Inter Partes Review Proceedings: A Fifth Anniversary Report by Perkins Coie

INTER PARTES REVIEW PROCEEDINGS: A FIFTH ANNIVERSARY REPORT

An In-Depth Look at Factors Affecting Your IPR Strategy

CONTENTS INTER PARTES REVIEW PROCEEDINGS: A FIFTH ANNIVERSARY REPORT OCTOBER 2017

2 > Five Big Ideas About Five Years of IPRs

32 > Need-to-Know

Developments Regarding Federal Circuit Review of IPRs

62 > How to Craft a Winning Motion to Amend

80 > Sovereign Immunity of

Universities and Related Entities in IPR Proceedings

8 > IPR@5: IPR by the Numbers

40 > Is the Sun Setting Early on Covered Business Method Review?

68 > Pros and Cons of a

Parallel ITC and PTAB Patent Challenge

22 > Constitutionality of

IPRs @ the U.S. Supreme Court

48 > Obviousness in the Wake of Arendi

74 > All or Some Claims? SAS Institute Inc. v. Matal Heads to SCOTUS

26 > District Court Stays

Pending IPR/CBM/PGR Review: A Review of the Past 12 Months

Thank you to the writers and analysts who made this IPR@5 publication possible:

> When Does Estoppel

Apply in a Post-Shaw Landscape?

76 > Taming the Uncertainty of Ad Hoc Procedures in PTAB Remand Proceedings

MIGUEL BOMBACH

CHRISTOPHER HANEWICZ

MATTHEW MOFFA

COUNSEL

PARTNER

ASSOCIATE

TRUSCENIALYN BROOKS

ADAM HESTER

KEVIN PATARIU

ASSOCIATE

PARTNER

MANNY CAIXEIRO

JAMES HURT

SARAH STAHNKE

PARTNER

ASSOCIATE

KYLE CANAVERA

JOHN ISAACSON

BABAK TEHRANCHI

ASSOCIATE

PARTNER

JAMES COUGHLAN

AMISHA MANEK

MICHELLE UMBERGER

PARTNER

ASSOCIATE

PARTNER

MARTIN GILMORE

WILLIAM MCCABE

SENIOR COUNSEL

PARTNER

DANIELLE GRANT-KEANE

PATRICK MCKEEVER

ASSOCIATE

COUNSEL

INTRODUCTION FIFTH ANNIVERSARIES ARE MILESTONE OCCASIONS. FOLLOWING OUR PRIOR REPORTS

marking the passage of three and four years of inter partes review practice, we proudly offer this yearâ&#x20AC;&#x2122;s report, Inter Partes Review Proceedings: A Fifth Anniversary Report. In five years, IPRs have caused a dramatic shift in the way patent disputes are litigatedâ&#x20AC;&#x201D;and settled. IPRs and other Patent Trial and Appeal Board trials have become so important that practitioners formed a new organization, the PTAB Bar Association, which focuses on PTAB practice. A substantial body of decisions from the PTAB, District Courts, U.S. International Trade Commission, Federal Circuit and U.S. Supreme Court, as well as a significant amendment of the rules last year, have shaped the contours of IPR practice, clarifying some aspects and raising new questions about others. Perhaps the most important IPR-related case to date is currently pending before the Supreme Court, in which the Court will consider the fundamental question of whether IPRs are constitutional. This report reflects our analysis of five years of IPR practice. Our goal is to provide a useful description of the current state of IPRs and to provide practical and accessible guidance regarding many of the most important aspects of IPR practice. We hope that readers can use this report to develop effective IPR and patent litigation strategies. Perkins Coie has one of the most active and most successful PTAB practices in the country. We have appeared as counsel of record in more than 250 IPRs and other PTAB trials, and our practice is well balanced in representing petitioners and patent owners. Our PTAB practice is an integral part of our IP group, which has market-leading capabilities in patent litigation, patent prosecution, patent analysis, licensing and technology transactions. It is our pleasure to share our milestone findings, and we encourage your feedback and questions.

IPR@5 EDITORS

AMY SIMPSON

BING AI, PH.D.

GENE W. LEE

PARTNER

Chair, Patent Litigation; Co-Chair, Post-Grant Practice

Co-Chair, Post-Grant Practice

October 2017 INTER PARTES REVIEW PROCEEDINGS

FIVE BIG IDEAS ABOUT FIVE YEARS OF IPRs

The “door is open” for entities and individuals with deep pockets to test the limits of post-grant PTAB proceedings.

INTER PARTES REVIEW PROCEEDINGS October 2017

Inter partes reviews came into effect in September 2012 as part of the enactment of the America Invents Act of 2011. In those five years, IPRs have had a radical effect on patent disputes in the United States. IPRs are being filed at a rate of well over 1,500 per year, making the Patent Trial and Appeal Board (PTAB) the most popular venue for litigating patent disputes. Notwithstanding their popularity, it is worthwhile to ask whether IPRs are achieving their intended policy goals and at what cost their popularity comes. Estoppel is one of the most important risks that most petitioners face when pursuing IPRs. Courts and the board have clarified the boundaries of estoppel, but questions remain. The importance of IPRs has caused the U.S. Supreme Court to take notice, with the Court deciding or agreeing to hear three cases in the past several years, including one case that questions the constitutionality of such proceedings.

1 IPRs Have Been Very Successful, by Some Measures. In just a few years, the PTAB rocketed to the top of the list of most popular venues for litigating patent disputes, surpassing even the U.S. District Court for the Eastern District of Texas. The vast majority of PTAB trials are IPRs, so they are largely responsible for the popularity of the PTAB. A variety of factors are behind the PTAB’s popularity. A significant fraction of patent claims that are challenged in IPRs are found to be unpatentable. The results, the procedures and the costs (both monetary and otherwise) have been attractive enough to draw large numbers of petitioners. To handle the increased workload, the PTAB scaled up its staff significantly in the past five years, hiring many new Administrative Patent Judges (APJs) to handle IPRs and other PTAB trials. Dubbed “The Brainy Bunch” by The American Lawyer, the APJs have been lauded for being well-qualified, knowledgeable, well-prepared and highly engaged.

October 2017 INTER PARTES REVIEW PROCEEDINGS

2 Have IPRs Achieved Their Policy Goals? In enacting the AIA, Congress sought to provide meaningful, comprehensive patent reform supporting innovation and creativity as “the cornerstones of American enterprise.” The AIA aimed “to correct errors made by the government, to remedy defective governmental (not private) action, and if need be to remove patents that should never have been granted.” 157 Cong. Rec. S5375 (2011). For instance, the primary goal of the AIA, reflected by the legislative history, was “to improve the PTO’s administrative procedures for challenging dubious patents through reexamination” as a low-cost, efficient alternative to litigation. H.R. Rep. No. 112-98, at 163 (2011). Indeed, a significant motivation behind these goals was to curb abusive patent litigation. Congress and the USPTO intended IPRs to meet these policy goals. One key aspect in this regard is that IPRs are adjudicative in nature, in contrast to the more examinational nature of the reexamination proceedings that preceded IPRs. The statutes and rules that govern IPRs are designed to promote these goals, such as through provisions that specify no presumption of validity, low burdens of proof for instituting trial and showing unpatentability, and a one-year deadline after institution of trial by which the board must issue a final IPRs may present a cost-prohibitive option, particularly written decision. In cases where an IPR occurs in parallel for smaller or startup businesses, many of which are with an infringement lawsuit involving the same patent or the targets of abusive patent litigation. patents, the court has discretion to stay the lawsuit in view of the IPR. Petitioners who are unsuccessful in invalidating a patent in an IPR are estopped from raising in a subsequent proceeding in the USPTO, district court or the USITC “any ground that the petitioner raised or reasonably could have raised during that inter partes review.” 35 U.S.C. § 315(e). In practice, however, IPRs are not necessarily low-cost or efficient. A 2015 study published by the American Intellectual Property Law Association reported that the median cost of pursuing inter partes review was $275,000, with some petitions reaching a total cost of $600,000. 2015 Report of the Economic Survey, Am. Intell. Prop. L. Ass’n, at I-141 (June 2015). Thus, IPRs may present a cost-prohibitive option, particularly for smaller or startup businesses, many of which are the targets of abusive patent litigation. While these costs pale in comparison to full-blown patent litigation in court, IPRs often occur in parallel with litigation in court. Although courts have discretion to stay their proceedings in view of IPRs, the rate at which district court judges stay litigations in view of IPRs varies significantly from court to court. Consequently, an IPR does not always increase efficiency where the district court fails to stay a parallel action, and sometimes the “alternative” may increase cost. Furthermore, in cases where a district court stays an action in view of an IPR, an IPR can lead to an efficient result where the IPR finds all claims asserted in the litigation to be unpatentable or significantly narrows the scope of the litigation. But in

INTER PARTES REVIEW PROCEEDINGS October 2017

cases where the IPR does not dispose of all asserted claims or significantly narrow the scope of the litigation, the net effect can be to prolong litigation and increase costs. With respect to the goal of curbing abusive patent litigation, 2016 had just over 4,000 filings of patent lawsuits in district court. This figure was low by recent standards but still high by historical standards. (The number of filings is difficult to compare over time because the AIA changed the joinder statute for patent lawsuits in a way that caused the number of lawsuits to increase.) It is difficult to discern how much of the drop in patent lawsuits in 2016 is attributable to IPRs. Other factors that influence a decline in litigation filings include cost and the wave of significant decisions in recent years from the U.S. Court of Appeals for the Federal Circuit and the U.S. Supreme Court that have disfavored patent owners. Nonetheless, some venues still saw filings at historical highs in 2016, like the Eastern District of Texas, which remains the most active district court despite the availability of IPRs.

65% OF IPR PETITIONS* WERE INSTITUTED FOR TRIAL *Completed as of March 2017, excluding petitions terminated before institution decision

3 Have IPRs Given Rise to New Problems? Patent owners have been vocal in asserting that IPRs and other PTAB trials have unduly compromised their property rights and added costs and delays in many patent litigations. In 2013, former Federal Circuit Chief Judge Randall Rader described the PTAB as a patent “death squad.” Roy Strom, Patently dangerous: Rise of the ‘death squad’, CHICAGO LAWYER (Aug. 1, 2015). Since that time, rates of institution and unpatentability findings have significantly declined, but criticism from patent owners remains strong. Statistics show that a significant majority of IPR petitions are instituted for trial. For all IPRs that had been completed as of March 2017, 65% of IPR petitions were instituted for trial. (This figure excludes petitions that were terminated before the institution decision.) U.S. Patent & Trademark Office, Patent Trial and Appeal Board Statistics, at 10 (Mar. 31, 2017). Of the trials that were instituted, completed and led to a final written decision, 65% found all instituted claims to be unpatentable, 16% found some instituted claims to be unpatentable, and 19% found no instituted claims to be unpatentable. (These figures exclude trials that were instituted but did not conclude with a final written decision—e.g., because of settlement.) Id. The AIA and PTAB rules make it possible for patent owners to amend their claims during an IPR. But in practice, the board rarely allows such amendments. In April 2016, the PTAB completed an examination of motions to amend, and reported that only 6 of 118 decided motions, or 5%, were granted. U.S. Patent & Trademark Office, Patent Trial and Appeal Board Motion to Amend Study, at 4 (Apr. 30, 2016). Patent owners have noted that IPRs allow for the possibility of serial challenges, which prevent patent owners from enjoying “quiet title” to patents and diminish their value. Some patent owners have complained about situations where they have been bombarded by multiple waves of IPR petitions.

October 2017 INTER PARTES REVIEW PROCEEDINGS

Indeed, the legislative history of the AIA shows that Congress was concerned about the potential for this kind of abuse. However, the board has discretion to manage this issue. For instance, the PTAB denied two separate IPR challenges filed by Blue Coat Systems, Inc. against Finjan, Inc., in IPR2016-01441 and IPR2016-01443, citing the harassing nature of the petitions. Julie Mar-Spinola, the Chief Intellectual Property Officer of Finjan Holdings, stated, “We are encouraged by the PTAB’s comprehensive decisions denying both of Blue Coat’s petitions. The PTAB is spot on to recognize that piecemeal and serial challenges to Finjan’s patents—or any others’ valid patents—are not only harassing, but also contrary to ‘Congress’ intent in enacting the Leahy-Smith America Invents Act.’” Gene Quinn, PTAB refuses to institute harassing IPR challenges against Finjan, IPWatchdog (Feb. 1, 2017). IPRs have also created new, potentially unanticipated problems extending beyond the realm of patent law. For example, Kyle Bass, a Dallas-based hedge fund manager, has pursued a financial strategy by filing and publicizing IPR challenges against pharmaceutical patents, betting that the threat of invalidation will cause the patent owner’s stock price to fall. James Cosgrove, Who is Kyle Bass and Why is He Filing so Many IPR Petitions?, JURISTAT (Nov. 17, 2015). Bass claims that his purpose is to invalidate weak patents that impose costs on consumers, thereby making the drugs made by those pharmaceutical companies more affordable. But some argue that Bass’s tactics constitute an abuse of post-grant PTAB proceedings and that Congress did not intend to allow challenges against pharmaceutical companies by entities lacking standing to sue in federal court. However, after a mixed track record in the PTAB in which he lost more IPRs than he won, Bass “appears to be wrapping up a generally unsuccessful patent-law assault on drug manufacturers.” Paul Barrett, How Patent Trolls Sparked a Failed Assault on High Drug Prices, Bloomberg Businessweek (Apr. 10, 2017). Nonetheless, Bass certainly opened the door for other entities or individuals with deep pockets to test the limits of post-grant PTAB proceedings.

4 What Is the Scope of Estoppel? Estoppel is a fundamental part of the bargain struck by IPRs. On the one hand, petitioners received a new procedure for challenging the validity of patents. On the other hand, a petitioner may not raise in a USPTO proceeding or action in district court or the USITC “any ground that the petitioner raised or reasonably could have raised during that inter partes review” that resulted in a final written decision in a prior IPR. 35 U.S.C. § 315(e). A body of caselaw on estoppel has developed over time and clarified the boundaries of estoppel. One significant Federal Circuit decision on estoppel is Shaw Industries Group, Inc. v. Automated Creel Systems, Inc., 817 F.3d 1293 (Fed. Cir. 2016), which held that proposed grounds that were not instituted for trial because of redundancy are not subject to estoppel. However, significant uncertainty exists for the following scenario: An IPR runs its course through a final written decision that does not invalidate any or all challenged claims. In district court, the petitioner/defendant tries to present an invalidity defense

INTER PARTES REVIEW PROCEEDINGS October 2017

based on prior art that is different from the prior art asserted in the IPR, but the new prior art reasonably could have been found and raised in the unsuccessful IPR. District court decisions are split on this issue, and it will remain uncertain and court-dependent until the Federal Circuit addresses the issue.

5 IPRs Have Caught the Attention of the Supreme Court. The U.S. Supreme Court has been relatively active in patent cases in recent years. With the first petitions filed in September 2012, there has been little time for IPRs to run their course through a final written decision, be appealed to the Federal Circuit, and then be the subject of a petition for certiorari to the Supreme Court. Nonetheless, the Court has decided one case involving IPRs and has agreed to hear two more. Most significantly, the constitutionality of IPRs has been called into question, and the Supreme Court has agreed to consider the issue in the case of Oil States Energy Services, LLC v. Greene’s Energy Group, LLC, Docket No. 16-712. Last June, the Supreme Court granted certiorari for the following question: “Whether inter partes review—an adversarial process used by the Patent and Trademark Office (PTO) to analyze the validity of existing patents—violates the Constitution by extinguishing private property rights through a non-Article III forum without a jury.” The key issue in the case is whether patents are public property rights (which may be adjudicated by tribunals other than Article III courts), The constitutionality of IPRs has been called into question, or private property rights (which must be adjudicated by and the Supreme Court has agreed to consider the issue Article III courts and implicate the Seventh Amendment right in the case of Oil States Energy Services, LLC v. Greene’s to a jury trial). This case will be argued and decided during Energy Group, LLC. the upcoming 2017-18 term. In May 2016, the Court granted certiorari in SAS Institute Inc. v. Matal, Docket No. 16-969, to consider the question of whether a final written decision in an IPR must address all challenged claims (including claims not instituted for trial) or only some of the challenged claims. The decision potentially has implications for the scope of estoppel because estoppel applies to all claims that result in a final written decision. This case will also be argued and decided during the Court’s upcoming 2017-18 term. In June 2016, the Supreme Court issued its decision in Cuozzo Speed Technologies, LLC v. Lee, 136 S. Ct. 2131 (2016). The Court held that the proper claim construction standard in an IPR involving an unexpired patent is the “broadest reasonable construction,” and not a Phillips-type construction. This ruling is generally viewed as being better for petitioners than patent owners, but both approaches to claim construction are rooted in ordinary meaning and intrinsic evidence, and one can legitimately question how often the two standards yield different results.

October 2017 INTER PARTES REVIEW PROCEEDINGS

IPR@5: IPR BY THE NUMBERS

Our annual “unpacking” and analyses of statistics on IPR filings, institution rates, decisions, rehearing rates and more reveal some new trends and practical ways for practitioners to adjust.

INTER PARTES REVIEW PROCEEDINGS October 2017

On the five-year anniversary of the America Invents Act, inter partes review remains an essential part of the accused infringer’s arsenal. Using data compiled beginning in 2012, we present trends and analysis to aid practitioners in devising strategies for the Patent Trial and Appeal Board proceedings.

IPR Popularity Is Rising Again Since 2012, the PTAB has become the default venue in which to launch invalidity challenges. IPRs gained an initial reputation of being “patent killers,” and while five years later this moniker is not completely accurate, IPR filing rates have continued to increase over three of the last four years. After a slight dip in 2016, the growth in filings has resumed, with 2017 projected to see the largest increase since 2014. If this projection holds true, 2017 will have the greatest number of IPR filings yet—1,807 total, which is an increase of 10% over 2016 and 9% over 2015, the second-highest filing year. Q12017 saw a particular spike in filing rates. During this time period, 548 IPR petitions were filed, an increase of 22% from the final quarter of 2016 and the highest-filing period by a margin of 18%. Indeed, the first two quarters of 2017 alone accounted for 986 petitions.

IPR FILINGS BY YEAR 1,807 (Projected) 1,655

1,638

1,500

701 1,122 (Actual)

2012

2013

2014

2015

2016

2017 (through Aug. 1)

October 2017 INTER PARTES REVIEW PROCEEDINGS

IPR FILINGS BY QUARTER 548

458

466

457

418

395

416

439 448

438

375 335

266 205

190

137 79

136

17 Q3

2012

2013

2014

2015

2016

2017

Q3 YTD*

*Data through July 3, 2017 (Lex Machina)

The most frequent and prolific IPR petitioners have remained mostly the same over the past 5 years. Thus far in 2017, Apple and Samsung have retained their rankings as the first and second most frequent filers, respectively. Although LG Electronics increased its number of petitions by 15% over last year, it dropped to fifth place with 121 petitions, while Google became the third-most-frequent petitioner with 141 petitions filed in 2017, an increase of 43%. Microsoft maintained its position relative to other filers, but increased its filings by 23%.

