Strategic Use of Inter Partes Reexam in Patent Litigation

On July 21, 2011 the United States Patent and Trademark Office published proposed changes to rules 1.56 and 1.555 in a Federal Register Notice that would effectively adopt the ”but for” materiality standard and affirmative egregious misconduct exception announced by the Federal Circuit in Therasense v. Becton, Dickinson.

Indeed, the Therasense decision has created quite a buzz in the patent community. For years the Federal Circuit law relating to inequitable conduct was difficult to reconcile, to be polite. Inequitable conduct, which relates to a violation of the duty of candor owed to the Patent Office during patent prosecution with intent to deceive the Office, is supposed to punish those who engage in nefarious activities connected with obtaining a patent from the USPTO. The penalty for engaging in activities that constitute inequitable conduct is the rendering of the patent as a whole unenforceable, essentially a forfeiture of the entire patent irrespective of claim validity.

Unfortunately for patent owners, it had become quite easy to demonstrate that inequitable conduct had occurred. This was never the purpose of the doctrine, and really flew in the face of older Federal Circuit cases like Kingsdown. Thus, it was necessary for the Federal Circuit, sitting en banc, to clarify the law. In so doing the Federal Circuit held that the intent prong of the inequitable conduct test requires specific intent, which should seem obvious but had become horribly convoluted through a “should have known of the materiality” standard coupled with high materiality of the undisclosed information.

The Federal Circuit also held that the materiality prong of the test required “but for” causation; namely that the activity engaged in at the USPTO, which is normally withholding prior art, had to actually affect patentability. In other words, if prior art would not have created a valid rejection after consideration of any rebuttal evidence it couldn’t be material, which again should have been obvious but wasn’t thanks to the application of an “important, but not crucial to a reasonable examiner” standard in a variety of Federal Circuit decisions.

As the Patent Office moves forward with changing their rules they propose to amend both Rule 1.56 and Rule 1.555. Rule 1.56 is the far more well known rule, applicable to patent applications. It sets forth the duty of disclosure owed by inventors and those substantively involved in the preparation or prosecution of a patent application. Rule 1.555 is the reexamination duty of disclosure rule equivalent to Rule 1.56.

While the applicability of Therasense is easy to see as it applies to prosecution of a patent application, the strategic opportunities presented in reexamination are not all together apparent on the face of the ruling,  inter partes reexamination offers an excellent opportunity for provoking comments from the patentee, which might be useful in an ongoing or anticipated infringement litigation, particularly with respect to such issues as claim construction, willful infringement or materiality.

According to Steve Kunin of Oblon, Spivak, who chairs the firm’s Patent Reexamination / Reissue practice group and contributes to the firm’s Patents Post-Grant blog, “What Therasense does is provide an important reason why a third party should use inter partes reexamination, especially where they are building an inequitable conduct defense in concurrent litigation.”

Reexamination can be used effectively to establish the “but for” materiality of an undisclosed reference previously known prior to issuance of the original patent by an individual having a duty of disclosure. ” For example, reexamination is conducted on the broadest reasonable interpretation of claims applying a preponderance of the evidence standard for patentability,” Kunin explained. “Should a final rejection in ex parte reexamination or an action closing prosecution followed by a right of appeal notice in inter partes reexamination reject the original patent claims based upon a previously known, but undisclosed patent or publication after consideration of any rebuttal evidence, the USPTO would be taking the position that the original claims should not have issued over such evidence.”

“If the third party requester or patent examiner were able to force the patent owner to amend or cancel one of those original patent claims that would be highly persuasive evidence that the USPTO would not have allowed those patent claims in their original form had those patents and publications been disclosed to the USPTO,” says Kunin.

Given the benefits of reexamination, particularly inter partes reexamination where 45% of concluded inter partes reexaminations result in all claims being lost or disclaimed and 43% result in claims being amended, why aren’t more defendants and potential defendants resorting to inter partes reexamination?

