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."

To continue reading this article, please click here

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

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.