IPR PETITIONS FILED Apple Inc.

312

Samsung Google Inc. Microso Corporation LG Electronics, Inc.

10 |

INTER PARTES REVIEW PROCEEDINGS October 2017

281 141 126 121

Institution Decisions While accused patent infringers continue to flock to the PTAB to challenge asserted patents, the overall institution rates have steadily declined. In this section, we examine the grounds for institutions and factors that affect institution rates. 1. Institution Trends by Filing Year

INSTITUTION NUMBERS (BY PETITION FILING YEAR) 7

2012

101

492

2013

281

350

881

936

2014

Instituted

2015

391

864

2016

249

2017 YTD

Denied

Source: Data as of 7/3/2017 from Lex Machina

Institution Rate Trends. From 2012 to 2015, as the number of petitions filed increased, so did the number of denials. The declining institution rates continued in 2016 even though the number of filings dipped slightly. When IPRs first became available in 2012 as part of the AIA, over 92% of IPR petitions were instituted, earning IPRs the moniker â&#x20AC;&#x153;patent death squad.â&#x20AC;? Since then, the number of institutions fell steadily to 68% in 2016. The institution rate jumped to 83% for petitions filed in the first half of 2017. The institution rate for petitions filed in the first half of 2016 was 60%, and this trend carried through for the rest of the year. It is therefore possible that the upward institution rate trend observed in the first half of 2017 will persist, but considering 2017 is projected to have the greatest number of IPR filings yet, it is also possible that the PTAB will lean toward denying institutions in an effort to control its workload and to meet the 18-month statutory deadline for issuance of final written decisions.

October 2017 INTER PARTES REVIEW PROCEEDINGS

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2. Institution Rates

2012

2013

2014

16%

6% <1% 14%

19%

59%

70% 91%

2015

2016

15%

4% 5%

16% <1%

2017

19%

7% 7%

>1% 57%

>1%

21%

53%

>1%

24% 65%

Instituted

Denied

Patent owner disclaimed pre-institution

Procedurally dismissed

Settled pre-institution

Pending pre-institution

One explanation for the decrease in institutions over the past five years is the increase in pre-institution resolutions, particularly settlements. Stronger IPR petitions lead to earlier settlements, thereby leaving weaker petitions in the pool, which ultimately results in a lower institution rate. Another likely factor is patent ownersâ&#x20AC;&#x2122; increasing sophistication in preparing preliminary responses. In the early days of IPR practice, filing a preliminary response did not statistically change the likelihood of institution, and patent owners often waited to present patentability arguments until after institution, when the arguments could be supported by expert testimony. As PTAB practice matured, patent owners developed a number of successful techniques to use in preliminary responses, such as explaining how a petition fails to account for at least one challenged claim element, pointing out defects in motivation to combine, arguing a dispositive claim construction issue, and challenging follow-on petitions for raising substantially the same arguments or prior art previously considered by the USPTO. As these techniques have gained traction, institution rates have declined.

12 |

INTER PARTES REVIEW PROCEEDINGS October 2017

The institution rate charts include the various types of resolutions for petitions, up to institution, including cases that settled or were procedurally dismissed. When IPRs first became available in 2012, only 2% of IPRs settled before the issuance of an institution decision. In subsequent years, the settlement rate climbed to 9% in 2013, 16% in 2014 and 15% in 2015. In 2016, pre-institution settlement rates steadied at 16%. The first half of 2017 appears to be following a similar trend. With nearly 90% of petitions still pending, already 4% of petitions filed so far in 2017 have been resolved through settlement.

Key Tip

3. Effectiveness of Preliminary Responses Filing a preliminary response vastly improves a patent ownerâ&#x20AC;&#x2122;s chances of avoiding institution. Around 3,300 IPR petitions have resulted in an institution decision, of which patent owners filed a preliminary response in over 80% of cases. There is a very strong correlation between the filing of a preliminary response and the institution rate. When patent owners do not file a preliminary response, 92% of IPRs are instituted, including wholly granted and partially granted petitions. When patent owners do file a preliminary response, the institution rate drops to 71%, a reduction of over 20%.

IPRs WITH PRELIMINARY RESPONSES FILED

3,745

IPRs WITH NO PRELIMINARY RESPONSES FILED

Instituted

71%

2,658

Instituted

Denied

29%

1,087

Denied

1,286

92%

643

>> There is a very strong correlation between the filing of a preliminary response and the institution rate. When patent owners do not file a preliminary response, 92% of IPRs are instituted.

8% 29%

71% 92%

Instituted

Denied

Source: Data as of 7/3/2017 from Lex Machina and Docket Navigator

4. Expert Declarations in Preliminary Responses On May 2, 2016, an important rule change went into effect that allowed patent owners to submit expert declarations in support of preliminary responses. Some commenters welcomed the change, contending that it would level the playing field between parties and encourage the full disclosure of rebuttal evidence by patent owners. Others pointed out that, because the PTAB views genuine issues

October 2017 INTER PARTES REVIEW PROCEEDINGS

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of material fact “in the light most favorable to the petitioner”[1] in deciding institution, expert declarations submitted with preliminary responses would not have a significant impact on PTAB proceedings.

Key Tip

>> Since the PTAB started allowing expert declarations, the institution rate has remained the same at 64-65%.

Since the PTAB’s rule went into effect, over a thousand Patent Owner Preliminary Responses have been filed. However, the majority of patent owners are deciding not to include expert declarations at this early phase. Moreover, patent owners who do submit expert declarations are not seeing a substantial impact on resulting institution rates. In short, since the PTAB started allowing expert declarations, the institution rate has remained the same at 64-65%.

POPRs ACCOMPANIED BY EXPERT DECLARATION

465

POPRs WITHOUT EXPERT DECLARATION

Instituted

65%

304

Denied

35%

161

35%

551

Instituted

64%

352

Denied

36%

199

36%

64%

65%

Instituted

Denied

Source: Data as of 7/3/2017 from Lex Machina and Docket Navigator

5. Institution Decisions by Grounds Whether the petitioner relies on section 102 or section 103 does not have a significant impact on the chances of institution. In 2016, 50% of IPR petitions relying on section 102 resulted in institution and 51% of IPR petitions relying on section 103 resulted in institution. This trend has remained more or less unchanged in the past five years. In 2014 and 2015, petitions relying on section 103 were slightly more successful, but, for now, there does not appear to be any clear advantage gained by including one ground over another.

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INTER PARTES REVIEW PROCEEDINGS October 2017

INSTITUTION DECISION OUTCOMES FOR § 102 AND § 103 GROUNDS 4500 4000 3500

Key Tip

49%

3000

45%

46%

2500

>> Relying on section 102 or section 103 does not have a significant impact on the chances of institution—a trend that continues for the past five years.

2000 51%

1500

500 50% 50% 37% 63% 0 § 102

§ 103

2012

47% 49%

50%

48%

53% § 102

52%

§ 103

§ 102

2013

2014 Instituted

50%

50% § 103

51%

55%

54%

1000

§ 102

50% § 103

§ 102

2015

§ 103

2016

Denied

Final Written Decisions Once trial is instituted, a patent owner’s chance of success falls dramatically. The data shows that in nearly 60% of cases, all instituted claims are found unpatentable in a final written decision. This stands in sharp contrast to the 16% of patent owners who are able to convince the PTAB that the instituted claims are patentable. Once the PTAB has decided that a petitioner has shown a reasonable likelihood that a claim is unpatentable, the PTAB is also likely to reach the same conclusion in its final written decision. This statistic further underscores the importance of the preliminary response for patent owners.

FINAL WRITTEN DECISION OUTCOMES (2012–2016)

13% All instituted claims unpatentable

16%

Mixed claim findings 59%

12%

All instituted claims upheld All claims amended/disclaimed

However, wins by patent owners appear to be on the rise. Historically, patent owners did not fare well at trial in the PTAB: from 2012 through 2014, the PTAB found all instituted claims unpatentable at a nearly constant rate of 64-65%. In 2015, however, this rate fell to 53%, while the number of complete patent-owner wins (in which all instituted claims were upheld) climbed sharply to 22%. Time will tell if this trend continues. Because of the 18-month time to final written decisions in the PTAB, only limited

October 2017 INTER PARTES REVIEW PROCEEDINGS

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data is available for petitions filed in 2016, and it is skewed by a disproportionate number of instances in which claims were amended or disclaimed. As of September 2017, for 2016 filings, patent owners seem to have fared reasonably well. Ignoring the cases in which claims were amended or disclaimed, 20% of cases filed in 2015 were complete patent-owner wins.

FINAL WRITTEN DECISION OUTCOMES 700 12%

600 11% 500 400 12% 10% 13%

300 200 100 0

21%

13%

64% 2012

3% 16% 17%

12%

13%

64%

54% 4%

65%

24% 22% 50%

2013

2014

2015

2016

All claims amended/disclaimed

Mixed claim findings

All instituted claims uUpheld

All instituted claims unpatentable

Note: Year denotes the year in which the petitions were filed.

Final Written Decision Outcomes by Grounds Whether the petitioner relies on section 102 or section 103 does not appear to significantly affect the chances of claims being found unpatentable in a final written decision. In the early years, petitions relying on section 103 were slightly more successful in being found unpatentable at the final written decision stage than petitions relying on section 102. This statistic has changed over the past five years. In 2016, 76% of IPR petitions relying on section 102 resulted in claims being found invalid, and 72% of IPR petitions relying on section 103 resulted in claims being found unpatentable.

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INTER PARTES REVIEW PROCEEDINGS October 2017

FINAL WRITTEN DECISION OUTCOMES FOR § 102 AND § 103 GROUNDS 1600 1400 1200 32%

20%

1000 800 600

68%

23%

80%

400 200 0

30% 31% 70% 69% § 102

§ 103

23% 77%

35%

77%

65%

§ 102

2012

§ 103

2013

§ 102

29%

§ 103

§ 102

2014

Unpatentable

24% 76%

71% § 103

2015

§ 102

28% 72%

§ 103

2016

Upheld

Discovery in the PTAB: Obtaining Additional Discovery Certain discovery in the PTAB is considered routine and allowed as a matter of course, namely (1) exhibits cited in proceeding testimony or papers, (2) cross examination of any declaration testimony, and (3) “relevant information that is inconsistent with a position advanced by the party during the proceeding.” [2] While the parties may agree to provide other discovery, without such an agreement, a party desiring additional discovery must seek permission from the PTAB. The PTAB is a stringent gatekeeper. A party seeking additional discovery must first request permission to file a motion for additional discovery. This can be done via conference call with the PTAB and the nonmoving party. The PTAB typically grants such requests: 77% are allowed outright, while only 21% are wholly denied on the merits.

MOTIONS FOR LEAVE TO REQUEST ADDITIONAL DISCOVERY >1% <1%

21% Granted Denied Denied as moot Denied in part, granted in part 77%

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Once the moving party has cleared this hurdle, it must then file a motion that explains how the routine discovery is insufficient and how obtaining additional discovery is “in the interest of justice.” [3] Because “Congress intended [IPR] proceedings to provide a more efficient and cost-effective alternative to [district court] litigation,” the PTAB “take[s] a conservative approach to granting additional discovery,” making the discovery “more limited than in district court patent litigation.” [4] In determining whether additional discovery is in the interests of justice, the PTAB analyzes the five Garmin factors: 1. The moving party’s request must be based on more than a possibility or mere allegation. Rather, the moving party “should already be in possession of evidence tending to show beyond speculation that in fact something useful will be uncovered.” 2. The moving party should not ask for litigation positions or the underlying basis of those positions, as this is viewed as an attempt to subvert the PTAB’s established rules and procedures regarding disclosures. 3. The moving party should not be able to gather or generate the information by another means. 4. Requests must be easy to understand and allow the responder to “answer efficiently, accurately, and confidently.” 5. Requests cannot be overly burdensome and must be “sensible and responsibly tailored according to a genuine need.” Garmin Int’l Inc. v. Cuozzo Speed Techs. LLC, IPR 2012-00001, Paper 26 at 6-7 (P.T.A.B. Mar. 5, 2013). The PTAB remains reluctant to grant additional discovery, although 2017 has seen a modest rise in this area. Of the motions for additional discovery filed in the first seven months of 2017, 55% of additional discovery motions were completely denied. Twenty-six percent of motions for additional discovery were granted in part and 16% were granted outright, a slight increase from this time last year, when the rates were 24% and 15%, respectively.

SUCCESS RATES: MOTIONS FOR ADDITIONAL DISCOVERY

26%

16% Granted Denied Denied as moot

Denied in part, granted in part 55%

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The success rates for motions for additional discovery before the PTAB vary based on the type of discovery sought. Written discovery is the most common type of additional discovery requested, and it is granted more frequently than requests for additional depositions.

Key Tips

TYPES OF ADDITIONAL DISCOVERY REQUESTED 250

>> Everyone who submits a declaration must be made available for deposition.

200 150

127

100 50 0

3 67 64 2 11

30 Written Discovery

Granted

Deposition

3 3 7

Use of District Court Evidence

Denied in part, granted in part

>> Successful motions for additional discovery address all five Garmin factors.

4 2

11 Privilege Log

Denied as moot

Denied

Requests for additional depositions are rarely granted. Under the PTAB rules for routine discovery, witnesses who submit declarations must already be available for depositionâ&#x20AC;&#x201D;third parties, inventors, former employees, even persons outside the United States. Thus, many requests for additional deposition discovery fail the Garmin factor analysis because the desired witnessâ&#x20AC;&#x2122;s testimony is unknown, and thus too speculative, or because written discovery will suffice, and thus the deposition would be overly burdensome. While written discovery requests are granted more frequently than deposition requests, even these requests are usually denied. Requests for written discovery can be used by both the patent owner and the petitioner, such as to challenge real party in interest claims, or to obtain additional information about conception and reduction to practice. Regardless of who propounds the discovery, a party seeking additional discovery should expect an uphill battle at the PTAB. To maximize its chance of success, the moving party must analyze each of the five Garmin factors and narrowly tailor requests to information that the movant needs and knows exists. Likewise, parties opposing such requests should emphasize any Garmin factors that are lacking, particularly if the discovery is speculative or burdensome.

Requests for Rehearing: Worth the Effort and Expense? Any party to an IPR can file a request for rehearing within 14 days of a non-final decision or a decision to institute trial. A party can also file for a rehearing within 90 days of a final decision or decision not to institute trial. The PTAB aims to respond to these requests within one month, but responses may take

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Key Tip

>> The PTAB has had a high rejection rate for rehearing requests in the past three years.

much longer because there is no mandated response time. Delays in deciding rehearing requests can be problematic in situations involving a parallel district court action that is not stayed. We examined more than 900 requests for rehearing. More than 87% of these were denied in their entirety, with only 13% being granted in whole or in part. This pattern of high rejection rates for rehearing requests has held for the past three years, indicating that the PTAB is unlikely to change course.

SUCCESS RATES: REHEARING REQUESTS 9%

4% Granted Granted in part, denied in part Denied

87%

We also examined the subject matter of the rehearing requests and found that the vast majority concern institution decisions or the final written decision (75% of rehearing requests related to institution decisions, while 17% related to final written decisions). Other categories accounted for less than 8% of the rehearing requests.

SUBJECT MATTER OF IPR REHEARING REQUESTS 2%

1% 1%

4% Institution decision Final written decision

17%

Motion for discovery/additional discovery Motion to file supplemental information Motion to exclude/expunge 75%

Deposition

In addition to being the most common subject of rehearing requests, institution decisions and final written decisions were also the most frequently rejected rehearing requests, each having rejection rates of over 90%. The less common subject matters, such as rehearing requests related to discovery, supplemental information or motions to exclude/expunge, had better success rates but were still infrequently granted.

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INTER PARTES REVIEW PROCEEDINGS October 2017

Outcome of Rehearing Requests by Subject Matter SUBJECT OF THE REHEARING REQUEST

GRANTED

GRANTED IN PART, DENIED IN PART

DENIED

Institution Decision

94%

Final Written Decision

91%

Motion for Discovery/Additional Discovery

24%

70%

Motion to File Supplemental Information

53%

39%

Motion to Exclude/Expunge

53%

47%

Deposition

50%

Other

92%

Grand Total

8.7%

3.8%

87.5%

A request for rehearing must specifically identify all matters the party believes the PTAB misapprehended or overlooked and the place where each matter was previously addressed in the briefing. The PTAB reviews rehearing requests under an “abuse of discretion” standard. It also requires a showing of “good cause” to allow admission of any new evidence. These requirements form a high bar that few requests meet, and are designed to discourage rehashing old arguments as well as raising new arguments or evidence. Parties are most likely to be successful if they can show that “a decision is based on an erroneous interpretation of law,” “a factual finding is not supported by substantial evidence,” or “an unreasonable judgment is made in weighing relevant factors,” such as by failing to recognize existing factual support for testimony,[5] or misreading the claim language. Requests for rehearing also offer the PTAB a chance to correct its record and justify any factual statements. Because final written decisions can be appealed directly to the U.S. Court of Appeals for the Federal Circuit, and factual statements are reviewed by the Federal Circuit under a “substantial evidence” standard, a PTAB decision on a rehearing request could potentially undermine an otherwise viable argument. Consequently, even when the high standard for a rehearing request on a final written decision standard is met, a party should carefully evaluate the costs and risks of filing a request for reconsideration versus a direct appeal to the Federal Circuit.

ENDNOTES [1] [2] [3] [4] [5]

37 C.F.R. § 42.108(c) 37 C.F.R. § 42.51(b)(1)(iii). 37 C.F.R. § 42.51(b)(2)(i). Celltrion, Inc. v. Biogen, Inc., IPR2016-01614, Paper 31 at 2 (P.T.A.B. July 7, 2017). Daicel Corp. v. Celanese Int’l Corp., IPR2015-00173, Paper 15 at 2 (P.T.A.B. June 26, 2015).

