The decisions signal a clear intention to streamline post-grant proceedings to an extent that was little imagined during the regulatory review period, by severely limiting the issues considered under the Director’s unappealable discretion to deny review under § 324, even where a petition raises alternate grounds of unpatentability that are equally convincing and qualify for review under the statutory standard.

The Board justified its decision by noting that “numerous redundant grounds would place a significant burden on the Patent Owner and the Board, and it would cause unnecessary delays” and elaborated:

We take this opportunity to note that multiple grounds, which are presented in a redundant manner by a petitioner who makes no meaningful distinction between them, are contrary to the regulatory and statutory mandates, and therefore are not all entitled to consideration. In the present situation, the multiplicity of grounds requires so much of the petition that the Petitioner has failed to expressly identify the differences between any claim and the prior art in the Petitioner’s assertions of obviousness.

In its analysis, the Board employed a confusing distinction between “vertical” and “horizontal” redundancy, that appears to boil down to a refusal to consider grounds based on combinations of primary references with alternative secondary references (“horizontal”), or “a plurality of prior art applied both in partial combination and in full combination” without “a bi-directional explanation” of which ground is the “stronger assertion” (“vertical”).

In practice, the Board required the petitioner to elect one combination of “horizontally redundant” references against the independent claim, and “automatically” applied this same combination to the dependent claims, because the petitioner did not “articulate any relative weakness” of the different secondary references.

With respect to “vertical redundancy” the Board required the petitioner to choose just one ground of unpatentability, or to “articulate why each ground has strength and weakness relative to the other.” In practice, the Board required the petitioner to elect one ground of rejection based either on a “base combination” of references or an additional subcombination. More strikingly, the Board required the petitioner to elect between a combination of prior art publications, or a single primary reference supported by testimony of a technical witness concerning prior public use.

If the Board intends to restrict post-grant trials to only the “strongest” grounds identified by petitioners, and to eliminate consideration of “redundant” arguments, the limits on petition page length may be relatively insignificant. The era of encyclopedic inter partes reexamination requests is clearly over. The Board will be able to complete post-grant trials within the statutory one-year period, but applicants may be required to file separate petitions to achieve effective review where several grounds of unpatentability exist. And clearly, a role remains in the new statutory review scheme for ex parte reexamination.

The Patent Trial Practice Guide describes this position:

For example, the Board may decline to institute a proceeding where the Board determines that it could not complete the proceeding timely. Specifically, the Board could exercise its discretion to decline to institute a petition that seeks review of several hundred claims based upon a thousand references and the patent owner demonstrates that a determination of patentability would require testimony of dozens of nonparty controlled witnesses in foreign countries for which the testimony would need to be compelled.

It would be rare indeed that a petitioner would be able to challenge several hundred claims based upon a thousand references in an 80-page petition, and rarer still that a patent owner would require the testimony of dozens of foreign witnesses outside the control of either party. Apart from such dramatic circumstances, the USPTO comment more generally asserts that the Office has the “discretion” to refuse to institute a patent trial if it considers that the Board would be unable to complete review in the period imposed by the statute.

One possibility raised by this comment is that patentees may be able to multiply patent claims and avoid post-grant scrutiny altogether. For example, in Hyatt v. Dudas the Board considered rejections of approximately 2,400 claims in twelve related patent applications in areas including microcomputers, computer memories and displays, and global positioning systems. A petitioner seeking to invalidate a substantial number of these claims in 12 issued patents could face an insuperable burden, if the Board declines to institute a post-grant trial. Furthermore, the costs of presenting 2,400 dependent claims for examination would be about $144,000, whereas the costs of challenging the issued claims in inter partes review would be a staggering $1,440,000 at $600 per claim, and $1,920,000 in post-grant review, with no refund if a patent trial is not initiated. Such enormous filing fees could provide a measure of insurance against review for patent owners, apart from the question of whether the Board would decline to institute a post-grant trial.

Apart from these nightmares, the USPTO comment raises fundamental questions about the discretion of the Board to “streamline” post-grant trials by selecting only some claims or some issues for review, even if others are properly raised by a petitioner.

The key issue from the parties’ standpoint is the estoppel effect of a partial Board decision on subsequent court and Office proceedings.

The statute imposes claim-by-claim estoppel, and if the Office does not institute a proceeding and issue a final written decision on the patentability of a claim, there should be no estoppel against a later proceeding involving that claim. The statute does not address issue-by-issue estoppel if the Board declines to consider some of the grounds raised in a petition with respect to a claim, and the USPTO’s position on this issue is not clear. For example, if a petition for post-grant review properly raises anticipation of a claim, obviousness, written description issues, nonenablement and double patenting, and the Board limits its review and final decision to the novelty issue, is the petitioner estopped from asserting invalidity on the other asserted grounds in another proceeding? The statute may impose an estoppel, because the petitioner “raised” the other issues with respect to “a claim” in the petition, even though the Board declined to address these grounds in a final written decision. The injustice of this result is apparent, and in interferences the Federal Circuit has precluded estoppel on any ground that a party attempted to raise by motion, even if the Board exercised its discretion to decline to consider that ground.

If the Board has discretion to decline review of certain claims or issues, does it also have discretion to add claims to a review that are not directly challenged in a petition? For example, if the petitioner only asserts anticipation of a dependent claim, and the Board finds the claim invalid, what happens to the independent and intermediate dependent claims that are a fortiori also anticipated? The petitioner’s costs in the Hyatt hypothetical could be greatly reduced by challenging only certain dependent claims, provided that estoppel is limited to the selected claims. This strategy could provide critical estoppel advantages, if the petitioner is free to contest the invalidity of independent claims in litigation or subsequent USPTO proceedings. For example, if a patent contains a chain of dependent claims (1, 2/1, 3/2), and only an intermediate claim in the chain (2/1) is asserted in an infringement action, the defendant could initiate a post-grant trial challenging the noninfringed claim (3/2). If that claim is anticipated, the defendant would be able to prove invalidity of the broader claims in a subsequent USPTO patent trial, in district court, or on appeal from a district court decision.

The extent of the Board’s discretion to refuse to consider claims or issues in post-grant trials, or to consider claims not raised in a petition, will have significant strategic consequences both for patent owners in prosecution and claiming, and for challengers in selecting the claims and grounds raised in post-grant petitions.

Significant changes are made to the timeline for proceedings after initiation of a trial, summarized in the Guide as follows: The patent owner’s period for discovery and preparing an amendment has been reduced from four to three months under the default Scheduling Order (Appendix A). The petitioner’s period for responding to an amendment is correspondingly increased to three months. As in interferences, the parties will be able to stipulate an extension of any time period in the first 8 months of the trial (until Due Date 6), but only by reducing later time periods, which is perilous in the extremely compressed default trial schedule. Compassion for an opponent will seldom be the rule, and as in interferences, stipulated extensions will probably involve serious settlement negotiations.

The patent owner and petitioner must be prepared to disclose and discuss their complete substantive and procedural strategies in an initial conference with the Administrative Patent Judge one month after the trial starts. By this early stage of the proceedings, the patent owner will be expected to inform the APJ and petitioner whether it intends to file an amendment, seek specific discovery from the petitioner in addition to cross-examination, propose a modification of the default schedule, or present any other significant motion. The petitioner will have to describe any additional motions it seeks to file, such as for additional discovery based on the patent owner’s preliminary response or disclosures, and other procedural and substantive motions. The rule in interferences has been that the parties must have essentially complete strategies in place by the initial scheduling conference, because a party is seldom allowed to file substantive motions that are not initially disclosed in its motions list.

This burden will be significant, because the patent owner is not permitted to submit testimonial evidence, such as expert declarations, prior to institution of a trial, and its discovery of the petitioner’s witnesses does not begin until the trial commences. Furthermore, the petitioner is given a one-month period after the trial begins to submit “supplemental information” and ordinarily the patent owner’s period for cross-examination begins only after any “supplemental evidence” relating to the direct testimony has been filed. If “supplemental information” is “supplemental evidence,” the patent owner may have less than two months to cross-examine the petitioner’s fact and expert witnesses, since cross-examination ends a week before the patent owner’s amendment is due.

The Guide clarifies the scope of the single amendment that will ordinarily be permitted, explaining that there is a presumption that the patent owner will only be authorized to propose one substitute claim to replace each challenged claim. The Board envisions that the amendment sought by most patent owners will be a replacement of a set of broader claims with a set of narrower claims, as illustrated by an example. In view of the statutory limitation of an amendment to substituting or cancelling claims, a patent owner should not necessarily expect to add new or amended claims without corresponding cancellation of original claims. If the patent owner does file an amendment, the petitioner is entitled “to fully respond” by filing an opposition and presenting responsive evidence, including new expert declarations, which will entail an additional round of cross-examination and a reply, possibly with a rebuttal declaration that will engender further cross-examination and ultimate observations on cross-examination.

