissuaded challengers from making prior art submissions, since it raises the risk that examiners will miss the relevance of the prior art but that, nevertheless, the record will reflect PTO consideration of the prior art, making it somewhat more difficult to successfully attack the resulting patent in court once it is issued. This shortcoming of the old law is addressed under the AIA. Effective one year from enactment, challengers will be able to submit prior art and provide a detailed explanation of the prior art’s relevance to claims of the patent application. Prior art can be submitted for any application filed before or after September 16, 2012, but the prior art must be submitted before a notice of allowance is issued, and also before the later of (a) a first office action for the application at issue or (b) six months after publication of the application. The identity of the submitter need not be disclosed. An increase in prior art submissions can be expected when this provision comes into effect.
New Patentee Options for Correcting Omissions or Misstatements (effective September 16, 2012)
The AIA adds a new procedure, termed "Supplemental Examination," which allows a patentee to correct omissions or misstatements made through inadvertence or negligence during the course of prosecuting the underlying patent application. Thus, if the patentee had negligently failed to disclose art of which he or she was aware, in violation of the duty to disclose relevant prior art, the patentee can submit the prior art to the PTO and ask the PTO to consider the relevance of the prior art and order reexamination if a “substantial new question of patentability” is raised. The AIA provides that, when this option is exercised, the patent shall not be held unenforceable on the basis of conduct relating to the information submitted, and in this way the patentee is able to remove a question of unenforceability before proceeding to enforce the patent. Supplemental Examination does not apply if the request therefor is filed after a challenger has alleged inequitable conduct in court. If the PTO determines during Supplemental Examination that fraudulent activity occurred in connection with the patent at issue, the PTO Director is authorized to take appropriate action, including cancellation of patent claims.
Changes in Existing PTO Inter Partes Review Procedures (effective September 16, 2012)
As discussed above, the standard for instituting inter partes reexamination, which will be replaced by Inter Partes Review (“IPR”) on September 16, 2012, was heightened upon enactment of the AIA, and the heightened standard favors the patentee.2 As of September 16, 2012, contemporaneous with the change of name from “inter partes reexamination” to IPR, changes to the form of PTO review will take place that will benefit the patent challenger. As of that date, the new Patent Trial and Appeal Board ("PTAB") will be open for business, and IPR proceedings may then be initiated against any patent that was in force as of September 16, 2012. Accordingly, many patents currently in force will be subject to IPR under the AIA.
IPR will involve important changes to the procedures used in inter partes reexamination. First, IPR will only be available to a challenger after a patent is nine months old. As discussed below, the new Post- Grant Review procedure will be available during the nine-month period immediately following the patent grant. Second, the AIA requires that the IPR proceeding be completed within one year of the PTAB’s institution of the proceeding, a period of time that is considerably shorter than the typical pendency of patent litigation in federal district courts. Because IPR will take place before the PTAB, whereas inter partes reexamination is decided by the PTO examining corps, it is expected that the review process will be more thorough and the resulting decision will be better reasoned under IPR. Like inter partes reexamination, IPR will always be limited to validity challenges based on obviousness and lack of novelty, supported by patents and printed publications.
A challenger should take heed that, as in the case with inter partes reexamination under pre-AIA law, the challenger will not be allowed two bites at the apple, one in the PTO and one in the courts. If the challenger chooses to attack validity before the PTAB, the challenger cannot later attack validity of the same patent in court on the same ground, or on any other ground that reasonably could have been raised before the PTAB. There will be times when a challenger might stand a better chance of proving invalidity in court, for example, when the challenger’s supporting scientific evidence is unlikely to withstand the closer technical scrutiny that can be expected in the PTAB. In such a case the challenger may be better off attacking validity in court.
New Procedures for Challenging Business Method Patents (effective September 16, 2012)
The AIA provides for a new type of review, known as a "transitional proceeding," that will be applicable to finance-related business method patents. The proceeding is termed "transitional" because the enabling statutory provision will phase out after eight years if not reenacted. Transitional proceedings are available only for patents that claim "a method or corresponding apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or service, except that the term does not include patents for technological inventions." The transitional proceeding will be conducted the same way as the Post-Grant Review, discussed below, but with some adjustments to make transitional proceedings more favorable to patent challengers. Thus, unlike Post-Grant Review proceedings, transitional proceedings can be instituted any time in the life of a patent, not just within nine months of its issuance, and patent challengers get favorable treatment in a transitional proceeding with respect to motions to stay injunctive relief, prohibitions on raising invalidity issues in court that could have been raised in the PTAB, and time deadlines with respect to patents that have been reissued. The full extent to which patents will be subject to review by transitional proceeding will depend largely on the way courts construe the terms "financial product or service" and "technological inventions."