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Constitutionality of IPRs @ the U.S. Supreme Court

The creation of inter partes review proceedings in 2011 also raised several constitutional implications: the possible termination of patent rights and the constitutional right to a jury trial and Article III tribunal. The U.S. Supreme Court denied three prior petitions challenging the constitutionality of IPRs on these grounds before it agreed to hear the Oil States Energy Services, LLC v. Greene’s Energy Group, LLC case.[1] Oil States is currently pending in the upcoming 2017 Court term, and there is no scheduled date for oral arguments. In recent years, the Supreme Court has heard, and then overturned, several patent-related rulings by the U.S. Court of Appeals for the Federal Circuit, suggesting that it may declare the IPR process unconstitutional. However, the Supreme Court has also been ruling in a pro-patent, anti-patent troll direction, which could imply that the IPR process will be upheld. It is difficult to predict what the Supreme Court will determine in this instance, and its decision could have a major impact on patent troll activity, litigation costs and the enforcement of patent rights.

What Is @ Issue in Oil States? In Oil States, petitioner Oil States Energy Services is the owner of U.S. Patent No. 6,179,053, which describes a method of locking in place a mandrel during hydraulic fracturing. In 2012, Oil States sued competitor Greene’s Energy Group in the Eastern District of Texas. Almost a year into litigation, Greene’s Energy Group filed an IPR petition, which was instituted and ultimately invalidated several claims of the ’053 patent. Oil States appealed the Patent Trial and Appeal Board decision first to the Federal Circuit and then to the Supreme Court, challenging the constitutionality of IPR proceedings on the grounds that they violate the constitutional guarantees of the right to a jury trial and an Article III tribunal.

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The Federal Circuit has consistently rejected constitutional challenges to IPR proceedings. For example, in MCM Portfolio LLC v. Hewlett-Packard Co.,[2] it approved the constitutionality of the IPR procedure, holding that U.S. Congress acted for the valid legislative purpose of strengthening the patent system. Challengers of the IPR procedure have argued that it impermissibly violates Article III and the Seventh Amendment of the U.S. Constitution because patent rights are private property rights. However, the Federal Circuit has held that patents rights are so closely integrated into a public regulatory scheme that they are public rights, and adjudication of public right disputes by an administrative agency is not unconstitutional.

Legal Arguments: Are Patent Rights Public or Private Property Rights? A key issue in the dispute is whether patent rights are private property rights or public rights. Petitioner Oil States argues that patent invalidations have historically been tried before a jury in a court of law, even though the legally protected interests are created by statutes. Citing a 100-year-old Supreme Court precedent, Oil States maintains that patent rights are private property rights, and as such they do not fall into the category of cases involving public rights that Congress could constitutionally assign to an administrative agency for resolution. Accordingly, the IPR procedure “takes a patent infringement claim out of the jury’s hands and entrusts it to bureaucrats.”[3]

Key Tip

>> A patent owner should preserve the right to raise constitutional challenges while an IPR is pending or under appeal.

However, relying on modern public rights jurisprudence, respondent Greene’s Energy Group and the government argue that patent rights are public rights because they are integral parts of a public regulatory scheme. They contend that patent rights exist only by virtue of a federal statutory scheme and a federal agency that examines patent applications and issues patents in the first instance. Accordingly, they assert that Congress may designate public rights for adjudication in non-Article III tribunals, and there would be no implication of the Seventh Amendment in administrative proceedings.

If IPRs Become Unconstitutional The IPR procedure has been embraced by many companies as an effective weapon against expensive patent litigation brought by patent trolls and others seeking to assert weak or dubious patents. While many companies approve of the IPR process, some view it negatively because it only affords limited discovery rights, imposes a broad claim construction standard and can result in the creation of estoppels that apply in subsequent proceedings. At the same time, other companies disfavor the IPR process because it adds another hurdle that must be overcome before they can enforce their patent rights against known infringers. Some predict that if the IPR process is declared unconstitutional, patent troll activity will surge, and, without a less expensive procedure to challenge patents, litigation costs and settlements will rise. Because an IPR trial can be a quick and cost-effective way to invalidate a bad patent, declaring IPRs to be unconstitutional will eliminate a powerful tool for companies to combat unjustified litigation and patent trolls.

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Alternatively, the absence of an IPR process would also make it easier and less expensive for patent owners to enforce their patent rights. Patent owners would no longer be forced to litigate a parallel administrative proceeding in addition to a district court litigation. In addition, if the IPR process is declared unconstitutional, questions will arise as to whether other ex parte U.S. Patent and Trademark Office proceedings, such as patent re-examinations, are similarly impermissible because they may also result in patent rights being extinguished by an administrative agency. Also, it is unclear whether patents already invalidated in an IPR proceeding could be revived. In any event, as the Supreme Court ponders on the constitutionality of IPRs, one practical tip for patent owners is to preserve their rights to raise constitutional challenges while their IPRs are still pending or on appeal.

ENDNOTES [1] Oil States Energy Servs., LLC v. Greeneâ&#x20AC;&#x2122;s Energy Grp., LLC, No. 2015-1855 (Fed. Cir. May 4, 2016), cert. granted, 85 U.S.L.W. 3575 (U.S. June 12, 2017) (No. 16-712). [2] 812 F.3d 1284 (Fed. Cir. 2015), cert. denied, 137 S. Ct. 292 (2016). [3] Petition for Writ of Certiorari, supra note 12, at 13.

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DISTRICT COURT STAYS PENDING IPR/CBM/PGR REVIEW: A REVIEW OF THE PAST 12 MONTHS

As inter partes review marks its fifth anniversary, we note a developing trend in the decline of successful motions to stay district court litigation pending IPR review. This analysis examines recent court activity and identifies some of the most influential factors for practitioners seeking a motion to stay.

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Motions to stay district court litigation pending inter partes review remain commonplace. In the fifth year of the America Invents Act (AIA), however, the overall success rates for such motions dipped noticeably. During each of the first four years of the AIA, 57% of contested motions to stay were fully granted. In the fifth year, the success rate for such motions fell, with only 43% of such motions being fully granted. Furthermore, the overall success rate for contested requests to stay, pending IPR, covered business method (CBM) and post-grant review (PGR) combined, filed after institution decreased from 75% to 62%. There are several issues that affect the overall likelihood of success. We offer an in-depth look at these areas of influence and the practice implications for in-house patent counsel.

Factors Having an Impact on Stay Decisions District courts continue to focus primarily on three factors in determining whether to stay litigation pending the decision of a Patent and Trial Appeal Board case: 1. Whether a stay is likely to simplify the issues in question in the litigation. The court considers the number of challenged claims and patents at issue in the litigation, the likelihood of asserted claims being canceled and whether potential discovery issues relating to prior art can be resolved by the U.S. Patent and Trademark Office (USPTO). 2. Whether the proceedings are at an advanced stage. This factor includes whether discovery is still open, whether claim construction is complete and whether a trial date has been set. 3. Whether a stay would unduly prejudice the non-moving party. Relevant here is an evaluation of the timing of the stay request, the timing of the proceedings and the relationship of the parties.[1] Additional factors that influence the outcome and resolution of requests to stay include: • the timing of the request, such as whether the request is pre-institution or post-institution; • the jurisdiction and the judge; and • the parties in the case, e.g., whether a non-practicing entity (NPE) is involved or the parties are competitors.

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2016–2017 Stay Statistics Key Tip

>> Stipulating to a stay remains the surest way to ensure one is granted.

Of the 348 total orders on motions to stay since September 1, 2016, 60% of the requests—210 in total—were granted (including contested motions, ex parte motions, stipulated motions, and sua sponte orders). Of those, over half (119) were stipulated. Not surprisingly, stipulated requests for a stay had a 98% success rate in the last year.[2] Taking those stipulated requests out of the mix, grants are down: 39% of the contested motions for stay pending IPR were granted (down from 54%); 67% of contested motions for stay pending CBM review were granted (down from 89%); and 29% of motions for stay pending PGR were granted. Thus, stipulating to a stay remains the surest way to ensure that one is granted.

Timing Becomes More Important From the time of filing the petition for review, the PTAB has six months to issue a decision to institute a trial. The majority of courts continue to postpone or deny stay requests filed prior to institution of a trial. During the last year, only 34% of contested requests to stay pending IPR/CBM/PGR review filed before institution were granted. In contrast, 62% of contested requests to stay pending IPR/CBM/PGR review filed after institution were granted. (This excludes motions where ruling was deferred or additional briefing was ordered, ex parte and sua sponte motions, or motions that were denied as moot. It is also important to consider the timing of the filing of the petition for review and how that might make an impact on a stay request. A petition must be filed within one year after the date on which the petitioner, real party in interest or privy of the petitioner is served with the complaint alleging infringement of the patent. But courts may, and do, deny stay requests because the movant “unjustifiably delayed” in filing its petition for IPR/CBM review. The longer a party waits to file its petition, the more likely it is that discovery, claim construction and dispositive motion practice will be underway in the district court, which might weigh against a stay.[3] Consequently, it is wise to file a petition as early as reasonably possible. If the petitioner cannot file in advance of the initial scheduling conference, it should consider declaring its intent to file a petition as part of that conference, informing the court that a motion to stay will be forthcoming. This should mitigate concerns by the patentee, or the court, that any delay has prejudiced the parties in setting the pretrial schedule.

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BREAKDOWN ON REQUESTS TO STAY: SEPTEMBER 1, 2016 – AUGUST 31, 2017

DISTRICT COURT ORDERS

REQUESTS TO STAY PENDING IPR/CBM/PGR

TOTAL

296

Stays Granted

205

Granted Before Decision on Institution

112 52 contested 60 stipulated

Granted After Decision on Institution

93 35 contested 58 stipulated

Stays Denied

Denied Before Decision on Institution

70 67 contested 3 stipulated

Denied After Decision on Institution

21 20 contested 1 stipulated

The total number of requests to stay excludes motions where ruling was deferred or additional briefing was ordered, ex parte and sua sponte motions, and motions that were denied as moot. Also, motions where only some institution decisions had been made while others were pending are excluded from this list. “Stays granted” includes 13 motions that were granted only in part, 12 of which were contested.

Location Matters, But the Judge Matters More in Some Districts The success rates for contested motions to stay vary substantially not only among districts but also among judges within the same district. The following chart illustrates the variance among districts.

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FAVORABLE JURISDICTIONS FOR STAYS PENDING IPR: SEPTEMBER 1, 2016 – AUGUST 31, 2017

CONTESTED STAYS DENIED

CONTESTED STAYS GRANTED (Incl. in part)

CONTESTED STAYS SUCCESS RATE

TOTAL STAY REQUESTS

STIPULATED REQUESTS

Northern District of Illinois

70%

Northern District of California

63%

Southern District of California

71%

Southern District of New York

67%

Massachusetts District Court

75%

CONTESTED STAYS GRANTED (Incl. in part)

CONTESTED STAYS SUCCESS RATE

DISTRICT COURT

UNFAVORABLE JURISDICTIONS FOR STAYS PENDING IPR: SEPTEMBER 1, 2016 – AUGUST 31, 2017

CONTESTED STAYS DENIED

TOTAL STAY REQUESTS

STIPULATED REQUESTS

Eastern District of Texas

34%

Delaware District Court

21%

New Jersey District

25%

Eastern District of Virginia

25%

DISTRICT COURT

“Total stay requests” exclude motions where ruling was deferred or additional briefing was ordered, ex parte and sua sponte motions, and motions that were denied as moot. As was the case in 2016, stay decisions from some of the busiest patent-litigation dockets in 2017 reveal that that the judge may matter more than the jurisdiction.

ENDNOTES [1] See, e.g., GoPro, Inc. v. C&A Marketing, Inc., No. 16-cv-03590-JST, 2017 WL 2591268, at *4-6 (June 15, 2017). [2] Although stipulated motions for stay are typically granted, courts can, and have, denied them; two were denied between September 1, 2016 and August 31, 2017. In one of these cases, a judge in the District of Delaware denied the parties’ request without a written order or explanation. IYM Techs. LLC v. Advanced Micro Devices, Inc., No. 16-cv-649-GMS (D. Del. Aug. 7, 2017). In the second case, the court ruled that since the USPTO could deny the petition, postponing the case would be “simply wasted time.” Link Engine Techs. LLC v. Vimeo, LLC, No. 17-cv-3747, slip op. at 1 (S.D.N.Y. May 26, 2017). It noted that, even if the PTAB granted the petition, the parties were still up to a year away from any decision, and that this kind of speculative delay was not what Congress intended. Id. at 1-2. [3] See, e.g., Chrimar Sys., Inc. v. Adtran, Inc., No. 15-cv-618-JR-JDL, 2016 WL 9225575, at *3 (E.D. Tex. Dec. 9, 2016) (“[I]t is also true that the progression of a case before the district court is so significant that it is appropriate for the case to proceed before the district court. Often times the progression before the district court is significant because there has been a delay in the filing of IPR petitions as well as in the filing of motions to stay. That was the case here where Defendants waited between seven and eleven months to file their IPR petitions,

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For example, judges in the U.S. District Court for the Northern District of California collectively granted contested motions to stay pending a PTAB case 53% of the time since September 2012. The statistics for several judges in the group, however, veer far from that number. The success rate in front of Judge Beth Freeman and Judge Jon Tigar was only 38%, and Judge William Alsup has never granted in full a stay request pending PTAB. This sharply contrasts with Judge Phyllis Hamilton and Judge Susan Illston, for whom the success rates on contested motions to stay pending IPR were 100% and 67%, respectively.

Key Tips

In the U.S. District Court for the Eastern District of Texas, moving to stay pending PTAB is an uphill battle, regardless of the judge. Only 32% of contested motions were granted this past year, with Judge Rodney Gilstrap granting only 28% of such motions (and this rate is actually up from 14%). Magistrate Judge John D. Love has granted only 24% of the contested stay motions before him. However, in front of Judge Roy Payne, contested motions to stay pending PTAB saw a 36% success rate since September 2012.

>> Research your district judge’s record to assess your chances of a stay pending IPR.

In the U.S. District Court for the District of Delaware, the success rate on contested motions to stay pending PTAB was 37% over the period beginning September 2012. But that statistic hides the extremes. Judge Gregory Sleet has granted stays in 70% of contested motions to stay pending PTAB, while the success rates in front of Judge Richard Andrews and Judge Leonard Stark were only 14% and 38%, respectively.

Relationship of the Parties—Competitors Versus Non-Practicing Entities

>> Don’t assume that facing an NPE guarantees a stay; courts consider their rights too.

Finally, the competitive relationship of the parties is often a factor in determining whether a stay issues. As a general matter, the fact that parties are direct competitors weighs against granting a stay, because the patentee may suffer continued—and arguably unquantifiable— harm from ongoing infringement. However, an ipse dixit claim of such prejudice is likely to be insufficient; some actual evidence of prejudice must be shown.[4] On the other hand, the fact that the non-moving party is an NPE does not guarantee a stay. Courts continue to state that the fact that the NPE did not directly compete with the defendant does not mean it would not experience prejudice from a stay, noting that even an NPE is interested in a timely enforcement of its rights.[5] [6] This appears to be more of a caution, however, than an applied rule, given that cases involving an NPE (self-identified or otherwise) were still more likely to be stayed.

another two months to file an initial motion to stay, and an additional three months from the first institutions to file the instant renewed motion to stay only a month prior to trial. . . . Given the particular circumstances here, it is inappropriate to stay this case.”). [4] See, e.g., Finjan, Inc. v. FireEye, Inc., No. C 13-03133 SBA, 2017 WL 1150283, at *3 (N.D. Cal. March 28, 2017) (“[C]ourts in [the Northern District of California] require ‘evidence to substantiate an argument that direct competition will result in prejudice to the non-moving party.’”) (citation omitted); Tire Hanger Corp. v. Shinn Fu Co. of Am., Inc., No. 16-02668 JAK, slip op. at 5 (E.D. Cal. June 7, 2017) (“‘Courts have repeatedly found no undue prejudice unless the patentee makes a specific showing of prejudice beyond the delay necessarily inherent in any stay.’”) (quoting PersonalWeb Techs., LLC v. Apple Inc., 69 F. Supp. 3d 1022, 1029 (N.D. Cal. 2014)). [5] Realtime Data, LLC v. Rackspace US, Inc., No. 16-cv-00961-RWS-JDL, 2017 WL 772654, at *4 (E.D. Tex. Feb. 27, 2017) (“The fact that Realtime is a non-practicing entity and is merely pursuing monetary damages would not preclude Realtime from experiencing prejudice if the Court granted Defendants’ motion to stay.”) (citing Rembrandt Wireless Techs., LP v. Samsung Elecs. Co., No. 2:13-cv213, 2015 WL 627887-JRG-RSP, at *2 (E.D. Tex. Jan. 29, 2015)). [6] Id. (“However, as the Court has also recognized in previous cases, concerns such as timely enforcement of patent rights are generally too generic, standing alone, to defeat a stay motion.”).

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NEED-TO-KNOW DEVELOPMENTS REGARDING FEDERAL CIRCUIT REVIEW OF IPRs

For the past five years, the Federal Circuit has been overseeing IPR decisions by the Patent Trial and Appeal Board. Several Federal Circuit decisions offer fresh insight into emerging developments for practitioners.

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The intent of inter partes review was to streamline patentability disputes and place them in the expert hands of the Patent Trial and Appeal Board, with oversight by the U.S. Court of Appeals for the Federal Circuit. How has that played out in the past five years? We consider some major decisions by the Federal Circuit to identify important developments that practitioners should know about when addressing the Federal Circuit piece of the IPR equation.

Current Snapshot of Federal Circuit and PTAB Appeals Most cases appealed to the Federal Circuit involve routine issues relating to claim constructions and the adequacy of the PTAB’s findings; the Federal Circuit affirms a vast majority of the IPR appeals it hears, with some data indicating that 75% of the PTAB’s final written decisions on IPRs in 2016 were affirmed on appeal.[1] Notably, the effect of adding IPR appeals to the Federal Circuit’s already large caseload is showing. The court began adding argument dates to its calendar in an effort to keep up with its docket and has also aggressively consolidated appeals by grouping together cases concerning IPRs on related patents. In addition, many practitioners anticipate an increase in the number of Rule 36 summary affirmances, along with longer times for cases to be pending before the court. While the Federal Circuit continues to develop the body of jurisprudence relating to IPRs, its earliest IPR decisions were important simply because they addressed fundamental questions about IPR appeals. For example, in MCM Portfolio LLC v. Hewlett-Packard Co., 812 F.3d 1284 (Fed. Cir. 2015), the Federal Circuit decided that IPRs are a constitutional exercise of Congress’ powers—an issue that the Supreme Court will be considering when it hears Oil States Energy Services, LLC v. Greene’s Energy Group, LLC in the upcoming term. (See a discussion of Oil States on page 22.) The early IPR decisions also served the critical function of articulating the legal standards and burdens for appellate review of IPRs: e.g., that the PTAB’s conclusions of law in IPRs would be reviewed de novo, findings of fact in IPRs would be reviewed for substantial evidence and IPR claim constructions would be reviewed de novo as long as the intrinsic record is clear. Moving past the early days, the Federal Circuit appears to be addressing such key issues as when IPR institution decisions can be appealed, the importance of Article III standing, why the PTAB must explain its rationale, and more, as detailed below.

