Contributed by Rakesh H. Mehta, Ph.D., and Travis W. Bliss, PH.D., Potter, Anderson & Corroon LLP
Patent Law Basics
Under U.S. patent law, inventors can be awarded patent rights, i.e., the right to exclude others from practicing the invention for a limited time, for the fruits of their inventive labor. However, patent rights are not conferred on an inventor as a matter of course. Instead, the inventor must file a patent application with the United States Patent and Trademark Office ("USPTO"). That patent application is rigorously examined to determine the scope of legal protection it merits ("claim scope"). During examination, the USPTO must be convinced that the invention is both novel and nonobvious, meaning that it should not have been known or disclosed before the patent application was filed, and that it should not be an obvious variation of an existing technology. In essence, the examination procedure is a "negotiation" between the inventor and the USPTO. During that negotiation, the inventor attempts to obtain the greatest possible claim scope, while the USPTO attempts to concede the minimum possible scope to satisfy novelty and nonobviousness. How does the USPTO determine novelty and obviousness? A USPTO patent examiner searches for and identifies relevant printed documents (prior art references) that predate the filing date of the patent application. Then the examiner builds a case that the invention was identically disclosed in the prior art, or was obvious from one or more prior art references. Thus, the claim scope will be determined by (1) the number of prior art documents and their relevance to the invention, (2) the patent examiner's skill in assessing the invention against the art, and (3) the patent examiner's rigor in determining patentability. Once the negotiation ends, the USPTO issues a patent to the applicant. That patent is presumed valid in court, and can be used by the patent owner to prevent others from making, using, or selling the patented invention, or to generate income by licensing the patent rights to others wishing to practice the invention.
State of the Patent World Today
In today's legal landscape, once a patent application publishes, the negotiation between a patent applicant and the USPTO becomes public information. As a result, a company can witness the progress of a competitor's patent application, but it cannot effectively participate in the negotiation process. To illustrate, if a company learns of a competitor's patent application when it is published, and knows of a prior public disclosure of the "invention" (e.g., the same idea was published in a scientific journal before the application was filed), the company cannot directly share that knowledge with the patent office. Similarly, if a company learns that a competitor has been issued a patent that lacks novelty, it has only a few legal tools available at the USPTO to challenge the validity or limit the scope of that patent. As a result of this limited ability to intervene in the patent application process or effectively challenge a patent at the USPTO, a company is often resigned to simply securing a legal opinion that the patent is invalid and holding it as "ammunition" in the event the company is sued. Such a "wait and see" approach is problematic because legal opinions of invalidity, though they can be utilized as part of an affirmative defense at trial, do not actually protect the company from being sued for infringement of an invalid patent. This is detrimental to the alleged infringer given the high cost of litigation, and because it is often difficult to escape such a lawsuit early on an invalidity defense – frequently the validity of the patent is determined during trial, when most of the litigation costs have been incurred.
Future of Competitive IP Strategy
The good news is that the future of competitive IP strategy is bright. The America Invents Act ("AIA"), which was passed in September 2011, provides sweeping changes to the U.S. patent laws, including several changes intended to provide alternatives to patent litigation. More specifically, the AIA introduces new tools that allow a company to directly intervene in determining the eventual scope of a competitor's patent during the "negotiation" process. When used in combination, these tools can create a cost effective, non-litigation, patent strategy that can be used to gain a competitive advantage while mitigating the risk and costs of litigation. Being proactive and acting early are the keys to this strategy. Delay in challenging a competitor's patent comes with a price—a higher burden of proof and a higher likelihood of later lawsuit. The new laws provide three opportunities for third parties to weigh in on patent scope and validity with the USPTO: (1) preissuance submission, (2) post grant review, and (3) inter partes review. These tools are discussed individually below. Strategies to combine these tools, including a discussion of where decision points lie and important factors to consider at these times, are also detailed below.
