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ACI’s 3rd Comprehensive Guide to Patent Reform

J. Steven Baughman

Partner

ROPES & GRAY LLP

Red Skies on the Horizon— Tracking Developments of

Covered Business Method Proceedings and Preparing for the Era of

the Post-Grant Review

Marc V. Richards

Shareholder

Brinks Gilson & Lione

Moderator:

Peter C. Schechter

Partner

Osha Liang LLP

January 22-23, 2014

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Overview

• Companies can now challenge certain “business method” patents on most every invalidity ground at the PTO using Covered Business Method Review petitions. This is a precursor of what to expect for Post Grant Reviews for all future patents.

• Inter partes Reviews and Ex Parte Reexams are also available to challenge patents.

• Why and when should you consider using CBM and Post Grant Reviews, compared to other proceedings, and how can these be coordinated to best advantage with district court litigation?

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Overview

• Available PTO attacks: • New: Covered Business Method

(“CBM”) review – virtually all invalidity grounds

• New: Post Grant Review (“PGR”) – virtually all invalidity grounds

• New: Inter Partes Review (“IPR”) – published prior art grounds

• Traditional: Ex Parte Reexamination (“EPR”) – published prior art grounds

• CBM v. PGR v. IPR v. EPR: Pros and Cons

• Guidance from recent post-AIA PTO trials

• Integrating and coordinating PTO challenges with litigation strategy

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Available PTO Attacks

To September 15, 2012 From September 16,

2012 After

March 2013

Post-grant

review (Patents issuing in

first-to-file regime)

Transitional Program for Covered Business Method Patents

(8 years, until Sept. 2020)

Inter Partes

Reexamination

Inter Partes Review

Ex Parte Reexamination

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Comparison of PTO Proceedings

Transitional CBM PGR IPR

Began Sept 16, 2012 (8 year window for CBM)

Began Sept 16, 2012

Replaced Inter Partes Reexam Sept 16, 2012

No litigation time limits; outside 9 month PGR window and

“sued or charged with infringement” Up to 9 months from grant

Outside 9 month PGR window, and within 1 year of service of

infringement complaint (NOT available if DJ action filed)

“covered business method patents” that are not “technological inventions”

Available for ANY patent filed (or effective filing date) on or after

March 16, 2013. Available for ANY patent

Any ground of invalidity (certain prior art limits ,

e.g., no 102(e) art)

Any ground of invalidity 102 and 103 invalidity – patents and printed publications

“more likely than not” invalid “more likely than not” invalid “reasonable likelihood”

of invalidity

Litigation estoppel: arguments actually raised

Litigation estoppel: arguments raised or reasonably

could have been raised

Litigation estoppel: arguments raised or reasonably

could have been raised

$30k filing fees (15 claims), 80 page limit

$30k filing fees (15 claims), 80 page limit

$23k filing fees (15 claims), 60 page limit

Board Decision 12 (or 18) months after institution 3-Judge Panel; Settlement available; Some discovery but no Interviews

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PATENT TRIAL AND APPEAL BOARD AIA PROGRESS

• Statistics (as of 1/2/14):

• NUMBER OF AIA PETITIONS

• FY Total IPR CBM PGR DER

• 2012 25 17 8

• 2013 563 514 48 1* 1

• 2014 318 267 48 0 3

• Cum. 906 798 104 0 4

*IPR filed by mistake as PGR. PGR dismissed.

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CBM Top Petitioners:

• Liberty Mutual Insurance – 10

• Google – 8

• PNC Bank – 7

• Fidelity National Info Serv. – 6

• Apple – 5

• Groupon – 5

• Callidus Software – 4

• SAP America - 4

(Based on number of petitions)

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CBM Top Patent Owners:

• Progressive Insurance – 10 • Versata – 7 • Intellectual Ventures – 6 • Blue Calypso – 5 • Maxim Integrated Products – 5 • Ameranth – 4 • SightSound Technologies – 4 • Check Free – 3 • Chicago Board of Exchange - 3

(Based on number of petitions)

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Covered Business Method Review

• “Covered business method patent”

• “a patent that claims a method or corresponding apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or service, except that the term does not include patents for technological inventions”

• PTO and legislative history: “[T]he definition of covered business method patent was drafted to encompass patents ‘claiming activities that are financial in nature, incidental to a financial activity or complementary to a financial activity.’” (E.g., 77 Fed. Reg. 48,734, 48,735 (Aug. 14, 2012))

• “financial … simply means relating to monetary matters”; not limited to traditional financial service industries (banks, etc.) (CBM2012-00001)

• New legislative proposals to broaden coverage (removed from latest Goodlatte bill)

• White House Task Force announced support for this expansion as part of pro-innovation/anti-“troll” initiatives (June 4, 2010)

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Qualifying for CBM

• PTO directed to issue regulations “for determining whether a patent is for a technological invention” (§42.301(b))

• “[T]he following will be considered on a case-by-case basis: whether the claimed subject matter as a whole

[1] recites a technological feature that is novel and unobvious over the prior art; and

[2] solves a technical problem using a technical solution.”