The final rules also significantly increase the complexity of proceedings in the period before the trial is instituted, including a requirement for mandatory initial disclosures under § 42.51(a), either by agreement no later than the patent owner’s preliminary response, or by motion. Two lopsided options for agreed initial disclosures are provided. The first is based on Fed. R. Civ. P. 26(a)(1)(A), and requires both parties to disclose the names of persons likely to have discoverable information that the party may use to support its claims or defenses, and a copy of all documents that the disclosing party may use to support its claims or defenses. The second option imposes more extensive obligations solely on the petitioner, including, for example, disclosure of witnesses and documents relating to secondary indicia of nonobviousness, where obviousness is raised as a ground of invalidity. If a prior non-published public disclosure is alleged, the petitioner is required to disclose names and information sufficient to contact “all persons other than those offering affidavits or declarations who are reasonably likely to know of the alleged prior non-published public disclosure” as well as documents and “all things relating to the alleged prior non-published public disclosure.” Id. It is unclear why a petitioner would ever agree to such extensive unilateral disclosure obligations, and motions to require specific disclosure will often be required in post-grant review proceedings. The final rules also retain the vague and open-ended requirement that the parties initially disclose “relevant information that is inconsistent with a position advanced during the proceeding.”

The petitioner is able to submit confidential information under seal, and is not required to serve it with the petition. The petitioner may elect to file a motion to seal with a protective order other than the default protective order, and the patent owner may only access the sealed confidential information by agreeing to the petitioner’s terms, agreeing to another protective order filed jointly by the parties, or moving for entry of the default protective order. These provisions ensure that pre-institution motions practice will become a significant part of trial procedure.

In response to popular demand, the page limits for petitions have been extended to 60 pages in IPR and 80 pages in PGR and derivations, with equal page limits for responses and oppositions. Petitions and motions are not required to provide a statement of material fact, whereas oppositions and replies must identify material facts in dispute. Motions are limited to 15 pages, including motions to amend which are required to “include a claim listing, show the changes being sought clearly, and describe how the original disclosure of the patent and any relied upon prior application supports each claim that is added or amended.”

This general introductory overview is based on the Patent Trial Practice Guide, and does not take into account specific IPR and PGR rules, or the extensive commentary on the final Trial Practice Rules provided by the Office, which will be considered in future posts. It is intended to provide only a general discussion of procedure during the preliminary and trial phases, and is not a commentary on specific rules, procedures, costs or statutory requirements. The information and analysis may be incorrect or incomplete, and these comments do not necessarily represent my own views as to the correct or desirable interpretation of the statute or rules.

Reduced costs will be a major factor driving validity disputes from district court to the more favorable administrative forum for patent challengers. The USPTO expects that the current high level of duplication between litigation and reexamination will be reduced by inter partes review, which will limit what it terms “unnecessary and counterproductive litigation costs.”

The average costs of oppositions, including substantial petition fees, are projected by the USPTO as follows for the petitioner and patent owner (PO):
These USPTO estimates are at best general approximations of average costs, but they have the advantage of a direct if blunt comparison of the three patent challenge avenues.

The USPTO projections of trial costs are based on the costs of the preliminary motions period in interferences, which provide the only model for comparable administrative litigation in the USPTO. Interference costs have been limited by the effective absence of district court fact and document discovery, and a compact schedule that has generally resulted in a decision on preliminary motions within one year. The survey data on which the USPTO estimates are based demonstrate that the typical costs of interferences through the preliminary motions period vary widely (from $50K to $450K). The expense of a post-grant opposition can similarly be tailored to the petitioner’s specific goals, strategy and budget.

As in district court litigation, the costs of interferences vary with the amount in controversy. Simple interferences can be concluded for less than $100K, providing an effective tool in licensing negotiations where a settlement is possible. In my experience, in disputes in complex technologies where the value of the subject matter is more than $20M, the costs of an interference preliminary motions period may approach comparable district court litigation expenses. Complex and multiparty interferences involve extensive motions practice and expert discovery, when several fact and expert witnesses testify on diverse patentability issues, as may be common in post-grant review and consolidated inter-partes review proceedings.

An appeal to the Federal Circuit could double the costs of a post-grant proceeding, while settlement could reduce the costs by half. About 33% of inter partes reexamination decisions are appealed to the Board, and the USPTO estimates that 16% of final decisions in post-grant proceedings will be appealed. The Office expects that 20% of post-grant proceedings will be settled, reducing the trial costs by 50%. These estimates seem very conservative, because the estoppel consequences of inter partes review and post-grant review will strongly favor both appeals and settlements.

Motions Practice

Motions practice will be a fundamental aspect of post-grant oppositions, involving essentially every proposed action of both parties. The proposed rules contemplate routine motions for amendment of claims, supplemental evidence, additional discovery, consolidation of proceedings, and sanctions, as well as substantive motions relating, for example, to issues of patentability and benefit.

It is evident that the costs of preparing a substantive response to the petitioner’s arguments or a motion to amend claims, supported by expert testimony, will involve substantial costs, similar to those for preparing the original petition. A motion to amend will likely result in a renewed attack on any proposed substitute claims, including a contested motion to respond and motions to submit additional documentary or fact evidence and supporting expert testimony.

The major variable in post-grant trial costs will be the number of motions filed by the parties, and the evidence required to support and oppose the motions. The USPTO estimates that an inter partes review trial will involve an average of 6.92 motions, oppositions, and replies at a cost of $48K per motion, including expert expenses. It estimates an average of 8.89 motions after institution of a post-grant review trial, at a cost of $44.2K per motion.

Expert and Fact Witness Testimony

Because the initial petition is required to present all of the arguments and evidence required to show that it is reasonably likely that at least one challenged claim is unpatentable, in many cases it will be necessary to prepare expert declarations to support the petitioner’s arguments. In interferences it is common for each party to present separate expert declarations relating to different aspects of validity. The costs of retaining experts, preparing their declarations, and depositions are comparable in interferences and district court litigation.

In a post-grant review, where patentability can be challenged on issues such as public use, prior sale or public availability of information anywhere in the world, the testimony of fact witnesses will also be critical. Where the patent owner relies on tests or data described in the patent, on declarations submitted during prosecution, or on unexpected results or commercial success, it will also be required to present a declaration of a fact or expert witness with personal knowledge of the relevant facts.

Experience of Inter-Partes Counsel

One factor that will significantly affect costs is the experience of counsel in inter partes trials. The USPTO considers that the skills necessary to conduct post-grant trials are similar to those needed to represent a party in an inter partes reexamination, and to represent a party in an interference proceeding. Unlike leisurely re-examination of patents by an examiner, oppositions in the USPTO will be administrative litigation conducted on a strict schedule, governed by general trial rules and separate inter partes, post-grant review, and derivation rules based on current interference procedure.

The costs of post-grant oppositions will be reduced by careful initial preparation of a complete litigation strategy, and the efficient management of a party’s case, which requires mastery of the rules and knowledge of extensive Board precedent relating to motions practice, discovery, the USPTO rules of evidence, sanctions, and estoppel issues, among others. The steep learning curve makes post-grant litigation an expensive forum for studying inter-partes procedure.

Basis of the USPTO Estimates

The USPTO’s estimates are based on the AIPLA Report of the Economic Survey 2011. Based on the AIPLA data, the Office estimates that the average cost for preparing a petition for inter partes review will be $46K, based on 135 hours of attorney time at $340/hour, in addition to the proposed petition fee starting at $27,200. The Office estimates that the patent owner’s costs of preparing a preliminary response for inter partes review will be $34K, based on 100 hours billed at $340. The cost of an inter partes review trial to each party is estimated to be 60% of the cost of the average cost of an interference preliminary motions period, which is $322K.

The higher estimated cost of post-grant review is based on the petitioner’s ability to allege unpatentability on any statutory basis, not limited to obviousness or lack of novelty based on prior art publications. The USPTO estimates that the average cost for preparing a petition for post-grant review will be $61K, based on 180 hours of attorney time at $340/hour, in addition to the proposed petition fee starting at $35,800. The Office estimates that the patent owner’s costs of preparing a preliminary response to a petition for post-grant review will be $34K, based on 100 hours billed at $340. The cost of a post-grant review trial to each party is estimated to be 75% of the cost of the average cost of an interference preliminary motions period, which is $322K.

These trial cost estimates do not correlate with the projected number and cost of motions in inter partes review (6.92 motions, oppositions, and replies at $48K per motion), and post-grant review (8.89 motions at $44.2K per motion), but are consistent with the broad and variable range of expected opposition costs.

