United States: Navigating Today's Patent Landscape: Practical Considerations For Innovation, Enforcement, And Defense

Introduction

Recent statutory and precedential changes have weakened patent protection under US law. This chapter sets out our view of these changes, together with some statistical analysis of their effect on the patent landscape.

The positive takeaway from this news is that clients who are most often on the receiving end of patent suits can leverage these recent developments to their advantage. When sued, companies generally have the flexibility now to challenge the asserted patents' validity in special procedures at the US Patent & Trademark Office (USPTO), while the district court litigation is kept on hold.

Alternatively, should a client who is accused of infringing a software or business method patent want more immediate relief, it may be able to move to dismiss the litigation from the outset on grounds that the asserted claims are too abstract to constitute patentable subject matter. In either case, the client can delay or avoid discovery while negotiating to settle the matter—all with the threat of possible attorneys' fees in its back pocket.

The more interesting questions regarding the recent changes pertain to how attorneys can navigate these developments for their clients who want to enforce their portfolios and to keep competitors out of their important market spaces. There are several answers to these questions, which we discuss in this chapter, stretching chronologically from intake of invention disclosures through a patent infringement case.

Recent Developments Have Resulted in Uncertain Patent Rights

Three recent developments are currently impacting patent law, making it at least unsettled, if not startlingly anti-patent. Weakened patent protection would seem inconsistent with the continued importance of innovation to the American economy; therefore, these developments are likely temporary. This chapter details the recent developments and suggests patent prosecution, portfolio-building, and litigation strategies for innovators and patent aggregators to consider, as the patent-rights pendulum slowly swings back to their side.

Post-Grant Proceedings Create Uncertainty for Patents Generally

The first significant development creating an unsettled patent law landscape is the continued and increasing reliance by accused infringers on post-grant proceedings before the USPTO's Patent Trial & Appeal Board (PTAB), including inter partes review procedures (IPRs) and covered business method patent reviews (CBMs), as a default litigation defense strategy. Patent litigators (and their clients who were facing infringement suits) initially were skeptical of the effectiveness of IPRs and CBMs as litigation defense tools, in large part because of the gestalt feeling that previous USPTO post-grant proceedings had been ineffective—ex parte reexaminations produced too uncertain a result and allowed the patentee to negotiate outcomes in private interviews at the USPTO, while inter partes reexaminations simply took too long. However, that initial doubt quickly faded—in large part because the results of the initial group of proceedings were quite favorable to patent challengers.

Much of the early success of IPRs was due to their being filed primarily by the industrial and high-tech targets of non-practicing entities (NPEs) against patents of the low-hanging fruit variety. But while the rate of IPR success has dropped since that early euphoria, the success rate is still high.

In the first three years of their availability (through September 30, 2015), parties have filed for nearly 3,600 IPRs (including requests to join an existing IPR trial), in 65 percent of which the PTAB has decided whether to institute an IPR trial.1 The PTAB has instituted an IPR in 72 percent of the requests it has decided.2 Without including petitions where a party sought to join an already instituted IPR trial, the percentage drops slightly to approximately 70 percent.3 Of the instituted IPRs that have been completed in the first three years, approximately 42 percent have been terminated during trial (due to settlement, dismissal, or a request for adverse judgment).4 And of the remaining 58 percent, in which trials have been completed and the PTAB has issued a final written decision, 72 percent have resulted in the invalidation of all claims upon which the PTAB instituted IPR proceedings, 15 percent have resulted in the invalidation of only some instituted claims, and only 13 percent have resulted in confirmation of all of the instituted claims.5