“There are a variety of reasons for not electing to use inter partes reexamination for every case,” Kunin explains. “First, you have to locate very good prior art that the patent owner cannot antedate or overcome with rebuttal evidence. If the patent owner is able to get an expert declaration to submit objective indicia of non-obviousness, or is able to swear behind references that are not statutory bars, the patent owner may be successful in the reexamination in getting original patent claims confirmed. Just because inter partes reexamination is ordered and a first action rejection of all claims for which reexamination is requested results doesn’t mean that the third party requester will ultimately be able to force original claim cancelation or amendment.” USPTO statistics show that for concluded inter partes reexaminations only 12% of cases have resulted in all original claims confirmed. See Historical Inter Partes Reexamination Statistics. But, many inter partes reexaminations that are highly contested have not yet concluded, thus distorting the reliability of the USPTO statistics.

Kunin also reminds us that “there is still that fear of the 35 U.S.C. § 315(c) civil litigation estoppel provision. If the third party requester loses the IPR and gets a adverse final decision then the third party requester loses its invalidity defenses tied to the patents and printed publications raised, or which could have been raised in the IPR.”

Not withstanding, inter partes reexamination is still one heck of a bargain compared to litigation costs if you have prior art in the form of patents and printed publications to back up your claims of invalidity. ” No question,” says Kunin. “IPR costs on average about one-tenth of the price of litigation.”

According to the AIPLA Economic Survey from 2009 the average cost to prepare an inter partes reexamination request nationwide is approximately $48,000. If you go through to the next stage, which is adding in the third-party comments, the nationwide average cost goes up to $72,000. If you include all third-party comments and closing prosecution total nationwide average costs rise to $114,000. If you take inter partes reexamination all the way to the Board of Appeals and Patent Interferences the total nationwide average cost rises to $173,000, and if you appeal to the Federal Circuit the total nationwide average cost rises to $264,000. These figures are no doubt real money, but for those facing potential liability into the hundreds of millions of dollars inter partes reexamination costs are a small price to pay for the value.

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2 comments so far.

  • [Avatar for Gene Quinn]
    Gene Quinn
    July 25, 2011 11:34 am

    RL-

    Good question.

    First, the latest version of H.R. 1249 is available at: http://www.gpo.gov/fdsys/pkg/BILLS-112hr1249pcs/pdf/BILLS-112hr1249pcs.pdf

    Second, I wouldn’t say that intent to deceive is being removed from the patent laws. It is being removed in specific situations. The parts of Section 20 that will be amended relate to fixing a patent or patent application to correct inventorship, foreign filings and reissue proceedings. The reality is that the law will not likely change in application because proving deceptive intent in those situations is difficult, if not impossible.

    Third, the only change that might have some impact is the one to 35 U.S.C. 288, which currently says: “Whenever, without deceptive intention, a claim of a patent is invalid, an action may be maintained for the infringement of a claim of the patent which may be valid.” Removing deceptive intent here would mean that a claim that is valid could be enforced even if there remains a claim that is invalid as the result of some deceptive intent.

    I don’t think altering Section 288 will have any effect on Therasense. In the case Chief Judge Rader explained: “Unlike validity defenses, which are claim specific, see 35 U.S.C. § 288, inequitable conduct regarding any single claim renders the entire patent unenforceable.” This is the only time Section. 288 was mentioned in the decision, so it would seem that the Federal Circuit does not see Section 288 as relating to inequitable conduct. In fact, to the contrary, they seem to see Section 288 referring to something specifically different from inequitable conduct. If there is a change to Section 288, however, you can bet we will find out the answer to this question the first time inequitable conduct is found relative to a claim rendered invalid.

    -Gene

  • [Avatar for RL]
    RL
    July 24, 2011 09:43 pm

    Gene,

    The America Invents Act removes the language from the present law that prohibits deceptive intent. In Section 20 of the bill, there are seven places where “intent to deceive” or substantially similar phrases are stricken. As far as I know, these seven places may be the only places from which a penalty for deceptive intent is derived. If America Invents passes, what will be the impact of the removal of “intent to deceive” from our patent law, and will the Therasense decision even matter? If all references of “intent to deceive” are removed from our patent law, will there be any legal reason for a patent applicant not to deceive? Is this not another good reason to stop The America Invents Act?