The USPTO projects an average of 23.4 motions in a derivation trial, at a cost of $34K per motion. These estimates are not realistic, based on interference practice. The cost of a derivation proceeding should be similar to the cost of an interference priority phase raising derivation issues, because similar issues of prior invention, communication, and corroboration are involved. The average cost of an interference priority phase is about $300K.

The USPTO’s estimate of district court litigation costs is based on the average cost of district court litigation where the amount in controversy is $1M-25M.

The post-grant opposition provisions will transform U.S. patent litigation, by providing an expert administrative forum for expeditiously challenging patent validity to parties who would otherwise be barred from district court for lack of standing. The post-grant review statutes contain no requirement that the petitioner have an actual, adverse, commercial interest in the subject matter, or that there be any prospect of eventual patent enforcement.

In contrast, the standing required to maintain a district court declaratory judgment action challenging the validity of a patent has generally barred actions in the absence of a substantial commercial interest in the patented subject matter. The constitutional case or controversy requirement was limited by MedImmune, but a declaratory judgment plaintiff must still show that the dispute is definite and concrete, touching the interests of parties having adverse legal interests, that is real and substantial and admits of specific relief through a decree of conclusive character. The case or controversy requirement raises a substantial barrier to declaratory judgment actions seeking advisory opinions on hypothetical states of fact.

The USPTO considers that there is a “standing” requirement to petition for a post-grant proceeding, but this requirement is far different from “standing” to maintain a district court action challenging a patent. Standing in a USPTO opposition is based on specific statutory time limitations and estoppel provisions that bar a party or its privies from requesting or maintaining a proceeding before the Office after a final decision in another post-grant review or inter partes review.

Proposed Rule § 42.104 requires that a petition for inter-partes review must set forth:

(a) Grounds for standing. The petitioner must certify that the patent for which review is sought is available for inter partes review and that the petitioner is not barred or estopped from requesting an inter partes review of the patent.

A patent is “available for inter partes review” under § 311(c) after the date that is 9 months after the grant of a patent or after termination of post-grant review, unless it is barred by the petitioner’s prior declaratory judgment action under § 315(a)(1) or the patent owner’s infringement action filed more than a year before the petition under § 315(b). These requirements are incorporated in proposed Rules 42.101 and 102(a).

Proposed Rule 42.204(a) similarly requires that a petition for post grant review set forth “grounds for standing.” A patent is “available for post-grant review” up to 9 months after the date of the grant of the patent under § 321(c), unless it is barred by the petitioner’s prior declaratory judgment action under § 325(a)(1), or is a non-broadening reissue patent filed more than 9 months after the grant of the original patent under § 325(f). These requirements are incorporated in proposed Rule 42.201 and 202(a).

With respect to estoppel, a petitioner in a USPTO review of a claim in a patent that results in a final written decision, or the real party in interest or privy of the petitioner, may not request or maintain another inter partes review under § 315(e)(1), or another post-grant review under § 325(e)(1) “on any ground that the petitioner raised or reasonably could have raised” during the first post-grant proceeding to end in a final written decision.

A determination of the scope of estoppel from a first USPTO post-grant proceeding thus depends on the challenged claims subject to a first final Board decision, any ground that the petitioner reasonably could have raised in the first proceeding, the identity of the real party in interest and its privies in the first proceeding, and the identity of the real party in interest in the later proceeding. Proposed Rule 42.8(b)(1) requires that the petitioner identify the real parties in interest in a post-grant proceeding, but not their “privies.”

In many cases, the determination of real parties in interest and their relationship to earlier privies will require detailed factual investigation and legal analysis, particularly if there is a change in the identity of a former real party in interest or privy as the result of corporate reorganization, acquisition or divestiture of patents, or an earlier petition was filed by a consortium or pursuant to a joint defense agreement in the course of litigation in which the issue of estoppel is raised. As the USPTO commentary explains,

in inter partes and post-grant review proceedings before the Office, the petitioner (including any real party-in interest or privy of the petitioner) is estopped from relitigating any ground that was or reasonably could have been raised. … What constitutes a real party-in-interest or privy is a highly fact-dependent question. … While many factors can lead to a determination that a petitioner was a real party-in-interest or privy in a previous proceeding, actual control or the opportunity to control the previous proceeding is an important clue that such a relationship existed. … Factors for determining actual control or the opportunity to control include existence of a controlling interest in the petitioner.

The identification of privies of an earlier real party in interest could be complex, in the absence of a requirement that a petitioner identify both real parties in interest and their privies. Where the issue is disputed, the commentary on the proposed rules indicates that the Board may grant the patent owner “additional” discovery based on sufficient concerns regarding the petitioner’s standing, that may ultimately be resolved by a district court ruling on a motion to dismiss defenses based on statutory estoppel. The scope of a potential estoppel underscores the importance of a thorough investigation before filing a petition, since the mandatory disclosure of real parties in interest must be filed by the petitioner as part of the petition under proposed Rule 42.8(a)(1).

The USPTO’s consideration of “standing” to file a petition for post grant review thus concerns the statutory time limits for filing, and the estoppel bar against relitigating issues that were raised, or could reasonably have been raised by the petitioner in an earlier post-grant proceeding. Neither the proposed rules nor the USPTO commentary indicates that the Office contemplates any other restriction on the ability of any person to petition for inter partes review or post-grant review.

Under the post-grant statutes and the USPTO’s proposed rules, standing to maintain an opposition does not require that a petitioner establish that a patent dispute is definite and concrete, or that touches the interests of parties having specific existing adverse legal interests. This conclusion rests on the fundamental assumption that the courts will not engraft a nonstatutory requirement of adverse potential commercial interest as a requirement for pursuing a post-grant opposition or appeal. As the D.C. Circuit has explained, federal agencies are not Article III courts, and are not bound to follow the law of standing derived from the “case or controversy” requirement. Judicially-devised prudential standing requirements are also inapplicable to an administrative agency acting within the jurisdiction Congress assigned to it, and the post-grant opposition statutes are broadly drafted to permit any person to seek invalidation of a patent in the USPTO.

Comments on Proposed Inter Partes Rules
April 10, 2012
Kenneth Burchfiel
McLean, Virginia

I offer the following personal comments on the proposed inter partes rules, including inter partes review, post-grant review and derivation proceedings, responsive to the requests for comments, 77 Fed. Reg. 7041, 7060, 7028 (Feb. 10, 2012).

Because the proposed rules are based largely on interference practice, experience in interferences provides a reasonable basis for considering whether the proposed rules will be practical or effective, in view of the short time periods and burdens imposed on the parties and the Board. In general, the proposed rules provide a comprehensive, reasonable, and effective adaptation of the existing inter partes rules to the new proceedings, which must accommodate an extensive motions practice in a very brief time period.

These comments represent only my own opinions on the proposed rules, and are not those of my firm, its clients, or any other person. My observations do not necessarily reflect my views as to the appropriate interpretation of the proposed rules, or their application if they are finally adopted.

Derivation

The amended statute in § 135(a) requires that a petition for a derivation proceeding “shall set forth with particularity the basis for finding that an inventor named in an earlier application derived the claimed invention from an inventor named in the petitioner’s application and, without authorization, the earlier application claiming such invention was filed.”
Under the proposed rules, “standing” requires the petitioner to present a claim to “the same or substantially the same invention” as the first applicant’s claim. Rule 42.405(a)(2)(i). The rules and commentary do not clarify whether the current “two-way” test for interfering subject matter will be applied in derivations, where the derived subject matter disclosed and the subject matter claimed by the first applicant differ, as with genus and species claims.

Proposed Rule 42.405(a)(2)(ii) further requires that a petition must present a claim that is “not patentably distinct” from the invention disclosed to the respondent. In interference practice, a claim is not “patentably distinct” if it is either anticipated by or obvious over another claim. A claim to a genus cannot be “patentably distinct” from a claim to a species that anticipates the genus, but a claim to a species or subcombination may be patentably distinct from a broader claim.

Issues of patentable distinctness arise in interferences, in identifying claims that do not directly interfere (because they do not define “substantially the same invention”) but that are nonetheless designated as corresponding to the interference count because they are anticipated by or obvious over the count. The judgment in an interference typically involves all claims in the involved applications that are not patentably distinct from the count, not just the claims that directly interfere.

The proposed rules and commentary do not discuss the important issue of how such claims will be treated in derivations. If the earlier-filed patent or application contains claims limited to specifically derived inventions, the issue is clear. However, it will often be necessary to determine the status of other claims that are not patentably distinct from the derived claims, reciting additional subject matter that was not conceived or communicated to the deriving party by the original inventor.
Derivation ordinarily requires a complete conception of subject matter claimed by an opponent, and the proposed rules do not consider the status of claims that are not solely the invention of the original inventor, but are instead the joint inventions of the two parties. The statute in amended § 135(b) grants the Board express authority to “correct the naming of the inventor in any application or patent at issue.”

