United States: Auto Companies Are Enjoying Benefits Of Inter Partes Review

Companies in the automotive industry face patent litigation on a regular basis. A frequent target of non-practicing entities, both car manufacturers and suppliers frequently get dragged into federal district court where the balance of hardships weighs heavily against the auto companies. Specifically, auto companies can spend millions of dollars defending themselves while the NPE-plaintiff, who's only assets include the patent rights (typically purchased from a third party), spends very little. To combat this inequality, the America Invents Act created new administrative review procedures, including inter partes review, that cost significantly less than litigation and focus solely on the validity of the patent. Very quickly, auto companies have turned to these new procedures to combat unwarranted patent infringement claims. In addition, some companies appear to combat the patent rights of their competitors using these new procedures. This article discusses examples where companies and suppliers utilize these procedures to combat NPE allegations, details the fight at the patent office between two competitors, and examines some of the pros and cons for these new procedures.

An IPR proceeding is quite different from normal patent litigation in district court. Some primary differences include the statutory deadline for the Patent Trial and Appeal Board to complete an IPR proceeding; normally around 18 months after a petition is filed. See 37 C.F.R. § 42.100(c). Furthermore, the parties in an IPR engage in a hearing before the PTAB, comprising three administrative patent judges at the U.S. Patent and Trademark Office. In contrast, an Article III judge or jury typically decides a patent infringement case in district court. Very little discovery occurs during an IPR proceeding. Instead, the parties focus on deposing the opposite party's expert. As such, IPR provides a significant cost savings for a petitioner in the automotive industry over litigating a patent case in district court.

The first example involves NPE Beacon Navigation GmbH. Beacon has filed numerous lawsuits against many automotive entities in the United States where Beacon has repeatedly asserted one specific patent—U.S. Patent No. 6,029,111, titled "Vehicle navigation system and method using GPS velocities." It initially filed eighteen complaints on this and other patents in the District of Delaware on Oct. 11, 2011, against a myriad of auto manufacturers, including Chrysler Group LLC, Ford Motor Co., General Motors LLC, Audi AG and Volkswagen AG. Beacon then filed a similar complaint asserting this patent at the U.S. International Trade Commission on Nov. 23, 2011.

On Oct. 18, 2012, Denso Corp. and Clarion Co. Ltd., two automotive supply companies that Beacon did not name in its 2011 filings relating to the '111 patent, petitioned for an IPR of that patent. IPR2013-00026. On March 14, 2014, the PTAB found in favor of Denso and Clarion, concluding that the prior art patent anticipated the claims and thus the claims were unpatentable. Id., Final Written Decision. Despite Beacon asserting numerous patents in 2011, this example shows how a target, or potential target, of litigation by an NPE can use IPR to gain an advantage over its adversary.

Another NPE targeting automotive companies is American Vehicular Sciences LLC (AVS). Over the last few years, AVS has filed a number of complaints against automotive companies, including Toyota, BMW, Honda, and Mercedes-Benz, alleging infringement of numerous patents. Among others, AVS asserted U.S. Patent No. 7,630,802, entitled "Information Management and Monitoring System and Method." On July 8, 2013, Toyota filed a petition for IPR of this patent. IPR2013-00414. Shortly thereafter, other automobile companies followed Toyota's lead; Honda filed two IPRs (IPR2014-00637 and 638), while Mercedes-Benz (IPR2014-00643) and Hyundai/Kia (IPR2015-00174) each filed one IPR.

On Jan. 6, 2015, the PTAB found the claims-at-issue in Toyota's IPR unpatentable as either anticipated or obvious. IPR2013-00414, Final Written Decision. A month later, AVS stated that it was abandoning the proceedings and requested entry of adverse judgment to the remaining claims-at-issue from the other pending IPRs and the PTAB granted its request on Feb. 11, 2015. IPR2014-00637, Judgment.

The combined efforts of multiple competitors proved successful against AVS. There are many other instances where competitors in the automotive industry joined forces in order to combat unwarranted patents infringement claims. For example, Honda, Ford, Fuji Heavy Industries Ltd., Jaguar Land Rover North America, Nissan North America, Suburu of America, Toyota, and Volvo jointly filed five related IPRs (IPR2014-00279 through 281 and IPR2014-00289 and 291) against NPE Cruise Control Technologies. The hearings on these petitions are currently scheduled for March 24-25, 2015.

Not only does IPR provide a powerful tool to combat baseless NPE allegations, it allows companies to challenge a competitor's patent rights. Indeed, automotive companies and suppliers have started to utilize IPRs for great success against their competitors in the industry. For example, Continental Automotive Systems US Inc. filed a complaint against Schrader Electronics Inc. et. al, in the District Court for the Eastern District of Michigan on Oct. 12, 2011. In the complaint, Continental alleged that Schrader infringed U.S. Patent Nos. 6,998,973; 7,284,418; and 7,463,952. On Oct. 8, 2012, Schrader filed an IPR petition directed to the '973 patent. IPR2013-00014. Seventeen months later, on March 12, 2014, the PTAB determined that the claims-at-issue from the '973 patent were obvious and thus unpatentable. Id., Final Written Decision.

As noted above, utilizing these new procedures from the AIA provides automotive companies with a new tool when defending against a NPE or competitor. As these examples illustrate, IPR is a powerful weapon when attempting to invalidate some or all of the claims of an asserted patent, or to put further limitations on those claims. Other advantages include the potential to stay a pending litigation during the pendency of the IPR; and forcing your opponent to take positions unfavorable to its infringement allegations, proving useful in litigation. Furthermore, and probably most important, initiating and participating in an IPR is significantly cheaper than litigation.

These new procedures, however, have certain disadvantages. A party can only bring an IPR within one year of the date a complaint was served. 35 U.S.C. § 315(b). Furthermore, a petitioner is barred from filing an IPR if that petitioner filed a civil action challenging the validity of a claim of the patent. 37 C.F.R. § 42.101 (a). Notwithstanding, a party that has not had a complaint filed against it may file an IPR at any time, as was the case in the Beacon Navigation IPR discussed above. 37 C.F.R. § 42.101. Furthermore, a party may only file an IPR based on printed publications or patents and cannot present other forms of prior art. 35 U.S.C. § 312(3)(A). Finally, the petitioner filing the IPR is precluded from pursuing in district court any validity issues it raised or reasonably could have raised in the IPR proceeding. 35 U.S.C. § 315(e)(2).

An additional issue to consider is claim construction. In district court, claims are generally given their ordinary and customary meaning as understood by one of ordinary skill in the art at the time of the invention. Phillips v. AWH Corp., 415 F.3d 1303, 1312-18 (Fed. Cir. 2005) (en banc). Alternatively, the PTAB usually gives the claims their broadest reasonably interpretation and does not have to construe the claims to preserve validity. 37 C.F.R. § 42.100(b). Therefore, the petitioner may want to take advantage of the broadest reasonable interpretation of a patent when arguing for invalidity.

The AIA's post-grant proceedings are a new tool for automotive companies faced with baseless patent infringement litigation. Going forward, companies in the automotive industry must strongly consider IPRs as an option if and when an NPE or competitor comes knocking on their door with their patent portfolio.

Originally printed in Law360 (www.law360.com).

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