Many defendants faced with a patent infringement lawsuit in district court consider filing an inter partes review (“IPR”) petition before the USPTO Patent Trial & Appeal Board (“PTAB”). IPRs offer a quicker and less expensive alternative to district court litigation for challenging the validity of asserted patents. Because IPRs are sometimes viewed as favorable to petitioners, an IPR invalidity challenge may incentivize patent owners to terminate the co-pending patent infringement lawsuit in order to have the IPR terminated so as to preserve the validity of their patents. Thus, defendants may use IPRs as leverage to encourage early settlement of co-pending patent infringement lawsuits.
Inter Partes Review Settlement Statistics
The parties to an IPR may move jointly to terminate an IPR under 35 U.S.C. § 317. This most commonly occurs once the co-pending patent infringement lawsuit has settled. The graph below was generated using IPR settlement statistics released by the USPTO.1 As shown, nearly 25% of IPRs filed in the past two years resulted in settlement. Additionally, the percentage of IPRs that settled almost doubled between FY 2014 and FY 2015, and the percentage is on track to increase in FY 2016 (dashed lines).
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Opportunities for Settlement of Inter Partes Reviews
An IPR must be settled early to avoid a determination on the validity of the challenged patent, and settlement of the co-pending patent infringement lawsuit must therefore occur shortly after the IPR petition is filed in order to timely terminate the IPR.2 Additionally, since IPR petitions must be filed within one year of service of the complaint in the co-pending patent infringement lawsuit,3 IPRs often prompt early settlement of the co-pending lawsuit.
The below chart illustrates the three main opportunities for settlements to occur during an IPR proceeding.
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The first opportunity to settle (1) occurs before the IPR petition is even filed. If a defendant has developed its strategy and invalidity arguments well in advance of the deadline for filing an IPR petition, a defendant may choose to inform the patent owner of its intent to file an IPR petition. In some cases, simply the threat of an IPR petition may be enough motivation to spur settlement discussions between the parties regarding the co-pending patent infringement lawsuit. A patent owner with some concern about the validity of its patent has an incentive to avoid the filing of the petition in order to prevent others interested in invalidating the patent from learning of the patent’s weaknesses. This is especially true when the patent owner has already or intends to later assert the same patent against additional alleged infringers. It is difficult to determine how effective approaching the patent owner prior to filing the IPR petition may be as the reasoning behind the settlements are typically undisclosed.
The second opportunity to settle (2) arises after the filing of the petition but before the PTAB issues its decision regarding institution. If the petitioner has put forth a strong challenge of all patent claims asserted in the co-pending patent infringement lawsuit, the petitioner can take advantage of the relatively high likelihood that the PTAB will institute the petition.4 Additionally, the patent owner has incentive to settle, if at all, prior to the filing of its preliminary response in order to avoid making any statements regarding its patents that could be used against it in other proceedings.
The third opportunity to settle (3) occurs after the PTAB decides to institute the IPR. The graph below, which was generated using statistics released by the USPTO,5 breaks down the total numbers of settlements to show settlements occurring before and after institution. The data shows that although settlements after institution of an IPR occur, settlement before institution of the IPR is more common.