The proposed rules do not indicate how the USPTO plans to exercise this authority “in appropriate circumstances” or how non-patentably distinct claims to joint inventions will be treated in derivations. This issue will be complicated, because the proposed rules indicate that derivations will be conducted in a single phase without a “count.” To the extent that derivations involve a number of claims of differing scope, some definition of the claims that define the same or substantially the same invention will be essential, to define the scope of the petitioner’s proofs of conception and communication. The final rules should clarify the standards for determining claims that will be involved in a derivation, and how the Board will address issues of inventorship in derivations.

A derivation may be either a pre-grant proceeding between two applications, or a post-grant proceeding involving a patent and the petitioner’s application. The statute is seriously flawed in defining the event that will trigger the one-year statutory bar for filing a derivation petition, as follows:

“Any such petition may be filed only within the 1-year period beginning on the date of the first publication of a claim to an invention that is the same or substantially the same as the earlier application’s claim to the invention….”

Under a literal reading of the statute, the “first publication” of a claim by the original inventor would bar a derivation proceeding involving an earlier-filed application, in which the derived claim is presented more than a year after the original inventor’s first publication trigger, as the USPTO commentary recognizes.

Proposed Rule 42.403 paraphrases the statutory language, but the commentary explains that the Office considers that the statutory trigger arises only from publication of the first claim filed by the earlier applicant. If the Office will follow this principle, it would be helpful to expressly state this in the final rule. The proposed rule is not clear on this point.

Interferences

The Act is unequivocal with respect to patents containing a reference to any patent application filed before March 16, 2013. Under § 3(n)(2) the interference provisions, including 35 U.S.C. §§ 102(g) and 135, will simply remain in force for a number of years. The USPTO has no authority to modify or disregard the existing statutes, which guarantee a patent to the person who is first to invent claimed subject matter, subject to § 135(b) and Federal Circuit precedent.

The USPTO comments on the proposed Trial Rules acknowledge this fact, but appear to limit the statutory extension to interferences in which the Act also provides “judicial review” of the Board’s interference decisions. Proposed Trial Rules, 77 Fed. Reg. 6891.

The USPTO has no authority to decline to conduct interferences, on the basis that Congress has not provided judicial review to correct the Board’s errors under existing 35 U.S.C. §§ 141 and 146. It is difficult to imagine a clearer abuse of the USPTO’s discretion in conducting interferences, and other judicial remedies are provided outside the patent statutes. The USPTO has no statutory competence concerning judicial review of its decisions, and is required by statute to continue to apply 35 U.S.C. §§ 102(g) and 135 to any application containing the reference to a pre-Act application.

“Routine” Discovery – Noncumulative Inconsistent Information

The requirement that a party to a proceeding must provide “routine discovery” that includes the disclosure of “noncumulative information that is inconsistent with a position advanced by the patent owner” as part of a petition, patent owner response to petition, or patent owner response is likely to impose significant burdens on the parties and the Board, without achieving the purposes described in the proposed rules. In particular, the requirement under proposed Rule 42.51(b)(3) that the party submitting the information must specify the relevance of the information, including where the information is presented in a document and, where applicable, how the information is pertinent to the claims, is not practicable.

The standard of “inconsistency” is not defined, and is so amorphous as to preclude definition. As the proposed rules acknowledge, without further explanation, this requirement “may differ from the proposed changes to § 1.56.” 77 Fed. Reg. 6887. Few patent owners will conclude that prior statements or other information are “inconsistent” with arguments made in a post-grant proceeding, while many opponents may well discover dramatically inconsistent information in the possession, or presumed possession, of the patent owner.

The result of this indefinite requirement for routine discovery will be the proliferation of motions for sanctions for the failure of a party to make affirmative disclosures, since the commentary specifically points to the availability of sanctions for failure to make the required disclosure. 77 Fed. Reg. 6884.

If a party does admit that it is aware of information that is “inconsistent”’ with a position it advocates, the result plainly will not be to avoid discovery, as the proposed Rules contemplate. 77 Fed. Reg. 6887. The result will be immediate motions for additional discovery, to determine how the disclosing party discovered the information and concluded that it was “inconsistent” with a position which it advances. It is almost inconceivable that the proposed requirement will avoid motions for additional discovery, and very likely that it will precipitate disputes not only over additional discovery, but also time-consuming motions concerning protective orders, attorney-client privilege and work product, as the commentary seems to recognize. 77 Fed. Reg. 6887.

It would be preferable to adopt a more liberal standard for routine additional discovery if a party can identify a need for inconsistent information uniquely in the possession of an opponent, than to impose an affirmative disclosure requirement that will inevitably lead to additional discovery, complicating and delaying post-grant proceedings, including disputes over privilege that cannot finally be determined by the Office.

Patent Owner’s Amendment

The proposed rules should clarify the procedure that will be followed with respect to a patent owner’s amendments to the patent. In inter partes review, proposed Rule 42.121(c) refers to “a motion to amend the claims of a patent” whereas 35 U.S.C. § 316(d) does not permit a patent owner to amend the existing claims of a patent, but only to amend the patent by either canceling a challenged patent claim, or proposing a reasonable number of substitute claims.

The term “substitute” does not encompass “amending” an existing claim, or “adding” an additional claim while maintaining an original claim.

The proposed rule should clearly state the scope of amendments to the patent that may be proposed in post-grant proceedings, including whether the patent owner will be required to cancel original claims in order to propose “substitutes” for the challenged original claims. The USPTO’s position on this important issue should be clarified, beyond the statement that “Amendments should clearly state “original,” “cancelled,” “replaced by proposed substitute,” or “proposed substitute for original claim X.” 77 Fed. Reg. 6874.

Settlement

Proposed Rule 42.74(a) concerning settlement conflicts with the statute. Entry of a settlement agreement is required if the parties comply with the requirement to file the agreement in writing, without further conditions or consideration by the Office.

35 U.S.C. § 317 is mandatory, and expressly requires that “An inter partes review instituted under this chapter shall be terminated with respect to any petitioner upon the joint request of the petitioner and the patent owner, unless the Office has decided the merits of the proceeding before the request for termination is filed.”

In the absence of a final decision on the merits of a post-grant proceeding, the Board has no statutory authority to disapprove of a settlement, or to “independently determine any question of jurisdiction, patentability, or Office practice” as suggested in proposed Rule 42.74(a). The Board’s role is limited by statute to terminating the proceeding upon filing of a settlement agreement.

Page Limits

In interferences, although preliminary motions have been limited to 25 pages in length, until recently parties have been permitted to file findings of fact without page limitation, as well as appendices containing extensive claim charts on any issues requiring discussion of claims, including disclosure of claim limitations in prior art, and support for claims throughout a chain of benefit applications.

The proposed page limitations, which provide 50 pages for an inter partes review petition and 70 pages for a post-grant review petition, may be sufficient to present a party’s proposed findings of fact and legal arguments. This page limitation is clearly insufficient to permit a party to file extensive claim charts as part of its motion or opposition.

The requirement that a party demonstrate support for each limitation of a proposed claim, through the entire chain of benefit applications, has resulted in extensive claim charts, because benefit for a claim limitation may appear expressly, or in separate passages of the summary of the invention, the detailed description, one or more examples, and original claims. The requirement that support for each limitation must also be shown in each prior application has multiplied this effort.

The often redundant and extensive claim charts provided as appendices to interference motions have been required by the interference rules, and are optional in post-grant review under the proposed rules. Practice Guide, 77 Fed. Reg. 6873. If the Board considers that claim charts are helpful in evaluating the issues presented in motions, the rules and scheduling orders should authorize the filing of claim charts as appendices, not subject to petition, opposition, or motion page limits.

Extensive claim charts have been particularly helpful in interference motions, where the disclosure supporting chemical or biotech limitations in generic claims is found in various sections of the detailed description of particular embodiments, in a number of examples, and in the claims and disclosure of earlier applications.

Protective Orders

Whatever the extent of protective orders may eventually be in post-grant proceedings, the rules should expressly state that a protective order issued by an APJ will not have any effect on the parties’ use of the disclosed information in concurrent or future district court proceedings. No one should be permitted to submit information to the Office, and then prevent an opponent from relying on that information in district court.

A protective order should terminate with the proceeding, subject to any motion to expunge information provided under the administrative protective order.

