Mixed Bag in Proposed New Rules for PTAB Proceedings

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By Tony Dutra

Aug. 19 — Patent owners would have a somewhat easier time defending patents at the Patent Trial and Appeal Board under new proposed rules set for publication by the Patent and Trademark Office Aug. 20.

PTO Director Michelle K. Lee posted highlights of the proposal on the agency's “Director's Forum” blog.

A potentially valuable addition would be the opportunity for the patentee to introduce testimonial evidence, such as an expert declaration, in the patent owner’s preliminary response. That would provide a stronger defense for the board to consider before it makes a decision to allow or reject a petition for patent claim cancellation.

However, the office parried more controversial requested changes from patent holders.

First, it held firm to the board's use of the “broadest reasonable interpretation” (BRI) standard for assessing patentability. The BRI standard allows for more prior art to challenge patent validity. The office will use the more patentee-friendly district court standard only for expired patents.

And second, the PTO did not amend the board's standards for allowing patent owners to amend claims. Patentees often note the low rate of granting such amendments. But the office argued that the PTAB's decisions have properly placed the burden on the patent holder to show the patentability of substitute claims, with most patent holders failing to meet that burden.

The proposed rules follow a stakeholder commentary period that ended in 2014.

A first round of minor rules changes was published May 19.

Evidence in Preliminary Response

The change that would allow more evidence prior to the trial institution decision generally would favor the patent owner, who is currently limited in its preliminary response.

“This change responds to commentary raising concerns that patent owners are disadvantaged by current rules that let petitioners’ evidence go unanswered before a trial is instituted,” Lee said in the blog post.

Timothy P. McAnulty and Aaron J. Capron of Finnegan, Henderson, Farabow, Garrett & Dunner LLP told Bloomberg BNA that “replacing page limits with word count limits” should also benefit patentees.

However, there are counterbalancing factors.

“The catch is that ‘supporting evidence concerning disputed material facts will be viewed in a light most favorable to the petitioner,’ ” Justin Oliver of Fitzpatrick, Cella, Harper & Scinto LLP, Washington, noted.

Further, the PTAB will also entertain a petitioner's motion to reply to the patent owner's evidence.

“It will be interesting to see whether the ability for patent owners to include new testimonial evidence with their preliminary response provides any real benefit to the patent owners,” Jason D, Lohr of Hogan Lovells, San Francisco said in an e-mail.

Lohr noted the same concern as Oliver and added, “this change may amount to window dressing that appears on its face to better balance the process but actually offers little additional benefit to patent owners in most cases.”

Also, the proposed rules do not include any change to the board's standards on discovery, governed by Garmin Int’l, Inc. v. Cuozzo Speed Techs. LLC, IPR2012-00001, slip op. at 6–7 (P.T.A.B. Mar. 5, 2013) (Paper 26), despite some comments that the board was inconsistent in its decisions.

Claim Construction Standard

District courts evaluate patent validity after construing claim terms under the standard set in Phillips v. AWH Corp., 415 F.3d 1303, 75 U.S.P.Q.2d 1321 (Fed. Cir. 2005) (en banc).

That standard was built on the presumption of validity granted patents in litigation. The America Invents Act—which enabled the inter partes review (IPR) and other post-grant review proceedings at issue in the rules package—did not set that same presumption before the PTAB.

The PTO has consistently maintained that if a patent owner can amend claims in these proceedings, they would have to be treated as new claims, and thus the BRI standard is warranted. In the rules package, the office conceded that amendment is impossible if the patent claims at issue will expire before the end of trial, so it agreed to adopt Phillips for those—but only those—situations, which are likely rare.

The PTO, however, left the door open for another commenter request: “The Office invites comments suggesting any workable and efficient solutions for scenarios where the patent owner chooses to forego the right to amend claims in an AIA proceeding, including any suggested revisions to the rules or the Office Patent Trial Practice Guide.”

Motions to Amend

As to motions to amend, the PTO appears to be satisfied that it has resolved many of the concerns in a recent opinion, MasterImage 3D, Inc. v. RealD Inc., IPR2015- 00040, slip op. at 1–3 (P.T.A.B. July 15, 2015) (Paper 42).

The board requires amended claims to be patentable over the “prior art of record” and “prior art known to the patent owner.” According to the notice, that case details what those terms mean, “and how the burden of production shifts to the petitioner once the patent owner has made its prima facie case for patentability of the amendment.”

Rule 11-Type Discipline

The office is also proposing a “Rule 11-like” sanction that would “give the USPTO a more robust means with which to police misconduct,” Lee said.

The Federal Register notice describes the new rule as a “certification for all papers filed with the Board with a provision for sanctions for noncompliance.” Any misconduct will subject the practitioner to proceedings before the PTO's Office of Enrollment and Discipline.

“The proposed rules implement a more explicit duty of candor and good faith for all persons practicing before the Board,” McAnulty and Capron said in their e-mail.

“This may open the door for more motions for sanctions,” Fitzpatrick's Oliver added.

A Different Slant on Statistics

Patent owners' concerns about evidence and the claim construction standard are generally made in light of the popular notion that the PTAB's rate of cancelling patent claims is higher than 50 percent, and significantly higher than in district court.

Lee's blog post took a decidedly different slant on the statistics, using a different base.

For inter partes review decisions, for example, the blog post links to a presentation that compares the number of patent claims found unpatentable, after trial, compared to the total number of claims in the challenged patents. But petitioners are likely to challenge only those claims asserted in district court, and unchallenged claims are likely to be of little value to the patent owners.

The presentation ultimately resolves to actual patent claims challenged, and then the PTO's figures are closer to—though still more favorable to patent owners than—what has been reported.

Not counting settlements and dismissals prior to a trial institution decision, the board is instituting trial on 63 percent of claims challenged in IPR proceedings.

The patent owner then either allows cancellation of or the board cancels 53 percent of the claims for which trial was instituted. That would be significantly lower than the other reports, but only 10 percent are held patentable in a final written decision.

The rest are categorized as “remaining patentable (not subject to a final written decision),” which presumably means a settlement after the trial institution decision.

The PTO did not immediately respond to requests for clarification of these figures.

To contact the reporter on this story: Tony Dutra in Washington at adutra@bna.com

To contact the editor responsible for this story: Anandashankar Mazumdar in Washington at amazumdar@bna.com

Text of pre-release of Federal Register notice at http://pub.bna.com/ptcj/PTABRulesChgs15Aug19.pdf.

PTO blog at http://www.uspto.gov/blog/director/entry/ptab_update_proposed_changes_to.

Stakeholder comments at http://www.uspto.gov/page/comments-trial-proceedings-under-america-invents-act-patent-trial-and-appeal-board.

Road show info at http://www.uspto.gov/patents-application-process/patent-trial-and-appeal-board/uspto-co-hosts-cross-country-roadshows.