Post Grant Proceedings as a Tool to Induce Settlement Discussions
Written by: Caldwell
The Cost of Protecting Intellectual Property
A typical scenario for a patent infringement lawsuit may begin with some potential defendant selling a product. This potential defendant may receive a cease-and-desist letter which the defendant, for whatever reason, ignores. Next thing: you must defend against a patent infringement suit. Although the above scenario is extremely simple, the result is the same – you must defend against a lawsuit. Unfortunately, patent litigation can cost millions of dollars. While patent litigation costs can be significant, clients should keep in mind that over 95% of patent litigation cases settle before going to trial¹. Concurrently with litigation preparation, it is important to conduct settlement discussions with the opposing party before proceeding with a federal suit that might incur millions in legal fees, with the potential of incurring more financial hardship with potential damages that may be awarded.
Inter Partes Review and the USPTO:
One strategy worth considering bringing the parties around the settlement table is to consider challenging the validity of a patent in an inter partes review (“IPR”) proceeding at the United States Patent and Trademark Office (“USPTO”). As discussed in previous posts, an IPR is an administrative proceeding available to challenge the validity of at least one patent claim before the Patent Trial and Appeal Board (“PTAB”) of the USPTO. To request an IPR, a party (referred to as the “petitioner”) files an IPR petition with the USPTO. For each claim that is to be challenged, the petition must allege anticipation (i.e., every element of a challenged claim is taught by a single item of prior art, such as a prior patent or printed publication) or obviousness (i.e., two or more items of prior art, in combination, teach every element of a challenged claim, and a person of ordinary skill in the relevant technical art would have been motivated to combine the prior art to arrive at the claimed invention).
Although invalidity may be a potential defense against a patent infringement lawsuit filed in a district court, a reason to consider challenging the validity of a patent at the USPTO instead of in district court may be a lower legal standard to satisfy the burden of proof. For example, in a district court, since a patent is presumptively valid, a patent may be declared invalid by clear and convincing evidence². In contrast, the legal standard to satisfy the burden of proof at the USPTO is by a preponderance of the evidence. In addition, there is no presumption of validity in proceedings before the USPTO. After the “petitioner” (the defendant in a patent infringement lawsuit) files a petition to institute an IPR, and the patent owner (plaintiff in patent infringement lawsuit) files a preliminary response, the PTAB decides whether to institute the IPR. Institution of an IPR is appropriate where the PTAB determines, in view of the petition and the patent owner’s preliminary response, that there is a reasonable likelihood that the petitioner will prevail with respect to at least one of the challenged claims³. This is a low bar and typically met in cases where the petitioner has made out a prima facie case of unpatentability. One important subject of analysis is the institution rate or the number of petitions instituted divided by decisions on the institution.
Performance Trends
According to the USPTO’s published statistics through November 30, 2021 the PTAB has instituted IPR based on 62% of all petitions⁴. During fiscal year through the third quarter, the PTAB has issued a final written decision from 3,659 IPR petitions; all claims have been invalidated in 69 percent of these decisions, while only 31 percent have resulted in a ruling in which all claims are upheld⁵.
The threat presented by a well-drafted IPR petition is even more powerful in negotiations because the U.S. Court of Appeals for the Federal Circuit (“CAFC”) affirms the vast majority of IPR decisions. In IPR appeals through November 30, 2021, the Federal Circuit affirmed the PTAB on every issue in 661 (73.28%) cases and reversed or vacated the PTAB on every issue in 119 (13.19%) cases⁶. A mixed outcome on appeal, where at least one issue (one issue affirmed while another issue vacated or reversed) occurred in 92 (10.20%) cases⁷. The court also dismissed 30 (3.33%) IPR appeals without rendering a decision on the merits⁸.
Statistics from the USPTO show that the settlement rate of potential IPR cases runs between 1/4 and 1/3 of the cases in data collected from fiscal year 2018 through fiscal year 2021⁹.
Patent Invalidation and IPR
Facing the possibility of having the patent invalidated at either the USPTO or in district court, a patent owner is likely to be amenable to a settlement discussion either pre-institution of an IPR or post-institution. Most of the settlements occur during the petition stage of the IPR proceedings (the period before potential institution).
In view of these factors including high rates of the institution of IPRs, high risk of invalidation of the patent, and affirmation on appeal, an IPR petition that is ready for filing can be a powerful weapon in settlement discussions. One consideration would be to draft the petition to institute IPR but not file it. For the patent owner, just the mere threat of losing patent rights of something of value to their business may serve as motivation to settle the matter. Furthermore, a threat of a potential IPR may dissuade a patent owner from filling a patent infringement in district court as the courts will grant a stay of their proceedings pending an IPR 74% of the time. Finally, the costs associated with an IPR proceeding, though significant, are appreciably less than those involved with U.S. district court litigation.
It is important for a potential defendant in a patent infringement proceeding to partner with a practitioner knowledgeable in PTAB practices and procedures. Such partnership may lead to, more efficiently, arriving at a favorable outcome.
1. https://cclaw.com/2020/12/16/fee-structures-for-managing-patent-litigation-costs/
2. Microsoft Corp. v. I4I Ltd. Partn., 564 U.S. 91 (2011)
3. 35 U.S.C. § 314
4. https://caldwelllaw.com/wp-content/uploads/2022/02/ptab_aia_2021_nov.pdf
5. https://caldwelllaw.com/wp-content/uploads/2022/02/ptab_aia_fy2021_q3__roundup.pdf
6. https://www.natlawreview.com/article/federal-circuit-ptab-appeal-statistics-through-november-30-2021
7. Id.
8. Id.
9. Id.