Service of Petition

In inter partes review, proposed Rule 42.106 provides that a petition will not be accorded a filing date until “service of the petition on the correspondence address of record” as provided in § 42.105(a). However, proposed Rule 42.105(b) further provides that “If the petitioner cannot effect service of the petition and supporting evidence on the patent owner at the correspondence address of record for the subject patent, the petitioner must immediately contact the Board to discuss alternate modes of service.”

The proposed rule should be modified to clarify that in order to be accorded a filing date, the petitioner only needs to provide service by mailing the petition and evidence to the patent owner of record, at the last correspondence address of record, or by mailing the petition and evidence to the last designated representative of the patent owner of record, as provided by 35 U.S.C. § 312(a)(5).

Contrary to the expectation of the Office, in many cases a petitioner will not have discussions with a patent owner prior to filing a petition. Particularly if the patent was issued years ago, the petitioner will not necessarily be able to determine the actual identity of the owner or owners of a patent at the time a petition is filed, apart from information in Office records, for example, when a patent is owned by joint inventors, by subsidiaries, parents, holding companies, or other affiliates of original assignees. This is not a trivial or hypothetical issue. The inability to determine the actual patent owner or owners has been significant under statutes requiring service on patent owners before commencement of proceedings, for example, under the Hatch-Waxman Act.
No proof of service on a current patent owner who is not of record should be required by the rules.

The rule should provide that service on the last designated representative of the patent owner of record is also sufficient. If the US Postal Service or a courier service is not able to deliver the petition and evidence to the assignee at the last correspondence address of record, or to counsel of record, then the petitioner should be required to notify the Board. The inability to serve the documents on the current owner who is not of record, however, should not deprive the petitioner of a filing date for the petition.

Pro hac vice Representation

The time limits for conducting post-grant proceedings are extremely tight, and the proceedings will be governed by extensive rules, a scheduling order, and possibly a detailed standing order. Post-grant procedure will be similar to existing interference procedure under the standing order, which has been complex and requires detailed knowledge both of published rules and extensive Board precedent on procedural issues.

In general, I agree with the Office’s assessment of the high level of skill necessary to conduct an inter partes trial:

The skills necessary to prepare a petition for review and to participate in a trial before the Patent Trial and Appeal Board would be similar to those needed to prepare a request for inter partes reexamination, to represent a party in an inter partes reexamination, and to represent a party in an interference proceeding before the Patent Trial and Appeal Board. This level of skill is typically possessed by a registered patent practitioner having devoted professional time to the particular practice area, typically under the supervision of a practitioner skilled in the particular practice area.

77 Fed. Reg. 7050.

It seems unlikely that counsel who are not registered to practice will possess the minimum professional experience necessary to competently represent a party in an inter partes proceeding before the Board, as summarized above.

To the extent that atypical counsel who are not registered to practice have the minimum professional professional experience required to competently represent a party, such counsel should expressly agree as a condition of admission pro hac vice to be bound by 37 C.F.R. part 10, including USPTO disciplinary standards and proceedings. Counsel who propose to be admitted pro hac vice should also be required to certify that they have read and are familiar with the relevant statutes, rules of practice, standing order and inter partes rules, and that they are personally able to represent a client competently in the proceeding under Rule 10.76.

To the extent that parties are represented by counsel who are not registered to practice, their failure to comply with the rules should not result in unnecessary delay or an unnecessary increase of the cost of a proceeding to an opponent, including the costs of motions for sanctions which would be unnecessary if the rules were followed.

Post-grant patent oppositions under the America Invents Act will provide subsequent ¶ IV filers with a potent administrative challenge to parked exclusivity, that is more effective and far less expensive than HWA litigation. In an environment of multiple ¶ IV challenges to Orange Book listed patents, widespread use of the new USPTO post-grant proceedings could reduce or eliminate parked exclusivity, by providing subsequent ¶ IV filers with an efficient procedure to trigger a blocking 180-day exclusivity period.

If a first ¶ IV filer successfully maintains its challenge to an Orange Book listed patent, and qualifies for 180-day exclusivity, the FDA will not approve ANDAs submitted by subsequent ¶ IV filers until expiration of the exclusivity period, or the occurrence of a forfeiture event. A first filer’s exclusivity will be forfeited if it does not enter the market within 75 days of a “forfeiture event,” which is generally the later of (1) final FDA approval (an “aa” event) or (2) a final, nonappealable decision in an HWA action holding the patent invalid or not infringed (a “bb” event). The FDA has interpreted the forfeiture provisions to require both an “aa” event and a “bb” event before forfeiture occurs. Consequently, the failure to market a generic drug promptly after FDA approval will not result in forfeiture unless there is also a final judicial decision holding the patent claims invalid or not infringed.

If the first ¶ IV filer and innovator settle the HWA infringement action without a judgment of invalidity or noninfringement, a “bb” event does not occur, and the first ¶ IV filer may “park” its exclusivity indefinitely, barring entry of subsequent ¶ IV filers until expiration of the listed patents.

The subsequent ¶ IV filer can trigger the exclusivity of a first filer, by obtaining a final, nonappealable judgment of invalidity or noninfringement in an action involving the subsequent filer. However, there is limited incentive for the subsequent filer to pursue district court litigation for years, with the possible benefit of triggering exclusivity and the certainty of competition from the first and other ¶ IV filers, the innovator, and authorized generics if the patent is found invalid.

This bleak economic balance should be shifted by USPTO post-grant oppositions, which offer subsequent ¶ IV filers a rapid and relatively inexpensive route to establish a “bb” forfeiture event, forcing first filers into the market without the ability to park exclusivity. A final USPTO decision is ordinarily required within one year of commencement of inter-partes or post-grant review, and a Federal Circuit decision should follow within about a year if an appeal is filed. If the USPTO finds that challenged claims are not patentable, and the decision is affirmed on appeal, the claims will be canceled from the patent, and any infringement action will be mooted.

The invalidation of patent claims in the USPTO or the Federal Circuit in a post-grant proceeding is not a forfeiture event under § 355(j)(5)(D)(i)(I)(bb)(AA), which requires a final decision in an infringement action or declaratory judgment action under the HWA. It seems inconceivable that a district court would not enter a final, triggering judgment in an HWA action involving the subsequent filer, if all asserted claims are canceled from the patent by the USPTO as invalid.

Particularly if the HWA action against the subsequent filer is stayed while the parallel administrative challenge proceeds in the USPTO and Federal Circuit, a post-grant opposition could provide an effective wedge to break the logjam of parked exclusivity. A subsequent filer who is barred from the market by parked exclusivity may not be concerned with estoppel resulting from a final decision in the USPTO proceeding.

By successfully pursuing a USPTO post-grant challenge, a subsequent ¶ IV filer could conceivably share parked exclusivity, rather than merely trigger it. A key advantage of inter partes review and post-grant review is the ability of the petitioner and the patent owner to settle the administrative action at any time before a final USPTO decision. Rather than lose the enormous economic advantages of parked exclusivity, a branded manufacturer might elect to settle the post-grant opposition with the subsequent filer during the one-year period prior to final agency action.

The ability to settle is the power to leverage, and may be one of the most important reasons to consider a USPTO post-grant proceeding in the context of HWA litigation.

Issues of derivation arise in interferences when unauthorized applications are filed by joint venture partners, independent contractors, former employees, independent laboratories, or others with confidential knowledge of trade secrets or research that can be patented. The purpose of a derivation proceeding is to determine the “true” inventor rather than the “first” inventor of claimed subject matter and “to ensure that the first person to file the application is actually a true inventor.”

Derivation is an issue that has long been contested in interferences, and requires corroborated proof of an earlier conception of a claimed invention, and disclosure of the invention to another person who files a patent application claiming the disclosed subject matter. Derivation is an important principle in the traditional first-to-invent system that is preserved under amended § 135 of the America Invents Act, and the proposed rules do not suggest that the Board will deviate from substantive law established by Federal Circuit and Board precedent in derivation proceedings.

The amended statute in § 135(a) requires that a petition for a derivation proceeding “shall set forth with particularity the basis for finding that an inventor named in an earlier application derived the claimed invention from an inventor named in the petitioner’s application and, without authorization, the earlier application claiming such invention was filed.”

Under the proposed rules, “standing” requires the petitioner to present a claim to “the same or substantially the same invention” as the first applicant’s claim. Rule 42.405(a)(2)(i). The rules and commentary do not clarify whether the current “two-way” test for interfering subject matter will be applied in derivations, where the derived subject matter disclosed and the subject matter claimed by the first applicant differ, as with genus and species claims.