An analysis of CBMs finds similar results, though on a smaller scale. During the first three years, parties filed approximately 375 petitions for CBMs, in approximately 75 percent of which the PTAB has issued decisions on whether to institute a trial.6 Of these, the PTAB has instituted a CBM proceeding in approximately 73 percent, including joinder cases, or 72 percent without considering joinder cases.7 Of trials that have been instituted, approximately 39 percent were terminated during trial.8 Of the 61 percent that reached completion, the PTAB invalidated all instituted claims in approximately 82 percent, invalidated some—but not all—instituted claims in approximately 14 percent, and found no instituted claims unpatentable in a mere 4 percent.9

As the numbers illustrate, IPRs are far more common than CBMs, largely because of certain threshold CBM requirements not required for IPRs. IPRs may be filed by anyone, with a few limitations that can be fairly summarized as follows:

  • The petitioner or its real-party-in-interest (RPI) cannot own the patent;
  • The petitioner or its RPI cannot have previously filed a civil action challenging the validity of a claim of the patent (for example, a declaratory judgment action); and
  • The petitioner or its RPI cannot have been served with a complaint alleging infringement of the patent more than one year prior to filing an IPR, with a limited exception for the joinder of another petition.

CBMs, in contrast, require that the petitioner or its RPI must have been sued or charged with patent infringement, and the patent claims must be related to "a financial product or service" and must not be directed to a "technological invention."

Many in-house counsel now view the filing of an IPR or CBM as the default first-strike maneuver in a patent litigation—particularly in an NPE litigation—as it generally results in a near-term stay of the litigation (before significant discovery), enables negotiation for a cheap settlement, and often results in the invalidity of important claims. The last is a particularly effective stick when the patentee has an ongoing patent license royalty stream that could be upset by an invalidity finding.

We have successfully implemented this strategy on behalf of clients on several occasions. For example, Toyota Motor Corp. filed twelve IPR petitions as part of a defense strategy against infringement allegations by plaintiff American Vehicular Sciences LLC (AVS) in the Eastern District of Texas covering twenty-four different patents.10 While the cases were stayed, Toyota successfully petitioned the Federal Circuit for a writ of mandamus directing the Eastern District of Texas to transfer the cases to the Eastern District of Michigan.11 AVS dismissed the remaining cases against Toyota before litigation in the Eastern District of Michigan resumed.12

Alice Creates Unpredictability, Particularly for Software Patents

The second development has been the aftermath of the Supreme Court's Alice decision in June 2014, which set forth a stringent two-part test for determining whether a patent claim is directed to patentable subject matter, or whether it is an impermissible attempt to stake broad, preemptive claim to an algorithm or an abstract concept.13 The Supreme Court held that a court should first investigate whether the patent claim at issue is directed to an unpatentable concept, such as an abstract idea or algorithm; if so, the court should find the claim unpatentable unless it contains additional limitations such that it is directed to more than just the bare algorithm or abstract concept itself.14

While many practitioners argue about the clarity of the Supreme Court's guidance and about the type of technical limitations that can save an abstract claim from invalidity, there is no doubt that district courts have responded by greatly increasing the rate at which they grant motions to dismiss, motions for judgment on the pleadings, and motions for summary judgment alleging the unpatentability of the asserted claims under 35 United States Code, Section 101.15 From the time Alice was decided through November 30, 2015, there have been more than 160 decisions in district courts on Section 101 motions filed by accused infringers, including motions to dismiss, motions for judgment on the pleadings, and motions for summary judgment of patent invalidity.16 These motions have met with considerable success: more than 60 percent resulted in a full grant of patent invalidity under Section 101, and more than 70 percent resulted in at least a partial grant.17

The increased judicial acceptability of motions to dismiss and motions for judgment on the pleadings based on Section 101,18 has an additional advantage: there is usually at least a partial stay of onerous discovery obligations while the court considers the merits of the patent challenge.

All of these post-Alice decisions have been especially comforting to inhouse counsel for a defendant facing software patents, which face the brunt of most Section 101 attacks. She could now safely lower her expectations of the downside of litigation, and, of course, lower the expected cost of outside legal services to defend the litigation.