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Key Tip

>> Appellants must meet their burden to demonstrate standing at the first opportunity or risk dismissal for lack of standing.

Development #1: IPR Institution Decisions Are Not Appealable. Perhaps the most important of the Federal Circuit’s early IPR decisions was In re Cuozzo Speed Technologies, LLC, 778 F.3d 1271 (Fed. Cir. 2015), withdrawn and superseded by 793 F.3d 1268 (Fed. Cir. 2015), aff’d, 136 S. Ct. 2131 (2016), which became the first Supreme Court decision on IPRs. Cuozzo addressed whether the Federal Circuit had appellate jurisdiction to review the PTAB’s decision on whether to institute an IPR. The relevant statutory language appears in 35 U.S.C. § 314(d), which states: “The determination by the Director whether to institute an inter partes review under this section shall be final and nonappealable.” The Federal Circuit and Supreme Court each found that this language generally foreclosed appeals of the PTAB’s decisions concerning the institution of IPRs. In the Supreme Court, Justice Samuel Alito and Justice Sonia Sotomayor dissented on the ground that the statutory language should be interpreted as barring only interlocutory appeals. However, the majority of Supreme Court justices, in an opinion written by Justice Stephen Breyer, found that such a limitation would effectively rewrite the plain statutory prohibition on appeals. Notably, however, the Supreme Court refused to “categorically” prohibit appellate review of IPR institution decisions, and it recognized that there may be certain cases where the PTAB’s decision on whether to institute could be reviewed on appeal. If the PTAB’s decision implicated other federal or constitutional rights—including, most notably, due process concerns—then the decision would not be immunized from judicial review. In the wake of Cuozzo, the Federal Circuit considered whether its jurisdictional inability to review institution decisions included the PTAB’s decision that an IPR is time-barred. In Click-to-Call Technologies, LP v. Oracle Corp., No. 2015-1242, 2016 WL 6803054 (Fed. Cir. Nov. 17, 2016), the appellant/patentee contended that the PTAB should have refused to initiate the IPR pursuant to 35 U.S.C. § 315(b), which requires an IPR to be instituted no more than one year after an alleged infringer is served with a complaint. The appellant contended that Cuozzo and 35 U.S.C. § 314(d) should limit the Federal Circuit’s jurisdiction only when the basis of the non-institution decision relates to the substance of the case, not when it involves a procedural matter, such as a limitations period. The Federal Circuit, relying heavily on its decision in Achates Reference Publishing, Inc. v. Apple Inc., rejected the appellant’s argument and confirmed that the jurisdictional limitations of § 314(d) apply regardless of whether the non-institution decision was based on procedural or substantive grounds.[2] Development #2: Federal Circuit Lacks Jurisdiction to Hear Appeals of Final IPR Decisions if Petitioner Does Not Establish Article III Standing. Given Congress’ designation of the Federal Circuit as the tribunal to hear IPR appeals from the PTAB, one might assume that the Federal Circuit has jurisdiction to hear all such appeals. However, in Phigenix, Inc. v. Immunogen, Inc., 845 F.3d 1168 (Fed. Cir. 2017), the Federal Circuit decided that is not the case; in fact, there are certain situations where the Federal Circuit lacks jurisdiction to hear the appeal of the PTAB’s final decision in an IPR. As the Federal Circuit explained in Phigenix, there is no statutory requirement that a petitioner suffer an “injury in fact” before commencing an IPR before the PTAB. Rather, the petitioner need meet only the

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statutory requirements for starting and prosecuting an IPR. However, it is black-letter law that under Article III of the Constitution, only plaintiffs with constitutional standing may bring an action in federal court. Standing, in turn, requires that the plaintiff have suffered an injury in fact. Consequently, there may be cases where a petitioner can commence an IPR, but because it has not suffered an injury in fact, it lacks standing to appeal the PTAB’s decision to the Federal Circuit, an Article III court. This could occur, for example, where a petitioner institutes an IPR even though it does not risk infringing the patent. Phigenix confirms that not only is such an outcome possible, but in order to avoid dismissal, an appellant has the burden to demonstrate standing by coming forward with evidence of a type and nature that would permit summary There may be cases where a petitioner can commence judgment. Furthermore, the appellant must meet its burden at an IPR, but because it has not suffered an injury in fact, the first appropriate opportunity—generally in response to a it lacks standing to appeal the PTAB’s decision to the motion to dismiss an appeal or in the appellant’s opening brief. Federal Circuit, an Article III court. Any delay could result in dismissal of the appeal for lack of standing, as occurred in Phigenix. Development #3: Federal Circuit Can Provide Its Own “Broadest Reasonable Construction” of Patent Claims. In Cuozzo, the Federal Circuit and Supreme Court decided a second important issue: the appropriateness of using the “broadest reasonable construction” standard in connection with IPRs. As background, it has long been the rule in district courts that patent claims are to be interpreted using the methodology set forth in Phillips v. AWH Corp., 415 F.3d 1303 (Fed. Cir. 2005). For IPRs, however, the U.S. Patent and Trademark Office implemented a rule (i.e., 37 C.F.R. § 42.100(b)) that patent claims are to be given the “broadest reasonable construction in light of the specification of the patent.” This difference in standards could potentially result in inconsistent claim constructions between district courts and the PTO and would tend to make invalidating a patent easier in an IPR than in district court litigation. Motivated by these concerns, the Cuozzo appellant argued that the PTO lacked authority to issue the “broadest reasonable construction” regulation. Majorities of the Federal Circuit and Supreme Court disagreed. The Supreme Court explained that in light of “gaps” in the legislation enabling IPRs, the PTO had discretion to fashion rules to fill those caps. The rule mandating the use of the broadest reasonable construction for IPRs was one such gap-filling rule. Moreover, the rule requiring the broadest reasonable construction was reasonable because it protected the public from overly broad and imprecise patent claims and was consistent with standards applied by the PTO in other types of proceedings. The Federal Circuit has subsequently elaborated on the broadest reasonable construction rule and the way it applies on appeal. In Homeland Housewares, LLC v. Whirlpool Corp., 865 F.3d 1372 (Fed. Cir. 2017), the parties disagreed as to claim construction, yet the PTAB did not explicitly adopt any construction for the relevant term. The court held that it (i.e., the Federal Circuit) was permitted to determine the correct construction of the term based on intrinsic evidence in the record. Moreover, the court was not limited to the constructions proposed by either party below; as with appeals of district court litigation, the Federal Circuit was free in such circumstances to adopt claim constructions that “best fit[] with

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Key Tips

>> The Federal Circuit will not tolerate a petitioner's withholding of arguments or evidence, even if the petitioner appears to have PTAB’s blessing. >> The PTAB must be provided with sufficient evidence and reasoning to support a written decision.

the claim language and specification.” Id. at 1376. Notably, the Federal Circuit also emphasized that the construction it provided was appropriate because it was a “midpoint between the two opposing constructions now urged by the parties.” Id. at 1377. Development #4: Patent Owners Must Have Sufficient Notice and Opportunity to Respond. In early IPR appeals, the Federal Circuit has repeatedly vacated the PTAB’s cancelation of patent claims when the patentee was denied notice and fair opportunity to address the grounds for rejection. In Dell Inc. v. Acceleron, LLC, 818 F.3d 1293, 1301 (Fed. Cir. 2016), for example, the Federal Circuit held that the PTAB had impermissibly relied on factual assertions that were introduced for the first time at oral argument. The court emphasized the Administrative Procedure Act’s requirements that the patent owner be (1) timely informed of asserted matters of fact and law, (2) provided an opportunity to submit facts and arguments, and a hearing and decision on notice, and (3) given an opportunity to submit rebuttal evidence as necessary for a full and true disclosure of facts.[3] Moreover, the PTO rules provide that at oral argument, a party cannot present new arguments or evidence.[4] The Federal Circuit reached a similar decision in EmeraChem Holdings, LLC v. Volkswagen Group of America, Inc., 859 F.3d 1341 (Fed. Cir. 2017), where the court held that the PTAB had improperly denied the patentee sufficient notice and opportunity to respond to the argument that a particular claim was obvious in view of a specific prior art reference. In EmeraChem, the initial petition for IPR had contained general statements concerning the patent’s obviousness in light of a particular reference. However, once the IPR was instituted and the petitioner provided detailed claim charts, the reference was not identified as the basis of an obviousness challenge to the specific claim in issue—even though the reference was mentioned in connection with arguments directed at other claims in the patent. Under those circumstances, the PTAB was required to give the patentee an opportunity to address the obviousness of the specific claim in light of the reference. Dell, EmeraChem and similar cases reinforce the idea that the Federal Circuit will not tolerate a petitioner’s withholding of arguments or evidence—even if the petitioner appears to have the blessing of the PTAB when doing so. Moreover, a petitioner who fails to specifically express an argument cannot rely on general expressions of that argument that may have been made when the petitioner was seeking the institution of the IPR or the invalidation of other patent claims. Development #5: PTAB Must Explain Its Rationale or Risk Remand. Another issue the Federal Circuit has addressed in multiple decisions is the requirement that the PTAB provide a written explanation of the grounds for its decision. The Federal Circuit views adequate written decisions as necessary to ensure that the PTAB’s actions are not arbitrary, capricious, abusive or otherwise unsupported. For example, in connection with an obviousness challenge, the court has held that the PTAB’s written decision must explain how prior art (or combinations thereof) discloses the elements of challenged claims and must contain adequately explained findings as to why a person having ordinary skill in the art (PHOSITA) would be motivated to combine prior art references.[5] The court emphasized the requirements that the PTAB must “have an adequate ‘evidentiary basis for its findings’” and “examine the relevant data and articulate a satisfactory explanation for its action including a rational connection between the facts found and the choice made.”[6]

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Notably, however, the Federal Circuit has rejected the argument that a final decision must address every claim raised in the initial petition for IPR; rather, the requirement of a detailed written decision applies only to those claims upon which review was granted.[7] Relatedly, the Federal Circuit held in VirnetX Inc. v. Apple Inc., 665 F. App’x 880 (Fed. Cir. 2016), that the PTAB can make factual findings in the absence of expert evidence—but only if it provides a full and reasoned explanation based on a review of the complete administrative record. In so ruling, the court acknowledged the expertise of PTAB members, and it expressly held that in appropriate circumstances, the PTAB need not rely on expert testimony when deciding what a PHOSITA would have understood with respect to prior art, even in cases involving complex technology. For practitioners, this line of cases makes it clear that the PTAB must be provided with sufficient evidence and reasoning to support a written decision. Any victory that is not embodied in an adequately reasoned written decision will be Pyrrhic, so practitioners should take all appropriate steps to ensure that the PTAB has been provided with everything it needs to articulate its findings.

The PTAB must be provided with sufficient evidence and reasoning to support a written decision. Any victory that is not embodied in an adequately reasoned written decision will be Pyrrhic, so practitioners should take all appropriate steps to ensure that the PTAB has been provided with everything it needs to articulate its findings.

Development #6: IPR Statements May Come Back to Haunt Parties in District Court Litigation, and Vice Versa. A final noteworthy issue decided by the Federal Circuit involves the prosecution disclaimer doctrine. In Aylus Networks, Inc. v. Apple Inc., 856 F.3d 1353 (Fed. Cir. 2017), the court considered whether a patent owner’s statements during the course of an IPR can create a prosecution disclaimer during subsequent claim construction. The Federal Circuit answered the question in the affirmative. The court reasoned that such a rule would prevent a patent holder from making contradictory arguments when seeking to maintain a patent’s validity and when seeking to impose liability for infringement. Therefore, petitioners should avoid making any statements in the context of an IPR that could prove harmful in litigation or subsequent claim construction. Of course, the inverse is also true: inconsistent statements made during a litigation can be harmful in an IPR. For example, in Ultratec, Inc. v. CaptionCall, LLC, No. 2016-1706, 2017 WL 3687453 (Fed. Cir. Aug. 28, 2017), the Federal Circuit ruled that the PTAB should have allowed patentee to introduce evidence that the petitioner’s expert had made inconsistent statements made during a district court litigation. The PTAB cited its timing and procedural regulations (37 C.F.R. § 42.123(b)) when refusing patentee’s request to admit the inconsistent statements. Notably, however, the PTAB did not consider—and in fact would not allow the patentee to present—the substance of the inconsistent statements in issue; this, the Federal Circuit found, was an abuse of discretion. On appeal, the Federal Circuit held that the PTAB had abused its discretion. The relevant regulation permits new evidence if it could not have been obtained earlier and if considering the evidence would be in the interest of justice. The timing requirement was satisfied by virtue of the fact that the inconsistent testimony did not exist during the IPR discovery period. As to the import of the evidence, the court found that a “reasonable adjudicator would have wanted to review this evidence,” and it heavily criticized the

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PTAB for making its decision without giving any consideration to—or even allowing the patentee to present—the substance of the new evidence.[8] Thus, the PTAB lacked the information needed to make a reasonable decision on the motion. The Federal Circuit further criticized the PTAB for failing to explain the basis for its exclusion of the evidence and failing to satisfy its obligation to create an adequate record for appeal. The Ultratec decision confirms not only that the Federal Circuit will continue to scrutinize the substance and procedures that lead to a decision but also that parties must be cognizant that any inconsistent statements made by them (or their experts) in court may be used against them in IPRs.

ENDNOTES [1] Kerry S. Taylor and Daniel A. Kamkar, IPR Appeals: Pendency And Success Rates At Fed. Circ., Law 360 (Feb. 8, 2017, 12:19 PM), https:// www.law360.com/articles/884916. [2] 803 F.3d 652 (Fed. Cir. 2015). [3] 5 U.S.C. § 554(b)(3), (c), (d). [4] Office Patent Trial Practice Guide, 77 Fed. Reg. 48,756, 48,768 (Aug. 14, 2012). [5] In re NuVasive, Inc., 842 F.3d 1376 (Fed. Cir. 2016); Pers. Web Techs., LLC v. Apple, Inc., 848 F.3d 987 (Fed. Cir. 2017). [6] In re NuVasive, Inc., 842 F.3d 1376, 1382 (Fed. Cir. 2016) (citation omitted). [7] Synopsys, Inc. v. Mentor Graphics Corp., 814 F.3d 1309 (Fed. Cir. 2016). [8] Ultratec, 2017 WL 3687453, at *4.

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IS THE SUN SETTING EARLY ON COVERED BUSINESS METHOD REVIEW?

A recent string of decisions by the U.S. Court of Appeals for the Federal Circuit has substantially narrowed the standard the PTAB must employ when determining whether a patent is directed to “a financial product or service.” We consider these decisions and their impact on the role of CBM review in patent litigation practice.

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As part of the America Invents Act, U.S. Congress created a distinct process to review patents directed to financial practices. Under the covered business method (CBM) review program, the Patent Trial and Appeal Board may consider a plethora of invalidity grounds—so long as the patent is CBMeligible. Many people find CBM review an attractive way to challenge a patent because a petitioner has defenses unavailable in inter partes review proceedings. However, before any invalidity challenge can be heard, the PTAB must answer the threshold question of whether the patent relates to a “financial product or service.” Once considered a convenient, cost-effective way to invalidate a patent broadly related to the financial industry (especially after Alice Corp. v. CLS Bank International and its progeny breathed life into the patent-eligible subject matter doctrine), filing a CBM petition is now a risky proposition, except against patents clearly claiming financial activities. A recent string of decisions by the U.S. Court of Appeals for the Federal Circuit has substantially narrowed the standard the PTAB must employ when determining whether a patent is directed to “a financial product or service.” As a result, the number of petitions filed per quarter has dropped precipitously, while at the same time, the rate at which petitions are denied for failing to meet the CBM jurisdictional standard has increased threefold.

Scope of PTAB’s Jurisdiction to Institute CBM Review and Early PTAB Decisions Since the beginning of the program, the scope of CBM jurisdiction has been defined by a two-pronged test. First, does the patent contain at least one claim directed to the practice, administration or management of a financial product or service (“financial prong”)? If so, does the claimed subject matter “as a whole” either (1) recite a novel and nonobvious technological feature; or (2) solve a technical problem using a technical solution (“technological prong”)?[1] If the answer to both questions of the “technological prong” is “no,” then the entire patent is eligible for CBM review. Early on, the PTAB broadly interpreted its jurisdiction under the financial prong of this test. Based on its review of the AIA’s legislative history, the PTAB found the financial prong satisfied for a patent having just a single claim “‘incidental’ and/or ‘complementary’ to a financial activity.” [2] As a result, patents with general applicability to the financial industry were subject to CBM review. For example, patent claims satisfying the “incidental or complementary to” test included claims directed to: • A “substitute fulfillment service” to find substitute tellers for retail institutions, a category “broad enough” to include financial institutions like retail banks. • An exchange of information between anonymous parties, because “[t]he specification describe[d]

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an embodiment in which one of th[e] parties is an employer or company seeking potential candidates for a job opening.” • Controlling access to information about the location of a wireless device (e.g., a cell phone), because the claimed “client application” requesting the information could be, according to the specification, “a service provider or a goods provider, such as a hotel, restaurant, or store, that wants to know a wireless device is in its area so relevant advertising may be transmitted to the wireless device.”

Federal Circuit Narrows Breadth of Financial Prong In a trio of decisions, the Federal Circuit denounced the PTAB’s lenient application of the financial prong as inconsistent with the statutory scheme enacted by Congress. Although none of the decisions clearly articulates an administrable test for applying the statutory definition, the decisions suggest that a “financial element” must be a part of a claim, and not merely an embodiment disclosed in the specification, for the PTAB to have jurisdiction to review the patent under CBM review.

A “financial element” must be a part of a claim, and not merely an embodiment disclosed in the specification, for the PTAB to have jurisdiction to review the patent under CBM review.

