Torpedoing Patent Rights

By Judge Paul Michel
July 10, 2011

The vast number of America’s companies that need patents to prosper and grow should fear the post-grant provisions for challenging patents in H.R. 1249, the patent reform bill passed last month by the House of Representatives. In a system already plagued by delays in granting patents, they threaten to delay courts from enforcing patents once finally granted. This threat has received little attention, perhaps because advocates of the bill promise promptness that they cannot deliver.

Advocates’ promise of completion in one year rings hollow for several reasons. First, the one-year deadline does not count the year, on average, that the inevitable appeal will take. Second, the deadline is extendable to 18 months and, in any event, not enforceable. Third, the one year does not count the petition stage before the proceeding begins. That adds at least another 5 months—two months for the patent owner’s response plus three months, again unenforceable, for the patent office to decide whether the challenger’s petition warrants initiating such a proceeding. So, total elapsed time usually will be not one, but almost three years.

Moreover, three different and potentially serial challenge proceedings are possible: Ex Parte Reexamination as under current law, an entirely new Post-Grant Review (PGR), and Inter Partes Review (IPR). The latter, however, cannot begin until Post Grant Review concludes. If a patent is challenged as soon as it issues or at least within one year, and the first review (PGR) takes about three years, then a patent will still be under a cloud for three to four years after issuance.

When more than one alleged infringer is sued or threatened, the first potentially can bring a PGR and the second may later be able to instigate an IPR on a different ground of alleged invalidity. You see, while the first challenger is statutorily blocked from bringing a subsequent proceeding on any ground he could have raised in the first proceeding, others are not.

So, back-to-back challenges lasting five years or more are likely. How can such uncertainty over validity not defer investment decisions or discourage them altogether? What venture capital investors will risk their money before all such challenges are concluded? And without repeated investments most start-up companies will stall, or even die. Given that such firms are responsible for almost all new job creation and economic growth, this could have severe negative effects upon the whole society.

What would happen if your ownership of your house could be revoked six years after your purchase? And, under such a threat, who would give you a mortgage?

Supporters say frivolous challenges will be prevented by the threshold requirement to start a review. But the review threshold of a “likelihood a claim of the patent is invalid” may not work in practice to allow prompt court enforcement of plainly valid patent claims. Many patents have numerous claims that are plainly valid, but a very broad claim that may be of questionable invalidity. Thus, initiating these two reviews will often be easy. Patents often contain dozens of claims. Finding one that is likely invalid will not be difficult. And the review ties up all the other claims as well.

On top of that, ex parte reexamination remains available. Getting one started requires only “a substantial new question of patentability”. From experience, we know that low threshold is met over 90% of the time. We also know ex parte re exams are commonly started soon after an infringement suit is filed, or even anticipated.

In 2010, 780 were filed, two thirds with parallel infringement proceedings pending in district court or the International Trade Commission. In addition, they are far less expensive than inter partes proceedings and, unlike Post Grant Reviews, can be filed anytime during the 20 year life of a patent, and even filed anonymously. I expect in many infringement cases all three types of post-grant challenges will be employed, one after another.

The capacity of the patent office to adjudicate both types of post-grant reviews within the promised one-year deadline is highly questionable. The Board has less than 100 Administrative Patent Judges (APJs) and is swamped with an inventory of 24,000 appeals, six times the number of just a few years ago. Like appeals, post-grant reviews must be conducted by 3 judge panels, so the Board has less than 33 decision units.

The experience and competence of the APJs to try validity challenges as would a district judge is also suspect. In PGR, all grounds of invalidity may be tried, often presenting conflicting testimony and requiring credibility determinations with which APJs have little experience. They will also have to administer discovery and impose sanctions for abuse, tasks for which they have no prior experience whatsoever.

Of course, none of these post-grant review proceedings necessarily delays a co-pending infringement case. But from my service on the Judicial Conference of the United States and its Executive Committee from 2005-2010, I know just how overburdened our 600 district judges are. They will, I expect, grant stays routinely, freezing progress in the lawsuit. The effect will be that an issued patent cannot be enforced for many years after suit is commenced. If post-grant proceedings take 3-6 years, we know that discovery, trial and post-trial motions will take at least three more years. So in cases in which stays are granted early, which will be many, delays could total 6 to 9 years.

What such delays would do to patent values and the legion of companies that depend on patents for investment and growth is horrible to contemplate, as are the ill-effects on American prosperity and job creation.