The narrative set out by both attorneys and judges in advocating for or deciding the unpatentability of software claims is both straightforward and damning. In a case we briefed, Judge MacMahon of the Southern District of New York found system and method claims for simplifying and reducing the cost of making long-distance and international calls to be patentineligible.19 Judge MacMahon, in analyzing the two-step Alice framework, analogized the invention thusly:

When I was a child I watched Lassie on television. Whenever June Lockhart, playing Ruth Martin, wanted to reach someone by telephone, she rang Jenny at Central and got herself connected to whomever she wished by saying, "Can you get the doctor?" or "I need to speak to Timmy's teacher, Miss Jones." Ruth didn't have to dial any numbers at all. Jenny, the intermediary, recognized Ruth as the caller from the line that rang at Central, and she knew which receptacle to plug Ruth's line into so that Ruth's call to Central would be forwarded to its intended recipient. Nothing different happens here, except that switching machinery and computers (none of which is claimed) recognize who the incoming caller is and to whom she wishes her call forwarded. As defendant points out, a room full of telephone operators with sheets of paper containing look-up tables could accomplish the same result

...

[U]nder the Alice-Mayo test, not every clever solution to a problem—not everything that leads someone to exclaim "Eureka!"—is eligible for patent protection ... In short, patents are not available for all inspirations of genius, but only for processes, machines, manufactures and combinations of materials. The Stanacard method for placing overseas long distance calls is most certainly an improvement, but it is none of the above. Therefore, it is not patentable.20

Octane and Highmark Create New Reasons for Avoiding Litigation The third significant development—the Supreme Court's twin rulings in 2014 in Octane and Highmark—made it easier for the winner of a patent litigation to obtain attorneys' fees, thereby adding another reason for a patentee to avoid litigation or to expect less on average from monetizing its portfolio.21 The Supreme Court ruled that a patent litigation victor could prove the case was "exceptional"—and therefore that it deserved attorneys' fees—merely by proving the case "stands out from others" by a preponderance of the evidence. The Supreme Court also granted great power to the district courts to make these decisions, as it further ruled that an appellate court may disturb a ruling regarding exceptionality subject only if there is "clear error."

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Footnotes

1 See USPTO Patent Trial and Appeal Board Statistics, at 4, 7 (Sept. 30, 2015), available at http://www.uspto.gov/sites/default/files/documents/2015-09-30%20PTAB.pdf (NB: That leaves approximately 35 percent of IPRs that either were terminated before an institution decision or have yet to be decided.)

2 Id.

3 Id.

4 Id.

5 Id.

6 Id.

7 Id.

8 Id.

9 Id.

10 Case Nos. 6-12-cv-00404, 6-12-cv-00405, 6-12-cv-00406, 6-12-cv-00407, 6-12-cv- 00408, 6-12-cv-00409, and 6-12-cv-00410.

11 In re Toyota Motor Corp., 747 F.3d 1338 (Fed. Cir. 2014).

12 See American Vehicular Sciences LLC v. Toyota Motor Corporation, 2015 WL 10384290 (E.D. Mich. 2015).

13 Alice Corp. Pty. Ltd. v. CLS Bank Intern., 134 S. Ct. 2347, 189 L. Ed. 2d 296 (2014).

14 Alice, 134 S. Ct. at 2355-59.

15 35 U.S.C.A. § 101.

16 Source: DocketNavigator.

17 Source: DocketNavigator.

18 35 U.S.C.A. §101.

19 See Stanacard v. Rubard LLC, 2015 WL 7351995 (S.D. N.Y. 2015).

20 Id. at *7-8.

21 Octane Fitness LLC v. ICON Health & Fitness Inc., 134 S. Ct. 1749, 188 L. Ed. 2d 816 (2014); Highmark Inc. v. Allcare Health Management System Inc., 134 S. Ct. 1744, 188 L. Ed. 2d 829 (2014).

Previously published by Aspatore Books

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