First, in Blue Calypso, LLC v. Groupon, Inc., the Federal Circuit affirmed that a claim directed to managing and distributing advertising content qualified for CBM review because the claim included a limitation reciting a “subsidy,” which the board had properly construed as “financial assistance given by one to another.”[3] While the invention itself related to advertising content, the Federal Circuit affirmed the PTAB’s CBM jurisdiction based largely on the express inclusion of a financial limitation in the claims. Then, in Unwired Planet, LLC v. Google, Inc., the Federal Circuit rejected the PTAB’s use of the “incidental or complementary to” test as not being in accordance with the AIA.[4] The Federal Circuit found the PTAB’s standard improperly broad because under that standard a patent for a novel lightbulb that is ideal for bank vaults would be CBM-eligible, even though it is hardly “financial in nature.” Finally, in Secure Axcess, LLC v. PNC Bank National Association, the Federal Circuit doubled down on its stricter interpretation of CBM jurisdiction and indicated that the financial element would be met only where a claim, properly construed in light of the specification, contains a “financial activity element.”[5] In reversing the PTAB’s determination of jurisdiction, the panel concluded that claims directed to a general authentication system were not eligible for CBM review because the specification merely used examples of the invention in a financial context (i.e., use of the invention by banks and institutions of credit) and the claims themselves were not so limited. As a result of these decisions, the focus of the CBM jurisdictional inquiry shifted from assessing lone embodiments in the specification to near-exclusive reliance on claim language. The “financial activity element” in Secure Axcess is hardly more descriptive than the AIA’s statutory standard (“operations used in the practice, administration or management of a financial product or service”). And some PTAB

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CBM Institution Since Unwired Planet In Unwired Planet, the Federal Circuit made clear that claim language must be the focus of the “financial prong” analysis for CBM jurisdiction. Samples below offer examples of claim language that succeeded and failed to satisfy the ‘‘financial prong” test.

INSTITUTED

DENIED INSTITUTION

“[C]omputing the discounts on said merchandise subject to a price discount”

“[P]rocessing the request remotely to facilitate customer access to and manipulation of a plurality of customer-specific information and services retained by the service provider”

“[T]he remote device is associated with an automated teller machine (ATM)”

“[C]ausing an advertisement to be displayed. . . for a particular consumer”

“[A]mount of the transactions” and “expenditure types”

“A method for wirelessly delivering one or more digital audio and/or visual files from one or more servers to one or more cell phones”

“[T]he system transmits advertisement format scenarios according to a selected placement option”

“[C]ompleting a registration of the user based on the received information and verified telephone number, wherein the completed registration enables the user to access the service”

“[B]illing for the usage of said system”

“[R]eceiving by a computer device market data relating to the commodity from the electronic exchange” and “sending the trade order to the electronic exchange”

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panels have instead focused on Blue Calypso’s “expressly or inherently financial” dicta as the guiding rule. Ultimately, the tenor of this trio of cases is that CBM eligibility hinges not on whether a claim can be practiced in the course of a financial activity, but whether it must. No matter how the test is articulated, with the focus of the analysis shifting to the claim language, substantially fewer patents are now eligible for CBM review.

The focus of the jurisdictional inquiry has shifted from assessing lone embodiments in the specification to near-exclusive reliance on claim language.

Impact on CBM Petition Filing and Institution Success Rates In the 15 months since the Blue Calypso decision, fewer petitions have been filed each month, and the rate of decline is accelerating. Furthermore, those that are being filed are being dismissed for failing to satisfy the financial prong at a much higher rate. Together, these statistics suggest that the Federal Circuit’s decisions have had a marked effect on diminishing the role of CBM review in the patent litigation practice. A chart illustrating the number of petitions filed each half-year since the CBM program started in September 2012 depicts the impact that the Federal Circuit decisions have had on filing trends. The fact that just two petitions have been filed since June 2, 2017, further underscores how infrequently petitions for CBM review are being filed since Secure Axcess.

CBM PETITION FILING TRENDS 100 91 80

82 68

61 46

30 20

15 0 Q3-Q4 2012

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Q1-Q2 2013

Q3-Q4 2013

Q1-Q2 2014

Q3-Q4 2014

Q1-Q2 2015

Q3-Q4 2015

Q1-Q2 Q3-Q4 2016 2016

Q1-Q2 2017

The graph shows a downward trend in petition filing from a high point in the second half of 2014, when the CBM review procedure was familiar enough for risk-averse parties to utilize but still new enough that the novelty encouraged experimentation. But it is also clear that the filing rate continued to fall after each Federal Circuit ruling. Another chart examines institution rates and how frequently the PTAB rejected petitions for failing to meet the financial prong before and after Blue Calypso. The comparison shows that nearly four times as many petitions have been denied on jurisdictional grounds since Blue Calypso because the challenged patents do not claim financial products or services.

RATE OF PETITIONS DISMISSED AT INSTITUTION STAGE FOR LACK OF “FINANCIAL ELEMENT” 40%

30%

31%

20%

10% 8% 0% Pre-Blue Calypso

Post-Blue Calypso

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PRACTICE TIPS Practical Advice

Even though the CBM review program is set by Congress to expire in 2020, the Federal Circuit decisions culminating in Secure Axcess appear to have brought about a de facto early sunset. However, CBMs are still a viable platform to challenge patent validity when the patent includes at least one claim reciting a “financial element.”

>> Patent Owners For patent owners seeking to preserve their intellectual property, narrow jurisdiction is good news. Patents previously eligible for CBM review under the “incidental or complementary to” test no longer face early and efficient challenges to patentability under 35 U.S.C. § 102, 103 or 112. While attacks to patent eligibility under 35 U.S.C. § 101 may be brought in a motion to dismiss at a district court, these challenges have also fared well at the PTAB. Additionally, when facing a petition for CBM review, a patent owner may be able to cancel qualifying claims to avoid review of the entire patent. This may be particularly useful where a broad independent claim is explicitly narrowed to a financial context in a dependent claim. Take note of a minority line of PTAB authority upholding jurisdiction in spite of a patent owner cancelling the financial claims. For inventors and institutions seeking to create new intellectual property broadly related to the financial industry, the outcome and timing of these cases suggest that it may now be safe to pursue that goal. When drafting new claims, take care to avoid the use of common financial terminology. Unless a claim term necessarily includes a “financial

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activity element” under its broadest reasonable construction, it will not support CBM jurisdiction under the new standard. Also keep in mind that, under the current law, petitions for CBM review may no longer be filed after September 2020. Unless Congress decides to renew the program, it is likely that patents filed by mid-year 2018 will not issue before the CBM sunset, given the PTAB’s current average total application pendency of about 25 months. As such, using financial terminology in claims may not be a concern for forthcoming applications.

>> Petitioners For patent claims lacking any common financial terminology, petitioners should look for uncommon terms that are connected to a financial product or service or for other terms that the patentee defined to be connected to a financial product or service. The Federal Circuit has cautioned against looking for “particular talismanic words” in qualifying claims, instead suggesting that a “‘wide range of finance-related activities’” would satisfy the financial prong; they simply must be part of the claim. [6] This “wide range” of activities includes determining a price, subsidizing (“financial assistance given by one to another” to influence action), and processing the charging of a fee.

ENDNOTES [1] [2] [3] [4] [5] [6]

E.g., TradeStation Techs., Inc. v. Trading Techs. Int’l, Inc., No. CBM2016-00086, Paper No. 8 at 4-6 (P.T.A.B. Dec. 1, 2016). CRS Advanced Techs., Inc. v. Frontline Techs., Inc., No. CBM2012-00005, Paper No. 17 (P.T.A.B. Jan. 23, 2013). 815 F.3d 1331, 1338-41 (Fed. Cir. 2016). 841 F.3d 1376 (Fed. Cir. 2016). 848 F.3d 1370, reh’g and reh’g en banc denied, 859 F.3d 998 (Fed. Cir. 2017). Secure Axcess, 848 F.3d at 1381 (citation omitted).

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Obviousness in the Wake of Arendi

Since the U.S. Court of Appeals for the Federal Circuit issued its opinion in Arendi S.A.R.L. v. Apple Inc. last August,[1] many patent commentators have asserted that the decision marked a significant change in the analysis of obviousness under 35 U.S.C. § 103, especially as a weakening of singlereference obviousness grounds. Notwithstanding this decision, petitioners and the Patent Trial and Appeal Board have continued to rely on single-reference obviousness to assert and find that claims are obvious.

Basics of a Single-Reference Obviousness Challenge An obviousness challenge typically relies on the combination of multiple prior art references in asserting that the prior art discloses all limitations of a challenged claim. In contrast, a “single-reference” obviousness ground is based on one prior art reference. Single-reference obviousness grounds are used in situations where the asserted basis for unpatentability falls between an anticipation ground—where one reference discloses all elements of the patent claims—and the more traditional “multiple-reference” obviousness grounds—where two or more prior art references are combined for disclosure of all elements of the patent claims. With single-reference obviousness, the cited prior art reference does not disclose all of the elements of the patent claims (which would be anticipation), but the party challenging the patent asserts that the nondisclosed element can be addressed without an additional prior art reference. Practitioners regularly use a variety of techniques to fill apparent holes in the single prior art reference. For example, practitioners might argue that the missing element, while not explicitly disclosed in the single reference, is so clearly suggested by the single reference that it would have been an obvious modification. Practitioners also might argue that the missing element would have been a common-sense modification to the single reference—a modification so simple that any ordinary artisan would think of it with basic common sense.

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Effect of Arendi Decision In Arendi, the Federal Circuit signaled to the PTAB that it should not readily use common sense to compensate for missing claim elements in a single-reference § 103 challenge. When Arendi was before the PTAB, the board invalidated a patent based on a single-reference § 103 ground, finding a missing limitation to be an obvious modification “as a matter of common sense.” Arendi, 832 F.3d at 1360 (citation omitted). While the court acknowledged that the common sense of an ordinary artisan is relevant, it also stated that common sense should usually be used in connection with showing a motivation to combine references. The court said that common sense should be used to address a missing claim element only if that claim element is “unusually simple and the technology particularly straightforward.” Id. at 1362. Finding the missing claim element to be important, the court reversed the PTAB’s invalidity ruling. The court suggested that this narrow limitation on the use of common sense was already part of the court’s precedent. Some commentators, however, expressed the view that Arendi had actually taken a single, fact-specific holding and expanded it into a bright-line precedent having broader relevance to obviousness challenges, especially those based on a single prior art reference. Despite such commentary, the statistics appear to show that Arendi has not deterred IPR petitioners from advancing single-reference obviousness grounds. Although only a year has passed since the Federal Circuit’s decision, the chart below seems to show no significant change in the rate of assertion of single-reference obviousness.[2] As the decision occurred in August 2016, any change in petitioners’ direction should have been detectable by the end of Q4 2016,[3] but no such change is observable. The rate at which petitions included a single-reference obviousness ground has remained within historical norms; that is, 30% to 40%. As of publication time, data for part of Q1 2017 do not show a significant change in direction, but we note the small amount of data available for the quarter.[4] We expect that data for all of Q1 2017 will conform to the historical trend once all proceedings from that quarter have reached the institution stage.

FILING TRENDS FOR SINGLE-REFERENCE § 103 GROUNDS 100% 90% 80%

157

8 99

115

118

120

70% 60% 50% 45

40% 30%

239 224

185

229

273

231

Q3 2016

Q4 2016

20% 10% 0% Q3 2015

Q4 2015

Q1 2016

Q2 2016

No single-reference § 103

Q1 2017

Single-reference § 103

Note: The data for Q1 2017 are partial and do not reflect the entire quarter.

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Similarly, there seems to be no significant change in the rate at which the PTAB has instituted singlereference obviousness grounds,[5] with the institution rate hovering between 45% and 60%.

INSTITUTION TRENDS FOR SINGLE-REFERENCE ยง 103 GROUNDS 100% 90% 80% 72

70%

Q3 2016

Q4 2016

60% 50%

40% 30% 68

20%

72 10

10% 0%

1 Q4 2015

Q1 2016

Q2 2016

Single-reference ยง 103 denied institution

Q1 2017

Q2 2017

Single-reference ยง 103 instituted

Note: The data for Q2 2017 are partial and do not reflect the entire quarter.

ENDNOTES [1] Arendi S.A.R.L. v. Apple Inc., 832 F.3d 1355 (Fed. Cir. 2016). [2] The data set for this analysis includes all IPR proceedings filed between July 1, 2015, and August 15, 2017. The data are grouped into quarters by filing date. However, importantly, only IPRs that had reached an institution decision on the merits by August 15, 2017, were included in this analysis. So, numerous classes of IPRs are excluded: (1) IPRs settled prior to reaching institution; (2) IPRs dismissed on procedural grounds (e.g., failure to join Real Parties-in-Interest); and (3) IPRs pending an institution decision as of the cutoff date. [3] Note that the quarters indicated here are by calendar year, not the U.S. Patent and Trademark Office fiscal year. So Arendi, decided in August 2016, fell midway through Q3 2016. [4] Because this data were collected as of August 15, 2017, only a small number of the IPRs filed in Q1 2017 had reached the institution stage in this data set, and thus only that small number was included in this analysis. [5] The data set for this analysis is the same as previously identified. The data are grouped into quarters by the date of the institution decision.

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PRACTICE TIPS While the data to date shows no significant change in the assertion or success of single-reference obviousness challenges, Arendi has undoubtedly affected the analysis of obviousness. For example, the PTAB has cited Arendi for the proposition that common sense alone cannot be used as a substitute to fill in an element or limitation missing from the lone reference.

Practical Advice

Based on our review of recent PTAB decisions citing Arendi, we provide the following practice tips when challenging claims using a single-reference § 103 ground:

>> Support Common Sense Rationale With Evidence When relying on common sense to support a single-reference obviousness ground, provide contemporaneous publications supporting your common sense argument, such as a publication showing a motivation to modify the base reference in the allegedly common-sense way. In such a situation, the publication is used as evidence of the state of the art, and not as a part of the obviousness combination, because it is not relied on as disclosing one of the claim elements. Therefore, the petitioner can avoid some of the challenges by proving a “motivation to combine” and some objective indicia of nonobviousness issues. At the same time, the publication provides support for the reliance on common sense and, importantly, something that would satisfy the substantial evidence standard of review when the PTAB’s decision is appealed to the Federal Circuit.

>> Do Not Count on Expert Testimony Do not expect that providing superficial or conclusory language in an expert report will suffice as the reasoning needed to support the use

of common sense. The Federal Circuit in Arendi explicitly found superficial language in the expert report to be insufficient. Petitioners should assume that the PTAB will police this issue in a manner that is consistent with Arendi.

>> Build a Backup Argument Strengthen the common sense position with alternative theories of obviousness that are supported by Federal Circuit and Supreme Court caselaw. For example, in fact patterns where common sense is a viable part of an obviousness theory, it is often effective to present the missing element as a modification that is “obvious to try” (which can also be phrased as an “obvious design choice”), which finds support in KSR International Co. v. Teleflex, Inc., 550 U.S. 398 (2007). For this alternative theory of obviousness, use contemporaneous documentary evidence to show that an ordinary artisan would have chosen from a limited number of modifications in relation to the missing element. By constraining the realm of possible modifications, one of which is the missing element, the modification becomes “obvious to try” as an alternative to being “common sense.”

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WHEN DOES ESTOPPEL APPLY IN A POST-SHAW LANDSCAPE?

There has yet to be a Federal Circuit case that directly addresses if nonpetitioned grounds—as opposed to noninstituted grounds—can give rise to estoppel. We examine various readings of the Federal Circuit’s decision in Shaw Industries Group, Inc. v. Automated Creel Systems, Inc. and offer a range of scenarios that illustrate when estoppel does and does not apply.

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The America Invents Act (AIA) created inter partes reviews to provide a faster, more efficient and less expensive way to challenging patents using the Patent Trial and Appeal Board of the U.S. Patent and Trademark Office as the forum.[1] The AIA drafters were concerned, however, that petitioners might improperly use IPRs to harass patent owners by filing serial IPR petitions against the same patent. Accordingly, the AIA drafters included estoppel provisions that pertain to subsequent actions in another proceeding involving the same patent in the USPTO, the courts and the U.S. International Trade Commission (ITC). Last year, the U.S. Court of Appeals for the Federal Circuit issued its decision in Shaw Industries Group, Inc. v. Automated Creel Systems, Inc., 817 F.3d 1293 (Fed. Cir. 2016), which clarified the scope of estoppel, at least for certain contexts. However, in the wake of the Shaw decision and after five years of IPR practice, some aspects of the scope of estoppel remain unclear.

Scope of Estopped Invalidity Grounds 35 U.S.C. § 315(e)(1) and (e)(2) are the statutory provisions regarding estoppel in IPRs. These provisions dictate that, following a final written decision in an IPR, a petitioner (and its real parties in interest and privies) may not assert in subsequent USPTO, court or ITC actions “any ground that petitioner raised or reasonably could have raised during that inter partes review.” The language appears relatively straightforward, and would seem to prevent petitioners from relitigating positions that they actually presented to the PTAB or reasonably could have presented to the PTAB in a petition. The “reasonably could have raised” language appears to have the AIA drafters were concerned, however, that petitioners effect of dissuading a petitioner from holding back prior art for might improperly use IPRs to harass patent owners by possible later use in another IPR or litigation.

filing serial IPR petitions against the same patent.

In Shaw, the court held that an IPR petitioner does not face an estoppel against a proposed ground when the PTAB declines to institute an IPR on that proposed ground. Specifically, the PTAB declined to institute on a ground (based on the Payne reference) it viewed as redundant. Id. at 1296-97. The Federal Circuit focused on the fact that the text of the statute creates estoppel only for “any ground that the petitioner raised or reasonably could have raised during that inter partes review.” Id. (emphasis in original). The Federal Circuit reasoned that, because an “IPR does not begin until it is instituted,” the noninstituted ground (Payne) never became part of an IPR, and therefore “Shaw did not raise–nor could it have reasonably raised the Payne-based ground during the IPR, and accordingly there could be no estoppel against assertion of the Payne reference.” Id. (emphasis in original).

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The Federal Circuit recently reaffirmed Shaw in Credit Acceptance Corp. v. Westlake Services, 859 F.3d 1044 (Fed. Cir. 2017), where the court held that “[t]he holdings in Synopsys and Shaw with respect to IPRs apply to the [post-grant review] PGR statutes and regulations as well since the PGR provisions contain identical language….Accordingly, we adopt the reasoning and conclusions of our IPR cases….We conclude that 35 U.S.C. § 325(e)(1) does not apply in a subsequent proceeding to claims upon which the Board declined to institute review.” Id. at 1053. The Federal Circuit has drawn an estoppel-impacting distinction between the petition phase of an IPR and the trial phase of an IPR. Unfortunately, there has yet to be a Federal Circuit case that directly addresses if nonpetitioned grounds—as opposed to petitioned, but noninstituted grounds, which Shaw holds are not estopped—can give rise to estoppel. Because of this uncertainty, there are new wrinkles and risks in estoppel analysis that parties to IPRs must consider. District courts have split on whether to read Shaw broadly and thereby narrow the scope of estoppel, which favors the petitioner/accused infringer, or to read Shaw narrowly and thus provide a broader scope of estoppel, which favors the patent owner.