Restrictions on Evidentiary Basis for Willful Infringement (effective September 16, 2012)
A patentee can show that a defendant’s infringement was willful by demonstrating that the defendant acted despite an objectively high likelihood that its actions constituted infringement of a valid patent. When a court finds willful infringement, a patentee is often awarded enhanced damages up to three times the amount of actual damages. In the past, courts had ruled that a defendant's failure to obtain an exculpatory opinion of counsel prior to infringement could serve as evidence of willfulness. More recent decisions have held that the failure to obtain such an opinion can no longer be used as evidence. The AIA affirms these more recent decisions, extends them to situations involving inducement to infringe, and makes the decisions black letter law. However, the AIA does not preclude a fact finder’s use of the absence of an exculpatory opinion as a factor tending to support an award of enhanced damages, as was the case in a recent decision. Spectralytics Inc. v. Cordis Corp., Fed. Cir., No. 2009-1564, 6/13/11.
New Derivation Proceeding for Challenging Inventorship (effective March 16, 2013)
A central feature of the AIA is the switch from a "first-to-invent" system for determining entitlement to a patent between contemporaneous inventors to a "first-inventor-to-file" system. Under pre-AIA law, the question as to which inventor was the first to invent, and therefore entitled to a patent, was made by the PTO’s Board of Appeals and Interferences in the context of an interference proceeding under 35 U.S.C. Section 135. The AIA calls for a dismantling of interference practice on March 16, 2013, to be replaced by "derivation proceedings" under a revised Section 135. Derivation proceedings will give challengers a way to contest entitlement to patent rights, notwithstanding the changeover to first inventor to file. The new proceedings will apply to patent applications with initial filing dates of March 16, 2013 or later, and will be instituted in the sole discretion of the Director of the PTO, whose decision will be final and nonappealable. A challenger is required to petition to institute a derivation proceeding within one year of publication of the challenged patent application.
The PTAB will have the power to sanction parties for failure to satisfy discovery obligations once a derivation proceeding is instituted, but in petitioning the Director to institute a derivation proceeding, a challenger will have no way to force discovery of possibly critical information in the possession of the party accused of derivation. Derivation proceedings in the PTAB will compete with an alternative option to assert derivation in federal district court under Section 291. Section 291, as amended by the AIA, gives the owner of a patent the right to file a civil action for derivation against the owner of another patent that claims the same invention and has an earlier effective filing date. The civil action in federal court must be filed within one year of the issuance of the challenged patent. The availability of a civil action in court will thus be limited in that the challenger must first obtain a competing patent in order to be heard. A selection between derivation proceedings in the PTO or in the district court will be determined by facts on a caseby- case basis.
Expanded Definition of Prior Art (effective about 2015, after patents with an effective filing date on or after March 16, 2013 have begun to be granted)
The AIA redefines relevant prior art in a way that expands the body of prior art available to invalidate a patent. For example, pre-AIA law provides that a prior sale, commercial use, or public disclosure made abroad cannot be used as evidence of invalidity, as long as the foreign sale, use or disclosure has not appeared in the form of a foreign patent or printed publication. Under the AIA, such foreign sales, uses, and disclosures will be equally useful to patent challengers as sales, uses, or disclosures that take place in the United States. Furthermore, when assessing obviousness under the AIA, obviousness will be measured at the time the application underlying the patent in question was filed, not the time when the claimed invention was conceived or reduced to practice. These changes in the law will provide new opportunities to patent challengers to discover invalidating prior art.
Lower Evidentiary Standard for Attacking Issued Patents in the PTO (effective about 2015, after patents with an effective filing date on or after March 16, 2013 have begun to be granted).
When attacking the validity of a patent in federal court, a patent challenger must provide "clear and convincing evidence" of invalidity in order to prevail. In contrast, when the PTO reviews issues of validity, a challenger is only required to show invalidity by a "preponderance of the evidence." In other words, the challenger can succeed in the PTO by showing that the evidence of invalidity is only slightly greater than the evidence of validity. This difference is of considerable benefit to a party who challenges validity in the PTO, and partly for this reason, the new Post-Grant Review (“PGR”) proceeding is of great importance. PGR is available for challenging a patent within the first nine months after its issuance, and for the first time it gives the challenger an opportunity to attack validity for all the reasons provided in Section 282(b) (2) and (3) of the Patent Act. Inter partes reexamination under the old law (and Inter Partes Review under the new law), on the other hand, is strictly limited to validity attacks on grounds of obviousness and lack of novelty, supported by evidence in the form of prior patents and printed publications. Thus, in addition to having the opportunity to establish invalidity on the basis of prior patents and printed publications under a “preponderance of the evidence” burden via PGR, a patent challenger will also be able to successfully attack validity in PGR if it establishes, by a mere preponderance, that:
- The claimed invention is ineligible for patent protection under Section 101 of the U.S. Patent Act, for example because the invention constitutes merely an abstract idea or something that occurs in nature;
- The claimed invention is invalid for obviousness or lack of novelty, regardless whether the prior art relied upon is a prior patent or printed publication, on the one hand, or a prior use, sale, or unprinted disclosure, on the other;
- The patent disclosure is inadequate under Section 112 because it does not completely describe the invention as claimed;
- The patent disclosure is inadequate under Section 112 because it does not teach one of ordinary skill in the art how to make and use the invention without undue experimentation;
- One or more claims of the patent fail to particularly point out and distinctly claim the subject matter which the applicant regards as the invention, or one or more claims are in improper form;3 or
- The patent is invalid on any other grounds under Section 282(b)(2) and (3) of the Patent Act.
