Welcome to the latest issue of the Section 337 Update. This newsletter is designed to provide you with practical updates and developments on Section 337 proceedings before the US International Trade Commission.

On September 16, 2011, President Obama signed into law the America Invents Act ("AIA"), which is the greatest overhaul of the US patent system since 1952.  Congress's primary goals in enacting the AIA were to improve "patent quality" and reduce the backlog of pending patent applications, further enhance opportunities for innovation and entrepreneurial investment, and better harmonize the US patent system with that of other countries.  The changes brought about by the AIA will present new issues and proceedings for patent practitioners, inventors, and businesses to consider.  One such issue is how these sweeping changes to the US patent system will affect Section 337 proceedings at the US International Trade Commission ("Commission").  New provisions in the AIA reducing the opportunities for joinder of multiple defendants in district court patent litigation and providing for post-grant review may increase the number of parties filing complaints at the Commission.

Joinder of Multiple Defendants

Patentees have increasingly named multiple unrelated parties as defendants in district court cases, even when the sole commonality among the defendants is that they are allegedly infringing the same patent.   In such cases, these defendants had limited ability to separate themselves from their co-defendants.  Fed. R. Civ. P. 20(a) requires that in order to join multiple defendants in a single action, the claims against them must "aris[e] out of the same transaction, occurrence, or series of transactions or occurrences."  Before the passage of the AIA, there was a split in authority over whether multiple unrelated accused infringers could be joined as defendants in a single lawsuit.  Even in cases where defendants were successfully severed, district courts still had the option to consolidate the severed actions under Fed. R. Civ. P. 42. 

The AIA resolves the issue of whether a patentee can join multiple accused infringers in a single lawsuit under Fed. R. Civ. P. 20 in favor of the accused defendants.  The AIA states that "accused infringers may not be joined in one action as defendants or counterclaim defendants, or have their actions consolidated for trial, based solely on allegations that they each have infringed the patent or patents in suit."  Section 299(b).  Therefore, plaintiffs may only join accused infringers as defendants if the action is "with respect to or arising out of the same transaction, occurrence, or series of transactions or occurrences" relating to the infringement and questions of fact common to all defendants will arise in the action.  The AIA also limits the ability of courts to consolidate suits against unrelated infringers under Fed. R. Civ. P. 42. 

The new joinder provision of the AIA will dramatically change the dynamics of multi-defendant lawsuits.  First, it will significantly reduce the economic incentive to litigate for non-practicing entities ("NPEs") and other plaintiffs attempting to determine whether and how to enforce their patents against multiple accused infringers.  Joining multiple accused infringers in a single case can result in enormous cost savings for the patent owner.  Section 299 of the AIA may deter some patent owners from separately enforcing their patents against each individual defendant, particularly if the anticipated recovery from certain defendants is insignificant.

Patentees may try to avoid the effects of Section 299 of the AIA by forgoing patent enforcement in the US district courts.  Consequently, Section 299 of the AIA might result in increased filings at the Commission.  While Section 337 is only available to prevent unfair methods of competition and unfair acts in the importation and/or sale of infringing articles into the United States, patent enforcement at the Commission does provide one method to avoid the restraints imposed by Section 299.  Commission Rules of Practice and Procedure do not discourage the naming of multiple respondents and the complainant determines the number of allegedly infringing respondents to include in a single case.  At the Commission, multi-defendant litigation is not only still available, but it is also encouraged in certain types of actions (where a limited exclusion order is sought involving downstream products, any entity against which relief may be awarded must be joined in the Commission proceedings).  Section 299 may, thus, result in more patentees filing Section 337 actions in the Commission as their principal method of patent enforcement.

The ability to join multiple respondents at the Commission also benefits the respondents themselves.  Respondents at the Commission can realize significant cost savings by defending a proceeding together.  A joint action may allow a respondent to significantly reduce its expenses through shared representation with other respondents or by allocating the costs of pursuing common interests (e.g., invalidity positions, prior art searches, etc.) among all respondents.

Post-Grant Review

After the issuance of a patent or issuance of a broadening reissue patent, the AIA establishes a nine-month post-grant review period in which a patent claim may be challenged on any ground.  Anyone other than the patentee may file a petition to institute post-grant review. Grounds for cancellation include any basis in 35 U.S.C. § 282(b) related to invalidity, including failure to meet requirements of § 101 (statutory subject matter), § 102 (novelty), § 103 (nonobviousness), or § 112 (written description, enablement, or best mode).  After the nine-month period, patents can only be challenged on the basis of existing patents or printed publications.  These new procedures of the AIA were included to improve "patent quality" by eliminating invalid claims at an earlier stage through less expensive and faster alternatives to district court litigation.

However, post-grant review proceedings in the AIA may not actually result in the desired "speedy resolutions" to patent disputes.  A challenger can file a petition for post-grant review within nine months only if the challenger has not already initiated a civil action in district court challenging the validity of the patent claims (this does not preclude invalidity counterclaims).  If the petitioner files a civil action to challenge validity after petitioning for post-grant review, the civil action will be automatically stayed until either the patent owner moves to lift the stay or the patent owner files a civil action or counterclaim alleging infringement.

The AIA also does not eliminate ex parte reexamination, which remains unchanged from the previous patent system.  In ex parte reexamination, patentees can obtain judicial review of adverse decisions from the US Patent and Trademark Office ("USPTO") in a civil district court lawsuit.  Moreover, the AIA establishes a new inter partes review system to be utilized by a challenger to a patent.  In this inter partes review system, a third party can challenge the validity of a patent claim after the first year.  Thus, under the AIA, if a patent is challenged under the post-grant review proceedings and then again in inter partes review, it may take a minimum of 21 months before a patent's validity can be established.  The actual time to resolution may be twice as long since litigation proceedings typically last more than one to two years in the USPTO and the district courts.

Venture-backed companies may not be able to survive in the face of these potential delays.  Thus, the AIA might again result in increased filings at the Commission.  The AIA's prohibition against post-grant review if a civil action has already been filed and the automatic stay of civil actions pending the resolution of a petition for post-grant review do not apply to proceedings at the Commission.  Pursuant to Section 337, the Commission must complete each Section 337 investigation and make its determination "at the earliest practicable time."  Additionally, Commission Rules of Practice and Procedure state that all investigations and related proceedings shall be conducted "expeditiously" and that the parties, their attorneys or other representatives, and the presiding Administrative Law Judge "shall make every effort at each stage of the investigation or related proceeding to avoid delay."   To promote expeditious adjudication, Section 337 instructs the Commission to establish a target date for its final determination.  The usual target date for completion of the investigation is between 12 and 16 months after publication of the notice of investigation and in more complicated cases may be longer.  The Commission mandate to expeditiously adjudicate Section 337 actions has led to relatively few stays pending reexamination.  In some cases, stays have been entered and later reversed by the full Commission. When the AIA post-grant review proceedings fail to provide a quick resolution, parties may increasingly migrate to the Commission, which can order remedies in as little as 12 months.

Conclusion

Although the AIA fundamentally changes the US patent system, Section 337 proceedings at the Commission represent a means by which accused infringers may still be joined within a single proceeding.  Parties may also increasingly flock to the Commission to receive a speedy resolution of their patent disputes when the post-grant review proceedings fail to live up to their expectations of quick results.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.