Justification for post-grant procedures continues to mount

October 1, 2013

John L. Strand

(as published in Inside Counsel)

For some time, patent attorneys have known the advantages of challenging patents in the U.S. Patent and Trademark Office through post-grant procedures, instead of — or in addition to — litigating the validity of the patent in court. Recent decisions by the U.S. Court of Appeals for the Federal Circuit and the Patent Office’s Patent Trial and Appeal Board (PTAB) have only reinforced the benefits of using post-grant procedures.

Established advantages of post-grant proceedings

Several benefits of post-grant procedures are already well-established:

There is no presumption of validity in the Patent Office. In federal litigation, a patent is presumed valid, and a challenger needs to overcome that presumption with "clear and convincing" evidence of invalidity. In the Patent Office post-grant procedures, that presumption does not apply. Instead, the challenger must show invalidity by only a "preponderance of the evidence."

Post-grant procedures in the Patent Office are quicker than litigation. For instance, current inter partes review (IPR) procedures for issued patents are statutorily required to be completed within 12-18 months once instituted. These days, it is difficult if not impossible in most U.S. jurisdictions to get a trial date that quickly.

Post-grant procedures are relatively cheaper than litigation. According to the most recent American Intellectual Property Law Association survey, the average cost of a U.S. patent litigation with more than $25 million at stake is $5.5 million. In comparison, the average cost of an inter partes reexamination is $250,000. The newly implemented IPR process will cost more than a reexamination since it will include heavy reliance on experts and include modest discovery, but the average cost should still be substantially less than litigation.

Discovery is much more limited in post-grant procedures. Many patent defendants wish to protect their highly confidential information from any sort of disclosure and relieve their employees of the burden of discovery. Mostly, these burdens can be avoided in post-grant procedures.

Recent decisions reinforcing advantages of post-grant proceedings

This list by no means exhausts all of the current benefits of post-grant procedures. As time goes on, however, the benefits are only continuing to mount.

On July 2, 2013, the Federal Circuit found in Fresenius USA, Inc. v. Baxter Int’l, Inc. that an intervening ex parte reexamination proceeding can upset an infringement and validity finding of a U.S. district court – even if the Federal Circuit already affirmed those district court findings. This decision will only further encourage accused patent infringers to challenge patents in the Patent Office, even if a concurrent infringement litigation is well-developed, as long as there is a chance that the reexamination is completed prior to a "final" decision in the infringement litigation. This decision is controversial (Baxter has petitioned for re-hearing), but it is still a reminder of the power of post-grant proceedings before the Patent Office.

Recent decisions of the PTAB have also reinforced the advantages of post-grant procedures, in particular inter partes reviews. One recent example occurred in the Redline Detection, LLC v. Star Envirotech, Inc. inter partes review. There, the patent owner, Star Envirotech, attempted to seek discovery to keep Redline Detection from maintaining the inter partes review. In particular, Star Environtech contended that Redline Detection, the petitioner, should not be able to allege that the patent at issue was invalid due to the doctrine of "assignor estoppel," a long-standing equitable doctrine courts apply to prevent prior patent holders from later asserting that the patents they sold are invalid. The PTAB decided in the Redline case that assignor estoppel does not apply in IPR proceedings.

The primary justification for the PTAB’s decision is the IPR statutory mandate that any party "who is not the owner of a patent" may bring an IPR. The PTAB also relied on a recent statement from the Federal Circuit – though addressing a different question than the one before the PTAB – that "[a]ssignor estoppel is thus a defense to certain claims of patent infringement." (Semiconductor Energy Laboratory Co., Ltd. v. Nagata.) The PTAB relied on this statement for the proposition that assignor estoppel should be only a "defense" to patent infringement claims.

It is important to note that the Federal Circuit has made broader statements concerning the application of assignor estoppel. Even in the Nagata case, the court cited an earlier case, Checkpoint Sys., Inc. v. All-Tag Sec. S.A., where the court broadly held that "[t]he doctrine of assignor estoppel prevents a party that assigns a patent to another from later challenging the validity of the assigned patent." Based on such statements and others, the Federal Circuit may eventually weigh in on this dispute.

Before that day, this decision, and the Fresenius decision, are further reasons it is advantageous for an accused patent infringer to litigate the validity of a patent before the Patent Office, rather than look to the federal courts.