It may be time to take another look at reexamination proceedings at the U.S. Patent and Trademark Office (USPTO) if you are facing patent infringement litigation. Recent changes in federal law, new commitments by the USPTO, and a growing amount of statistical data suggest that an administrative challenge to a dubious patent may be an effective defense strategy and may also be a way to put costly federal court litigation on hold.
Background
The U.S. patent laws have permitted reexamination of patents for about 30 years in a proceeding that greatly disadvantaged challengers known as ex parte reexamination. Under the ex parte rules, a patent owner or a third party could bring a new issue of patentability to the attention of the USPTO, but the proceedings were conducted in secret by the patent owner and a patent examiner – sometimes even the same examiner that issued the patent in the first place. Historically, ex parte reexamination was a vehicle chosen almost exclusively by patent holders themselves to bring prior art references to the USPTO’s attention that were not considered during initial examination.
For the past ten years a second type of reexamination, known as inter partes reexamination, has also been available. This alternative procedure may be used to challenge the validity of any patent issued on a patent application filed after November 28, 1999, and may be more attractive to a third party as it offers the challenger considerably more opportunities to convince the examiner that the patent was wrongly issued.
However, the inter partes reexamination process, as initially enacted, was still far from a level playing field. Although a challenger in an inter partes reexamination had more opportunities to argue its case, the proceedings eventually returned to secret negotiations between the patent holder and the examiner. And, once the proceedings were concluded, only the patent holder had the right to take an appeal to the federal courts. Most importantly, however, the challenger was precluded (“estopped” in legalese) from making the same arguments – or any other arguments that could have been raised – as defenses in any patent infringement action brought against it by the patent owner. For these reasons, especially the estoppel effect of an unsuccessful challenge, we typically recommended against clients challenging patents through the reexamination route.
Recent changes
Actions by Congress, changes implemented by the USPTO, and new case law, however, have made inter partes reexaminations, and reexaminations generally, more appealing. For example, in 2002 Congress removed the prohibition on appeals by non-patent holders of decisions of
patent validity, giving challengers another chance before the federal appeal court after reexamination.
In addition, the 2007 Supreme Court decision in KSR v Teleflex, 500 U.S. 398, seemingly has lowered the bar to establish “obviousness.” The Court in its unanimous decision rejected a stringent test that required examiners to find a “teaching, suggestion or motivation” (TSM) in the prior art before they could reject a patent claim as obvious. By eliminating the TSM test, the KSR case gave patent examiners a stronger hand in rejecting patent claims – and also provided more opportunities for the USPTO to reverse itself and find previously issued patents invalid during reexamination.
The USPTO has also implemented a number of changes in its own rules and operating procedures to make reexamination less one-sided and more transparent. In 2006, the USPTO formed a Central Reexamination Unit (CRU) with a staff of experienced examiners. This reorganization and the new regulations essentially ensure that reexamination will be conducted by a panel of three primary examiners – not the examiner who handled the case the first time around or a colleague down the hall in the same art unit.
partes rules, the third party requestor (who initiates reexamination) has 30 days to comment on every response presented by the patentee. Additionally, all submissions in inter partes reexaminations are now publicly available and posted by the USPTO on its Patent Application Information Retrieval (PAIR) website. Moreover, private interviews between the patent owner’s representatives and the patent examiners are explicitly prohibited in such proceedings by the new regulations.
It should be noted, however, that issues of “estoppel” continue to give pause for concern. While the scope of “estoppel” is still not clear (e.g., does it extend to prior art unknown to the challenger but “could” have been found by a comprehensive search?), the likelihood that a defendant in an infringement suit will be successful in convincing a federal judge to invalidate a patent on the same grounds that were not persuasive at the USPTO (or an appellate court) is exceedingly low. Moreover, prior art that was not persuasive during reexamination may sometimes still be useful to the defendant in litigation, if it can be combined with other “non-published” prior art that the USPTO didn’t consider (such as public uses or commercial sales of related products by the plaintiff).
With all of the benefits of reexamination, the estoppel risk has become one that challengers seem increasingly willing to take. The question, however, is whether that risk will reap reward?
Evidence of Change
Is the USPTO walking the walk or just talking the talk? A statistical review of USPTO decisions suggests that there is indeed a difference in success rates for inter partes patent challenges.