Provisions for PGR provide other advantages to the patent challenger. The threshold test used by the PTAB to decide whether to institute a PGR proceeding will be easier to satisfy than that used to decide whether to institute IPR. For PGR, a challenger will need only show that new evidence makes it “more likely than not” that at least one claim of the challenged patent is unpatentable (compare the “reasonably likely” standard for IPR).4 In addition, the AIA allows the PTAB to institute PGR proceedings if the challenger’s petition “raises a novel or unsettled legal question that is important to other patents or patent applications.” As in the case of IPR, a PGR proceeding must be concluded within one year of initiation, a requirement that can save a considerable amount of time and expense.5 Also as in the case of IPR, a challenger cannot make validity challenges before the PTAB in a PGR proceeding and then challenge validity of the same patent on the same grounds in a federal district court, or on any other ground that reasonably could have been raised before the PTAB.
Litigation Strategies Under the AIA
Most of the new dispute resolution options available at the PTAB parallel dispute resolution options in federal district courts, raising questions as to whether resolution by the PTAB or a district court will be more likely to satisfy a particular party's objectives. The PTAB proceedings will generally be quicker and less expensive, but they will offer fewer options for discovery and sanctions, and the PTAB’s jurisdiction will be limited to issues of patent validity and enforceability. Challengers with good technological arguments that might be lost on a federal judge or jury might fare better in front of the PTAB, which will have tech-savvy personnel on hand to provide assistance. Challengers hoping to benefit from the sympathies of a judge or a jury, on the other hand, may choose the district court route.
In many cases, a combination of PTAB and district court proceedings will be preferred or required. Most provisions of the AIA prevent a patent challenger from taking two bites at the apple, that is, having issues resolved by the PTAB and then requesting a district court to resolve the same or related issues. But proceedings of both tribunals will sometimes be necessary, for example when the PTAB affirms the validity of a patent and the patent owner then proceeds to the district court for resolution of infringement and damages issues, and to obtain injunctive relief. Because PTAB proceedings can focus on narrow issues of derivation and inequitable conduct, or patentability over particular pieces of prior art, parties may sometimes find it helpful to seek resolution of a narrow issue before the PTAB before progressing to a district court, as necessary, for a more comprehensive resolution.
Several productive combinations of PTAB and district court proceedings can be envisioned. If a major part of a dispute involves derivation, a challenger might consider derivation proceedings in the PTO, which would allow a focus on derivation and cost savings over civil litigation. If a major part of a dispute involves a charge of inequitable conduct, a patent owner might consider supplemental examination in an effort to resolve the question in its favor, and then press for a favorable settlement or infringement litigation by civil action. With the more robust options for bringing prior art to an examiner's attention, patent challengers will be encouraged to use the AIA’s preissuance submission option. If the patent application is granted notwithstanding the submission, the challenger can nevertheless reargue invalidity in federal court (or in the PTAB) after the patent has been granted.
Appeals from decisions of the PTAB, as in the case of patent appeals from federal district courts, end up at the U.S. Court of Appeals for the Federal Circuit, but appeals from the PTAB will first be heard by the U.S. District Court for the Eastern District of Virginia. In some situations, a party may have an added reason to select validity proceedings before the PTAB if it perceives that the Eastern District of Virginia is likely to be more favorably disposed to its case than another district court that could hear the dispute. Additional litigation considerations will arise as the PTO formulates specific rules for implementing the new AIA review options, and additional litigation strategies will become apparent for recurring types of fact patterns and particular fact situations.
The America Invents Act provides new options for both the patent owners and patent challengers in disputes over patent rights. The patent owner will be the primary benefactor of new provisions that heighten the standard for PTO review in inter partes review proceedings, relax the requirements for best mode and statements of inventorship, restrict claims of false patent marking, and allow supplemental examination to correct inadvertent or negligent errors in prosecution.
Patent challengers, on the other hand, stand to gain the most from new provisions that limit joinder of multiple defendants, expand the defense of prior commercial use, provide enhanced opportunities to comment on prior art submitted in connection with pending patent applications, limit the evidentiary basis for willful infringement, expand the definition of prior art, and allow more grounds for attacking issued patents in the PTO.
On its surface, the AIA tilts the game board in favor of the patent challenger. Nevertheless, new opportunities and strategies are likely to become apparent for both patent owners and challengers over the next several years as the new law is implemented and construed by the PTAB and courts. Regardless how the new law plays out, Congress is clearly committed to a strong patent system and the importance of obtaining, defending, and enforcing rights in new technology remains unshaken. The likelihood that the AIA will have a substantial near-term impact on stimulating the economy and creating jobs is the subject of considerable debate. But it is unquestioned that the AIA has changed fundamental aspects of U.S. patent law. Companies that pay attention to the changes are likely to gain a competitive advantage.