• Relies on statements of Sens. Schumer and Coburn and Representative Smith in the legislative history (77 Fed. Reg. 48733, 48735 (Aug. 14, 2012))

• “Solely” for purposes of this program

• Limited to person sued or “charged with infringement”

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CBM Special Features

• CBM Advantages

• Significantly narrower litigation estoppel (grounds actually “raised”)

• Far broader available grounds for challenges

• CBM qualification may also “prime the pump” for §101

• No litigation-related (IPR) or first-to-file (PGR) time limits

• Increased likelihood of litigation stay, plus de novo interlocutory Federal Circuit review on decision whether to stay

• 1/3 more pages allowed in CBM Request than inter partes review (but higher fees)

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Advantages of PTO Challenges

• IPR/CBM/PGR: Challengers have historically won >40% of inter partes PTO challenges with all claims cancelled • No ex parte contacts

• Panel of three experienced APJ’s

• EPR: Ex parte challenges have also been effective in either canceling claims or leading to amendments that eliminate past damages

• PTAB proceedings can • Strengthen non-infringement

defenses

• Strengthen later Bilski defense

• Establish later priority date for CIPs, set up 102(b) or 112 arguments, etc.

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Advantages of PTO Challenges

• Threat of PTO challenge can advance settlement

• Can cost a fraction of district court litigation, and postpones when costs incurred

• Stay of 12-18 months (CBM, PGR, IPR) or longer (EPR) • Effective bifurcation of validity issues

• Delays risk of permanent injunction

• Eliminates oppressive discovery (limited for CBM, PGR, IPR; none for EPR)

• Reduces management distractions

• Lowers settlement value

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Advantages of PTO Challenges

• Simplify, sharpen and enhance emotional appeal of non-infringement and damages defenses for jury (without jettisoning invalidity defenses)

• Carve out issues from PTO challenge for presentation to judge on summary judgment, e.g., Bilski

• Limit litigation estoppel (none in EPR, issues actually raised in CBM, printed publications and patents in IPR)

• Almost no limits for PGR estoppel! (all grounds that “reasonably could have been raised”)

• Provide three separate strong chances to win in front of three different decision-makers

Patent is Broad

Patent is Narrow

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Advantages of PTO Challenges

• Challenges may appear strongest with § 102 art

• But § 103 obviousness art may be better presented to PTAB APJs (IPR, CBM, PGR) or CRU Examiners (EPR) than a lay judge or jury

• Burden of proof lower at PTAB than court

• Follow-on requests can also lend EPR some of the benefits of inter partes proceedings

US Patent Code

US Patent Code

US Patent Code

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Strategic Considerations: When and How to Deploy CBM and PGR • Targeting: • Qualifying patents and standing

• Which defenses in PTO, which to save for trial

• But beware of broad estoppel with PGR, perhaps wait for IPR

• Timing: • Stays and other coordination with litigation

• At the outset, after substantial discovery, after verdict

• Team: • Coordinating Court and PTO positions

• Who will present your arguments

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Perspectives from the Bench on CBM Review "The AlA represents a clear decision by Congress to increase the involvement of the PTAB in patent litigation, while simultaneously decreasing the involvement of the courts. At this early point in this case, the Court is content to let the PTAB take the lead, should it so desire. The Court will therefore grant Volusion fourteen days to finalize its contentions, and then stay this case pending the outcome of the CBM Review petition process.“

Versata Software, Inc. et al v. Volusion Inc.

Civil Action No. 1:12cv00893(SS) (W.D. Tex., Judge Sparks) (6/20/13 Order [D.I. 53] at 6)

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Representative Trial Timeline

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Experience to Date at the PTAB

• Logistics

• File size for PRPS (https://ptabtrials.uspto.gov)

• Filing problems

• Page limits

• Seeking to expand

• What is prohibited

• Footnotes

• Other formalities

• Defective petitions

• Incomplete petitions

• Portrait/landscape

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Procedural Guidance from the PTAB

• Prohibition on ex parte communication

• Pro hac vice admission

• Requirements

• Number of attorneys

• Denials

• Protective orders

• Traffic control (stays, consolidation, etc.)

• Limited Discovery

• Timing and process

• Overall procedural take-aways…

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Substantive Guidance from the PTAB

• Standing and scope of proceedings • Qualification as a covered business method patent

• Triggering 1 year bar after service of complaint for inter partes review

• Section 101 challenges

• Stating grounds

• Use of experts

• Claim construction

• Priority claims

• Settlement

• Overall substantive take-aways…

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Strategic and Tactical Considerations

• Which mechanism?

• Which arguments where?

• Who will make them?

• Coordinating substance and process with litigation

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Appeals from CBM and PGR Final Determinations • Appeals only to the Federal Circuit

• Notice to USPTO Director no later than 63 days after Final Decision

• Request for Rehearing (within 30 days of Final Decision) resets deadline for Notice of Appeal after action on Request

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CBM Final Written Decisions

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Thank You

•Questions?