In my opinion, the best solution is to drop Post Grant Review. It does not work well in Europe where long delays are common. And it is not needed here in view of the other methods to challenge issued patents. Three years would be saved. What would be lost? Mainly challenges based on pre-filing public use or on sale activities by the inventor, but they can better be adjudicated in court, anyway.

Moreover, the entire premise of adding PGR was that few alleged infringers used Inter Partes Reexamination. That was still true in 2000, a decade after Congress created it. Little surprise, then, that the National Academy of Science in 2004 recommended PGR. But since then, Inter Partes Reexamination requests have become the routine responses to an infringement suit or charge of infringement. In 2010 alone, 281 were filed. The need for PGR has disappeared. So should PGR.

Before patent reform legislation is finalized, this torpedo should be disarmed.

The Author

Judge Paul Michel

Judge Paul Michel became a private citizen on June 1, 2010 for the first time since he graduated from law school at the University of Virginia in 1966. Upon graduating from law school he became an Assistant District Attorney in Philadelphia, thus embarking upon the career of a public servant from 1966 to his retirement from the United States Court of Appeals for the Federal Circuit in 2010. Michel served on the Federal Circuit, which is the main patent appeals court in the United States, from 1988 to 2010, serving as Chief Judge from 2004 to 2010.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 16 Comments comments.

  1. Steve M July 10, 2011 7:43 pm

    Thank you Mr. Michel for your superb analysis and clarity of thought.

    This makes clear that the devil that we know (current system) is better–far better–than the devil that we don’t.

    For the good of America, this monstrosity gone amok must not become law.

    Please.

  2. Stan E. Delo July 11, 2011 9:35 am

    Chief Judge Michel-

    Thank you for pointing out some of the huge problems that PGR will probably create, and your decades of experience in patent law lend great credibility to the validity of your opinions and assessment of the delays it will cause. I certainly hope many of our Senators will get a chance to read this article, before they let the HR 1249 version get passed as it is now. Prior user rights and Fist to File are also very problematic for small firms and independents like myself, and your voice of reason and experience is a very welcome breath of fresh air. If this gets passed as is, they probably won’t even understand what a huge what a huge mistake they have made for 5 years or so, after it is way too late to turn the ship around. The little guys will have already drowned in challenges by then, and will be gone.

    Best regards,
    Stan E. Delo
    Port Townsend, WA
    stand@olypen.com

  3. ben ford July 11, 2011 10:46 am

    Congress needs to wake up before it’s too late and kill this monumental giveaway to the banks, large multinationals and China. Bravo Judge Michel!

  4. Bruce Burdick July 11, 2011 11:00 am

    MS, IBM, Apple, GE, etc won’t like this article. It exposes what they are up to in this PGR portion of their effort to legislatively extract themselves from the huge patent liability they face as a result of their choice to suppress and conceal their software inventions rather than file patents. They are getting hit with huge patent judgments now that others are getting patents after having independently invented the concealed and suppressed inventions. Prior user rights provisions in this abominable patent reform bill is Big Software’s primary ploy to escape liability. But whining about “bad patents” (other people’s patents) is another Big Software ploy to try to justify endless litigation possible under three different reexam procedures, including PGR. Thanks to Judge Michel for exposing their game.

    Why should we kill small inventors and small business to give Big Software a bailout from their bad legal decision to conceal their inventions? It was their deliberate choice.

    I strongly agree that this PGR torpedo needs to be disarmed before it sinks America’s creative small businesses in their infancy.

  5. Paul F. Morgan July 11, 2011 6:34 pm

    Yes, the patent reform bills will now have 5 different reexaminations, with different limitations and for different purposes. But some of the above rexamination scare scenarios are simply unrealistic in terms of real-world usage, demonstrated D.C. judges controls over granting or denying litigation stays*, With all due respect, I seriously doubt if Judge Michele has ever had to make decisions about the use of reexaminations, their considerable risks, especially estoppels,

  6. Paul F. Morgan July 11, 2011 6:55 pm

    [Sorry, hitting the tab key seems to send comments off before they have been finished.]
    Yes, PTO conclusion of all reexaminations in one year is not realistic, especially when parties delay them with petitions for time extensions, extra papers, etc. But that is conveniently ignoring the fact that getting a trial decision on patent validity one year after filing a complaint is far more unrealistic than that, and vastly more expensive.
    *Furthermore, the only proposed reexamination with any change in litigation stays is the one limited only to non-technololgical business methods, for only 8 years, and limited only to patents on which law suits have been brought or threatened [also conveniently not being mentioned].
    Also conveniently not mentioned is that the threshold test required for starting the new reexaminations is NOT the same as for old [to be continued] ex parte reexaminations.
    Etc.