The first opportunity to weigh in on the "negotiation" between the USPTO and the patent owner is called "preissuance submission by third parties" ("PIS").1 Under the PIS procedure, within six months after the USPTO publishes a patent application, a third party can submit to the USPTO relevant publications as well as comments describing the impact on patentability of the invention. The examiner is obligated to consider the submitted prior art and the third-party remarks during the examination procedure. Thus, PIS enables a third party to act as a "guest negotiator" to assist and augment the examiner's wherewithal, as opposed to being relegated simply as an onlooker in the present procedure. Under the PIS procedure, the third party can submit remarks anonymously, which is one of its most advantageous facets. The third party only needs to have a belief that submitted publications are relevant to patentability of the invention. Furthermore, a submission at this stage does not foreclose the third party from submitting any references at a later stage, e.g., in litigation or in other USPTO proceedings. Consequently, the PIS submission poses very little risk. In fact, a third party should almost always avail itself of the opportunity to submit PIS publications.
Under a second new procedure, within nine months after a patent is granted, a third party can institute a post-grant review (PGR) challenge against the patent.2 This challenge amounts to a second review of the patent in light of all available grounds of patentability. Under PGR, the third party plays the role of “examiner” by repeatedly submitting evidence and arguments, and thus actively participating in the back-and-forth negotiation between the USPTO and the patentee.
PGR can be highly advantageous, because it allows a company to challenge a competitor’s patent before it is even asserted, thereby removing an otherwise constant litigation threat during patent term. This allows for an upfront determination of a patent’s validity, before committing significant resources to the relevant market. If the third party has an infringing product, an early dénouement cuts future losses and allows retrenchment of resources and effort in other “safer” directions.
Because the PGR process will be quick and compact, it should be less costly than litigation. Also, PGR will be arbitrated by administrative judges on the USPTO’s new Patent Trial and Appeal Board (“PTAB”), with better understanding of technology and patent process than the judges and jury in a federal district court. Moreover, the judgment of the PTAB in PGR is able to be appealed directly to the Court of Appeals of the Federal Circuit (“CAFC”), similar to a validity decision in district court. Thus, if litigation is imminent anyway, the issue becomes whether the third party wants to arrive at CAFC through the shorter, less costly, and perhaps more robust, PGR route, or through the traditional district court route.
However, PGR is fraught with significant risks. First, the requester must reveal its identity upfront. Identity disclosure, especially in case of an infringing product, and if the patent survives the PGR challenge, virtually guarantees a lawsuit from the patent owner. Moreover, subjectively, a PGR challenge can strain a relationship with the patent owner, who may choose to retaliate as a matter of business prerogative in an undesirable area for the third party. Second, before the USPTO will consider the PGR challenge, the requester must demonstrate that it will more likely than not prevail in invalidating the patent. As an additional penalty, the patentability challenges that a requester brings or can bring during the PGR challenge cannot be raised again during any subsequent challenges before the USPTO or in litigation. As such, a party instituting PGR must bring all its challenges in that one attack, or risk losing the ability to challenge the patent’s validity at all in future.
INTER PARTES REVIEW
Inter partes review (IPR) is the “third new bite at the apple” for a third party against a patent owner.3 The third party can institute an IPR challenge any time during the life of the patent, once the nine-month PGR period has expired. In many respects, IPR resembles PGR. For instance, both PGR and IPR 1) allow for direct participation of the third party throughout the process, 2) prohibit the third party from bringing the same challenges in later proceedings, and 3) do not allow for anonymity of the requester.
IPR does, however, differ in a few regards. First, IPR requires that the third party meet a higher burden before the patent office takes it up for review: there must be a reasonable likelihood of invalidating at least one patent claim. Moreover, in IPR, the third party can use only novelty and non-obviousness grounds for challenge (versus any patentability ground in PGR).
ORGANIZATION OF TOOLS INTO COMPREHENSIVE STRATEGY
Three separate tools now exist that allow a company to weigh in on a competitor’s patent rather than waiting for possible litigation. While the patent statute separately discusses each of these tools, a company can strategically combine them into a single, comprehensive, competitive intelligence-driven strategy. Because challenges become more difficult, risky, and expensive at each subsequent stage, this strategy hinges upon being proactive. Therefore, how can these tools be effectively combined into a strategy?
The first strategic step entails performing regular competitive intelligence searches to stay abreast of competitors’ patent applications. In fact, the short time limits of PIS and PGR warrant searches every 1-2 months. Time and effort should be invested at the outset to develop a comprehensive search strategy, and that strategy should be revisited periodically to determine if changes in the business landscape warrant any modifications.