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This is due in large part to the rules governing termination of IPRs and the PTAB’s interpretation of those rules, both of which encourage early settlement. Under 35 U.S.C. § 317(a), an IPR shall be terminated upon joint request of the parties “unless the Office has decided the merits of the proceeding before the request for termination is filed.”6 37 C.F.R. § 42.74 cautions, however, that “the Board is not a party to the settlement and may independently determine any question of jurisdiction, patentability, or Office practice.” The PTAB has interpreted the provisions of 35 U.S.C. § 317(a) and 37 C.F.R. § 42.74 as providing it with discretionary authority to terminate an instituted IPR proceeding or continue to issue a final written decision despite a joint settlement agreement between the parties in the co-pending patent infringement lawsuit.7
For instance, in Apple Inc. v. OpenTV, Inc., the PTAB denied the parties’ request for termination of IPRs where the oral hearings had already taken place because, inter alia, the PTAB had “already decided the merits of the proceedings.”8 In its decision, the PTAB noted that “the parties’ requests to terminate [were] filed at an extremely late date in each proceeding,” and “[a]lthough the panel ha[d] not yet issued a Final Written Decision in any of these proceedings, the panel deliberated and decided the merits of each proceeding before the requests” to terminate the IPRs were made.9
Even though the PTAB may terminate the petitioner’s participation in IPR proceedings, it may choose to not terminate the IPR proceedings and continue on to issue a final written decision. For example, in Blackberry Corp. v. MobileMedia Ideas LLC, the PTAB terminated the petitioner’s participation in the IPR but declined to terminate the IPR proceeding in view of the advanced stage even though the motion to terminate was filed one day before the oral hearing was scheduled to take place.10 The PTAB ultimately issued a final written decision that cancelled all five of the challenged claims and denied MobileMedia’s motion to amend the claims.11 Likewise, in Google, Inc. v. Createads, LLC, the PTAB terminated the petitioner’s participation in the IPR but declined to terminate the IPR proceeding in view of “the number of existing district court cases involving the [asserted] patent.”12 The PTAB ultimately issued a final written decision that held all challenged claims to be unpatentable.13
The PTAB has thus interpreted that “decid[ing] the merits” of an IPR as stated in 35 U.S.C. § 317(a) does not require that a final written decision has been issued or even that the oral hearing has taken place. Once the IPR is instituted, the PTAB can take into account numerous factors in determining whether to continue the IPR proceeding even if the petitioner is dismissed, such as the stage of the proceeding, whether the issues have been fully briefed, and whether the patent is being asserted in other proceedings. Because of the uncertainty in the PTAB’s application of its discretion, it is typically in the best interest of the patent owner to settle the co-pending patent infringement lawsuit before institution or, if after institution, well before the oral hearing is scheduled. Otherwise, the patent owner risks the continuation of the IPR and a possible invalidity finding with respect to its patent even if it were to settle the co-pending patent infringement lawsuit.
Factors that Contribute to Early Settlement
What factors might increase the likelihood that a patent owner settles a co-pending patent infringement lawsuit in view of an IPR? The first, and perhaps most significant, factor is whether the patent owner has or intends to assert the same patent against additional alleged infringers. As alluded to above, a patent owner will be more concerned with maintaining the validity of its patent if it plans to assert the patent against additional parties. This scenario is increasingly common—accordingly to at least one report, despite 2015 seeing the highest number of patent infringement lawsuits filed since 2010, the number of unique patents asserted in 2015 was the lowest since 2010 and declined more than 23% from 2010.14 Furthermore, a patent owner will be more interested in settling if only one or a subset of defendants has filed an IPR especially if other defendants are barred from filing an IPR under 35 U.S.C. § 315.
A second factor that may encourage a patent owner to settle a co-pending patent infringement lawsuit in view of an IPR is the strength of the validity challenge set forth in the IPR petition. A petitioner can increase the strength of its IPR petition by challenging all asserted claims and asserting multiple grounds of invalidity against each claim where possible. The threat of wiping out the patent owner’s entire patent, or at least the only claims it can assert against the petitioner, may be enough encourage settlement.
Once instituted, there is a high possibility that challenged claims will be found unpatentable. As of July 30, 2016, all instituted claims were found unpatentable in about 70% of the IPR trials in which a final written decision was issued.15 Additionally, at least some, but not all, of the instituted claims were found unpatentable in about 15% of the IPR trials in which a final written decision was issued.16 Thus, the strong likelihood that instituted claims will be found unpatentable may encourage a patent owner to settle shortly after institution.
Finally, a patent owner may consider settling a co-pending patent infringement lawsuit in view of an IPR when a specific claim construction issue is determinative of the outcome of the infringement case or invalidity case. A patent owner may not want to risk receiving an unfavorable claim construction in an IPR that can be used against it in the future. In some instances, a construction that is favorable for invalidity purposes may be unfavorable for infringement purposes. Although the PTAB applies a different claim construction standard than the district court, an IPR serves as an early opportunity to get a first look at how a claim term could be construed in the co-pending patent infringement lawsuit.17
As discussed above, an IPR may provide the impetus for early settlement of a co-pending patent infringement lawsuit. The parties should consider settlement early in the IPR proceeding since the risk that the PTAB will issue a final written decision despite a settlement between the parties increases as the IPR proceeding progresses. When deciding whether to pursue an IPR, the defendant should analyze the strength of its possible IPR challenge—by determining the landscape of the asserted patent, thoroughly developing its invalidity case as early as possible, and identifying any claim construction issues that may be determinative of the outcome—to determine whether an IPR might encourage a patent owner to settle the co-pending patent infringement lawsuit.AB and the district court are often similar if not the same).