Broad Reading of Shaw—Narrow Scope of Estoppel The courts that have interpreted Shaw broadly have generally focused on the language of the statute and the Federal Circuit’s apparent literal reading. In Intellectual Ventures I LLC v. Toshiba Corp., 221 F. Supp. 3d 534 (D. Del. 2016), Judge Sue L. Robinson noted that “the Federal Circuit has construed the above language quite literally” and allowed Toshiba to present additional invalidity references based on publicly available patents that were not included in Toshiba’s petition. Id. at 553. The court concluded that, “although extending the above logic to prior art references that were never presented to the PTAB at all (despite their public nature) confounds the very purpose of this parallel administrative proceeding, the court cannot divine a reasoned way around the Federal Circuit’s interpretation in Shaw.” Id. at 553-54. Similarly, Judge Susan Y. Illston in Verinata Health, Inc. v. Ariosa Diagnostics, Inc. echoed the same sentiments when she noted “[t]he [Federal Circuit] read section 315(e) literally, which create[s] estoppel for arguments on any ground that the petitioner raised or reasonably could have raised during that inter partes review, and held that IPR estoppel only applies to grounds on which the PTAB actually institutes.” No. 12-cv-05501-SI, 2017 WL 235048, at *3 (N.D. Cal. Jan. 19, 2017) (citation and internal quotation marks omitted). Judge Illston then allowed the patent infringement defendant to present invalidity defenses based on noninstituted grounds. In a subsequent decision, Judge Illston applied the same reasoning to a case that involved a prior art reference that was part of obviousness grounds that were instituted in a prior IPR but were ultimately unsuccessful. Advanced Micro Devices, Inc. v. LG Elecs., Inc., No. 14-cv-01012, 2017 WL 2774339, at *6 (N.D. Cal. June 26, 2017). She noted that her opinion in Verinata found that estoppel applies only to specific grounds that were instituted in a prior IPR. She allowed the defendant to assert new obviousness combinations involving the reference that were different than the previously instituted but unsuccessful grounds in the PTAB.

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In Princeton Digital Image Corp. v. Konami Digital Entertainment, Inc., Chief Judge Leonard P. Stark adopted the Magistrate’s Report and Recommendation, and focused instead on the word “claim” in 35 U.S.C. § 315(e)(2). No. 12-1461-LPS-CJB, 2017 WL 1196642, at *2 (D. Del. Mar. 30, 2017). Based on the interactions of 35 U.S.C. §§ 315(e)(2) and 318(a), the court concluded that for estoppel to apply, the claim “must necessarily have been the subject of an instituted review, and resulted in a final written decision.” Id.

Narrow Reading of Shaw—Broad Scope of Estoppel The courts that have interpreted Shaw narrowly generally focused on the purpose and legislative history of the AIA. For example, in Infernal Tech. v. Elec. Arts Inc., Magistrate Judge Payne noted, “[i]f the petitioner does not include a prior art reference in the petition that the petitioner reasonably could have included, however, the petitioner should be estopped from assert[ing] that reference in a subsequent proceeding. Such a conclusion would be consistent with the purpose and legislative history of the America Invents Act (AIA).” No. 2:15-CV-01523-JRG-RSP, 2016 WL 9000458, at *3 (E.D. Tex. Nov. 21, 2016). Judge James D. Peterson followed this reasoning in Douglas Dynamics v. Meyer Products, estopping Meyer from asserting an invalidity defense based on nonpetitioned grounds, reasoning that “[t]his interpretation respects the statutory language and it is consistent with the legislative history, which clearly suggests that Congress intended IPR to serve as a complete substitute for litigating validity in the district court.” No. 14-cv-886-jdp, 2017 WL 1382556, at *4 (W.D. Wis. Apr. 18, 2017). The court stated that “it will apply § 315(e)(2) estoppel to grounds not asserted in the IPR petition, so long as they are based on prior art that could have been found by a skilled searcher’s diligent search.” Id. at *5. In the Eastern District of Virginia, Judge Henry Coke Morgan, Jr. did not mince words in rejecting a broad reading of Shaw, noting that the courts have “policy concerns that Defendants will preserve patent invalidity arguments from the IPR petition and get two chances to argue invalidity, completely eviscerating the advantages of staying litigation for an IPR petition.” Cobalt Boats, LLC v. Sea Ray Boats, Inc., No. 2:15cv21, 2017 WL 2605977, at *3 (E.D. Va. June 5, 2017). The court further reasoned that “the broad reading of Shaw renders the IPR estoppel provisions essentially meaningless because parties may pursue two rounds of invalidity arguments as long as they carefully craft their IPR petition.” Id. Recently, Judge Amy J. St. Eve supported her narrow interpretation of Shaw through a textual analysis of 35 U.S.C. § 315(e)(2). Oil-Dri Corp. of Am. v. Nestle Purina Petcare Co., No. 15-cv-1067, 2017 WL 3278915, at *6-8 (N.D. Ill. Aug. 2, 2017). Here, the court reasoned that “[a] party raises an invalidity ground before the PTAB by including it in its IPR petition. If a party does not include an invalidity ground in its petition that it reasonably could have included, it necessarily has not raised a ground that it ‘reasonably could have raised during…IPR.’” Id. at *8 (citation omitted). The following chart summarizes post-Shaw estoppel decisions and indicates whether the judge adopted a broad or narrow interpretation of estoppel.

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Summary of Post-Shaw District Court Decisions CASE CAPTION

JUDGE

Illumina, Inc. v. Qiagen, N.V., 207 F. Supp. 3d 1081 (N.D. Cal. 2016)

William Alsup, District Judge



Tonianne J. Bongiovanni, Magistrate Judge



Depomed, Inc. v. Purdue Pharma L.P., No. 13-571 (MLC), 2016 WL 8677317 (D.N.J. Nov. 4, 2016)

NARROW INTERPRETATION OF SHAW (BROAD ESTOPPEL)

Precision Fabrics Grp., Inc. v. TieTex Int’l, Ltd., No. 1:13-cv-645, 2016 WL 6839394 (M.D.N.C. Nov. 21, 2016)

Thomas D. Schroeder, District Judge



Infernal Tech., LLC v. Elec. Arts Inc., No. 2:15-CV-01523-JRG-RSP, 2016 WL 9000458 (E.D. Tex. Nov. 21, 2016)

Roy S. Payne, Magistrate Judge



Intellectual Ventures I LLC v. Toshiba Corp., 221 F. Supp. 3d 534 (D. Del. 2016)

Sue L. Robinson, District Judge



Andrew J. Guilford, District Judge



Susan Illston, District Judge



Enfish, LLC v. Microsoft Corp., No. 2:12-cv-07360-AG-MRW, E.C.F. 355 (C.D. Cal. Jan. 10, 2017) (minutes in chambers) Verinata Health, Inc. v. Ariosa Diagnostics, Inc., No. 12-cv-05501-SI, 2017 WL 235048 (N.D. Cal. Jan. 19, 2017)

Parallel Networks Licensing, LLC v. Int’l Bus. Machs. Corp., No. 13-2072 E.C.F. 366 (D. Del. Feb. 22, 2017)

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BROAD INTERPRETATION OF SHAW (NARROW ESTOPPEL)

INTER PARTES REVIEW PROCEEDINGS October 2017

Kent A. Jordan, Third Circuit Judge sitting by designation



CASE CAPTION

JUDGE

Princeton Dig. Image Corp. v. Konami Dig. Entm’t Inc., No. 12-1461-LPS-CJB, 2017 WL 1196642 (D. Del. Mar. 30, 2017)

Christopher J. Burke, Magistrate Judge & Leonard P. Stark, District Judge

Douglas Dynamics, LLC v. Meyer Prods. LLC, No. 14-cv-886-jdp, 2017 WL 1382556 (W.D. Wis. Apr. 18, 2017)

BROAD INTERPRETATION OF SHAW (NARROW ESTOPPEL)

NARROW INTERPRETATION OF SHAW (BROAD ESTOPPEL)



James D. Peterson, District Judge



Biscotti Inc. v. Microsoft Corp., No. 2:13-cv-01015-JRG-RSP, 2017 WL 2526231 (E.D. Tex. May 11, 2017) (report adopted E.C.F. 260)

Roy S. Payne, Magistrate Judge & James Rodney Gilstrap, District Judge



Cobalt Boats, LLC v. Sea Ray Boats, Inc., No. 2:15cv21, 2017 WL 2605977 (E.D. Va. June 5, 2017)

Henry Coke Morgan, Jr., Senior District Judge



Beth L. Freeman, District Judge



Lighting Sci. Grp. Corp. v. Shenzhen Jiawei Photovoltaic Lighting Co., No. 16-cv-03886-BLF, 2017 WL 2633131 (N.D. Cal. June 19, 2017)

Advanced Micro Devices, Inc. v. LG Elecs., Inc., No. 14-cv-01012, 2017 WL 2774339 (N.D. Cal. June 26, 2017)

Susan Illston, District Judge

Oil-Dri Corp. of Am. v. Nestle Purina Petcare Co., No. 15-cv-1067, 2017 WL 3278915 (N.D. Ill. Aug. 2, 2017)

Amy J. St. Eve, District Judge



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When Does Estoppel Apply…and Not Apply? The first four scenarios discussed below address a first IPR proceeding, followed by a second proceeding with a validity challenge in the USPTO, district court or ITC against the same claims or a subset of the claims challenged in the first IPR. Estoppel does not apply to claims whose validity was not previously challenged in the first IPR. The fifth scenario addresses a first IPR proceeding, followed by a subsequent validity challenge before the USPTO. The sixth scenario addresses the applicability of assignor estoppel to IPRs.

Does Estoppel Apply to… a Ground That Was Subject to a Final Written Decision in an IPR?

Does Estoppel Apply to… a Ground Proposed in an IPR Petition but Rejected on the Merits?

YES. Such a ground falls within the confines of 35 U.S.C. § 315(e), and will be estopped in a subsequent proceeding in the USPTO, district court or ITC.

NO. Credit Acceptance addresses this situation. Should the PTAB decline to institute review on the merits, those same grounds are not estopped from being advanced in a later proceeding. But multiple decisions say that the denial of institution on the merits might reflect dim prospects for a later assertion of the same grounds.

Does Estoppel Apply to… a Ground Proposed in an IPR Petition but Rejected as Redundant? NO. This situation is addressed by Shaw. Since the ground is never instituted, such a ground is not estopped from being raised in a later proceeding in the PTO, district court or ITC.

Does Estoppel Apply to… a Nonpetitioned Ground Based on Prior Art That Reasonably Could Have Been Raised at the IPR Petition Before a Subsequent District Court or ITC Proceeding? MAYBE. As discussed above, different district courts have reached different outcomes. Patent challengers should check whether their court or judge has taken a position on the application of estoppel in this scenario.

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Does Estoppel Apply to… a Nonpetitioned Ground Based on Prior Art That Reasonably Could Have Been Raised in the Prior IPR Petition Before a Subsequent IPR Petition at the PTAB? YES. Multiple PTAB decisions have demonstrated the board’s broad interpretation of the estoppel provisions of 35 U.S.C. § 315(e)(1) before the USPTO to include nonpetitioned grounds that the petitioner reasonably could have raised during that IPR. In Johns Manville Corp. v. Knauf Insulation, Inc., No. IPR2016-00130, Paper 35 (P.T.A.B. May 8, 2017), the board noted that “[t]he plain language of section 315(e)(1) states that estoppel applies to grounds a petitioner ‘reasonably could have raised’ …. This is consistent with the legislative history of section 315.” Id. at 9. The board further stated that the “prior art estopped is that which ‘a skilled searcher conducting a diligent search reasonably could have been expected to discover.’” Id. at 9-10. Based on this standard, the board declined to estop the petitioner from asserting the newly discovered prior art, despite the discovery of the prior art in the possession of one of Johns Manville’s employees. Id. at 12. Similarly, in Emerson Electric Co. v. IP Co., No. IPR2017-00252, Paper 7 (P.T.A.B. May 31, 2017), the board noted that estoppel is applied on a claim-by-claim basis. The board estopped the petitioner from challenging the claims that had already been subject to a final written decision, as the petitioner failed to persuade the board that “a skilled searcher conducting a diligent search

would not have been expected to discover” the asserted prior art references. Id. at 8-9. However, the board did not apply estoppel to a different challenged claim that was also challenged in the previous IPR because no grounds were instituted as to that claim, and thus, there was no final written decision as to that claim. Id. at 9.

Is an IPR Petition Subject to the Equitable Doctrine of Assignor Estoppel? NO. The foregoing scenarios concern estoppel under an IPR-specific statute, 35 U.S.C. § 315. The PTAB also recently considered whether a different kind of estoppel—assignor estoppel—applies to IPRs. In August 2017, the PTAB designated as precedential Section II.A of its opinion in Athena Automation Ltd. v. Husky Injection Molding Systems Ltd., No. IPR2013-00290, Paper 18 at 12-13 (P.T.A.B. Oct. 25, 2013). This section concerned assignor estoppel. Patent Owner Husky argued that Petitioner Athena was estopped under assignor estoppel because co-inventor and assignor of the Husky patent, Robert Schad, also was a co-owner, director and CEO of Athena. Husky contended that Athena was in privity with Schad and thus should be subject to assignor estoppel. The PTAB declined to apply assignor estoppel against IPR petitioner Athena on the basis of the statutory language of 35 U.S.C. § 311(a), which states “a person who is not the owner of a patent may file with the Office a petition to institute an inter partes review of the patent.” Because Athena did not own the Husky patent, Athena could pursue an IPR.

ENDNOTES [1] The AIA also created similar proceedings known as post grant reviews (PGRs) and covered business method reviews (CBMs). [2] Perkins Coie, “DECEPTIVELY SIMPLE: MANAGING ESTOPPEL RISKS UNDER 35 U.S.C. § 315(e),” Perkins Coie’s 2016 Annual Report on IPR Proceedings, https://issuu.com/perkinscoie/docs/ipr_anniversary_report_4_final?e=0/39885165

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PRACTICE TIPS: Petitioners Practical Advice

>> Consider Potential Estoppel Effects When

Deciding to Pursue an IPR An accused infringer should rigorously assess the strengths and weaknesses of available prior art references and associated invalidity grounds in light of the best defenses that may be made by the patent owner, including, among others, the secondary consideration factors of nonobviousness. An assessment should take into account the generally recognized expertise of PTAB judges on the technology and patent law issues—especially their expertise in determining obviousness issues—versus the level of expertise of the particular court and the nature of the jury trial as well as the highly limited discovery in the PTAB trial versus relatively broad discovery procedures in the district court. In particular, although an invalidity ground denied institution by the PTAB may not be legally estopped under Shaw, the denied ground may be damaged in the eyes of the jury. The defendant must balance all the factors in advancing a particular invalidity ground in light of potential conflicts for winning a particular noninfringement theory in court (e.g., a potential conflict in claim construction for invalidity versus noninfringement). The defendant should consider the potential benefit of separating the invalidity trial at the PTAB under a claim construction using the broadest reasonable interpretation from the district court trial under a claim construction using the Phillips standard for both the infringement and invalidity issues.

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>> Know Your Judge If a judge tends to apply broad estoppel, then as petitioner in the IPR proceeding, you have a very strong motivation to be as thorough as possible in the prior art searching and petitioning many grounds, even redundant grounds. Remember that redundant grounds that were petitioned but not instituted will not be estopped, but redundant grounds that were not petitioned are likely to be estopped by judges who interpret Shaw narrowly. Furthermore, if the judge tends to apply narrow estoppel, then using the uncertainty behind your prior art references and potential second bite at the apple may provide additional leverage in the subsequent proceeding.

>> Consider Estoppel When Moving for a

Stay in the Proceedings For judges who tend to apply broad estoppel, you as a petitioner should consider whether or not stipulating to estoppel based on grounds that reasonably could have been raised in the petition is a trade-off that you are willing to make to increase the chances of winning a stay. If you feel the strength of your IPR petition—and the gain made in staying the litigation—is worth the potential risk of such a broader estoppel, then such a stipulation makes sense. On the other hand, judges in favor of narrow estoppel may require such a stipulation before they will even consider a stay in the litigation, given that the resolution of the IPR might not simplify the issues.

PRACTICE TIPS: Patent Owners >> Know Your Judge If a judge tends to apply broad estoppel, you as the patent owner in the IPR proceeding should demonstrate that the prior art that was not present in the original IPR petition, but is now being used by the petitioner in the litigation, was available to the petitioner. As the proponent of estoppel, you bear the burden of proof for showing that the petitioner could have had access to, or the possession of, the previously unasserted prior art at the time of filing the IPR petitionâ&#x20AC;&#x201D;e.g., providing evidence that a searcher would have found the previously unasserted prior art with reasonable diligence.

>> Consider Estoppel When Opposing a Stay

in the Proceedings For judges who tend toward narrow estoppel, you should hammer home the point that a stay is unwarranted, given that the potential estoppel scope is very limited and resolution of the IPR is unlikely to simplify the issues. You should use this as leverage to force the accused infringer into a concession voluntarily entering into broader estoppel.

In contrast, if the judge tends to apply narrow estoppel, at least be cognizant of the holdings that prevent an accused infringer from asserting different obviousness variations that are a subset of the prior art combinations in the PTABâ&#x20AC;&#x2122;s final written decision.

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HOW TO CRAFT A WINNING MOTION TO AMEND

Motions to amend were originally touted as a way to level the playing field for patent owners by providing a countermeasure to patent challenges. The motions rarely have been successful over the past five years. We look at the record to offer some ways you can improve your chances to succeed.

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A unique feature of inter partes review is the patent owner’s ability to potentially amend claims challenged by an IPR petitioner. During an IPR trial, the patent owner may file a motion to amend seeking (1) to cancel any challenged patent claim, or (2) to propose substitute claims to replace a challenged claim. However, a patent owner’s motion to amend will be considered and decided only after the board determines that the challenged claims are, in fact, unpatentable. While originally touted as a way to level the playing field for patent owners by providing a countermeasure to patent challenges, motions to amend rarely have been successful over the past five years. In fact, a 2016 study conducted by the U.S. Patent and Trademark Office found only a 5% success rate for motions to amend. According to the USPTO study, motions to amend fail for a number of reasons; for example, 19% of the motions were denied for procedural deficiencies. A majority of the motions (81%) were denied because the proposed claims were not shown to be patentable for various reasons.[1] The following chart provides more detail as to why 95% of the motions to amend failed.

REASONS FOR MOTION TO AMEND DENIAL

Anticipated/obvious

19%

23%

Multiple grounds Procedural deficiency

3% 5%

Unreasonable number of claims Written description

35%

Enlarging scope of claims 1%

Indefiniteness Unpatentable subject matter

Over the past 18 months, however, there has been a noticeable increase in the number of successful motions to amend—including six motions granted in part and one motion granted in its entirety.[2] This recent string of successful motions can be differentiated from the 5% of successful motions prior to 2016. Of particular note, the earlier motions to amend were largely clerical successes (e.g., cancellation of certain challenged claims), while the more recent motions have succeeded on the merits (i.e., the patent owner successfully introduced new claim limitations that distinguished substitute claims over the prior art).