Proposed Rule 42.405(a)(2)(ii) further requires that a petition must present a claim that is “not patentably distinct” from the invention disclosed to the respondent. In interference practice, a claim is not “patentably distinct” if it is either anticipated by or obvious over another claim. A claim to a genus cannot be “patentably distinct” from a claim to a species that anticipates the genus, but a claim to a species or subcombination may be patentably distinct from a broader claim.

Issues of patentable distinctness arise in interferences, in identifying claims that do not directly interfere (because they do not define “substantially the same invention”) but that are nonetheless designated as corresponding to the interference count because they are anticipated by or obvious over the count. The judgment in an interference typically involves all claims in the involved applications that are not patentably distinct from the count, not just the claims that directly interfere.

The proposed rules and commentary do not discuss the important issue of how such claims will be treated in derivations. If the earlier-filed patent or application contains claims limited to specifically derived inventions, the issue is clear. However, it will often be necessary to determine the status of other claims that are not patentably distinct from the derived claims, reciting additional subject matter that was not conceived or communicated to the deriving party by the original inventor.

Derivation ordinarily requires a complete conception of subject matter claimed by an opponent, and the proposed rules do not consider the status of claims that are not solely the invention of the original inventor, but are instead the joint inventions of the two parties. The statute in amended § 135(b) grants the Board express authority to “correct the naming of the inventor in any application or patent at issue.”

The proposed rules do not indicate how the USPTO plans to exercise this authority “in appropriate circumstances” or how non-patentably distinct claims to joint inventions will be treated in derivations. This issue will be complicated, because the proposed rules indicate that derivations will be conducted in a single phase without a “count.” To the extent that derivations involve a number of claims of differing scope, some definition of the claims that define the same or substantially the same invention will be essential, to define the scope of the petitioner’s proofs of conception and communication.

Furthermore, proposed Rule 42.400(b) provides that the Board may “for good cause” authorize or direct the parties to address patentability issues that arise in the course of a derivation, and the commentary cites claim indefiniteness as an issue that might need to be resolved before derivation is addressed on the merits.

In order to provoke a derivation, proposed Rule 42.405(c) requires the petitioner to support the claim of derivation by “substantial” evidence including at least one declaration addressing communication and lack of authorization, and presumably a second declaration corroborating these facts. The USPTO commentary contemplates a procedure in which the original inventor “may copy an alleged deriver’s application, make any necessary changes to reflect accurately what the inventor invented, and provoke a derivation” by filing a petition. This procedure is also familiar in interferences based on derivation, as in Nextreme v. EnerDel (Patent Interference No. 105,770).

A derivation may be either a pre-grant proceeding between two applications, or a post-grant proceeding involving a patent and the petitioner’s application. The statute is seriously flawed in defining the event that will trigger the one-year statutory bar for filing a derivation petition, as follows:

Any such petition may be filed only within the 1-year period beginning on the date of the first publication of a claim to an invention that is the same or substantially the same as the earlier application’s claim to the invention….

Under a literal reading of the statute, the “first publication” of a claim by the original inventor would bar a derivation proceeding involving an earlier-filed application, in which the derived claim is presented more than a year after the original inventor’s first publication trigger, as the USPTO commentary recognizes.

Proposed Rule 42.403 paraphrases the statutory language, but the commentary explains that the Office considers that the statutory tirgger arises only from publication of the first claim filed by the earlier applicant. Whether this commendable interpretation limiting the unintended effect of the statute’s literal language will prevail will be resolved by the Federal Circuit or by remedial legislation.

Unlike the interference one-year bar based on the publication of a U.S. application under current § 135(b)(2), the USPTO commentary states that the statutory trigger in a derivation will be publication of a claim in the first U.S. or WIPO publication, including foreign-language publications. It will be necessary to monitor competitors’ international applications as well as U.S. published applications.

The derivation provisions will not take effect until March 16, 2013, and after that date will apply only to patents or applications containing at least one claim that has an effective filing date on or after March 16, 2013. Current § 102(g), which provides independent statutory authority for interferences based on derivation, will continue in effect after March 16, 2013, for applications and patents containing at least one claim that has an effective date prior to March 16, 2013.

This preliminary review of the proposed derivation procedure is based on the comments and rules provided in the Proposed Derivation Rules. It is intended to provide only a general overview of derivation practice, and is not a commentary on specific rules, procedures, costs or statutory requirements. The information and analysis may be incorrect or incomplete, and these comments do not necessarily represent my own views as to the correct or desirable interpretation of the statute or rules.

The Duty to Disclose “Inconsistent” Information

The proposed rules would require mandatory, affirmative disclosure of “noncumulative information that is inconsistent with a position advanced by the patent owner or petitioner during the proceeding.” 37 CFR § 42.51(b)(3). This information must be filed “as soon as practicable in a motion identifying supplemental information or as part of a petition, motion, opposition, reply, preliminary patent owner response to petition, or patent owner response to petition.”

There is little explanation of the scope of this routine “discovery” requirement, except for the comment that it “may differ from the proposed changes to § 1.56.” The requirement to disclose “inconsistent information” is derived from current Rule 56(b)(2), which defines “material” information to include noncumulative information that “refutes, or is inconsistent with, a position the applicant takes in: (i) opposing an argument of unpatentability relied on by the Office, or (ii) asserting an argument of patentability.”

This standard for materiality was rejected by the Federal Circuit in Therasense, which imposed a stricter “but for” standard for materiality of nondisclosed information in determining inequitable conduct. The USPTO has proposed to revise Rule 56(b) to conform the duty of disclosure to Therasense, by providing that information is material to patentability if “(1) The Office would not allow a claim if it were aware of the information, applying the preponderance of the evidence standard and giving the claim its broadest reasonable construction; or (2) The applicant engages in affirmative egregious misconduct before the Office as to the information.”

The difference between “inconsistency” and “materiality” is illustrated by Therasense, where the alleged material information was a prior statement in a European opposition concerning the disclosure of a reference. Under the Therasense standard, the patent owner’s statement would only be material if the USPTO would not have allowed the claims to issue “but for” the failure to disclose the information. The inconsistency of the prior statement was clear to the court, and would appear to satisfy proposed Rule 42.51(b)(3) without any further showing.

The proposed duty of disclosure is broader than the duty of disclosure under current Rule 56(b), because it requires not merely disclosure of the inconsistent information, but also an explanation of its relevance including where the information is presented in a document and how it is pertinent to the claims. Rule 42.51(b)(3). A mischaracterization of the relevance of the inconsistent information, or its pertinence to the claims, could independently constitute “material” information as an affirmative “egregious” misstatement to the USPTO during the post-grant proceeding under proposed Rule 56(b)(2).

Sanctions for Failure to Disclose Inconsistent Information

The proposed Trial Rules indicate that sanctions under Rule 41.12(b) could be imposed for misconduct including the failure to comply with an applicable rule, and state that “an example of a failure to comply with an applicable rule includes failure to disclose a prior relevant inconsistent statement.” Sanctions authorized by the proposed rule include adverse judgment of unpatentability and an award of attorney fees. In interferences, APJs have been reluctant to consider issues of inequitable conduct, but have granted judgment for intentional violation of the duty of disclosure.

There is no express requirement that sanctions for failure to comply with the proposed rule would require a showing of intent to conceal withheld information, or to deceive the Office, as required for inequitable conduct. The commentary on the proposed rules does not discuss the factors that will be considered in distinguishing the range of sanctions provided by proposed Rule 41.12(b), but the discretion of the Board should be limited by equitable considerations applied to sanctions in district court.

Practical Effect of the Proposed Disclosure Requirement

The burden of complying with the duty to disclose inconsistent information will generally fall more heavily on the patent owner, who may possess information such as prior art, arguments, declarations or amendments in related applications, inventors’ publications, or statements or evidence submitted in corresponding foreign applications that could be characterized as inconsistent with an argument in support of patentability. The petitioner’s risk is probably more limited, for example, to issues of estoppel and its characterization of the real party in interest.

The standard of “inconsistency” is not defined, and is so amorphous as to preclude definition. Few patent owners will conclude that prior statements or other information are “inconsistent” with arguments made in a post-grant proceeding, while many opponents may well discover dramatically inconsistent information in the possession, or presumed possession, of the patent owner.

If a party does admit that it is aware of information that is “inconsistent”’ with a position it advocates, the result plainly will not be to avoid discovery, as the proposed Rules contemplate. The result will be immediate motions for additional discovery, to determine how the disclosing party discovered the information and concluded that it was “inconsistent” with a position which it advances. It is almost inconceivable that the proposed requirement will avoid motions for additional discovery, and very likely that it will precipitate disputes not only over additional discovery, but also time-consuming motions concerning protective orders, attorney-client privilege and work product, as the USPTO commentary seems to recognize.