  7. Paul F. Morgan July 11, 2011 7:53 pm

    P.S. If anyone is interested in a detailed factual and unbiased summary of what is actually in, and not in, the patent reform legislation on reexaminations [at this belated date to be noting that] [and having no dog in this fight] this is a prior publication of what was in the Senate Bill as passed. [The House Bill’s reexamination provisions are basically the same]:
    http://www.patentspostgrant.com/lang/en/2011/04/5948
    [and click on the blue “here” in “(paper here)’

  8. step back July 11, 2011 8:16 pm

    Paul,

    Thanks for the link and for the detailed work re the 5 hidden snakes of HR 1249.

  9. Stan E. Delo July 11, 2011 11:22 pm

    Step-

    I also appreciate someone actually Looking at what they are trying to do, before they actually enact legislation. The patent reform effort of 2011 has been very mercurial in the language that the S. 23 bill used, and the very different type of language the H.R. 1249 bill presents. The passage of the H.R. 1249 biil by a 3 to 1 margin seems to indicate to me that they don’t have a clue how much damage they might do with a bill like this, and then they delete the part where the USPTO gets to keep all the fees paid by inventors And their attorneys? I think the Senate might just decide punt because of the fee diversion disagreement, but where there is so much money involved that it is hard to predict what might happen. I sincerely hope that the Senate drops it like the very hot rock it really amounts to. Also, if the bill is enacted into law, and the President actually signs this very flawed legislation into the law of the land, the proponents of the bill will most likely face about 2 or 3 years of challenges as to the constitutionality of their proposed *law* It seems as if Post Grant Review might be stepping over the line, as well as the First Inventor to File, and PUR’s, wherein folks can submarine their technologies as trade secrets, and then surface after I have mortgaged the farm to acquire a supposedly *valid* patent from the USPTO. PUR’s directly subverts the quid pro quo that patents represent, at least in my opinion.

    So can anyone tell me how the First Inventor To File differs from the First To File gambit that has been so successful over in Europe and Asia? If you believe in any sort of real grace period with either version, you will probably be very badly mistaken. As soon as your invention is revealed it will probably become *prior art* in an International sense, which could invalidate your patent rights here in the US, and of course the rest of the world. How fun is that?

    Many thanks to Paul for being so diligent in this matter. To an earlier poster, Paul Michel was instrumental in trying to get the FedCirc courts operating in a consistent and reasonable manner as regards Intellectual property for at least 20 years as I seem to recall, and he did a stellar job of it if you only look just at what he has said here on IP Watchdog.. To suggest that he is mis-informed seems a bit ludicrous to me. –

    Stan~

  10. step back July 12, 2011 1:52 pm

    I appreciate someone [Congress] actually Looking at what they are trying to do, before they actually enact legislation.

    Stan,

    If someone drafted a bill called “Laws of Nature Reform Act of 2011”, it would probably easily pass the House by a vote of 300 Ayes versus 1 Nay and 99 Gee I’m not sure.

    Proponents for such a bill will merely have to get on the floor and argue that we have been living with old laws of nature for too long now and its time to reform them and harmonize with the shamans of some far away exotic land.

    The President will then get on TV and say I’m all for modernizing and reforming the laws of nature so that we can outwit and outcompete and out-produce everyone else in the Universe because we are the greatest thing in the Universe and no old fashion laws-of-nature thingy woz-ya-ma-call-it is going to slow us down. Yes we can. Makes no difference what it is. If we simply put our minds to it, yes we can.

  11. Jack Sutton July 12, 2011 2:49 pm

    Judge Michel:

    The biggest flaw in reexamination has always been “patents or printed publications” in Section 301. That flaw has not been addressed in the pending bills. The Solicitor General in Microsoft v. i4i convinced the Supreme Court that the PTO is capable of deciding infringement cases as well as ex parte applications because of the duty to disclose material prior art and because of reexaminations. i4i did not disclose its S4 system to the PTO, and Microsoft could not have sought reexamination because S4 was not described in any patent or printed publication. i4i was rewarded for destroying the S4 software with a judgment for 290 billion (with a :”B”).

    Jack Sutton

  12. Blind Dogma July 12, 2011 3:11 pm

    step and Stan,

    Sounds like some mighty thirsty work…