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These recent successes provide valuable guidance, along with some practice tips, on how to craft a motion to amend that will succeed on the merits.

Basics: What Is Required in a Motion to Amend? When the IPR process was introduced in 2012, the USPTO opted not to provide formal regulations regarding the contents of a motion to amend. Instead, the PTAB established the requirements in two key decisions, MasterImage 3D, Inc. v. RealD Inc. and Idle Free Sys., Inc. v. Bergstrom, Inc.[3] In light of these decisions, a patent owner’s motion to amend must do the following: 1. Explain why the proposed claim amendments overcome the alleged ground of unpatentability—as opposed to being directed to new features or attributes unrelated to the prior art presented in the petition. 2. Provide necessary claim constructions. 3. Explain where the proposed amendment is supported by the written description. 4. Explain why the proposed claims are patentable over other categories of prior art, including: a) prior art in the prosecution history of the patent, b) prior art of record in the IPR—including prior art for non-instituted grounds, c) prior art in any other proceeding before the USPTO involving the patent (e.g., prior art from an ex parte reexamination); AND d) prior art known to the patent owner but not captured under (1) through (3) above. At the time this article went to press, the Federal Circuit issued its decision following en banc rehearing in Aqua Products, Inc. v. Matal, 2015-1177 (October 4, 2017) (en banc). Prior to this new decision, the patent owner bore the burden of demonstrating that the proposed claim amendment met these requirements, including the burden of showing that the proposed claim amendment is patentable. In the new Aqua Products decision, the Federal Circuit was very divided, wrote five separate opinions, and issued a narrow ruling that the burden of proving patentability cannot be placed on the patent owner. However, the court was not able to muster majority support for any single opinion that would have provided the PTAB with guidance on how to move forward. Therefore, the full scope of the practical impact this decision (for example, the information required by the MasterImage 3D and Idle Free Systems decisions) remains to be seen. Based on our review of motions to amend, both successful and unsuccessful, we offer the following guidance to parties considering such a motion.

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PRACTICE TIPS: Craft a Winning Motion to Amend >> TIP #1: Identify Your Key Claim Elements Early • Crafting a successful motion to amend begins early in the IPR process. It may be too late if you start thinking about amendment options after institution. Instead, start assessing potential amendments as soon as possible and certainly well before filing a patent owner preliminary response. • Identify one or two key claim elements or features that are not disclosed by the asserted prior art or for which the petitioner’s argument is weak. Expend considerable effort in your patent owner preliminary response to distinguish these features from the cited prior art. This will help set the table for a future motion to amend, as these key features will become the base claim element/limitation for your narrowing amendment. • Be sure to focus your argument around existing limitations or features in the challenged claim. Any proposed amendment must be responsive to the petitioner’s ground challenging the claim and not focused on a “new” limitation or feature pulled from the specification. The goal of a motion to amend is to narrow or clarify a claim element to distinguish the prior art. An amendment that simply introduces a new element into the challenged claim will fail.

>> TIP #2: Draft Amendments That Narrow

Practical Advice

and Clarify • A proposed amendment must respond to a ground of unpatentability asserted by the petitioner. In addition, the proposed amendment must not enlarge the scope of the claims or introduce new matter. • The PTAB looks for substantive narrowing of original limitations in the challenged claims. Draft detailed claim amendments that provide specific and narrower recitation of the key features. Amendments should provide substantive detail for a key feature rather than simply adding well-known steps or structure.

>> TIP #3: Find Specification Support for Each

Proposed Amendment • The PTAB will scrutinize proposed amendments to determine whether the amendment is supported by the specification. In at least two recent decisions where the motion to amend was granted, the PTAB included a multipage analysis of the written description supporting the proposed amendments.[4] • In your motion, show where support for each proposed amendment can be found in the specification. • In cases, where support for the proposed amendment is questionable, the patent owner might be better served by focusing on defending the existing claims and, if available, potentially pursuing the narrower claims in a continuation application.

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Craft a Winning Motion to Amend (continued) >> TIP #4: Identify How the Amendment

Establishes Patentability Over the Prior Art • Prior to the decision in Aqua Products, the patent owner had the burden of addressing the scope of prior art including (1) prior art identified in the IPR, including art cited in noninstituted grounds; (2) prior art identified in the patent’s prosecution history and the prosecution history of family members of related patents; (3) prior art from any other PTAB proceeding involving the patent (e.g., ex parte reexamination, reissue); and (4) any material prior art known to the patent owner. • After Aqua Products, the patent owner does not bear the burden of proof regarding the patentability of the challenged claims, but we currently lack guidance on how the PTAB will put this change into effect. Notwithstanding this change, the patent owner should be well served by undertaking some effort to show that the proposed claim amendments are patentable in view of at least the prior art of record and perhaps other prior art of which the patent owner is aware. • Consider grouping similar references together for purposes of space efficiency.

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>> TIP #5: Support Your Amendment With Expert Testimony • Support your patentability position with a compelling expert report. The PTAB will consider expert testimony provided by both parties on all issues of patentability related to the amended claims. Therefore, compelling expert testimony supporting a motion to amend is just as important as the expert testimony supporting the patent owner preliminary response.

ENDNOTES [1] U.S. Patent and Trademark Office, Patent Trial and Appeal Board Motion to Amend Study (April 30, 2016), https://www.uspto.gov/sites/ default/files/documents/2016-04-30%20PTAB%20MTA%20study.pdf (hereinafter “USPTO study”). [2] U.S. Patent and Trademark Office, Trial Statistics, IPR, PGR, CBM (July 2017), https://www.uspto.gov/sites/default/files/documents/ Trial_Statistics_2017_07_31.pdf. [3] MasterImage 3D, Inc. v. RealD Inc., IPR2015-00040, 2015 WL 4383224 (P.T.A.B. July 15, 2015); Idle Free Sys., Inc. v. Bergstrom, Inc., IPR2012-00027 (P.T.A.B. June 11, 2013). [4] Global Tel*Lin v. Securus technologies, IPR2015-01225, Paper No. 45 (P.T.A.B. December 14, 2016); Veeam Software Corp. v. Veritas Techs., LLC, IPR2014-00090, Paper No. 48 (P.T.A.B. July 17, 2017).

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PROS AND CONS OF A PARALLEL ITC AND PTAB PATENT CHALLENGE

Filing an IPR is unlikely to stay an U.S. International Trade Commission investigation or delay an ITC remedy, but there are other reasons to do so. We look at some of the benefits and disadvantages of running concurrent challenges with the PTAB and ITC.

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The Patent Trial and Appeal Board and U.S. International Trade Commission (ITC) are highly regarded as powerful forums for quickly and efficiently resolving patent disputes. While the PTAB’s jurisdiction is limited to reviewing the validity of a patent, the ITC has a broader jurisdictional reach and addresses questions of patent infringement, validity and unenforceability, much like a district court. However, one characteristic that is common to both tribunals is their ultrafast time to a decision, with the PTAB averaging 18 months and the ITC averaging 16 months. This overlap in timelines presents unique advantages and disadvantages when challenging a single patent in parallel in both forums. To date, unlike district courts, the ITC has largely refused to stay an ITC action while an inter partes review proceeds. Nevertheless, IPRs can have a significant impact on ITC investigations, depending on the PTAB’s determination and events during the pendency of an IPR. This results in various challenges and timing decisions that must be made when considering patent validity challenges in both tribunals.

Suing in the ITC: Advantages and Disadvantages The ITC offers an alternate forum for U.S. patent owners to enforce their patent rights and provides a number of advantages over district court litigation. These include: 1. Speed. Proceedings are fast, averaging about 16 months from start to final resolution. 2. Injunctions. It has become harder to obtain injunctive relief in district court, but it is automatic at the ITC (in the form of exclusion orders barring the importation of infringing products). General exclusion orders are available when the source of the accused products is unknown. 3. Reduced Cost. Multiple parties and accused products can be named in a single ITC action, which saves money, and it is unnecessary to establish personal jurisdiction over the accused party because the ITC exercises in rem jurisdiction over any imported articles. There are also disadvantages to filing an action at the ITC. First to establish standing, a patent owner must prove that a “domestic industry” exists, or is in the process of being established. In addition, a party cannot recover monetary damages at the ITC. Instead, relief comes in the form of an exclusion order and is limited to accused articles that are imported into the United States.

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The time to decision is a significant point of distinction, and the relative rapidity of the ITC process is notable. After the complaint is filed, the ITC has 30 days to review it and institute an investigation. On average, an ITC proceeding takes 16 months, and the U.S. Trade Representative has 60 days to veto any remedy that might issue. In contrast, an IPR typically lasts 18-19 months, which can be extended for good cause for up to an additional 6 months.

A Stay Is Unlikely—ITC Actions and IPRs Usually Proceed in Parallel It is unlikely that the filing of an IPR or a pending IPR can be used to postpone or delay the ITC’s remedial orders unless the PTAB decision is final and unreviewable. For example, in Certain Network Devices, Related Software, and Components Thereof (II), the ITC concluded its investigation and issued remedial orders in early May 2016.[1] Shortly thereafter, in a final written decision, the PTAB found the asserted claims unpatentable. Nevertheless, the ITC denied an emergency motion to stay its remedial orders, noting that the PTAB decision was subject to appeal at the U.S. Court of Appeals for the Federal Circuit. Here, the ITC was unwilling to modify its decision (remedial order) because the appeal process was not exhausted, even though the PTAB found the same claims unpatentable. In Certain Three-Dimensional Cinema Systems and Components Thereof, the ITC reached a different decision when the PTAB found certain claims unpatentable before the ITC rendered its final remedial order.[2] Upon motion from the respondent, the ITC stayed its remedial orders as to the claims found to be unpatentable by the PTAB pending appeal. However, the ITC maintained its remedial orders as to infringed claims that were not invalidated by the IPR.

The ITC will not issue a stay if the adverse PTAB decision is subject to appeal and a stay of the ITC remedial orders would allow potentially infringing products into the United States.

Some commenters maintain that the ITC’s decisions in these two investigations are incompatible because the remedial orders were stayed in one instance pending appeal of the PTAB decision but not in the other. However, the ITC attempted to distinguish the two fact patterns by noting in its Cinema Systems decision that a stay in that case had little, if any, practical impact on the scope of relief because the accused products subject to the remedial order were limited to the claims that were found to be valid by the PTAB. Based on these two cases, one can conclude that the ITC will stay its remedial orders under two circumstances. First, the ITC may issue a stay in view of an adverse PTAB decision that is final and unappealable (or not appealed). Second, the ITC may stay its remedial order if it will have no practical impact on the scope of relief. However, the ITC will not issue a stay if the adverse PTAB decision is subject to appeal and a stay of the ITC remedial orders would allow potentially infringing products into the United States. These two investigations also demonstrate how difficult it can be to file an IPR that will have an impact on the scope of any resulting ITC remedy. Because the ITC and IPR proceedings run on similar timelines, it is extremely difficult to obtain an IPR final written decision on patent invalidity, let alone exhaust the

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appeal options, prior to the issuance of a final determination by the ITC, unless the ITC’s investigation is substantially delayed or an IPR is filed before an ITC complaint is even filed.

Considerations and Practice Tips for Parallel PTAB and ITC Filings What are the implications for anyone facing an ITC proceeding who would like to challenge the patent’s validity before the PTAB? Below are some considerations for assessing the strategic advantages of filing an IPR during an ITC case. Consider Admitting the IPR Record Into Evidence. While the ITC is unlikely to stay a proceeding, or postpone or delay a remedy, due to an IPR, IPRs can still have an impact on an ITC investigation.

Key Tip

>> Pending IPRs can offer leverage in settlements and against trolls.

For example, in Certain Composite Aerogel Insulation Materials and Methods for Manufacturing the Same, the presiding Administrative Law Judge (ALJ) reopened the record after the hearing to receive into evidence two PTAB decisions denying institution of the respondents’ IPRs.[3] The ALJ noted that the PTAB decisions were not final and were based on a different evidentiary standard and factual record. However, the ALJ recognized the relevance of the PTAB’s decisions, which “discuss at length multiple pieces of prior art that Respondents have relied upon in this Investigation, including Respondents’ primary reference” at issue in the ITC investigation. While the PTAB decision is not binding on the ITC, it can be influential. The PTAB is a technical forum with tech-savvy judges. Their rulings on strength of prior art references may be useful—and quite possibly persuasive—to ITC judges, who don’t have the same specialized technical backgrounds. IPR Findings Might Have Multiple Uses for Complainants or Respondents. In Certain UV Curable Coatings For Optical Fibers, the respondent alleged that the asserted claims were unenforceable due to inequitable conduct, because certain prior art was both material and intentionally withheld from the patent examiner during prosecution.[4] During the parallel IPR proceeding, the same prior art in question was reviewed by the PTAB and found not to be material. The ALJ relied, in part, on this finding to strike the inequitable conduct defense. The ALJ reasoned that the respondent would be unable to prove the “but for” materiality that is required to establish inequitable conduct given the PTAB’s finding that the art was not material. Thus, statements made by the patent owner in an IPR may also be useful to undermine arguments it makes as a complainant in an ITC proceeding. For example, if the patent owner defines the scope of the patent narrowly in submissions to the PTAB to overcome prior art, those narrowing statements can be used against the patent owner to defeat its infringement and domestic industry allegations before the ITC. Pending IPRs Give Defendant/Respondent Leverage, Even After an ITC Decision. A pending IPR offers a measure of insurance for a party subject to an adverse ITC order, as it can be used as leverage to negotiate a more favorable settlement from the patentee. Pending IPRs may also be used as leverage in proceedings against patent trolls, who do not want to risk their patent being invalidated and rendered unusable in the future. For example, patent trolls will often sue at the ITC because an exclusion order can be used as a powerful threat to obtain a larger monetary

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settlement than what would be awarded through a district court damages calculation. A patent troll does not manufacture products, so it has no reason to fear a counter-infringement suit. However, because their only source of income is derived from damage awards and monetary settlements, patent trolls will assert patents against a number of defendants in a series of litigations. If an IPR is threatened or is filed and pending, the patent troll is more likely to reach a reasonable settlement so that the IPR will be dropped (or never filed), and the patents can be asserted against other parties.

ENDNOTES [1] [2] [3] [4]

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Certain Network Devices, Related Software, and Components Thereof (II), Inv. No. 337-TA-945. Certain Three-Dimensional Cinema Systems and Components Thereof, Inv. No. 337-TA-939. Certain Composite Aerogel Insulation Materials and Methods for Manufacturing the Same, Inv. No. 337-TA-1003. Certain UV Curable Coatings For Optical Fibers, Inv. No. 337-TA-1031.

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All or Some Claims? SAS Institute Inc. v. Matal Heads to SCOTUS

The United States Supreme Court agreed in May 2017 to hear the case of SAS Institute Inc. v. Joseph Matal, Interim Director, U.S. Patent & Trademark Office, and ComplementSoft, LLC, Docket No. 16-969. The Supreme Court will address whether the Patent Trial and Review Board’s final written decision in an inter partes review must address every claim raised in a petition, including claims for which review was not instituted, or whether the board’s final written decision need only address the claims for which review was instituted. The question before the Court is the following: Does 35 U.S.C. § 318(a), which provides that the Patent Trial and Appeal Board in an inter partes review “shall issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner,” require that Board to issue a final written decision as to every claim challenged by the petitioner, or does it allow that Board to issue a final written decision with respect to the patentability of only some of the patent claims challenged by the petitioner, as the Federal Circuit held?[1]

SAS Background The SAS case began in 2012, when ComplementSoft sued for patent infringement and identified “at least” 6 of the 16 patent claims as infringed by SAS. SAS petitioned for inter partes review of all 16 claims, but PTAB instituted review of only 9 claims. At the conclusion of the IPR, the board issued a final written decision invalidating 8 of the 9 reviewed claims and finding one of the claims patentable. The final written decision did not address the other seven patent claims. The parties appealed to the U.S. Court of Appeals for the Federal Circuit, which affirmed the board’s decision except as to the one claim found patentable.[2]

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With respect to whether PTAB’s final written decision must address all claims in an IPR petition, the Federal Circuit stated, “SAS’s argument…is foreclosed by our recent decision in Synopsys, Inc. v. Mentor Graphics Corp.” In Synopsys,[3] the Federal Circuit found “no statutory requirement that the Board’s final decision address every claim raised in a petition for inter partes review. Section 318(a) only requires the Board to address claims as to which review was granted.”[4] The Federal Circuit went on to state that it “found it significant that § 318(a) describes ‘claims challenged by the petitioner,’ whereas the institution decision statutory subsection, 35 U.S.C. § 314, describes ‘claims challenged in the petition.’”[5] According to the Federal Circuit, this “differing language implies a distinction between the two subsections such that § 318(a) does not foreclose the claim-by-claim approach the Board adopted there and in this case.”[6] On July 20, 2017, SAS filed its merits brief with the Supreme Court, in which it argued that statutory construction requires that PTAB’s final written decision address all claims challenged in a petition—not just claims for which it institutes review. SAS characterized the Federal Circuit’s distinction between the statutory provisions (“claims challenged in the petition” versus “claim challenged by the petitioner”) as “fine parsing of statutory language,” which it argued is “untenable.”[7]

Implications of SAS SCOTUS Decision Ultimately, SAS seeks to present its case on the non-instituted claims to the board and the Federal Circuit for review. But SAS acknowledges that estoppel would potentially attach to more claims (all claims challenged in the petition versus all claims in the final written decision) if its position is adopted.[8] Amicus IPO endorses this view (“[T]he PTAB should address all the challenged claims in the final written decision, thus triggering the estoppel provision for each challenged claim.”).[9] The Supreme Court’s decision last year in Cuozzo Speed [10] made clear that SAS cannot challenge PTAB’s “determination to institute.” While SAS does not challenge that, it does challenge PTAB’s determination as to the specific claims for which review is instituted. A reversal by the Supreme Court in SAS would have a major impact on PTAB practices, including the scope of final written decisions and estoppel. We look forward to the Supreme Court’s resolution of this case.

ENDNOTES [1] SAS Institute Inc. v. Joseph Matal, Interim Director, U.S. Patent & Trademark Office, and ComplementSoft, LLC, Docket No. 16-969, grant of certiorari (May 22, 2017). [2] SAS Institute, Inc. v. ComplementSoft, LLC., 825 F.3d 1341 (2016). [3] Synopsys, Inc. v. Mentor Graphics Corp., 814 F.3d 1309 (Fed. Cir. 2016). [4] SAS at 1352, citing Synopsys at 1316–17. [5] Id. [6] Id. [7] SAS Merits Brief at 23. [8] Id. at 29 Fn 2 [9] Brief of Amicus Curiae Intellectual Property Owners Association in Support of Petitioner at 11. [10] Cuozzo Speed Techs., LLC v. Lee, 136 S. Ct. 2131 (2016) (35 U.S.C. § 314(d) bars judicial review of the Patent Office’s determination to institute inter partes review).