Each patent application that is identified in a search should be first analyzed to determine whether there is a benefit to taking some action against that application by asking three questions:
Next, if the identified application has published within the past six months, the PIS procedure should be deployed to initiate the first challenge. The PIS procedure is almost always advantageous: As noted above, the patent examiner is obligated to consider third party submissions and those submissions can be made anonymously. Moreover, the same material can be submitted and argued at later proceedings.
To use the PIS tool effectively, one should limit the number of references submitted so that the patent examiner is not buried in references. With that in mind, if numerous similar publications have been identified, it is beneficial to submit a few of those publications, while saving the others for use at later stages. To get the most benefit from the submission, the explanation to the USPTO as to the relevance of the reference to your competitor’s patent application should be as detailed and specific as possible, including citations to specific passages of the publication and specific sections of the patent law. The easier it is for the patent examiner to incorporate your reasoning into the next round of negotiation, the more likely he will do it.
If a patent issues regardless of the PIS submission, or if a relevant patent is not identified until after it issues, then the company has reached a decision point as to how to proceed. While PIS is generally advantageous, PGR and IPR pose some significant risks, for instance, lack of anonymity and prohibition from raising the same issues in later proceedings. Thus, certain questions should be addressed to determine whether to proceed with PGR/IPR or take no affirmative action and simply use the “wait and see” approach.
One question to consider is whether the company has an existing or in-pipeline infringing product. If not, a PGR/IPR challenge poses less risk because, though the company must identify itself, it will not be a target for a lawsuit because there is no infringing product. Thus, the decision to bring a PGR/IPR hinges more on how valuable it is to keep that market space open and/or to keep a competitor from gaining a monopoly in that market space.
In contrast, if the company does have an infringing product, then the benefit of ensuring that the market remains open is obviously high, but so is the potential risk in bringing a PGR/IPR challenge, in part because the challenge puts the patent owner on notice of the likely infringement. In this situation, two other major factors come into play in determining whether to institute a PGR/IPR challenge.
First, the likelihood that the patentee will sue for infringement must be determined. Numerous subfactors go into making this determination. For instance, how large and/or litigious is the patent owner, and will the patent owner likely learn that you infringe? The higher the chance of litigation, the lower the risk that “popping your head up” by bringing a PGR/IPR challenge will be detrimental in the long run.
Second, the amount of expenses already incurred and the additional cost amount to be spent on the infringing product must be determined. This too warrants consideration of numerous subfactors, such as:
Knowing what funds have been spent and will be spent helps greatly in determining which strategy to elect: an aggressive PGR/IPR approach or a prudent “wait and see” approach. For instance, if millions have been spent in developing the product already, and essentially no additional money needs to be spent, one gains very little advantage by bringing a PGR/IPR challenge to determine up front whether the patent is invalid. On the other hand, if the product is early in the pipeline so that future costs are high, it would be very helpful to determine up front whether the patent at issue will impede the company’s entry into the market.
Electing a PGR/IPR strategy is fact-specific and entails consideration of many relevant factors. However, once the decision to proceed is made, a determination between PGR or IPR is a comparatively simple task. As discussed above, PGR has several advantages over IPR; for instance, more grounds for invalidity can be raised and the burden of proof is lower. Accordingly, if the patent is within the nine-month timeframe from issuance, PGR should be initiated. If, on the other hand, the patent has been issued for more than nine months, an IPR procedure is the only new tool available. In either case, because of the estoppel issues discussed above, it is important to make sure that every possible challenge is raised to avoid prohibition from bringing that challenge at a later date.
The revised patent laws have given companies three new USPTO procedures that can be used collectively in a competitive intelligence-driven patent strategy. Effective use of this strategy mandates an early and proactive approach, fueled by comprehensive and regular searches of patent databases and prompt attention to relevant patents or patent applications that are identified. If used effectively, this strategy can weaken competitors’ patent positions and mitigate the cost and/or risk of patent litigation for a company. In view of advantages such as these, counsel for large and small companies alike should find it well worth the effort to develop and implement such a strategy.
Dr. Travis W. Bliss (email@example.com / 302.984.6173), and Dr. Rakesh H. Mehta (firstname.lastname@example.org / 302.984.6089) are attorneys with the Wilmington, Delaware, law firm of Potter Anderson & Corroon LLP. Both are members of the firm’s intellectual property practice and focus on providing counsel on transactions, opinions, prosecution, and litigation related to the intellectual property of clients. Their work encompasses patents, trademarks, copyrights and trade dress.
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