If a post-grant opposition is instituted during district court litigation, the patent owner might be required by the proposed rule to disclose any “inconsistent” information identified by the petitioner-defendant. Whether or not the patent owner’s disclosure is considered to be a binding admission of “inconsistency,” the required explanation of its relevance, including where the information is presented in a document and how it is pertinent to the claims, could provide a harvest of admissions against interest. If the Board agrees with the petitioner that the “inconsistent” information requires cancelation of a challenged claim, “but for” materiality might be established during the course of the opposition. The proposed disclosure rule would provide an additional parallel path of attack for defendants in district court litigation.

This preliminary review of the post-grant opposition procedures is based on the comments and rules provided in the Practice Guide, Proposed Trial Rules, and proposed Inter partes Rules. It is intended to provide only a general overview of issues affecting the parties’ respective burdens during the preliminary and trial phases, and is not a commentary on specific rules, procedures, costs or statutory requirements. The information and analysis may be incorrect or incomplete, and these comments do not necessarily represent my own views as to the correct or desirable interpretation of the statute or rules.

A central issue concerning the new opposition proceedings is whether the patent owner’s preliminary response to a petition will be effective in avoiding institution of inter partes review or post-grant review. The procedures proposed by the USPTO will limit the effectiveness of a preliminary response, as shown by the USPTO’s own estimates based on existing inter partes reexamination statistics, described in the proposed inter partes rules. Inter partes reexamination prior to the Act required only a showing of a substantial new question of patentability, whereas the standard for instituting inter-partes review is whether there is a reasonable likelihood that at least one claim is unpatentable. Despite the higher threshold imposed by the Act, the USPTO projects that 90% of petitions for inter partes review will be granted, as compared with 93% of petitions for inter partes reexamination under the prior standard.

A number of factors support this conclusion, the most important of which are severe limitations on the evidence that can be presented by the patent owner prior to the initial decision on the petition by the USPTO and the short period provided for the patent owner to prepare its initial response in the preliminary phase of inter partes review.

PRELIMINARY PROCEEDINGS

“Preliminary proceedings” in inter partes review begin with the filing of a petition, followed in 2 months by the patent owner’s initial response, and end with a decision on the petition 3 months later, when the administrative “trial” begins. This compressed schedule provides the patent owner with 2 months to prepare not only its initial arguments against unpatentability, but also to provide mandatory notices and discovery that it may be required to provide to the petitioner.

The patent owner will need to retain counsel immediately after service of the petition, to comply with the mandatory notice and disclosure requirements. In the view of the USPTO, the skills necessary to prepare a petition for review and to participate in a post-grant trial would be similar to those needed to prepare a request for inter-partes reexamination, and to represent a party in an interference proceeding. The proposed post-grant procedures are closely based on existing interferences, which are the “contested cases” referred to in the USPTO’s comments. Interference proceedings impose exacting standards of compliance with rules, Board precedent, the scheduling order and standing order, under an abbreviated schedule with nonextendable deadlines, and involve an elaborate motions practice requiring prior approval by the APJ of every substantive action taken by the parties. In the 2 months following service of a petition, there will be little time to learn inter partes procedure. Interference experience will be valuable if not essential in conducting opposition proceedings.

The Petitioner’s Advantage

A challenger has the opportunity to prepare a petition over an extended period, and to support prior art references with expert declarations and other evidence including fact declarations and experiments. Petitions for inter partes review may present detailed legal arguments concerning the disclosure of an unlimited number of prior art references, including:

• a detailed, claim-by-claim analysis of anticipation and obviousness based on different combinations of references;
• testimony concerning inherent disclosure and its meaning to a person skilled in the art;
• claim construction supported by legal and factual analysis of the prosecution history, extrinsic evidence including the patent owner’s prior statements;
• the patent’s lack of benefit of prior U.S. or foreign applications, based on written description, nonenablement, or lack of utility, supported by expert testimony and laboratory test evidence;
• argument and testimony concerning the effective dates of prior art references; and
• possibly a preemptive attack on secondary indicia of nonobviousness supported by fact or expert witness declarations.

The petition is required to include all arguments and evidence necessary to carry the petitioner’s burden of showing that there is a reasonable likelihood that at least one challenged claim is unpatentable. In practice, this showing is likely to require a prima facie showing that at least one claim is unpatentable, under the ultimate preponderance of the evidence standard, in the absence of rebuttal by the patent owner, under Rule 42.108(c).

Petitioners will be encouraged to assert all potential bases for invalidity, because of the estoppel consequences of inter-partes review, and the necessity of preserving issues for appeal in the event of an adverse decision by the Board.

The Patent Owner’s Initial Response

Under proposed Rule 42.107, the patent owner’s preliminary response will be so limited as to preclude effective preliminary rebuttal of a strong prima facie case of invalidity based on evidence including expert declarations.

The patent owner’s preliminary response to the petition will be due 2 months after the petition is accorded a filing date, and the proposed rules make it clear that the patent owner will not be permitted to present any testimonial evidence, including the declarations of expert or fact witnesses, in support of the response. Under proposed Rule 42.107(c), the patent owner may not present “new testimony evidence” beyond that of record, and its initial response is limited to “evidence other than testimonial evidence to demonstrate that no review should be instituted.” In many cases the petitioner’s expert evidence cannot be rebutted or effectively challenged, without opposing expert testimony or cross-examination prior to a decision on the petition.

The prohibition against declaration evidence is severe, because under Rule 41.61(c) the patent owner will not be able to rely on data or other technical evidence in the patent specification, without first submitting an additional affidavit of an individual having first-hand knowledge of how the data was generated (i.e., the individual who performed an experiment reported as an example in the specification). Proposed Rule 42.65 requires an affidavit describing any technical test or data from such a test on which a party relies, in order to provide the opponent with the opportunity to cross-examine the declarant, even when the data was earlier presented in a declaration filed during patent prosecution. In the absence of declaration rebuttal evidence, it will often be difficult to respond to a prima facie case of obviousness or anticipation supported by the petitioner’s expert declarations. According to the Practice Guide, cross-examination of the petitioner’s experts will be afforded only after inter partes reexamination is commenced.

The petitioner will thus have a significant evidentiary advantage prior to the decision whether to institute inter partes review. It would be difficult to alter the proposed rules to provide both parties with the opportunity to present expert and fact declarations, and to conduct discovery that could be submitted and considered by the Board in deciding whether to institute a proceeding, within 3 months of the patent owner’s preliminary response.

The Practice Guide envisions preliminary responses as being limited in scope, describing potential responses as including the following grounds:

• The petitioner is statutorily barred from pursuing a review.
• The references asserted to establish that the claims are unpatentable are not in fact prior art.
• The prior art lacks a material limitation in all of the independent claims.
• The prior art teaches or suggests away from a combination that the petitioner is advocating.
• The petitioner’s claim interpretation for the challenged claims is unreasonable.

Apart from issues of standing and claim construction, these rebuttal arguments, along with any secondary indicia of nonobviousness, will often require declaration evidence. A narrowing claim construction is generally precluded by Rule 42.100(b), requiring that a claim shall be given its broadest reasonable construction in light of the specification in inter partes review.

The short period provided for the initial response, and limitations on rebuttal evidence, support the USPTO’s estimate that most well-prepared petitions will be granted.

Mandatory Notices and Discovery from the Patent Owner

There will not be much idle time for the patent owner in the 2 months after a petition is served, after retaining counsel familiar with inter-partes proceedings, analyzing issues of patentability and benefit, including any expert testimony submitted by the petitioner, considering claim construction questions and their effect on existing or potential district court litigation, and preparing the preliminary response, unless it is waived to “expedite the proceeding.”

The proposed rules generally follow interference procedure in requiring early notification of lead and backup counsel, the real party in interest, and related judicial and administrative proceedings that would afffect or be affected by a decision.

In inter partes proceedings in the USPTO, the term “discovery” is used to describe information that must routinely be provided by a party, including exhibits and cross-examination of declarants at the expense of the party relying on the evidence.

“Routine discovery” under proposed Rule 42.51(b) includes the requirement that a party affirmatively disclose “noncumulative information that is inconsistent with a position advanced by the patent owner or petitioner during the proceeding.” This information must be filed “as soon as practicable in a motion identifying supplemental information or as part of a petition, motion, opposition, reply, preliminary patent owner response to petition, or patent owner response to petition.” The party disclosing such inconsistent information “must specify the relevance of the information, including where the information is presented in a document and, where applicable, how the information is pertinent to the claims.”