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TAMING THE UNCERTAINTY OF AD HOC PROCEDURES IN PTAB REMAND PROCEEDINGS

How has the Patent Trial and Appeal Board been handling remands in America Invent Act trials? Learn what to expect when a case is remanded back to the PTAB and the actions to take to improve the chances for a successful outcome.

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Consider the following very real scenario: The U.S. Court of Appeals for the Federal Circuit hears your IPR appeal, but it does not affirm the decision. Instead, the court remands it back to the PTAB for a new final written decision. If you are not certain of what to do next, you are in good company. While the USPTO has a bevy of statutes, regulations and caselaw that guide practitioners through pending procedures, there are no formal rules on how the PTAB must handle an IPR decision remanded from the Federal Circuit. Indeed, practitioners and the PTAB alike find themselves in unchartered territory here. Unlike traditional IPR procedures, there are no set rules on timing, additional briefing or whether you can introduce new evidence when evaluating the Federal Circuit’s concerns. The result is to create uncertainty and risk for practitioners. To date, the PTAB has completed remand proceedings and issued new final written decisions in at least 14 cases. Through these cases, patterns have emerged as to how the PTAB is handling remands in AIA trials. An analysis of the 14 proceedings reveals practical advice on what a practitioner might expect if they find themselves in a remand situation.

PTAB –> Federal Circuit –> Then Back to PTAB A party in an AIA trial for inter partes review (IPR), post-grant review (PGR) or covered business method review (CBM) may appeal a final written decision of the PTAB to the U.S. Court of Appeals for the Federal Circuit. The Federal Circuit can affirm the PTAB’s decision—in whole or in part—or it can remand the decision to the PTAB to address certain issues. Accordingly, the PTAB needs to take appropriate actions to comply with a remand from the Federal Circuit and to issue a new final written decision. In one of its early remand decisions, the Federal Circuit made clear that it had no intention of micromanaging remand proceedings: We do not direct the Board to take new evidence or, even, to accept new briefing. The Board may control its own proceedings, consistent with its governing statutes, regulations, and practice. 37 C.F.R. § 42.5(a). Those statutes, regulations, and practices embody expedition- and efficiency-based policies that the Board must consider in determining the scope of the remand proceedings.[1]

What to Expect If Your Case Is Remanded Back to the PTAB 1. Same Panel and Conference Call. Similar to rehearings in AIA trials, the same PTAB panel for an AIA trial will handle the subsequent remand proceeding. Remand proceedings formally commence with the Federal Circuit’s issuance of a mandate.[2] In most cases, the PTAB holds a conference call with the parties to discuss the need for remand briefing and on what issues. The PTAB usually follows up with an order setting forth deadlines, page limits and other constraints for remand briefs. After briefing is complete, the PTAB issues a new final written decision.

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2. No Timing Guarantees. Unlike the one-year statutory timeline (with limited extensions) in AIA trials,[3] there are no timelines for completing remand proceedings. Based on our review of completed remand proceedings, the PTAB tends to issue a new final written decision within a few months of completion of remand briefing. On the one hand, the PTAB has issued a new final written decision in as little as five weeks after submission of remand briefs.[4] On the other hand, the board has taken much more time with some other remands. 3. Stick to the Record—No New Evidence Allowed. The PTAB typically authorizes parties to submit briefing, but not new evidence, to address some or all of the issues the panel needs to address on remand. Often the PTAB expressly instructs the parties to cite in their remand briefs to their earlier papers where the evidence was discussed. For example, in Sipnet EU S.R.O. v. Straight Path IP Group, Inc., IPR2013-00246, the PTAB panel authorized remand briefs to address the impact of the Federal Circuit’s decision reversing one of the PTAB’s claim constructions. Specifically, the panel authorized seven-page briefs, but prohibited “any new evidence or any new argument.” The panel required the parties “to provide citations in this additional briefing to those portions of the previously existing record where the argument or evidence was originally introduced.”[5] The PTAB seems to prefer simultaneous filing of remand briefs, but briefing is sometimes staggered.[6] Where briefing is staggered, reply briefs may or may not be pre-authorized.[7] 4. Additional Briefing Is NOT Guaranteed. In at least two IPR remand proceedings, the PTAB panels declined to authorize any briefing on remand. In Corning Optical Commc’ns RF LLC v. PPC Broadband, Inc., IPR2013-00340, the PTAB panel denied the parties’ requests to submit remand briefs. In doing so, the panel suggested that the claim construction issue flagged by the Federal Circuit had been raised by the patent owner during the trial such that the parties had ample opportunity to address it previously.[8] In another case, ZTE Corp. v. IPR Licensing, Inc., IPR2014-00525, Paper 54 (P.T.A.B. July 24, 2017) at 2, the board limited the petitioner to a three-page submission consisting of an introductory paragraph and a simple list of citations to the record where the petitioner had previously addressed the central issue on remand. 5. Due Process Issues Are the Exception. On rare occasions, PTAB panels have authorized new evidence and new argument on remand. For example, in SAS Inst., Inc. v. ComplementSoft, LLC, IPR2013-00226, after the Federal Circuit held that Petitioner had been denied the opportunity to address a new claim construction the PTAB panel had adopted in its final written decision, the PTAB panel authorized Petitioner to submit new declaration evidence on remand. The PTAB panel also scheduled a telephonic hearing in which each side would be given 15 minutes for oral argument. In Eli Lilly & Co. v. L.A. Biomedical Research Inst., IPR2014-00752, a PTAB panel distinguished SAS Institute and rejected Petitioner’s request to submit new declaration evidence. However, the panel in Eli Lilly ruled that the parties’ remand briefs could address any evidence in the record and were “not limited to the evidence discussed in the papers filed during trial.”

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PRACTICE TIPS

Practical Advice

If the Federal Circuit remands your case back to the PTAB, consider taking these steps:

>> Be Proactive The party must be proactive in contacting the PTAB panel to seek authorization for additional briefing. By waiting too long after the issuance of the mandate, the party may risk forfeiting the opportunity for remand briefing.

>> Justify Need for New Evidence If a party wants (or needs) to make new arguments or to rely on new evidence on remand, the party must be prepared to explain why the PTAB should permit it to do so. A party should try to identify issues flagged by the Federal Circuit that it had little or no reason to address during trial, perhaps because the opposing party never raised them.

>> Avoid Overconfidence: A Federal Circuit Win

Does Not Guarantee a PTAB Win Parties should not assume the Federal Circuit decision is determinative of the outcome on remand. Prevailing parties at the PTAB have maintained the original PTAB victory on remand despite the Federal Circuit reversing a favorable construction by the PTAB.[9] Parties have also persuaded the PTAB to flip the outcome even in cases that were merely vacated and remanded for insufficient reasoning.[10]

ENDNOTES [1] Ariosa Diagnostics v. Verinata Health, Inc., 805 F.3d 1359, 1367 (Fed. Cir. 2015). [2] See Federal Circuit Rule 41. [3] 35 U.S.C. §§ 141, 319 and 329. [4] In Sipnet EU S.R.O. v. Straight Path IP Group, Inc., IPR2013-00246, the patent owner’s remand brief (Paper 71) was filed on April 14, 2016 and the revised final written decision (Paper 73) was issued on May 23, 2016. [5] Id.; see also, e.g., Shaw Indus. Grp., Inc. v. Automated Creel Sys., Inc., IPR2013-00132, Paper 49 (P.T.A.B. June 3, 2016) at 4 (“No new evidence shall be filed with the briefs. When citing evidence, the parties shall provide citations to those portions of the previously existing record where the evidence was originally introduced.”) [6] Compare Shaw Indus. Grp. Inc. v. Automated Creel Sys., Inc., IPR2013-00132, Paper 49 (P.T.A.B. June 3, 2016) (simultaneous briefing schedule) with Ariosa Diagnostics v. Verinata Health, Inc., IPR2013-00276, Paper 49 (P.T.A.B. Jan. 13, 2016) (staggered briefing schedule). [7] Compare Ariosa Diagnostics v. Verinata Health, Inc., IPR2013-00276, Paper 49 (P.T.A.B. Jan. 13, 2016) (authorizing reply brief) with Microsoft Corp. v. ProxyConn, IPR2012-00026, Paper 77 (P.T.A.B. Sept. 1, 2015) (requiring parties to seek authorization separately for reply briefs if necessary). [8] See also IPR2013-00345, Paper 82 (P.T.A.B. Aug. 4, 2016) at 4 n.3; IPR2013-00346, Paper 82 (P.T.A.B. Aug. 4, 2016) at 4 n.3; IPR201300345, Paper 55 (P.T.A.B. Aug. 4, 2016) at 4 n.3 (same result in related cases). [9] See, e.g., Mastercard Int’l, Inc. v. D’Agostino, IPR2014-00543, Paper 38 (P.T.A.B. July 28, 2017). [10] See, e.g., MotivePower, Inc. v. Cutsorth, Inc., IPR2013-00274, Paper 44 (P.T.A.B. Sept. 9, 2016) (reversing prior invalidity ruling for two claims).

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Sovereign Immunity of Universities and Related Entities in IPR Proceedings In three separate decisions of the Patent Trial and Appeal Board in the past year, the board held that a state may assert Eleventh Amendment sovereign immunity in inter partes review proceedings and that such immunity may extend to state universities, their boards of regents and their related research foundations if they are acting as an arm of the state. Sovereign immunity may be grounds for dismissal of IPRs against the state-related agency and, in some cases, may warrant dismissal against co-parties that would not themselves enjoy sovereign immunity.

Covidien LP v. University of Florida Research Foundation Inc. In the first of the three decisions, Covidien LP v. University of Florida Research Foundation Inc., the petitioner (Covidien) had filed three IPR petitions seeking review of a patent owned by the University of Florida Research Foundation (UFRF).[1] UFRF moved to dismiss based on sovereign immunity, arguing that it is an arm of the State of Florida.[2] The board first determined that sovereign immunity is an available defense to institutions in an IPR.[3] In considering whether this defense was available to UFRF in particular, the board weighed a number of factors, including that “the particular function performed by UFRF is the licensing of patents and the collection of royalties from those license agreements on behalf of the University of Florida,” that UFRF is of statutory origin and is a direct support organization for the University of Florida, and that the university has a significant degree of control over UFRF’s operation.[4] Concluding that UFRF is an arm of the State of Florida, the board held that it was “entitled to a sovereign immunity defense to the institution of an inter partes review of the challenged patent” and dismissed Covidien’s petitions.[5]

NeoChord, Inc. v. University of Maryland, Baltimore In this second decision, Neochord filed an IPR petition against a patent owned by the University of Maryland, Baltimore, and exclusively licensed by Harpoon Medical, Inc.[6] The university moved to

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terminate the proceedings based on its Eleventh Amendment immunity.[7] While noting that Covidien was not binding precedent, the board likewise held that the defense of sovereign immunity was available in IPRs.[8] While Neochord contended that the board could still conduct its proceeding without the university (i.e., with Neochord and Harpoon Medical as the only parties), the board held that the university—which had transferred less than “substantially all” rights to its licensee—remained “a necessary and indispensable party to this proceeding.” [9] Accordingly, the board terminated the proceeding in its entirety.[10]

Reactive Surfaces Ltd., LLP v. Toyota Motor Corp. In the third decision, Reactive Surfaces filed a petition against a patent co-owned by Toyota and the Regents of the University of Minnesota.[11] While noting that neither Covidien nor Neochord were binding precedent, the board similarly concluded that a defense of Eleventh Amendment sovereign immunity is available in IPRs, that the Regents qualified as an arm of the state, and that the Regents must be dismissed from the proceeding.[12] The board further held, however, that the dismissal as to the Regents did not require termination of the proceedings as to the co-owner, Toyota, who it found had “identical interests” as the Regents in the patent at issue (and shared the same legal counsel) and thus would adequately represent the interests of the Regents in their absence.[13]

Key Tip

>> Consider potential waiver issues when looking at sovereign immunity related to IPRs.

Behind the Board’s Decisions In all three decisions, the board relied heavily on the Supreme Court’s reasoning in Federal Maritime Commission v. South Carolina State Ports Authority (FMC), in which the Court held (in a different context) that the Eleventh Amendment extends to agency proceedings that “walk[ ], talk[ ], and squawk[ ] very much like a lawsuit.” [14] In considering the application of FMC to IPR proceedings, each of the three panels similarly looked to Vas-Cath, Inc. v. Curators of University of Missouri, in which the U.S. Court of Appeals for the Federal Circuit held that interference proceedings before the Board of Patent Appeals and Interferences “bear ‘strong similarities’ to civil litigation.”[15] For example, similar to lawsuits, IPR proceedings “generally involve adverse parties; provide for examination and cross-examination of witnesses; and result in findings by an impartial federal adjudicator and decisions that the agency has the power to implement.”[16] While the Federal Circuit has yet to decide whether Eleventh Amendment sovereign immunity extends to IPRs, it appears likely that this defense will continue to be invoked, and be likely to succeed, before the board.

Areas of Sovereign Immunity Uncertainty Whether the invocation of a sovereign immunity defense will terminate a proceeding only as to the state (or arm of the state) or whether it will extend to other parties will depend on whether the interests of the responding parties are aligned. For example, where a licensee has little incentive to vigorously defend a patent on which it pays ongoing royalties, it is likely that the divergence of interests would require a

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complete termination of the proceedings. Where, however, co-owners share interests (and perhaps even legal counsel), the board may be persuaded to allow a proceeding to continue despite the absence of a party with sovereign immunity. Another area of uncertainty coming out of these decisions is potential waiver of sovereign immunity by the state entity. In an interesting footnote in Covidien, the board stated, “[b]ecause there is no related federal district court patent infringement (or declaratory judgment of validity) case brought by Patent Owner, we do not decide here whether the existence of such a case would effect a waiver of sovereign immunity.”[17] This seems to leave open the question whether a university’s affirmative patent infringement suit would waive immunity to IPRs thereafter instituted.[18] Note that in NeoChord, the board rejected arguments that the University of Maryland had waived immunity by (1) participating in the IPR through hearing before raising this defense, and (2) entering into a license with Harpoon Medical, which contained a waiver of sovereign immunity (limiting the waiver only as to Harpoon).[19] When looking at sovereign immunity as it relates to IPRs, it is important to consider potential waiver issues.

ENDNOTES [1] Covidien LP v. Univ. of Fla. Research Found. Inc., Case IPR2016-01274 (P.T.A.B. Jan. 25, 2017) (Paper 21) at 2. [2] Id. at 2, 27-28. [3] Id. at 4-27. [4] Id. at 28-39. [5] Id. at 3, 39. [6] NeoChord, Inc. v. Univ. of Md., Baltimore, Case IPR2016-00208 (P.T.A.B. May 23, 2017) (Paper 28) at 2. [7] Id. at 4. [8] Id. at 4-9, 20. [9] Id. at 18-19. [10] Id. at 20. [11] Reactive Surfaces Ltd., LLP v. Toyota Motor Corp., Case IPR2016-01914 (P.T.A.B. July 13, 2017) (Paper 36) at 2-3. [12] Id. at 9-11. [13] Id. at 11-17. [14] 535 U.S. 743, 756-59 (2002). [15] 473 F.3d 1376, 1382 (Fed. Cir. 2007) (quoting FMC, 535 U.S. at 760). [16] Reactive Surfaces, supra note 11, at 5. [17] Case IPR2016-01274 at 26, n.4. [18] In NeoChord, the board noted that the petitioner had not argued that the State had waived immunity by market participation, but it nevertheless implied that any such argument would be contrary to Supreme Court precedent that “market participation does not constitute a constructive waiver.” Case IPR2016-00208, at 11 (citing Parden v. Terminal Ry. of Ala. Docks Dept., 377 U.S. 184 (1964)). [19] Case IPR2016-00208 at 16-18.

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Looking for More Insights on Inter Partes Review? PERKINS COIE OFFERS CUSTOMIZED IPR CLEs FOR IN-HOUSE TEAMS. AND WE INCLUDE LUNCH WHILE YOU LEARN. POPULAR SESSION TOPICS INCLUDE: • Drafting a Winning IPR Petition • Top 5 Strategy Considerations for the IPR Petition • Top 5 Defense Strategies for the Patent Owner EACH PRESENTATION MAY BE ELIGIBLE FOR 1-1.5 HOURS OF CLE CREDIT.

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CONTENTS INTER PARTES REVIEW PROCEEDINGS: A FIFTH ANNIVERSARY REPORT OCTOBER 2017

2 > Five Big Ideas About Five Years of IPRs

32 > Need-to-Know

Developments Regarding Federal Circuit Review of IPRs

62 > How to Craft a Winning Motion to Amend

80 > Sovereign Immunity of

Universities and Related Entities in IPR Proceedings

8 > IPR@5: IPR by the Numbers

40 > Is the Sun Setting Early on Covered Business Method Review?

68 > Pros and Cons of a

Parallel ITC and PTAB Patent Challenge

22 > Constitutionality of

IPRs @ the U.S. Supreme Court

48 > Obviousness in the Wake of Arendi

74 > All or Some Claims? SAS Institute Inc. v. Matal Heads to SCOTUS

26 > District Court Stays

Pending IPR/CBM/PGR Review: A Review of the Past 12 Months

Thank you to the writers and analysts who made this IPR@5 publication possible:

> When Does Estoppel

Apply in a Post-Shaw Landscape?

76 > Taming the Uncertainty of Ad Hoc Procedures in PTAB Remand Proceedings

MIGUEL BOMBACH

CHRISTOPHER HANEWICZ

MATTHEW MOFFA

COUNSEL

PARTNER

ASSOCIATE

TRUSCENIALYN BROOKS

ADAM HESTER

KEVIN PATARIU

ASSOCIATE

PARTNER

MANNY CAIXEIRO

JAMES HURT

SARAH STAHNKE

PARTNER

ASSOCIATE

KYLE CANAVERA

JOHN ISAACSON

BABAK TEHRANCHI

ASSOCIATE

PARTNER

JAMES COUGHLAN

AMISHA MANEK

MICHELLE UMBERGER

PARTNER

ASSOCIATE

PARTNER

MARTIN GILMORE

WILLIAM MCCABE

SENIOR COUNSEL

PARTNER

DANIELLE GRANT-KEANE

PATRICK MCKEEVER

ASSOCIATE

COUNSEL

INTER PARTES REVIEW PROCEEDINGS: A FIFTH ANNIVERSARY REPORT

An In-Depth Look at Factors Affecting Your IPR Strategy