In the first nine years that inter partes reexaminations have been available, only 12 such proceedings were concluded – a very small sample from which to draw any conclusions. In 2008 (the first year under the new USPTO procedures), 32 more cases were decided. In 20 of the cases decided in 2008 (63%), the patents were canceled entirely, and in another 9 (28%), the claims were narrowed, leaving only 3 cases (9%) where all the claims were confirmed.
As of June 30, 2009, the USPTO has decided a total of 77 inter partes reexaminations. The success rate for inter partes challengers is now quite notable when compared with the cumulative historic results in ex parte reexaminations – where the old rules still applied:
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Ex Parte 1981 – Present | Inter Partes 1999 - Present |
Canceled 11% | Canceled 60% |
Narrowed 64% | Narrowed 35% |
Confirmed 25% | Confirmed 5% |
Thus, ten years of historic data suggest that inter partes challenges are at least five times more likely than ex parte proceedings to succeed in killing a patent outright. And less than 6 percent of the challenged patents in inter partes reexamination so far have escaped unscathed.
Seeking a Stay of Litigation
There are numerous reasons why a defendant may want to have patent infringement litigation put on hold – not the least of which is the high cost of federal court actions. (According to a recent economic survey conducted by the American Intellectual Property Law Association, the average cost of a patent infringement suit through trial in Massachusetts, New York, Texas and Northern California all exceeded 3 million dollars.)
Another reason to seek a stay of the federal court action and proceed with inter partes reexamination is to take advantage of differences in the burden of proof between the two types of challenges to a patent. In patent infringement actions, the patent is presumed valid and the defendant must prove its invalidity by clear and convincing evidence. In an inter partes reexamination proceeding, it’s a jump ball at the outset. There is no presumption and the USPTO will decide the issue on the preponderance of evidence.
It is well established that “[c]ourts have the inherent power to manage their dockets and stay proceedings, including the authority to order a stay of litigation pending conclusion of a USPTO reexamination,” Ethicon v. Quigg, 849 F.2d 1422 (Fed. Cir. 1988). Getting a federal judge to issue a stay, however, may require considerable persuasion. Several factors are usually considered:
ØTiming – Typically, in a patent infringement action, a federal district court will be more likely to grant a stay if the request is made early in the litigation – before the parities have conducted extensive discovery and trial preparation. On the other hand, a defendant needs to bear in mind the “estoppel” consequences. Some discovery as to prior art and a well planned search for additional prior art publications may be essential to the development of a winning reexamination strategy.
Ø Effect of the Stay – If reexamination is likely to dispense with the litigation entirely or greatly simplify issues, a federal court may be more inclined to grant a stay. The court will consider, among other things, the effects on the parties. If the plaintiff is seeking injunctive relief (rather than simply money damages), the court will consider whether the stay will unduly prejudice the plaintiff by delaying resolution of all of the issues.
Ø Deference to Patent Office Expertise – A federal district court may also be more inclined to grant a stay if the issues are highly technical in nature and it believes that the USPTO is particularly competent at resolving the issues of the patent’s validity and proper scope of the claims. On the other hand, if the issues are relatively simple or interwoven with other issues beyond the USPTO’s expertise, the court will be less likely to grant a stay.
Future Changes
There are several bills pending in the Congress that may affect reexamination proceedings, largely in ways that will make reexamination even more if attractive to patent challengers. In particular, the Patent Reform Act of 2009 currently being considered by the House of Representatives includes a provision that would limit the estoppel penalty for challengers by removing the ambiguous phrase “could have been raised” from the scope of the estoppel. Thus, if this provision is enacted, challengers will only be prevented from rearguing in a subsequent court trial the actual issues raised in the reexamination -- rather than any issue they could have raised.
The House version of the Patent Reform Act of 2009 may also give the Director of the USPTO authority to revamp the proceedings entirely and require that administrative law judges, rather than patent examiners from the Central Reexamination Unit, hear reexamination cases. The new powers being considered for the USPTO Director include the authority to change or set new rules for reexamination, permit oral arguments and expand the types of prior art that can be considered (e.g., documentary evidence of substantial public use or sale).
Additionally, Congress is also considering adoption of a European style “opposition proceeding” with the challenger guaranteed the opportunity to present oral arguments so long as the challenge is raised shortly after issuance of the questionable patent.
Conclusions
Defendants in patent infringement suits should give careful consideration to the inter partes reexamination option. The possibility of staying litigation, as well as a lower standard of proof for invalidity and the USPTO’s new commitment to revisiting and correcting mistakes, all suggest that, ten years after enactment, inter partes reexamination may finally be coming of age.
- Thomas Engellenner
This update is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising.