In the preliminary proceeding phase, the burden of complying with the duty to disclose inconsistent information will generally fall more heavily on the patent owner, who may possess information such as prior art, arguments, declarations or amendments in related applications, inventors’ publications, or statements or evidence submitted in corresponding foreign applications that could be characterized as inconsistent with an argument in support of patentability. The burden of complying with the mandatory disclosure rules, prior to filing a preliminary response to the petition, may be significant, particularly in view of the amorphous scope of the requirement to disclose information that is merely “inconsistent” rather than “material” under Rule 56.

The patent owner will also have to consider carefully the consequences outside the context of inter partes review of identifying information that is “inconsistent” with patentability, because any statement relating to such information is likely to invite scrutiny in district court discovery, if the patent is litigated.

The requirement to disclose “inconsistent” information raises serious issues, since the failure to provide the required disclosure may result in sanctions including attorney fees and judgment in the proceeding. The proposed Rules of Practice indicate that sanctions under Rule 41.12(a) could be imposed for misconduct including the failure to comply with an applicable rule, and state that “an example of a failure to comply with an applicable rule includes failure to disclose a prior relevant inconsistent statement.”

Additional Discovery

The patent owner may theoretically seek “additional discovery” during the initial 2-month period, with the USPTO’s suggestion that the petitioner’s standing could be a suitable issue. “Additional discovery” requires prior authorization by the Board, based on a showing that it is in the “interests of justice” and in interferences generally requires a motion, opposition, and reply to establish the necessity for extraordinary relief. As the USPTO observes, it is expected to be rarely granted, which has been the Board’s practice in interferences.

Petitioner’s Reply and Supplemental Information

After the patent owner’s initial response to the petition, the petitioner will be permitted to file a reply prior to consideration of the petition. Although the petitioner can move to submit supplemental information relevant to a ground for which the trial has been instituted, this supplemental evidence must be submitted within one month after the date the trial is instituted.

THE TRIAL

The patent owner’s first opportunity to cross-examine the petitioner’s witnesses and to present its own testimonial evidence will be after the petition is granted and inter partes review commences. The statute requires the presentation, through affidavits or declarations, of any additional factual evidence and expert opinions on which the patent owner relies in support of the response.

If post-grant review is instituted, the patent owner will have 2 months (the default time of Rule 42.120(b)) or 4 months (according to the Practice Guide Scheduling Order) to prepare its response, and a single amendment to substitute one claim for each original claim that is challenged. The response will be the patent owner’s first and possibly its last opportunity to present testimonial evidence to rebut the petitioner’s initial showing.

The patent owner normally will thus have 9 months to prepare its response after service of the petition, but it will not be able to cross-examine the petitioner’s expert and fact witnesses until after the petition is granted, according to the Practice Guide. The limitation on discovery could be an important factor in preparing the patent owner’s responses, including rebuttal testimony of its own expert witnesses. The proposed rules limit the periods for “sequenced” discovery, including the requirement that cross-examination commence after “supplemental” evidence is filed.

Motions Lists

The proposed rules also contemplate an initial scheduling conference, and an exchange of the parties’ proposed motions lists, within a month of the decision initiating inter partes review. The initial exchange of motions lists, termed “notices of basis for relief,” has been a central event in interferences. Interference parties have been required to describe each proposed motion and each unpatentabilty contention in sufficient detail to permit the APJ to decide whether to authorize the filing of the motion. It has been notoriously difficult to amend the initial motions list to seek additional relief, in the absence of extraordinary circumstances.

Because the initial identification of a party’s motions in its notice of basis for relief cannot later be expanded or corrected unless the correction would satisfy the stringent “interests of justice” standard, a party’s last opportunity to present its opposition strategy and defenses is likely to be in its notice of basis for relief under Rule 42.21. A party will be limited to filing motions consistent with its notice, and if the notice fails to state a sufficient basis for relief, the relief requested may be denied under Rule 42.21(c). The Practice Guide states that the Board expects to initiate a conference call within about one month from the date of institution of the trial to discuss the scheduling order and any motions that the parties anticipate filing during the trial, based on an accurate motions list filed before the conference.

For this reason, it will be essential in inter partes review for the parties to have fully-developed strategies prior to exchange of the initial motions lists, well prior to the patent owner’s response. A patent owner should be prepared no later than one month after the initiation of inter partes review, to describe its proposed response to the petition, including any proposed amendment of the patent, any additional discovery that it may seek from the petitioner, and any other motion for relief, including consolidation or severance of other USPTO proceedings, motions to file supplemental information, motions for judgment based on supplemental information, motions for observations on cross-examination, motions to dismiss for lack of standing, motions for protective orders, motions to seal, motions to expunge, motions to disclose “inconsistent information,” and motions for judgment for violation of the duty of disclosure.

The Patent Owner’s Single Motion to Amend the Patent

Proposed Rule 42.121 states that the patent owner may file one motion to amend a patent, but only after conferring with the Board. The commentary explains that this does not grant the right to have any proposed amendment entered. A motion to substitute claims may be contested by the petitioner, and may be granted in whole or in part, or denied, in the discretion of the APJ as an “interlocutory” decision subject to review by the Board under an abuse of discretion standard. The statute provides that the patent owner may move to amend the patent by (1) canceling any challenged claim or (2) for each challenged claim, proposing a reasonable number of substitute claims. The Practice Guide makes it clear that the USPTO considers that a “reasonable number” of substitute claims will ordinarily be one claim for each challenged claim. The statute does not refer to amendment or addition of claims, and it is unclear whether the Board will require a patent owner to cancel, or offer to cancel, an original patent claim for each proposed “substitute” claim.

The petitioner will be entitled to “fully respond” to a patent owner’s amendment, including the opportunity to present additional evidence and expert testimony on the patentability of substitute claims.

Although the proposed rules provide for the possibility of a motion seeking leave to make a subsequent amendment, it is unclear how a second amendment can be accommodated in the limited trial schedule, because the petitioner will be entitled to a response and to cross-examine the patent owner’s witnesses in support of the patentability of the newly-amended claims.

The limited period for preparation of the patent owner’s opposition, and the effective restriction of the response to a single amendment, will be significant, particularly in inter partes review proceedings brought during litigation. The cancellation of original claims might result in intervening rights, eliminating past damages for infringement of a substituted claim.

Costs

The USPTO estimates that the average cost for preparing a petition for inter partes review will be $46,000, based on 135 hours of attorney time at $340/hour, in addition to the proposed fee starting at $27,200. Because the initial petition is required to present all of the arguments and evidence required to show that it is reasonably likely that at least one challenged claim is unpatentable, any additional costs of making a threshold showing to initiate post-grant review should be limited.

Despite the limitations on the substantive scope of the responsive evidence, the USPTO estimates that the patent owner’s costs of preparing a preliminary response to a petition will be $34,000, based on 100 hours billed at $340.

If the petition is granted, the patentee faces the prospect of losing the challenged patent claims based on the petitioner’s prima facie showing, unless it rebuts the showing with additional evidence and argument not presented in the preliminary response, which was deemed insufficient to avoid institution of inter partes review. The USPTO estimates the cost of an inter partes review to be about $193,000 to each party. If a patent is involved in more than one inter partes review, or in inter partes review and another post-grant proceeding, the additional costs to the patent owner will be substantial.

On the date inter partes review is instituted, the petitioner in theory can rely on its initial petition to carry its ultimate burden, and limit its costs during the trial, at least until it receives the patent owner’s response and evidence. In contrast, the patent owner faces the principal costs of preparing its defense, including expert and fact witness declarations explaining data in the patent and rebuttal declarations, as well as its fees for cross-examining the petitioner’s witnesses and for filing and opposing motions. If the USPTO’s estimate is correct, the patent owner’s costs of opposing the petition after initiation of inter partes review will be about $160,000.

This initial allocation of costs at the commencement of the trial effectively reverses the familiar practice in which “trolling” patentees are able to file infringement complaints, with the expectation of being able to settle for less than the costs of defending the action.

In view of the expected costs for defending the patent in administrative litigation, patentees may elect to settle post-grant oppositions rather than contest validity on an accelerated schedule, under an unfavorable preponderance of the evidence standard, which may well be satisfied if the proceeding is instituted. The parties to an inter partes review are entitled to settle the action, and to maintain the terms of the settlement in confidentiality. The costs of interferences have been a significant factor encouraging settlement, frequently involving a license to the prevailing party’s patent. Post-grant oppositions will similarly encourage licensing of challenged patents.

This preliminary review of the inter partes review procedures is based on the comments and rules provided in the Practice Guide, Proposed Trial Rules, and proposed Inter partes Rules. It is intended to provide only a general overview of issues affecting the parties’ respective burdens during the preliminary and trial phases, and is not a commentary on specific rules, procedures, costs or statutory requirements. The information and analysis may be incorrect or incomplete, and these comments do not necessarily represent my own views as to the correct or desirable interpretation of the statute or rules.