IPR: Statistics Continue to Favor Petitioner’s Perspective
This article first appeared in the February 3, 2015 edition of the Legal Intelligencer
Inter partes review (IPR) is a powerful alternative or supplement to patent litigation that permits a party to challenge a patent’s validity before the Patent Trial and Appeal Board (PTAB). In fact, the concurrent use of IPR in connection with federal district court patent litigation has become so pervasive that many patent infringement litigants now consider IPRs to be a de facto counterpart to such litigation. From the accused infringer’s perspective, an IPR is an essential consideration and may be an integral part of a defense strategy. In that regard, a patentee must take into account how an IPR could derail its enforcement efforts.
This is the first in a two-part series regarding strategic considerations of the petitioner and the patent owner in an IPR. This first article considers a general cost-benefit analysis of whether or not to petition for IPR from the accused infringer’s perspective.
Accused infringers are often confronted with the fundamental question of whether it is better to challenge a patent in federal district court or before the PTAB in an IPR. The “petitioner” in an IPR has several advantages compared to district court litigation. Since the inception of IPRs in September 2012, approximately 4,000 petitioners (many of whom have been sued for, or accused of, infringement) have elected to take advantage of these benefits by litigating the issue of patent validity before the PTAB.
First and foremost, the “preponderance of the evidence” standard for invalidating a patent before the PTAB is lower than the “clear and convincing” standard before a district court in patent litigation. The combination of this lower evidentiary standard, the lack of any presumption of validity (faced by district court litigants), and the technical expertise of the administrative patent judges, makes the PTAB an effective forum to resolve high-stakes invalidity challenges.
Moreover, the PTAB applies the broadest reasonable interpretation of the claims of a challenged patent, which has the potential to read on a greater universe of prior art than the Phillips v. AWH, 415 F.3d 1303 (Fed. Cir. 2005), “plain and ordinary meaning” standard for claim construction applied by the district court and the International Trade Commission. In this respect, the U.S. Court of Appeals for the Federal Circuit has explained in Facebook v. Pragmatus AV LLC, 2014 U.S. App. LEXIS 17678, *11 (Fed. Cir. Sept. 11, 2014), that “the broadest reasonable interpretation of a claim term may be the same as or broader than the construction of a term under the Phillips standard. But it cannot be narrower.”
The PTAB’s invalidation statistics reflect these significant advantages: in the vast majority of cases where the PTAB institutes an IPR, one or more claims of the patent are deemed unpatentable. The institution rate has fluctuated over the years, and is presently on a slight downward trend. In 2014, 2015 and 2016 thus far, the respective institution rates (excluding IPRs instituted under the joinder provisions) are 74 percent, 65 percent and 66 percent. According to recent statistics, nearly 85 percent of the PTAB’s completed trials have ended in the cancellation of some or all of the instituted patent claims.
Perhaps in view of these statistics, on Jan. 15, the U.S. Supreme Court granted certiorari review to address whether the PTAB should apply the broadest reasonable interpretation of claim terms rather than the Phillips standard applied by district courts and the ITC, in Cuozzo Speed Technologies LLC v. Lee, No. 15-446. Cuozzo Speed Technologies’ petition cites the 85 percent cancellation statistic and posits that the application of the broadest reasonable interpretation (as well as the practical inability of patent owners to amend challenged claims) makes the IPR process a “surprisingly lethal tool for invalidating patents.”
IPRs are also significantly cheaper than district court litigation. A primary contributing factor to the reduced cost is the limited number of issues decided during an IPR—i.e., only anticipation and obviousness and based only on patents and printed publications. Further reducing the financial burden, the discovery available in an IPR pales in comparison to the broad discovery taken in district court. The default discovery available in an IPR typically consists of deposition(s) of the parties’ experts. The PTAB sparingly grants permission for a party to seek discovery beyond the default guidelines, and only where that party can demonstrate that such discovery is “necessary in the interest of justice.” This is as Congress intended—that the IPR process “decrease[] the likelihood of expensive litigation because it creates a less costly, in-house administrative alternative to review patent validity claims,” as in 157 Cong. Rec. S1111 (daily ed. Mar. 2, 2011) (Sen. Leahy). Note, however, that each patent requires a separate IPR, increasing the cost of an IPR strategy if multiple patents are involved.
Aside from the reduced costs of the IPR process itself, another financial boon to IPR petitioners is the savings resulting from a successful request to stay district court litigation. That is, the accused infringer/petitioner can—and often does—argue that allowing the PTAB to consider the validity of the challenged patent will conserve the parties’ and the district court’s resources, especially in the event that the patent is found invalid. Courts generally apply a three-factor balancing test in resolving such requests, considering: (1) prejudice or other tactical disadvantage to the nonmoving party (i.e., the patent owner); (2) the status of the litigation; and (3) whether a stay will simplify the issues in question and streamline the trial. (See, e.g., Nokia v. Apple, No. 09-791-GMS at *1 (D. Del. June 1, 2011).) However, not all courts interpret and weigh these factors the same, and there are few clear trends that have developed during the just over three years that IPRs have existed.
IPRs are also quicker than litigation in most district courts. IPRs are subject to a statutorily mandated timeline and, subject to exceptional circumstances, must be concluded within 12 months from the institution of the IPR (and about 18 months from the filing of a petition). Conversely, the median time to trial for district court litigation has lingered at approximately 2.4 years. Thus, even if district court litigation is not stayed, an accused infringer can expect the PTAB to reach a decision on validity first in all but the speediest of district court dockets.
These benefits do not come, however, without a cost. Having chosen to litigate the issues of anticipation and obviousness based on patents and printed publications before the PTAB, the petitioner may not relitigate those issues before a district court if dissatisfied with the PTAB’s judgment. The petitioner is statutory estopped under 35 U.S.C. Section 315(e)(2) from raising with the district court any such issue raised during the IPR, as well as those it “reasonably could have raised.”
Notably, this estoppel only attaches once the PTAB renders a final written decision. Thus, if the PTAB did not institute an IPR, or if the IPR settles prior to a final written decision, no estoppel will arise. Even a petitioner subject to estoppel under 35 U.S.C. Section 315(e)(2) may not be entirely without an invalidity defense, as estoppel would not apply to any invalidity defenses based on 35 U.S.C. Section 101 (patentable subject matter) or 35 U.S.C. Section 112 (written description, enablement, and definiteness). Additionally, estoppel may not extend to invalidity grounds under 35 U.S.C. Sections 102 and 103 based on the public use or sale of a prior art device, because IPRs may only consider patents or printed publications.
In short, in comparison to district court litigation, an IPR provides the accused infringer with not only a lower evidentiary hurdle for invalidity, but access to an ostensibly greater universe of invalidating prior art. Recent statistics from the PTAB are objective evidence of these benefits. IPRs also cost less, and proceed quicker, than most district court litigations. Prospective petitioners should understand, though, that they risk not being able to relitigate before the district court the issues raised (or which “reasonably could have been raised”) during the IPR. The bottom line is that sometimes the best defense is a strong offense and an IPR may be just the right weapon to use in an early attack against an infringement threat or lawsuit.