Large tech companies like Apple and Google contend a U.S. Patent and Trademark Office rule gives the office too much discretion and makes it harder to invalidate patents Big Tech is accused of infringing. Brown Rudnick LLP partner Edward Naughton explains how the rule runs contrary to the purpose of inter partes review and will make this litigation alternative slower and less predictable.
Four of the biggest technology companies in Silicon Valley sued the U.S. Patent and Trademark Office days before the Labor Day weekend. Apple, Cisco, Google, and Intel filed the lawsuit to block the USPTO from adopting a new rule that will make it much harder for an accused infringer to challenge a patent.
The new rule, called the NHK-Fintiv rule, reflects a sharp change of direction. In the early 2000s, there was a lot of discussion about “patent trolls”—companies that amassed patents only for purposes of threatening or bringing lawsuits. The discussion wasn’t limited to lawyers or patent professionals; even NPR’s “This American Life” ran a two-part story on the issue.
There was a widespread belief that there were too many patents of questionable quality, and too many non-practicing entities (a name that generally means the same as patent troll but is less insulting) using the high costs of patent litigation to extract settlements and license fees.
Predictably, the issue caught the attention of politicians, and in 2011 Congress passed the America Invents Act (AIA) to significantly overhaul the patent system. One of the most important components of the law created a new process within the USPTO for challenging patents.
This new process, called inter partes review (IPR), was an administrative proceeding in which specialized patent judges would hear challenges to the validity of previously issued patent claims. The IPR process was intended to be quicker, cheaper, and more predictable—at least as compared to a lawsuit in the federal courts.
These days, filing an IPR has become very common, almost routine, in a patent case. The USPTO reports that there were 1,145 IPRs filed during the 12 months ending on July 31.
Parallel Proceedings Expected
Congress fully expected the IPR process would proceed in parallel with litigation in the federal courts. The AIA requires an accused infringer to file an IPR petition within one year of the date that it was served with a lawsuit.
This requirement reflected a compromise: 12 months was thought to be long enough to give a defendant the opportunity to identify which claims in a patent were being asserted and to investigate the validity, while not so long that the defendant could wait and sandbag a plaintiff just before trial.
Not everyone applauded the new procedure. Many defendants saw IPRs as an opportunity to have the validity of a patent determined in a streamlined proceeding by patent specialists, rather than by a judge or jury.
Many inventors and patent owners saw it as yet another expensive hurdle that a defendant could raise and were concerned that the burden of proof for invalidating a patent in an IPR (more likely than not) was lower than the standard applicable in litigation (clear and convincing evidence).
Still, as time has gone by, some patent owners have developed a less negative view. I’ve worked with patent holders who actually prefer to have a validity challenge brought early, in an IPR, rather than spend a lot of money on litigation, only to have a jury invalidate the patent after trial.
The USPTO doesn’t automatically pursue every IPR that is filed. The AIA requires the USPTO to conduct an initial review, and sets out the grounds on which the USPTO may deny a petition.
For instance, the USPTO must consider whether there is a reasonable likelihood that the challenge will succeed, and also consider whether the same or similar arguments had previously been raised.
Since the IPR process was implemented in 2013, the USPTO has “instituted” about 65% of the IPR petitions it received, and denied about 35% of them.
Easier for USPTO to Deny IPR Petition
The USPTO’s new rule makes it easier for the USPTO to deny an IPR petition. That wouldn’t necessarily be a problem if the denial were based upon the merits of the petition. But in two recent decisions, the USPTO announced a new rule (the “NHK-Fintiv rule,” from the names of the two cases) that it could deny an IPR petition precisely because there was pending litigation involving the patent.
In those decisions the USPTO announced several factors that it would consider, including whether the parties to the IPR are the same as the parties to the litigation, and whether there is a trial scheduled to take place before the USPTO can conclude the IPR process. None of the factors in the NHK-Fintiv rule appear in the AIA.
The USPTO rationalizes the NHK-Fintiv rule as promoting “system efficiency.” In fact, the evidence to date shows that the rule is applied inconsistently and creates unpredictability. For instance, in some cases, the USPTO has denied IPR petitions that were filed as soon as five months after a lawsuit was served—well within the 12 months specified in the AIA—because the federal court had set an early trial date.
As any lawyer who practices in the federal courts can tell you, trials are often rescheduled, and many judges are more likely to stay a litigation if an IPR has been granted.
The challenges to the NHK-Fintiv rule will wind their way through the courts, and it’s possible that Congress could take action, too. But in the meantime, the AIA’s quicker and more predictable alternative to litigation has become slower and much less predictable.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
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Author Information
Edward Naughton is a partner at Brown Rudnick LLP in Boston. He is a veteran trial attorney with comprehensive experience in intellectual property and has litigated dozens of patent, copyright, trademark, trade secret, licensing, false advertising, unfair competition and other technology disputes in state and federal courts and before arbitration panels.
This column does not necessarily reflect the opinion of Brown Rudnick or its clients.
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